The Cyberspace Administration of China (CAC) released a proposal on Wednesday, August 2, to curb the amount of time people under the age of 18 spend on their smartphones.
All smartphones and apps will have to create a “minor mode” that would ban smartphone use for children between 10 pm and 6 am as well as limit screen time to a maximum of two hours per day depending on the age group. The exception are educational content and emergency services.
The minor mode will allow parents to limit the content shown to their kids or override the limitations if needed.
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This new proposal is designed to curb and prevent internet addiction as well as protect the kids’ eyesight. Note, this is only a proposal and is open to public consultation.
Despite that, Chinese tech companies have already fallen on the news.
Chinese tech companies take a hit
Alibaba (NYSE: BABA) and Tencent (OTC: TCEHY) were among the two Chinese tech companies that dropped significantly after the news. Alibaba, one of the largest online commerce companies, is down 5%, while Tencent is down 4%.
Tencent is a technology and entertainment conglomerate that operates a wide range of services, including the popular messaging platform WeChat, web portals, e-commerce, internet services, payment systems, smartphones, mobile games, and multiplayer online games.
The stock sell-off could be exaggerated as not all Chinese tech companies are aimed at people under the age of 18, or that age group is likely to represent a small portion of their income.
It’s still unclear, though, how this new law will affect Chinese companies if it passes. For example, who will build the “minor mode”? Will it be smartphone companies like Apple, Huawei and Samsung? Or software companies like Tencent?
China has already banned kids from playing video games on weekdays
China banned all kids under the age of 18 from playing on weekdays and limited their playtime to three hours on weekends in 2021.
The impact on Chinese gaming companies was minimal at the time, according to Alicia Yap, an analyst at Citi. There was less than a “low single digit” hit to China revenue for both Tencent and NetEase, said Yap then.
It was also reported after the ban that kids found a way to bypass the restrictions either by stealing their parents’ national IDs to obtain an adult gaming account or having the IDs handed over voluntarily.
Whether the new restriction passes and how it affects Chinese companies remains to be seen.
Alibaba stock is up 3% year to date, while Tencent is down 2% within the same period. Both companies have been outperformed by the S&P 500’s 18% gain.
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