After Blasting Tencent, China Plans To Crack Down On Online Games

Tencent Holdings, China’s most successful gaming and social media company, is in a tough spot after the government criticized it for fueling gaming addiction among minors.

The state-run People’s Daily focused on its smash-hit Honor of Kings mobile game, labeling it a “poison” constantly spreading “negative energy.”

Although Tencent swiftly introduced a series of measures to limit the game time of young users by automatically logging players under 12 off after one hour of play time each day, they may not go far enough as Beijing prepares to introduce rules that will reign in the country’s $28 billion gaming industry, affecting not only Tencent but every company eying a slice of the world’s largest gaming market.

This week the People’s Daily and the official Xinhua News Agency called on game developers to come up with better content and stronger anti-addiction measures. Xinhua pointed to problems with Tencent’s gaming design, which official media said is distorting Chinese history by assigning historical figures with various virtual powers, and loopholes in its anti-addiction mechanism, saying regulators should come down harder on these key issues.

“The Honor of Kings phenomenon reveals the pain points of our fast growing but unregulated gaming industry,” Xinhua wrote. “Related government departments should not only be helping it grow but holding up a whip to ensure order.”

An urgent social problem

To Beijing, games like Honor of Kings represent an urgent social problem. The Chinese internet is teeming with reports of elementary school students stealing money from their parents to play Honor of Kings, a multiplayer online battle game free to download but with options to buy virtual gaming items inside. It has become the world’s top-grossing mobile game, amassing 200 million players since its introduction in 2015. The first quarter of this year alone the game now contributed up to 40% of Tencent’s total mobile games revenue, according to estimates by HSBC analysts.

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One particular report has caught regulators’ attention. In Hangzhou, a 13-year-old boy jumped off the building after his father tried to stop him from playing the game, according to People’s Daily. The boy, who broke both his legs, thought he could fly like Honor of Kings characters, his father told The Beijing News.

Such incidents will only exacerbate regulators’ negative view of online games. In 2008, China became the first country worldwide to declare gaming addiction a “clinical disorder,” with parents sending children to military-style boot camps to undergo therapy and training for a cure. In 2010, China’s Ministry of Culture introduced the country’s first anti-addiction law. In the following year, eight government departments led by the State Administration of Press, Publication, Radio, Film and Television required all companies to carry out real-name registration for their games.

“China’s regulation of online games will definitely become tighter and tighter,” said Zhu Wei, deputy director of the Communications Law Research Center at the China University of Political Science and Law in Beijing. “By criticizing Honor of Kings, Beijing wants all gaming companies to shoulder extra cost for the social impact they may incur.”

Poorly enforcing restrictions

Despite its strong words, the government's enforcement of these restrictions has thus far been poor, according to Charlie Dai, an analyst at Shanghai-based 86 Research. Young players can easily purchase fake adult identity cards online to bypass the restrictions. A search on Alibaba’s Taobao online bazaar showed dozens of vendors offering services to unlock Honor of Kings for between 10 and 80 yuan ($1.5 - $12).

In the future, authorities will push for stronger enforcement of real-name registrations, analysts said. Companies could be asked to deploy facial-recognition technologies to cross reference video clips of young players with their national ID photographs -- a scenario that would drastically increase Tencent’s operating cost as 20% to 30% of Honor of Kings players are below 18, according to Dai.

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Future measures could also include a monitoring system where parents can log their children off games. Authorities may even ask companies to cap the amounts of in-game purchases made by elementary school players, according to IHS Markit analyst Cui Chenyu.

In Asia, such measures aren’t without precedent. In South Korea, teenagers under 16 are automatically logged off online games after midnight. In 2013, the country even considered a bill to regulate video games in same way as gambling and drugs. The proposal, which ignited a fierce debate on the pros and cons of video games, wasn’t implemented. But in the following year the government put in place measures to limit the time and money spent on certain gambling games like online poker.

In the West, there are no such restrictions, although a 2009 study in the U.S. found one in 10 children who play video games are addicted. According to the American Psychiatric Association, more clinical research is needed before placing internet gaming disorder in its main manual of formal disorders.

What China really needs, however, is a rating system, Zhu said. Unlike in the West, China doesn’t have a age-based rating mechanism similar to ESRB or PEGI, which assigns age and content ratings to video games and apps to serve as a warning that certain games may be inappropriate for children. As a result, the likes of Honor of Kings are accessible to all, he said.

“Big companies like Tencent should take the lead,” he said. “And the government should push for enforcement at every firm.”