Beijing - Foreign companies now barred form Chinese online gaming market

For most Western businesses China represents something of a mixed bag. On one hand China is an unmatched opportunity, an untapped market with unparalleled room for growth that could provide significant future revenue to any company that can get its foot far enough in the door. On the other hand, China is also a notoriously difficult gig to crack.

At an official level, entrance restrictions are tough. Beijing guards its markets tightly to prevent large foreign companies from using their overseas gained capital base to muscle smaller Chinese firms off of the stage. China's consumer base is also at a very early stage of its development. Often because while there are 1.3 billion Chinese, most of them do not have much money to spend.

At an unofficial level Beijing also has a standing policy in place of using every tool at its command to keep anything out of China that might lead to “unhealthy ideas”: A catch-all phrase often used by Beijing to describe anything and everything that it finds it undesirable for Mainlander's minds to dwell on. From hard core child pornography, to democratic reforms.

To this end Beijing heavily regulates the screening of foreign films and television programs on the Mainland and demands that most forms of media be submitted to the relevant government body before they can be approved for sale in China.

Are you Game?

One industry in which all of the above can be clearly seen is the China's burgeoning online gaming market.

For the first part, China's online gaming market is a market is considerable, and growing. With analysts predicting that it will grow some 50% during 2009, to $US4 billion, despite the economic downturn. Thanks in no small part to an increasing number of new gamers entering the market each year as China's economic situation improves.

Making it an attractive prospect for Western developers looking to secure for new opportunities outside of the Western online gaming sector. Which has become so saturated in recent years that for many companies a new customer is often mostly a customer who has switched from a different product rather than an actual new gamer.

For the second part, Western games companies have often found themselves caught up in Mainland crackdowns aimed at gaming in general, as well as foreign games in particular. Including generally enforced laws mandating that online games (Both domestic and foreign) must include time based neutering switches that degrade a game character's performance if the player stays online for too long, and laws governing the inclusion of content that is pornographic or which glamorizes violence. Which are legally permitted under America's First Amendment, but which have no protected status in China. As well as more specific laws that have forced foreign games to follow the same approval process that Beijing semi-openly uses to enforce quotas on the number of foreign films that enter China's markets each year in order to prevent wealthy Western studios from muscling their smaller Chinese competitors out of the market.

Winning Streak?

Despite the hazards and restrictions, many Western games companies have made strong inroads into China's markets. Beating out Japanese and Korean games, as well as domestic competition achieve high levels of popularity and to make solid profits.

Probably the best example of this has been the Western developed World of Warcraft, which now ranks as China's number 1 online gaming environment with an estimated 5 million Mainland players.

Sand Trap?

However, despite successes stories such as that of WoW having paved the way, things look set to become somewhat more rocky for Western companies seeking to enter the Mainland market. In fact, if Beijing has its way, China may lock Western companies out of Mainland markets for years to come.

Investment Ban?

According to General Administration of Press and Publication (GAPP), which operates as the Mainland's defacto games regulator - amongst other functions - Beijing is introducing a moratorium on foreign investment in the Mainland's online gaming sector. With prohibitions on overseas companies investing in Mainland online gaming companies, owning said companies in whole or part, or from offering technical expertise. According to the GAAP clauses have also been written into law prohibiting foreign companies from “influencing” Mainland online games in any way. Either directly or indirectly.

Unhealthy Content?

The new regulations come as part of a much wider crackdown on online games, and gaming in general, in China that sees it receiving significant levels of state scrutiny at multiple levels, and on multiple premise, than ever before.

Under new regulations, and additions to existing regulations, all games must be now be vetted directly by state authorities before being released for public consumption, and games companies must apply for direct state certification in a similar way to printing presses and television stations. With companies forbidden to publishing online games, or operating gaming environments without express approval from the state.

According to Beijing regulatory changes are necessary in order to weed out 'Unhealthy influence'.  A phrase that Beijing often uses to refer to content of a violent or sexual nature, or content which encourages dangerous or self destructive tendencies. But which is also often used as a catch-all phrase to describe anything that differs from Beijing's state line or society, history or culture, or which exposes something issuing from Beijing as being illegitimate.

Online violence?

Although this latest turn of events can be seen as a crackdown in itself, it is in fact part of a far larger ongoing push against violent and sexual games content, and games content winch simulates criminal acts.

Indeed, the investment ban comes hot on the heals of new regulations prohibiting online games that allow players to participate in activities such as drugs dealing, looting, and carrying out contract killings which has already seen Mainland players cut off from around 2 dozen online games. Including the Western developed Godfather,  as well as the Gangland simulation Jianghu and Guhuozai which were ordered out in July 2009.

