What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing over the past few weeks it appeared like chinese stocks were finally making a comeback with social media, giant tencent rebounding almost 25 percent, but then on september 9Th tencent, plunged more than eight percent in a single day and chinese stocks were read pretty much across the board. Video game related chinese stocks are tanking with us listed netize down almost four percent in huia down close to eight percent. Obviously, it's not been a great day for investors holding chinese stocks. So what is behind these declines and is the move lower justified before the u.s markets opened? On september 9th the south china morning post published an article saying that chinese regulators will slow down approvals of new video games in an effort to combat game addiction.

This comes just a couple of weeks after the government unveiled new regulations limiting the time miners can spend on video games to just 3 hours per week. In this video we'll go into the specifics of these regulations to see just how bad it will be for the video game industry, keep in mind that we are not financial advisors and this video is, for entertainment purposes, only make sure to do your own research and Consult with a professional before making any investment decision. According to the south china morning, post report, chinese regulators had a meeting with executives from tencent and netize the two largest video game companies in china. In the meeting they said they would temporarily suspend the approval of all new online games as part of their broader efforts to combat video game addiction, particularly among the country's youth.

Existing games are still allowed to be sold and played it's just new releases that will be affected. Heavy regulation of the gaming industry is nothing new to the communist nation. In 2000, they banned the sale of all video game consoles, such as xboxes playstations and nintendo consoles. They feared that video games hampered the mental and physical development of children.

They kept the band in place for 15 years until finally lifting it in 2015, but these efforts to curb video game addiction have been a complete failure. According to research from limelight networks, on average, adult chinese gamers play 12.39 hours of video games per week. That's almost double the united states, whose gamers only play 7.71 hours per week on average. Most of this is driven by mobile gaming, which has become extremely popular in china as more and more of the population gained.

Access to smartphones in high-speed internet, for example, 10 cents hit game. Honor of kings has approximately 100 million daily active users, which is an insane number. It's a mobile game, that's very similar to league of legends. While video games have become very popular.

The government has strict regulations on what types of games are allowed in the country games with excessive violence, blood gambling, nudity criticisms of the government and, in some cases, games that reference. China's imperial history are banned. Any developer with a new game must apply for approval of the regulators before it's released. There is a long list of video games banned in china.

One of the most surprising is animal crossing which was banned after some users posted anti-government messages within the game. The battle royale game fortnite was also banned for blood gore and vulgar content. However, the competitor pubg is allowed. The seemingly arbitrary approval process for video games has long been a headache for chinese developers and foreign developers who want to access the 43 billion chinese video game market.

In the past. The regulations have mostly been about making sure the games don't damage chinese culture or criticize the government, but this new suspension of video game approvals seems to be geared more towards reducing the addictiveness of games and decreasing the amount of time people spend gaming. The regulators are likely in the process of drafting new regulations for video game approvals. We don't know exactly what these will entail, but they could target microtransactions and limited time events which makes games more addictive.

It's very difficult to predict exactly what they'll do the last time that china banned new video game releases was in 2018 and the suspension lasted for about nine months. During that time, chinese regulators drafted new rules, tightening restrictions on portrayals of in-game violence. This caused shares of tencent to decline. Almost 45 percent after the ban was lifted.

The stock price eventually recovered, but this recovery took almost two years. The de facto nationalization of the for-profit education companies shows that the interest of shareholders takes a back seat to the government's policy objectives. The declines in stock price for tencent and neties are understandable, given the risks and uncertainties. While we don't know exactly what the new regulations will be, they will almost certainly be a major headwind to the growth of these companies.

Both netize and tencent generate the substantial majority of their gaming revenue within china. The other recent regulatory action came on august 30th when they announced new regulations limiting play time for minors to three hours per week. They're only allowed to play one hour a day between eight and nine pm on fridays, saturdays and sundays, and public holidays. This is a tightening of the original restrictions implemented in 2019, which limited minors to 90 minutes of gaming on weekdays and 3 hours per day on weekends, that could add up to a total of 16 and a half hours per week.

The recent restrictions represent more than an 80 decrease in the allowed video game time. Gamers must log into their accounts using their real names and national id numbers. If they're under the age of 18, the game will only allow them to play at the approved times in the past. Many kids would get around this by using their parents or friends ids, but recently tencent started using facial recognition to make sure that the person playing the game is the person logged onto the account.

While the kids play a lot of video games, they don't have much money to spend on microtransactions. So while they do make up a significant proportion of video game hours played, they make up a much smaller proportion of the revenue. Tencent disclosed that just 2.6 of their domestic online gaming revenue came from gamers under the age of 16., while they didn't disclose the percentage from all miners, it's probably in the five to six percent range. Even if this proportion of revenue declines significantly you'll have only a minor impact on their group level, financials chinese video game companies face substantial risks over the near future, while the children's screen time limitations are unlikely to have a material impact on their revenues.

The suspension of new game approvals is much more, concerning new regulations for new games will likely be drafted in the coming months, and these will almost certainly be a headwind for chinese video game companies, including tencent and netease. Alright guys that wraps it up for this video make sure to hit the subscribe button as we'll publish update videos whenever new regulations are announced. As always. Thank you so much for watching and we'll see you in the next one wall, street millennial signing out.