Proposed Rules on Chinese Technology Stocks Could Dampen Optimism

Chinese technology stocks took a hit on Wednesday as new regulations targeting smartphone usage by minors sparked concerns about increased regulation within the sector.

The Cyberspace Administration of China recently released a draft set of rules regarding smartphone usage for minors. According to the translated post viewed by ’s, these rules would place limits on daily internet use for children, potentially impacting the future of the industry.

Under these rules, children between the ages of eight and 16 would be restricted to a maximum of one hour of smartphone internet use per day, while those aged 16 to 18 would have a two-hour limit. Additionally, smartphones would be off-limits for minors between the hours of 10 p.m. and 6 a.m. However, educational and parent-approved applications would be exempt from these restrictions.

This announcement led to a broader decline in Chinese internet stocks on Wednesday. NetEase (ticker: NTES), a popular videogame company, saw its American depositary receipts drop by 2.7% during premarket trading. Likewise, search company Baidu (BIDU) and e-commerce giant Alibaba (BABA) experienced declines of 2.6%.

China has a history of implementing measures to control internet usage among young individuals. In 2021, the introduction of regulations limiting the time young people could spend playing online games negatively affected the videogame industry.

Previously, there was optimism that Chinese technology companies would experience less stringent regulation as the Beijing government identified the sector as a potential growth driver amid economic challenges. However, the proposed restrictions highlight that investors should temper their expectations.

In conclusion, while China's technology sector has faced setbacks due to new rules on smartphone usage by minors, it is essential for investors to remain cautious about future regulatory changes and their impact on the industry's growth potential.