China’s recent crackdown on education companies has left scars that could be long in healing.
Putting the fear of God into investors may help Beijing direct capital more easily into areas it prefers, but also risks magnifying volatility and complicating corporate-investment plans, as every regulatory blip is seen as a possible death sentence.
The trauma was visible when investors quickly dumped shares of game stocks Tuesday after a Chinese state newspaper called online games “opium for the mind.” Chinese game giant Tencent dropped as much as 11% Tuesday, while rival NetEase lost 16% at one point. Even some Japanese and American game stocks fell on their exposure to China, the world’s largest game market.
Investors with longer memories are probably experiencing déjà vu: The government suspended new game approvals for nine months back in 2018, hitting earnings and share prices for the sector.
It isn’t clear whether the latest article portends any big changes. The government has long expressed its concern over social issues such as gaming addiction and exposure to violent content, especially among children. Tencent rebounded 3% Wednesday after the article disappeared and then reappeared without some of its harsher wording.
