China’s suspension of new video game licences has stretched into the final month of the year, clouding prospects for gaming giants Tencent Holdings and NetEase.

NetEase shares fell as much as 9 per cent on Tuesday, but gained more than 4 per on Wednesday, after it suspended the service of its popular emulation software that allowed personal computer users to play its hit new mobile game Harry Potter: Magic Awakened. The company cited the need for technical upgrades, raising concerns about the state of game approvals.

The National Press and Publication Administration (NPPA), which is in charge of licensing video games in China, has not published a list of approved new titles since the end of July. It is the longest freeze on new game licences since a nine-month hiatus in 2018 that followed a regulatory reshuffling.

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Beijing’s months-long crackdown on the video games industry has put even the country’s biggest game developers on edge. Last month, the Chinese newspaper 21st Century Business Herald reported that licences would resume by the end of November, citing unnamed sources. Industry executives also told the South China Morning Post that they expected new game approvals within weeks, but they did not specify a date.

Regulators, however, have remained silent on the issue.

Investors hope new details will emerge this month when regulators and company representatives congregate at the state-organised China Game Industry Annual Conference, which takes place in Guangzhou on December 14. The 2018 licensing freeze ended after the conference that year.

“Restarting game approvals would be a major signal that the worst is past in terms of the regulatory cloud on China’s online games sector, so investors are sitting on edge for an update that new titles have gone through the process,” said Matthew Kanterman, senior analyst at Bloomberg Intelligence. “Until then, the cloud of uncertainty remains.”

In response to the NetEase sell-off, US investment bank Morgan Stanley said in a report that it sees the shutdown of the PC software as a one-off incident. However, the bank noted that the move tracks with the broader crackdown on unlicensed games.

NetEase is China’s second-largest video game company, behind only Tencent, the world’s largest gaming firm by revenue. While NetEase does not have any titles on the scale of Tencent mega hits Honour of Kings and PUBG Mobile, its new Harry Potter game has become one of the biggest games of the year since launching in September.

The new Harry Potter game has generated more than US$228 million in less than two months from the select Asian countries where it is available, according to app-tracking firm Sensor Tower.

Chinese regulators approved Harry Potter: Magic Awakened in August 2020, but it was only licensed as a mobile game. The rise of mobile gaming has increased demand for mobile platform emulators for PC, which have blurred the distinction between mobile and PC games.

To help its users play Harry Potter on PC, NetEase released a stand-alone emulation program for that specific game, making it different from more generalised software like the Android emulator BlueStacks. Although NetEase announced over the weekend that it would shut down its dedicated Harry Potter emulator, the game remains playable on third-party software.

Tencent has also run into problems with game approvals. The company is the Chinese publisher for the hit global titles Fortnite and Dungeon & Fighter (DnF) Mobile, but it has been unable to get them approved in China. Last month, Tencent ended its three-year “testing” period for Fortnite, during which it could make the game available in China but was unable to charge players for in-game items, the main source of revenue for the global app.

Nexon, the Tokyo-based video game studio behind DnF, said last month that it would launch the anticipated mobile version of its hit game in South Korea in the first quarter of 2022 after delays in China. Tencent originally planned to release DnF Mobile in China in August 2020, but a launch in the country has still yet to materialise.

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