Tencent shares fall as online games curbs hit sentiment

Share prices of large Chinese online gaming companies plunged on Friday as the government decided to clip the wings of the fast-growing sector.

Market leader Tencent Holdings Ltd led the slide with its Hong Kong-listed shares dropping 4.87 percent on Friday, after the government said it would restrict the number of new online games in the world's largest gaming market.

Shares of Perfect World Co Ltd declined 6.42 percent, while 37 Interactive Entertainment (Shanghai) Technology Co Ltd plunged by 9.98 percent.

Regulators from eight ministries said in a joint statement that "an adjustment and control on the total number of online games" was necessary. The document also outlined efforts to reduce gaming addiction among youngsters.

Analysts said the latest regulatory measures put pressure on domestic companies, with the smaller players set to face the heat in the long term.

"Even though the supervision will have some impact on the Chinese gaming market, it will not damage the sector. Some of the measures are beneficial for the sustainable development of the whole industry," said Pei Pei, an analyst at Sinolink Securities.

He said small and medium-sized game publishers, rather than the giants, will be the most affected.

"Even with the regulatory measures, big companies will have natural advantages. Therefore, small and medium-sized companies will have no choice but to rely on the bigger players to develop. They could even sell their products to their larger competitors," he added.

China accounts for one-fourth of the global industry's revenue, according to market research firm Newzoo. It forecast the country's total gaming revenue will reach $38 billion this year.

Pei said that due to the strict supervision at home, some gaming companies are turning their focus onto the overseas markets.

A report from analytics company App Annie said gaming companies saw a slowdown in the revenue earned from the domestic markets during the first six months of the year, despite a significant year-on-year growth of over 40 percent in overseas revenues from Apple Inc's iOS App Store and Google Play Store.

"As China's demographic dividend is disappearing, game developers need to seek new forms of expansion," said Kern Zhang, head of new business at App Annie China.

"While China's mobile game market has shown signs of saturation, overseas markets have grown at a faster pace. Eyeing the big potential in overseas markets, more and more mobile game publishers are ramping up their efforts to seek opportunities globally," he said.