Game over? China’s game industry navigates post-crackdown era

Beijing, China – China’s nine-month freeze on computer games licences is over following the approval of 45 new titles earlier this month, and gaming stocks have climbed.

But the country’s computer games sector faces a difficult road to recovery as Beijing continues its sweeping crackdown on gaming, industry insiders and experts say.

Measures rolled out by Chinese authorities since last year include time limits on online gaming for underage gamers to counter addiction and rigid real-name verification rules banning adults from making anonymous in-game purchases. 

The rules have resulted in fewer young gamers and put off enough adults that “games lose money from in-game purchases and rely more on ad revenue,” according to Francesca Yu, marketing manager at AppInChina, a Beijing-based software publisher that helps firms publish and promote mobile apps and games.

Another major hurdle, according to Yu, is “fierce” competition in China’s gaming sector. With juggernauts like Tencent and NetEase controlling well over half of the market, smaller and independent developers are left fighting for the remaining scraps. There were about 300,000 game companies with capital of less than 10 million yuan ($1.5 million) in China last year, according to corporate database Tianyancha.

That means “with dozens or hundreds of ISBNs issued each month, many companies still face bankruptcy,” Yu told Al Jazeera.

Nir Kshetri, an economics professor at the University of North Carolina at Greensboro who has researched China’s gaming industry points, said tens of thousands of firms went out of business when China implemented its freeze on licences in July 2021.

“Many gaming-related businesses that are operating significantly cut down their workforce,” Kshetri told Al Jazeera. “Due to the lack of a rich gaming ecosystem, Chinese developers are likely to face significant challenges to monetise their games until the ecosystem is rebuilt again.”

Despite the difficulties, some local developers believe the sector still has huge untapped potential.

A Shanghai-based game designer, who spoke on condition of anonymity, said that while the licensing freeze had hurt mobile games, “the established global user base for distribution platforms like Steam, Epic Store etc is simply too large to ignore, and Chinese games without proper government licensing can still reach Chinese audiences through them, and are usually given a free pass unless they contain strong political or pornographic content”.

He said the industry remains attractive for him and many of his peers. Not only does the sector offer competitive salaries and significant overtime and other benefits, he said, its infamously long working hours do not much differ from the gruelling schedules at Western studios.

“Personally speaking, unless I land a job in a studio from a Nordic country, I’ll stay in China,” he said, referring to the draw of the Scandinavian work-life balance.

A Beijing-based employee at a video game advertising company, who also spoke on condition of anonymity, expressed a similar sentiment, saying he felt little desire to go abroad given language and cultural barriers and the competitive salaries in China.

Still, the work pressures are intense, with many Chinese game company teams demanding to “update things like their games’ themes within a week,” he told Al Jazeera. “A similar company in America would often have a month to make a new theme. So the intensity of the work is much stronger here.”

Kshetri, the UNC Greensboro professor, said there are benefits to remaining in China despite the intense pressures on workers and increasingly oppressive regulatory environment.

“With 720 million gamers in 2021, the Chinese gaming industry is the biggest in the world, offering a lot of opportunities for developers and others in the gaming ecosystem,” he said. “Such opportunities cannot be matched in other countries.”

Looking overseas

The industry may also be able to mitigate some of the growing burdens of local restrictions by looking to expand overseas. During the licensing freeze, numerous Chinese gaming companies pivoted to publishing their titles abroad.

Yu said that Chinese gaming companies are increasingly setting their sights on the international market, not least because the number of licences issued in China was already in sharp decline before the recent freeze.

Chinese authorities approved 9,369 titles in 2017, just over two thousand in 2018 and only 755 in 2021.

This trend indicates that regulators will issue fewer licences each year, Yu said, suggesting “that the number of games that can be published in mainland China is also diminishing”.

“Competition among Chinese game developers for the few ISBNs that can be issued each year is driving them to look for other opportunities … making distribution in China increasingly challenging, forcing Chinese game developers to publish elsewhere,” Yu added.

Tempting as the overseas market may be, it brings different challenges as well, according to Shuyi Han, senior project manager at Daxue Consulting. Companies developing in China have the advantage of greater clarity about “market regulations and the market, but just need to wait for the ‘green light’ for a long time,” Han told Al Jazeera, “which might be a big challenge for the cash flow and company operations,” while the international market is full of regulatory uncertainties. “Therefore, overseas development requires more effort in localization to avoid illegal operations.”

Kshetri cautioned that getting games published overseas is easier said than done.

“They mainly take into account Chinese consumers’ preferences, which are different from preferences of consumers outside China,” Kshetri said, pointing to Tencent-distributed blockbuster Honor of Kings, whose user base is 97 percent Chinese, as an example of a successful Chinese game that has relatively little appeal overseas.

“The games developed by most Chinese companies are based on themes that are not popular outside China, and most non-Chinese players do not understand the stories,” he said.

The Shanghai game designer agreed that China’s gaming industry lags behind much of the West in terms of R&D and production processes.

“I have worked and spoken with people who came from studios with hundreds of employees who do not have proper processes, and solve most problems with time, money and crunch,” he said. “So if a specialist wants to work on larger games, chances are studios outside of China will offer better opportunities.”

Even so, local industry watchers say that gap is narrowing, with talent at Western giants such as Ubisoft and Virtuoso increasingly transferring to Chinese game studios.

“In a few years Chinese companies can catch up, because they have more intense workflows, and are continually tasked with updating their games so quickly,” said the Beijing-based gaming advertiser.