China's new gaming restriction puts Korean companies on edge

China has drafted regulations to limit in-game purchases and restrict loot box systems, which will likely impact Korean game publishers. The final measures will be released on Jan. 22.

Visitors try out new games at G-Star 2023, the biggest annual game festival in Korea, at Busan's Bexco convention center on Nov. 16. [YONHAP]

China's planned restrictions on in-game purchases are putting Korean game publishers in a precarious position.

The country's National Press and Publication Administration (NPPA) released a draft regulation on Friday that aims to rein in on teenagers' excessive gameplay.

The newly drafted rules state that online games should not offer incentives such as daily login rewards, first-time recharge rewards or continuous recharge rewards. Developers may also not encourage high-priced transactions through auctions or speculation on virtual items.

All online games are required to provide pop-ups reminding users about the dangers of irrational consumption and to set a limit on the amount users can recharge, which means that they cannot infinitely recharge their game currencies to play. The specific recharge cap has yet to be specified.

The regulator will also prohibit the excessive use of loot box systems, which are in-game lucky draws where players may or may not obtain valuable items to upgrade their characters. The game publishers must set the game software within reasonable parameters, ensuring that online games do not encourage excessive user engagement through the system.

Loot box systems are also completely off limits for underage users, as is inappropriate or addictive content.

On the same day, the NPPA also gave the green light for 40 overseas game titles to operate locally, including three Korean games including NCSoft’s Blade and Soul 2, Wemade’s Mir M and Gravity’s Ragnarok X: Next Generation. The regulator gave nods of approval to 105 Chinese game titles, marking the first time that more than 100 titles have simultaneously been allowed to operate in the country.

Among other Korean companies, Devsisters’ Cookie Run: Kingdom releases on Thursday and Netmarble is expected to drop Ni no Kuni: Cross Worlds next year.

But the regulator was quick to clarify that its draft is not final, and that it is open to public opinions and industry feedback, after the announcement sent Hong Kong-listed gaming stocks nose-diving. NCSoft's shares fell 1.67 percent after the announcement, closing at 236,000 won on Dec. 22, while Wemade shares fell 13.34 percent and Devsister's shares sunk 14.88 percent.

The final measures will be released on Jan. 22.

Analysts believe that the new regulations do not reflect hostility toward the game industry as a whole, but rather that they are targeting a large chunk of licenses issued to games from Chinese companies and are a quick response to falling shares.

“[The recent move] is in contrast to the suppressive regulations imposed by the Chinese government in 2019,” said Shinhan Securities analyst Kang Seok-oh. “At the time, authorities ceased license issuance, depriving opportunities for new game companies, as they could not release new games, and significantly impacting gaming companies’ performance by diminishing the intensity of their games’ business models.

“However, the current regulations focus on the structure of business models and provide separate clauses targeting minors. Moreover, considering that the government issued the highest number of licenses for domestic games within several years, it is led to be believed that the move does not represent a pessimistic attitude toward gaming content or the industry itself.”

Heungkuk Securities analyst Kim Ji-hyun, however, forecast that the finalized rules announced next month could affect game companies’ new game releases in China, as they may further restrict their business models.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]