China's new video game draft rules spark scrambling and debate

Employees at Papergames, a Suzhou-based video game developer, are burning the midnight oil, scrambling to adapt their upcoming title, "Love and Deepspace," to China's newly released draft video game regulations. The news arrived on the same day Papergames announced the game's global public testing, just weeks away.

One rule aims to curb the lucrative practice of daily login rewards, a feature woven into the fabric of "Love and Deepspace". "We're working tirelessly to remove it," said a Papergames employee to Yicai, a financial news outlet. "It's a top-to-bottom overhaul, impacting even publications and translations. The pressure is immense."

Stock market shockwave

Papergames isn't alone in facing the heat. Shares of video game giants like Tencent and NetEase plummeted following the draft's release, with Tencent taking a 16 percent hit and NetEase a staggering 25 percent.

"It's not necessarily the regulation itself – it's the policy risk that's too high," Steven Leung, executive director of institutional sales at broker UOB Kay Hian in China's Hong Kong, told Reuters. "People had thought this kind of risk should have been over and had started to look at fundamentals again. It hurts confidence a lot."

"The removal of these incentives is likely to reduce daily active users and in-app revenue and could eventually force publishers to fundamentally overhaul their game design and monetization strategies," Ivan Su, an analyst at Morningstar, told Reuters.

An industry executive, who declined to be identified due to the sensitivity of the issue, told Reuters that the new rules are not a new round of crackdown but in line with official efforts to promote a healthy gaming industry, adding that the market has overreacted.

Targeting the pain points

The Chinese government has been regulating the video game market for decades. Many of the rules are aimed at reducing video game addiction and overspending among minors.

The new draft builds on these existing rules, specifically targeting unhealthy reward mechanisms like daily logins, which inflate daily active user (DAU) metrics but don't necessarily reflect genuine engagement.

Many Chinese gamers have long voiced frustration over predatory monetization practices, particularly "pay-to-win" models that favor whales – high-spending players – leaving others at a disadvantage. Some games even rely solely on whale revenue, relegating most players to a free-to-play purgatory.

The draft proposes capping in-game spending per player, aiming for a fairer playing field but potentially squeezing publisher bottom lines. However, the exact cap remains undefined. Auction houses for virtual items are also on the chopping block, further restricting avenues for exorbitant in-game spending.

"The new rules won't fundamentally change those reasonable business models of video games," said Zhang Wei, deputy head of Tencent's video game branch. "The regulators are clearly supporting this industry and guiding developers to make high-quality, original games."

Many gamers welcomed the new rules. A poll launched on gamer community site NGA.cn found that over 70 percent of the 3,000 voted users want even stricter rules to be implemented. Only 7.6 percent want less strict rules, while 4.4 percent stand against the new rules.

There might be a twist

However, concerns about circumvention linger. A late-2016 ban on direct loot box sales was easily sidestepped by bundling them with cheap, borderline-useless items. A Chengdu-based developer predicts history repeating itself, with major studios finding novel ways to skirt the new rules.

The regulator remains open to public feedback, leaving room for revisions before the final implementation. "We're still evaluating the potential impact," cautiously stated Wuhu-based 37Games. "It's not set in stone, and we don't have full control."

"People from all fields can say whatever they want about the draft," an employee of industry association CGIGC told Chinese media outlet ThePaper.cn. "So we can make it more practical and refined."

Adding to the mixed signals, the same day the draft was released, 40 video games, including international titles like "Horizon Forbidden West" and "The Kings of Fighters XV," received approval. This year alone, China has greenlit 971 game titles.