This in turn follows on from an earlier crackdown on violent content in games that saw many games being forced to censor themselves or to be banned, including World of Warcraft which was forced to tone down the levels of violence in the game. Including replacing replacing bones and severed heads with more child friendly images, and toning down blood effects when characters were killed or injured.

According to Chinese officials this was because the Mainland has no age based selling restrictions for computer games, and little means to prevent children from accessing adult content online. Prohibiting foreign investment and influence will make it much easier for Beijing to keep it's domestic companies under control. It will also make it somewhat harder and less profitable for companies to attempt to slip through the net of domestic restrictions by using foreign content partners.

Social Factors?

Although Beijing has publicly declared war on in game violence and simulated criminality, both on and off line, China watchers have voiced that it is also following a second, more private, agenda. Limiting the import of foreign culture through video games.

Although it can be argued that foreign video games are often not representative of foreign culture, and that they largely depict an unrealistic of fantasy based environment, China watchers voice that there are likely concerns amongst leaders that foreign developed or influenced online games will bring with them 'undesirable' elements of foreign culture.

At its most obvious, this includes the Western (Primarily US and British) tendencies towards depictions of what become known as 'ultra-violence' - the stylized portrayal of acts of extreme and gratuitous violence – in video games. something which Chinese leaders and parents have strongly spoken out against as being a bad and destabilizing influence on Chinese children. With Mainlanders reacting with alarm to the idea that Chinese may be indoctrinated into thinking that the levels of violence present in Western Countries – Whose rates of rape, murder, and other violent crime dwarf those found in China – were normal, acceptable or somehow desirable.

Additionally, Beijing also likely wishes to reduce the risk of Western companies introducing Chinese gamers to historically accurate representations of situation that it has, itself, planted distorted versions of in the Chinese diaspora. As well as fictional representations that go against the state line.

For example, in 2004 Beijing banned the game the foreign online game 'soccer Manager 2005 (Also known as Premier Manager 2005 and Football Manager 2005) for depicting Hong Kong, Tibet and Chinese Taiwan as having their own soccer individual soccer teams. Ironically, the game had not been officially released in China, making Mainland copies illegal pirate versions that never should have been on sale. Equally ironically, Chinese Taiwan and Hong Kong both do in reality have their own soccer teams that compete at a trans-Asian level, independently from the Mainland.

At its more subtle, this includes the importation of alternative perspectives on society. Creating expectations of social norms and conditions that either do not exist in China, or which Beijing desires to suppress, and encouraging Chinese children to begin to 'think like foreigners'. Something which Beijing sometimes references as 'harmful messages' or as influences which are 'disrupt social order'. Including games that encourage players to question or to disobey symbols of authority, to place their loyalties towards small groups of like-minded friends or associates (for example, members of the player's gaming clan) above their loyalties to the state, or which encourage them to explorer alternative perspectives on society, history or culture.

At present, China watchers voice that the latter is more a risk from Japanese and Korean games than from Western games, as Western games tend to be lighter on social themes and plots in favor of acts of violence.

Economic Factors?

While Beijing largely cited public and child welfare as being the reasons behind its prohibition on foreign investment, and while some China watchers quote censorship and the forced as being a significant factor, other China watchers note that there are likely a significant economic factors involved. Specifically, market protectionism though restricted access.

Primarily china watchers have observed that foreign owned companies seeking to operate in China are already usually established in markets that Chinese companies cannot enter due to economic differences, and have access to funding sources that are similarly closed to Chinese companies, allowing them to produce games on an uneven footing to Chinese companies which have far more limited means, and to use their fiscal muscle and industry influence to push their smaller Chinese rivals to the margins

Similarly analysts note that Western companies typically have larger staff bases and larger back-catalogs, allowing them to flood Chinese markets with products in a short space of time if left unregulated. Which also puts the Mainland's much smaller, younger companies at a disadvantage.

Additionally, Beijing is likely worried that an influx of foreign titles may encourage Chinese firms to take on roles as content distributors, rather than content creators. Leaving China as a nation with few world class games developers, but many companies managing online accounts for games created overseas.

Beijing has long used quotas and restrictions in order to prevent the large US  studios from flooding China with films and television programs, and in order to ensure that capitol is spent on production rather than purchase in order to keep it within China, and to ensure that it benefits Chinese companies.

Future?

At present it is not clear how long the investment/influence prohibition will last, though China watchers though China wathcers predict that a total prohibition is unlikely to last long given current dometic funding opertunities, that it it is likely to be modified and relaxed substantially over time. Probably to the level where foreign companies will be mandated to join joint ventures with mandates for domestic involvement, as with many other industries.

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