China is showing signs of easing its crackdown on the gaming sector

Chinese regulators have been scrutinizing the domestic wildlife sector for the past year and a half. But new batches of gaming approvals and positive steps to improve gambling addiction in children under 18 could be positive signs that the crackdown is easing.

Xing Yun | Cost Photo | Barcroft Media | Getty Images

Beijing is showing signs its crackdown on the domestic video game sector may be easing, which could be optimistic for Chinese tech giants including Tencent and NetEase.

On Tuesday, research firm CNG, along with the China Game Industry Group Committee, affiliated with the Gambling Publications Regulatory Authority, released a report praising progress in reducing gambling addiction among people under the age of 18.

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Underage gambling has been a concern for regulators for some time. Last year, China’s National Press and Publication Administration issued rules banning children under the age of 18 from playing online games for more than 3 hours a week.

The CNG report carries weight as it was released in conjunction with a key gaming industry body with ties to the regulator. According to the report, more than 70% of underage people play games for less than 3 hours a week, and the problem of underage gambling has “taken a step toward resolution,” according to a CNBC translation.

The upbeat report could signal a more optimistic outlook for the Chinese gaming sector.

“China’s tough regulatory approach over the past year was the result of a lack of enforcement and compliance in key areas,” Daniel Ahmad, senior analyst at Niko Partners, told CNBC. “As gaming companies are now fully compliant, we are seeing a more positive outlook developing.”

The CNG report also highlights major Chinese gaming companies such as Tencent and NetEase for their positive measures to enforce youth protection.

For example, both Tencent and NetEase use facial recognition to determine if the person playing the game is an adult.

Another positive sign came last week when regulators approved a batch of 70 new games for release. In China, video games require permission to be published and monetized. Among the approvals was a game titled Metal Slug: Awakening by Tencent, which Reuters said marks the company’s first commercial game license in a year and a half.

Last summer, China froze gaming permits and only started greenlit games in April this year. But titles from Tencent, China’s largest gaming company, have so far been absent from the lists.

Tencent management told analysts on its third-quarter earnings conference call last week that the company expects gaming licenses to be approved relatively quickly going forward, adding further signs of easing regulatory scrutiny on the sector.

Tencent President Martin Lau said the company sees “positive signs on the road to macroeconomic and regulatory normalization.”

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