Regulators in July turned their eye to China’s online gaming sector with a series of regulations and announcements aimed at cleaning up the industry. It was the latest in a broad crackdown on internet services in China as the country navigates a year full of significant anniversaries. While the effect of these efforts will not be known for some time, analysts don’t expect growth in the gaming industry to wane.
“[The government] is always trying to manage this industry, but currently we think those regulations are not so strict. Generally, the government is trying to help the industry to grow bigger,” said Jiao Jie, an analyst with BDA China. She said the key ingredients for the growth of the online gaming markets remain in place: an internet population larger than the total population of the US, and low penetration levels for online gaming.
CCID Consulting put China’s online game market at US$2.7 billion in 2008, and expects it to grow to US$6.1 billion by 2010. Other analysts expect the sector to post growth in the range of 30-50% for the next several years.
China’s online gaming sector has been allowed to thrive in a relatively easy regulatory environment compared with other internet segments, such as online video. However, new laws issued in July restrict the use of virtual currency for purchase of real goods, a practice common among online gamers.
Over the subsequent few weeks, the government expanded its control of the sector. The Ministry of Culture banned websites featuring or publicizing online games depicting gangsters, and representatives from the General Administration for Press and Publication (GAPP) announced plans to implement a “Green Online Games Publishing Program” to promote games without “vulgar content.”
Analysts say that details of the program are murky, and thus difficult to assess. For example, it remains unclear whether the program will be mandatory, as was the case with “Green Dam Youth Escort” filtering software, which Chinese authorities decreed would required on all PCs sold in China. The government has since backed down from its July 1 deadline for Green Dam’s deployment, and the future of the program is in question.
Analysts told China Economic Review that the push for healthy online game content is unlikely to draw the same criticism as Green Dam, as it will likely be on a lower order of magnitude.
However, they do believe that the attempt to clean up the online games sector is equally aimed at bolstering the domestic online games industry.
“Compared to foreign companies, domestic game developers lag more than ten years. It’s possible they can be beaten down if foreign developers really focused on competing in the China market,” said Zhao Xufeng, a senior analyst with iResearch in Shanghai. “The Green Project can protect Chinese games enterprises and help them develop quickly.”
She said that successful Chinese game operators may have to create products on two tracks: “green products” that bolster the company’s reputation and bonafides with the government, and games with racier content capable of drawing users and revenues.
Analysts said the government assistance could help Chinese online gaming firms improve their capability as the market grows. Others warn that regulation could increase as the online games sector proves itself to be an increasingly valuable part of the Chinese economy.
“As regulators empower themselves with more authority, newcomers, especially those small but innovative ones, will have less chance to stand out. Thus this could be bad news to investors,” said Guo Chenggang, an analyst with consultancy JLMcGregor in Shanghai.