China Regulator Said to Request Pause in New Game Applications to Clear Backlog

China's top content regulator has asked local authorities to stop submitting requests to monetise new video games while it processes a backlog of applications built up after a lengthy pause last year, three people with knowledge of the matter said.

The General Administration of Press and Publications (GAPP) issued the notice this week, the people said, indicating the impact on gaming stocks of the nine-month hiatus could continue and dulling hopes raised by the recent resumption of approvals.

The regulator's notice has not previously been reported.

Shares of industry leader Tencent Holdings, which were up 2.2 percent in morning trading, pared back gains to trade about 1 percent higher after the Reuters report was published. Shares of smaller players also slid.

China stopped approving the monetisation of new titles last March amid a regulatory body reshuffle triggered by growing criticism of games being violent and addictive, as well as concern over the increase in myopia among young people.

Gaming firms such as Tencent - China's most valuable listed company - were able to continue filing applications, building up a backlog. They could also distribute new titles but were unable to earn any income from them, such as through in-game purchases.

The regulator resumed processing applications in December, with industry insiders estimating at least 5,000 games await approval. In China, game companies file applications to local authorities which in turn submit them to the regulator.

"The regulator asked local authorities to stop submitting applications because there is too much of a backlog for it to deal with at the moment," said one of the people, whose company was informed about the matter by its local authority.

Game companies will still be able to file applications but they will no longer be passed on to the Beijing regulator while it deals with applications already in hand, said a second person.

The people declined to be identified as they were not authorised to speak with media on the matter.

GAPP and the Propaganda Department of the Communist Party of China, which oversees GAPP, did not immediately respond to requests for comment.

The approval freeze dragged down shares in Tencent and wiped billions of dollars off its market value. Among titles for which Tencent is awaiting a licence to monetise is PlayerUnknown's Battlegrounds Mobile, which industry insiders estimate could generate annual revenue of up to $1 billion.

The freeze has also hit many smaller companies that rely on a number of game releases each year.

The regulator approved 1,982 domestic and foreign online games during January-March last year before the freeze, government data showed. It approved 9,651 domestic and foreign online games in all of 2017.

It has approved 538 games since December.

© Thomson Reuters 2019