New Chinese regulation hits online lottery sellers Alibaba, Tencent

Major lottery sellers have stopped all online business in China, with company stock prices dropping by up to 40 percent, the Chinese media has reported.

After the sports authority of China banned online lottery sales in February and proclaimed them illegal, major sellers like Alibaba-owned Taobao, Tencent-owned WeChat and QQ, and New York Stock Exchange-listed 500.com complied and stopped online business, as reported by 36kr on March 1.

According to a notice issued by the General Administration of Sport of China on February 25, the authority will "firmly correct the unregulated online selling of sports lotteries" and "crash the illegal business in cooperation with the police and other administrative departments".

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The country's biggest online store, Taobao, and its parent company Alibaba, as well as the Shenzhen-based internet company Tencent could take the hardest hit, as they account for a big chunk of the online lottery market.

A survey released by Enfodesk last year showed that during the third quarter of 2014, 18.9 billion yuan ($3 billion) of online lotteries were sold through transactions completed on desktop computers, and Taobao and QQ account for almost 30 percent of total sales.

As for lottery sales on mobile devices, almost half were sold by Taobao, QQ, and Lottery 365, a seller that works with WeChat to complete purchases.

Meanwhile, the sudden crackdown has already driven down the stock price of other companies, with 500.com's price down 40 percent in four days, according to the 36kr report. Another lottery seller, Hongbo Shares, had its stock price drop from 19.5 yuan to 18.2 yuan in just three days on the Shenzhen Stock Exchange.

The notice by the General Administration of Sport of China was the latest addition to a series of failed attempts made by multiple state departments in China to regulate the online lottery business. Between 2007 and 2012, online sales were temporarily stopped on four occasions, but it survived and has seen exploding growth in recent years.

According to a consulting company's report, online sales reached 85 billion yuan ($13.57 billion) in 2014, a 102.4 percent increase; more than 45 percent of the sales were done on mobile devices.

"All industries are utilising the internet to the fullest nowadays. The move is really peculiar and is like driving the car backwards," Cheng Yang, a lottery researcher, told Yicai.com. "The online market is expanding so quickly that the out-of-date management couldn't control."

The Welfare Lottery and the Sports Lottery are the only two legal lotteries in China, and according to national statistics, 382.4 billion of of them were sold in 2014, up 23.6 percent year on year.

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