Will China relax its new video game controls? Investors think so.

Shares of Chinese video game companies rallied on Wednesday after investors seized on signals that the government was wavering on proposed gaming regulations.

Since the weekend, regulators have been trying to calm the market after shares of the two largest video game companies, Tencent and NetEase, plunged on Friday.

When trading resumed after the four-day holiday weekend in Hong Kong, Tencent was trading about 5 percent higher, and NetEase rose 10 percent, recovering from some of their losses.

The events of the past few days underscore the push-and-pull forces in Chinese policymaking. The country’s top leaders have acknowledged the need to stabilize the economy, which is slowly recovering from near-lockdown during the Covid pandemic. But the government’s strict control over the way companies do business continues to inject uncertainty into markets.

China’s National Press and Publication Administration, which licenses game publishers and oversees the industry, unveiled a proposal on Friday aimed at effectively reducing how much people spend playing games. The plan took the industry by surprise and investors dumped tens of billions of dollars in company stock.

The regulator issued a statement on Saturday emphasizing that the draft rules aim to “promote prosperity and healthy development of the industry,” and said it is “fully listening to more opinions and improving regulations and facilities.”

The agency then announced on Monday that it had licensed around 100 new games, after licensing 40 more games on Friday. And a semi-official association affiliated with the agency said the additional game approvals were “positive signals” that the agency is supporting the industry.

The new regulations would put a cap on how much money users can spend in games on things like upgrading characters they play against or purchasing virtual goods. It would also ban rewards that companies use to entice players to return. The proposal did not specify a spending ceiling.

“The draft rules would inevitably lead to changes in current practices and potential short-term revenue losses,” said Xiao Lei, an assistant professor at the University of Hong Kong business school.

But, he added, its impact could be smaller than feared as authorities could adjust or drop some provisions. Consumer demand for games and the social interactions they enable would remain unaffected, he added.

Analysts at Nomura, a Japanese bank, said in a report on Tuesday that the rules could “significantly affect” the ability of Chinese video game companies to make money.

The “firefighting measures” the government has introduced since Friday, Nomura added, will allay investor concerns but will not remove the shadow it has cast over China’s video game sector.

The industry is still reeling from previous restrictions first imposed in 2019 that targeted what the government saw as online gaming addiction among minors, as well as a broader crackdown on tech companies. Regulators also hampered publishers by not issuing new game licenses for an eight-month period ending in April 2022.

For their part, Tencent and NetEase have downplayed the impact of the proposed regulations.

The draft rules “did not fundamentally change the business model, gameplay rhythm or other key elements of the game,” Vigo Zhang, vice president of Tencent Games, said in a statement on Friday. NetEase said this weekend that the proposal would not have a substantial impact on its operations, adding that it would share its views with authorities.

The regulator said it would accept comments on the proposal until January 22.