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Era of lax rules for tech companies in China is over: expert

Tencent (TCEHY) and NetEase (NTES) stocks took a hit Friday (Dec. 22) after China imposed new rules to curb consumer spending and engagement. But these stocks are seeing an increase at the end of the session as Chinese authorities approve more than 100 new games. Shehzad Qazi, international managing director of China Beige Book, joins Yahoo Finance to discuss China’s new rules.

“Investors need to understand that the era of lax rules or lack of rules around the technology industry, generally speaking, in China is completely over,” notes Qazi. “The paradigm has changed and we are now in an era where more rules and regulations are coming.”

“It’s a much more uncertain and unpredictable environment, but one thing is for sure. We are not going back to business as usual, as it was before 2020,” adds Qazi.

For more expert insights and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcription

JOSH LIPTON: Investors in Chinese video game companies including Tencent and NetEase were hit hard Friday by the announcement of new draft rules intended to limit time and spending spent on games. But today, they are enjoying a slight reprieve as Chinese authorities approve more than 100 new games. For more on what to make of the back and forth here, we’re joined today by Shehzad Qazi, Managing Director of China Beige Book International.

So Shehzad, nice to see you. Help us, somehow, navigate all of this here and make sense of it. So Chinese authorities have approved over 100 new video games, but of course it was after we heard about these new draft rules that really hit names like Tencent and NetEase. So Shehzad, what do you think? Do Chinese authorities support the video game industry, or oppose it, or something in between?

SHEHZAD QAZI: Yeah, I think… let me first say that over the last couple of years, many China watchers have stood up on television and said things like Beijing is getting pragmatic, technological repression is over. . And over the past two years, they have been proven wrong time and time again. Investors need to understand that the era of lax or non-existent rules in the technology sector, generally speaking in China, is completely over. We’re in…the paradigm has shifted and we’re now in an era where more rules and regulations are coming.

They may not be as severe as the ones we had at the beginning with Alibaba and others. And now we’re seeing things like draft rules being introduced and we’re also simultaneously seeing things like other game companies or other games getting licenses. This is a much more uncertain and unpredictable environment. But one thing is certain, we will not return to the status quo as before 2020.

JULIE HYMAN: Well, you mentioned it was uncertain and unpredictable, Shehzad. So if you’re an investor in one of these companies, what do you do in terms of…for example, is there a level of predictability with these rules and how they affect these companies?

SHEHZAD QAZI: Frankly, predictability is quite impossible. Because unless you’re in the minds of the top leaders of the Communist Party, you really won’t know what’s going to happen, which is why a lot of people have…haven’t misinterpreted, I think, what the regulatory environment or change was going to happen because they were honestly just guessing. I think the number one rule moving forward has to be: Are we investing in a company or sector that from a regulatory perspective is essentially ungoverned or is currently subject to governance? very limited? And second, how does this fit into the broader social program presented by the Communist Party? Anything that is seen as a threat to social control, anything that might challenge the power of the party or perhaps push young people into areas considered unproductive by the party, you are in a dangerous situation and you better to think about the risks. therefore.

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