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Tencent Holdings Burns Billions in Regulatory Holding Pattern Over Video Games

Tencent Holdings stock dropped 5.6%, or approximately $20 billion, yesterday. The decline follows a similar drop earlier this month after its quarterly earnings report.

The Internet giant is blaming part of the issue on the country’s game licensing agency preventing it from selling a brand new video game. China blocked sales of Monster Hunter: World earlier this month for violating regulations and has put a freeze on approvals of new games.

Thursday regulators at China’s Ministry of Education issued a warning that video games were contributing to myopia and that video game makers should help restrict how much time young people spend on them, Reuters reports. Tencent has limited time on a children’s game since last summer. The ministry document also recommended parents get their kids outside for more than an hour every day.

Other Chinese video game companies also saw drops in their stock yesterday.

Small companies are less likely to thrive in this kind of regulatory environment, writes stock analyst Richard Windsor. They cannot devote the necessary resources to complying with complicated rules. In the longer term, Windsor predicts the increased rules will actually help Tencent and other giants consolidate more market share.

“I think the news that came out (Thursday) regarding monitoring gaming usage is similar to a number of times where gaming restrictions on youths in China came out before, so in this sense, I think it is just a short term reaction,” executive director of investment strategy at Hong Kong-based Haitong International Securities Kevin Leung, told CNBC, “But in the bigger picture, this is in line with China’s policy of putting a stronger clamp on gaming.”

The uncertainty has not stopped Tencent from striking new video game deals, such as one announced yesterday with Square Enix, the game maker behind Final Fantasy and Tomb Raider.