China is stepping up efforts to rein in the online gaming industry as concerns grow over video-game addiction among the youth and the potential consequences on children's health.
With industry development outpacing the government rules, authorities are scrambling to come up with new measures to deal with the sector, aiming to find the right path in keeping with broader social goals.
In the latest move, Beijing announced last week that it has decided to limit the number of approved game titles in the market and also explore age-restriction system for the games.
In a document published on Aug. 30, the education ministry said efforts should be made to bring down the amount of time young people spend playing online games, in view of the growing visual impairment problems among the kids.
With children nowadays spending hours glued to video screens, there has been an alarming increase in myopia or nearsightedness among minors, the ministry said, outlining the need for measures to protect the eyesight of the nation's younger generation.
Authorities will "implement controls on the total number of online video games, control the number of new video games operated online, explore an age-appropriate reminder system" and take steps to reduce the playing time by minors, it said.
The document gave no specifics or timeframe for the new measures, but the comments were enough to prompt industry observers to fret anew about the potential impact on top gaming firms.
Reflecting the worries, shares of game developers and platforms, including blue chip Tencent Holdings, took a severe beating on the stock market.
Curbing gaming addiction among the youth has become a key focus area for the Communist Party and the government after state broadcaster CCTV recently aired a speech by President Xi Jinping wherein he called for greater national attention on optical health.
From the parents' perspective, they would no doubt be happy that the issue has become a top priority for state leaders. But gaming firms worry the new rules could deal a major blow and dent the development of the fast-growing online market in China.
In the first half of this year, China's online game market was estimated to have reaped 105 billion yuan in revenue. The game industry has been developing rapidly, and the user base is huge.
The new policy, observers fear, will affect many game developers as well as platform operators which have been looking to new game titles for income.
Some market watchers believe small players could suffer the most as the firms lack capability to diversify their product offerings to meet the regulatory requirements.
Big players, meanwhile, can deploy resources to develop games that will be acceptable to the government, weeding out violent and other content deemed harmful by Beijing.
To follow the latest government directive, some game companies may be forced to come up with "anti-addiction systems", or allow parents to participate in regulation and control of the games their kids can play.
Still, there is hope that authorities won't strike too hard, as they wouldn't want to put the industry as a whole into jeopardy given its huge growth potential.
If approvals of new game titles are curbed to an extreme extent, it will only create an illicit, underground market, creating new headaches for the government.
The trick is to strike the right balance to ensure a proper and healthy industry, while limiting the negative consequences on the youth.
Interestingly, a few days after the government introduced the new online game rules, Communist Party mouthpiece People's Daily softened its tone, saying in a commentary that demonizing online games is irrational, and that it is unrealistic to call for wholesale cancellation of such games.
The danger of indulging in online games is not the game itself, but the addiction, the article said, suggesting that people should focus on the issue arising from addiction rather than online games as a class.
Still, the paper agreed on the new policy of limiting the total number of video games and other restrictions on the sector.
Stricter regulation will ensure a better gaming environment, it said, adding that eliminating negative externalities can create a win-win situation for players, industry and the society at large.
As the new policy aims to protect the health of young people, game developers and platforms will be forced to redraw their strategies for the China market.
The churn could lead to a consolidation within the sector, which could prove healthy. In the past few years, all sorts of players have jumped into the fray, often with low-quality game titles, in a bid to cash in on the market's scorching growth pace.
A slowdown, under a tighter regulatory regime, may come as a blessing in disguise for the industry in terms of its long-term development prospects.
As a matter of fact, the market has already seen some positive developments in recent months, even without the latest policy, with most of the low-quality games gradually getting edged out.
That trend will only gather steam in the near future, given the tougher regulatory environment.
Looking ahead, we can predict that only the firms that have innovative games and world-class licensed or original intellectual property can ensure a sustainable business and continued growth.