Naspers and Prosus plummet as Tencent loses $54 billion on new Chinese regulations

The share prices of South African giant Naspers and its global internet arm Prosus sank on Friday after China unveiled a raft of regulations targeting online games that wiped out roughly $54 billion of Tencent’s value.

Tencent’s performance influences the JSE heavily through Naspers and Prosus after Naspers’ early investment in the Chinese tech giant. Prosus currently owns just below 25 % of Tencent.

By 10:30 am, Naspers had plunged 13.97% and Prosus was down 13.76%. They both finished the day over 17% down when the JSE closed at 12:00.

Beijing’s top gaming regulator on Friday published draft rules broadly designed to clamp down on practices that encourage players to spend more money and time online.

Among other things, they include a ban on rewards for frequent log-ins, forced player duels and a vague prohibition on any content deemed to violate state secrets.

The sweeping restrictions, which likely surprised industry players and investors, suggest Beijing is getting ready to launch another crackdown on the world’s largest mobile gaming arena.

Tencent slid as much as 16% — its biggest intraday fall since 2008.

Xi Jinping’s administration has sought to combat gaming addiction, blaming online entertainment for the rise of myopia among youths.

Critics have also linked its rise to various ills, from unemployment to low birth rates.

At the height of the tech-sector crackdown, the government froze approvals for new titles and launched several investigations into content, forcing developers, including Tencent, to modify certain games.

The latest rules emerged after Beijing in 2023 appeared to thaw in the sector. Officials in past months had encouraged esports, for instance, as an engine for the post-Covid economy.

Xi himself attended the opening ceremony of the 19th Asian Games in Hangzhou, which featured professional gaming among the medals up for grabs for the first time. 

In December 2022, Tencent secured a green light for a clutch of major releases, including Valorant and Pokémon Unite — a milestone that reinforced hopes China was easing its two-year crackdown on Big Tech.

China’s gaming market was set to grow almost 14% to 302.9 billion yuan ($42.4 billion) in 2023, reversing a 10% decline from the year before, according to data provider CNG. 

Yet the Communist Party since 2020 has waged a campaign against a private sector it regarded as amassing more power and expanding recklessly, an effort that managed to rein in once-dominant tech sector leaders such as Jack Ma’s Ant Group and Alibaba.

The crackdown on gaming actually pre-dated that movement, with the first suspensions of game approvals starting around 2018.

The government now wants to set a cap on how much money each player can spend within a title, according to the draft.

The regulations also asked that game publishers operating abroad respect Chinese laws and culture and refrain from endangering national security without elaborating.

Tencent is the world’s largest gaming publisher, with investments in studios from Epic Games in the US to Supercell in Europe. The agency will take feedback on the proposed rules for a month without saying when they take effect.

Additional reporting with Bloomberg