China is showing signs of easing its crackdown on the gaming sector

Chinese regulators have increased censorship of the domestic gaming sector over the past year and a half. But new batches of gaming approvals, and positive steps to improve gaming addiction among children under the age of 18, could be positive signs that the crackdown is backing down.

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Beijing is showing signs that its crackdown on the domestic video game sector may be tempering what could be bullish for Chinese tech giants including Tencent And the netease.

On Tuesday, research firm CNG along with the China Game Industry Group Commission, under the Game Publishing Regulatory Authority, published a report in which they praised the progress made in reducing gaming addiction among people under the age of 18.

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Regulators have been concerned for some time about gambling addiction among minors. Last year, China’s National Press and Publication Administration introduced rules that restrict children under the age of 18 from playing online games for more than 3 hours per week.

CNG’s report has weight because it was co-published with a major gaming industry body with links to the regulator. The report stated that more than 70% of minors play games for less than 3 hours a week, and that the problem of minors’ gaming addiction has “achieved a step towards a solution,” according to CNBC’s translation.

The positive report may indicate a more bullish outlook for the Chinese gaming sector.

“The strict regulatory approach China has taken over the past year has been the result of a lack of enforcement and compliance across key areas,” Daniel Ahmed, senior analyst at Niko Partners, told CNBC. “With gaming companies now fully in compliance, we see a more positive outlook begin to develop.”

The CNG report also singled out major Chinese game companies including Tencent and NetEase for positive moves in enforcing the protection of minors.

For example, Tencent and NetEase both use facial recognition to find out if the person playing the game is an adult.

Another positive sign came last week when organizers agreed to release a batch of 70 new games. In China, video games need approval to be published and monetized. Among the approvals was a game titled Metal Slug: Awakening from Tencent, marking the company’s first commercial game license in a year and a half, according to Reuters.

Last year, China froze approvals for games in the summer and only started the green light games in April this year. But titles from Tencent, China’s largest gaming company, have been absent from the lists so far.

Tencent management last week told analysts on its third-quarter earnings call that the company expects to approve gaming licenses relatively quickly in the future, adding signs of regulatory scrutiny over the sector’s easing.

Martin Lau, Tencent’s president, said the company sees “positive signs across the path of macro and regulatory normalization.”

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