China’s Crackdown on the Gaming Industry

China has surprised the global gaming community by starting a full-fledged crackdown on the gaming industry. The Chinese government has not been the first one to try and restrict online gaming. For instance, in 2011, the government of Korea created a regulation which prohibited minors under the age of 16 from playing online games between midnight and 6 am. However, the Chinese regulations are definitely the strictest. Also, they are likely to cost video game publishers billions of dollars in lost revenue since China is the number one gaming market in the world.

In this article, we will have a closer look at the Chinese video game industry as well as the impact of this crackdown on the industry.

The Chinese Gaming Market

The Chinese gaming market overtook the American market in 2017. It now has over 600 million active players and is the largest gaming market in the world. One of the biggest reasons for China’s rise is its massive population. For instance, the number of gamers in China is about twice the size of the entire population of the United States. The revenue derived from this market is close to $40 billion per annum. A cursory look at the statistics is enough to understand that the Chinese gaming market is the most important gaming market in the world.

What Is the Gaming Crackdown?

The Chinese premier Xi Jinping is of the opinion that multinational companies are addicting the Chinese youth to video games. He believes that this is causing health issues in Chinese teenagers. Also, the productivity of these teenagers is being compromised because of their addiction to these games.

As a result, he has asked the regulatory bodies to clean up the Chinese gaming industry. As a part of the cleanup, multiple efforts have been taken. Firstly, the Chinese regulatory authorities have issued no new licenses for video games since the beginning of 2018. Since even free games require a license to operate in China, this means that the Chinese authorities are simply prohibiting the launch of any further games. Also, many existing apps which provide content which was deemed to be objectionable by the Chinese regulators were closed down.

Who Will Be Affected?

Since the gaming industry is such a large industry in China, the crackdown would end up creating many casualties.

• Publishers: The publishers would be the first casualty of this war on video games. Some of the largest publishers of video games are present in China. For instance, Tencent is the number one publisher of video games in the world.

  If anyone has played a video game in the recent past, chances are that the game was owned by Tencent. At the present moment, the stocks of Tencent are taking a severe beating because of the strict regulatory climate. Hence, China’s policies will end up hurting one of its own giants.

  At the present moment, Tencent is the fifth largest corporation in the world. Its market capitalization exceeds that of companies like Facebook. However, if the Chinese crackdown continues this may not be the case for very long.

• Employees: if the Korean gaming industry is any precedent, increased regulation will lead to more consolidation in the industry. The gaming industry like any other industry is dominated by a handful of big players with smaller players on the fringes.

  If the regulations are made stricter, the smaller players will be hurt the most. As a result, they will end up selling to the competition. When consolidation happens in any industry, a lot of employees find themselves redundant. This is likely to happen in China as well. Hence, China may end up compounding its problems. It is already witnessing a slowdown thanks to the trade war with the United States. Creating more unemployment will only make matters worse.

Risks

The Chinese government faces several risks because of the high handedness and the knee-jerk reaction it has displayed in this issue.

• Opaque Regulation: Many international investors are finding this sudden crackdown on gaming to be very disturbing. Investors make long-term investments in any country in the hope that the legal environment will be stable.

  If a particular industry was not regulated when it was started, it could not suddenly be made to face severe regulations and that too without any visible reason! China’s brazen conduct is now scaring off investors who are beginning to believe that the status of the video game industry today could be the status of any industry tomorrow.

• International Growth: China needs to have a large and valuable domestic industry. This is what will give it a bargaining chip while negotiating with foreign powers such as the United States. However, Chinese policies are making it impossible for local companies to survive and thrive locally. These companies will be forced to move abroad in search of greener pastures. This will impact the tax revenue as well as the employment status of China.

To sum it up, the Chinese government has unwittingly unleashed many regulatory hurdles on video game companies. The end result will be that many of these companies will not survive in the long run. This sudden crackdown will have wide-ranging consequences for companies in China as well as abroad.