Regulators want to limit the number of new online games, restrict playing time and develop an age-restriction system.
Tencent has been amassing a lot of pull in the Chinese market of gaming and especially esports, acquiring rights to publish games like Arena of Valor and Fortnite overseas and cultivating the competitive scenes in its catalogue.
"More Chinese companies will be looking at global markets as a way to offset regulatory challenges in the domestic market", commented industry analyst Piers Harding-Rolls from the IHS Markit consultancy.
The massive dive in its market value compared with Netflix's present market capitalisation of $162 billion.
Tencent did not immediately respond to a Reuters request for comment.
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China loses sight of the long-term impact that new heavy games regulation will have, as one of Asia's largest companies takes the hit in an effort to avoid eyesight issues in children.
But regulators also have balked at approving games featuring violence and gambling, Bloomberg quoted a source as saying, as Xi pushes a "purification" campaign to purge media and entertainment of content perceived as unsavoury. - China's two largest gaming companies - both dived more than 5%.
The document also called on parents to limit the amount of time their children spend using mobile phones and other electronic devices, and recommended children spend over an hour outdoors every day. Gaming revenues are the biggest source of income for Tencent. The firm forecasts China's total gaming revenue will reach $38 billion in 2018. "These are the good aspects of the policy", said David Ng, head of Super Generation Investment, which owns the EDG e-sports team.
The Ministry of Education went into more detail regarding the restrictions. As of Friday noon, its shares were trading at HK$341.2, down 4.5 percent from the previous close.
Tencent's ADRs fell 7 per cent in USA trading after the Education Ministry's statement, while NetEase Inc., its closest competitor, fell 7.2 per cent.
A sign of Tencent is seen during the fourth World Internet Conference in Wuzhen, Zhejiang province, China, December 3, 2017.