Tencent shares rally after China resumes approving games

Shares in Tencent Holdings Ltd. jumped 4.5 percent after Chinese media reported that regulators have resumed approving games, signaling a potential end to a hiatus that’s chilled the world’s biggest gaming industry.

Tencent and peers from South Korea to Japan spiked Friday after the official China Securities Journal reported that regulators had reviewed and passed an initial batch of online games. It cited Feng Shixin, deputy director of the Communist Party’s influential propaganda department, telling an industry forum that the government was prepping licenses for green-lit titles.

China’s gaming industry, which generates more than $30 billion of revenue, has been hammered this year after regulators froze the approval process for new games, preventing companies from making money from their hit titles. That threw Tencent into disarray, spurring its first profit drop in at least a decade and wiping about $200 billion off its market value since a January peak.

The suspension stemmed from Beijing’s campaign to combat gaming addiction and a reshuffle of regulators, casting uncertainty over Tencent’s main business. China’s largest social media and gaming company — which remains barred from making money off global blockbusters like Fortnite and PlayerUnknown’s Battlegrounds — is said to be cutting its marketing budget to tide it over the dry spell.

“This is decidedly inspiring news for the entire industry,” Tencent said in a response posted online. “It affirms the regulators’ determination to promote positive and standardized management, and set the direction for the entire cultural industry.”

Tencent distributes its own games as well as titles from external studios. Developers that supply the company include Capcom Co., Nexon Co., Activision Blizzard Inc. and Electronic Arts Inc., according to data compiled by Bloomberg.

On Friday, Nexon climbed 7.5 percent, leading a rally of Japanese rivals including Square Enix Holdings Co. Korea’s Netmarble Corp. gained more than 5 percent. In China, Perfect World Co. soared almost 7 percent.

China has one of the world’s most stringent approval processes for video games, an extension of Beijing’s obsession with maintaining control over online content so it can root out dissent and other ideas it considers undesirable, from sex to graphic violence. But its massive smartphone and web population also makes it the world’s largest gaming market.

It’s unclear why the Party’s propaganda department weighed in on a process that’s said to be governed by two other bodies, the Ministry of Culture and Tourism and the National Radio and Television Administration. Both agencies have gone through personnel changes and restructuring of responsibilities following a shake-up earlier this year as President Xi Jinping consolidated power.

While the official’s comment appeared to restart a games pipeline that’s been in limbo much of the year, the actual procedure for approvals remains opaque and it’s unknown which titles passed muster. Tencent also likely missed its chance to cash in on games at the peak of their popularity.

“Tencent may have missed the window to profit from popular games like PUBG and Fortnite, even as China’s regulators resumed the approval process for game monetization,” said Vey-Sern Ling and Tiffany Tam, analysts with Bloomberg Intelligence.

“The process remains vague, and stricter regulation may lie ahead amid government concerns over online games’ addictive nature.”

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Tencent shares rally after China resumes approving games