Chinese Crackdown On Tech Continues With Gaming Firms The Latest Focus

It’s been a busy summer for Chinese companies. It all started off when Didi Global (NYSE: DIDI) “IPO’d” on June 30th, 2021, raising billions of dollars by selling American depository receipts or ADRs. Shortly after the listing, the news came out that Didi concealed its talks with the Chinese regulators over what data the company is recording. This sparked an almost 40% drop in 5 days, and Didi is still 50% below its first day high. Additionally, China’s transport ministry announced last week that they would be cracking down on “illegal behaviors” in the ride-hailing industry.

Then the regulators switched their focus to for-profit tutoring, where they moved to ban the practice, wiping the $120 billion sector basically out. Regulators called for the ban due to tutoring becoming an essential service for success in China. The biggest for-profit listed company, Gaotu Techedu (NYSE: GOTU), dropped more than 65% on the news and is now down 72% since the news released.

Then we come to the last week of August. On the 31st, China implemented new rules to limit children’s time playing computer games. Under these rules, China will ban minors, which are people under the age of 18, from playing video games entirely from Monday to Thursday. The remaining three days having a limit of 3 hours a week and gameplay is limited to 8 p.m and 9 p.m. In implementing the regulations, they commented that they are plagued with a “youth videogame addiction,” and said that all online video games must include some sort of “anti-addiction” system.

Finally, last week it was revealed by State media Xinhua, that Chinese gaming firms were summoned by the government. Once summoned, gaming firms were told to implement measures to help detour children from playing video games as well as that they bear the responsibility to protect the physical and mental health of minors.

Xinhua also reported that the Chinese government said they would severely punish firms that are not adhering to or properly implement the regulations – thereby proving that yet again, Chinese equities are subject to major risk often not considered by investors.

Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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