China Cracks Down on Video Games

Shareholders of Tencent Holdings Ltd., the world's biggest video game company, panicked last week. People's Daily, the official newspaper of the Chinese Communist Party, singled out "Honour of Kings," Tencent's biggest game, for an unusually high-profile criticism.

"Poison," the paper declared of a game played by roughly one in seven Chinese. "Constantly spreading 'negative energy.'" It linked the game to recent reports in which children allegedly stole money, experienced strokes and even jumped out of a high-rise window due to "addictive" game play.

Tencent's stock fell by more than 5 percent on the news. Although it eventually recovered, the incident should be a wake-up call to investors and gamers alike. For more than a decade, China's government has sought to define and regulate internet addiction. Its willingness to target Tencent, the country's most valuable company, suggests a new and more formidable campaign is under way -- one that could transform the $100 billion gaming industry.

The idea that the internet could in some sense be addictive emerged in 1995, in a satirical paper by an American researcher. Today it's no joke: Hundreds of scientific papers are published on the subject each year. Yet defining internet addiction as a clinical disorder -- akin to, say, heroin addiction -- remains controversial in much of the world.

In China, it's been a settled issue since 2008, when a group of doctors approved an official description of "Internet Addiction Disorder." Among other criteria, an addict must spend more than six hours a day online for reasons other than work, become irritable when unable to connect and exhibit difficulty concentrating.

For the Chinese government, the perceived isolation and distraction of its youth is viewed as an increasingly urgent social problem. Immersive role-playing games, popular among students at ubiquitous internet cafes, are seen as a particular threat. As far back as 2004, state media reported that 90 percent of juvenile crimes were related to excessive internet use.

True or not, the government has certainly responded as if an epidemic is under way. In 2004, it shut down 16,000 internet cafes to protect impressionable youth. Three years later, it required that developers install "anti-addiction" systems in their games. In 2008, it banned the opening of new internet cafes entirely. Over the past decade, some 250 internet addiction "boot camps" have opened; one has treated at least 6,000 patients using electroshock therapy.

All this probably hasn't had much effect. Very few companies have come up with effective anti-addiction measures, which is unsurprising given that users hate them and that the science of internet addiction is unsettled at best. Internet cafes remain popular, while mobile phones have provided users with more games -- and more opportunities to play them -- than ever. In 2016, mobile accounted for more than half of all gaming revenue in China, up from about 40 percent in 2015.

Tencent has profited from this growth as much as anyone. In the fourth quarter of 2016, its smartphone game revenue was up 51 percent over the previous year. That alone would make Tencent an obvious target if the government was looking to make an example of a game developer. But politics (predictably) have made things worse: The People's Daily editorial singled out "Honour of Kings" for distorting a proper understanding of China's history -- an understanding that the Communist Party isn't about to cede to video game developers.