Home Asia News How bad is China’s gaming crackdown affecting the industry?

How bad is China’s gaming crackdown affecting the industry?

China gaming
Children play arcade games in China (Source: testing / Shutterstock.com)

China’s crackdown on gaming is increasingly affecting the industry. Whether it’s China’s protectionist approach to promote social wellbeing among minors or its nationalistic approach to content regulations, gaming has become an increasing target for Beijing’s authorities.

Introducing even more stringent controls earlier this year, China now has the world’s most restrictive gaming policy for minors. To limit gaming exposure, young gamers are now allowed only three hours a week for online games. China also announced stricter control over live streaming by children. With gaming addiction turning into a troubling issue for China, the new rules announced in August also require all online games to link with a state anti-addiction system. More than 30% of Chinese children suffered from gaming addiction in 2018.

Uncertain times for gaming giants

Bejing has introduced even more stringent controls over gaming companies, from licensing, to video game content to monetisation strategies. The government has outlined the latest ‘red lines’ for game developers this year, further restricting the type of content they can produce. Not only that, but the government hasn’t approved any new games since August. Even though there has been no such formal announcement, fears are growing that the country would fully suspend licensing. Chinese regulators are usually expected to approve 2000-3000 new games annually.

In other news, engineers and developers in China are fearing job security due to the freezing of video game licenses. Amid Beijing’s gaming crackdown, ByteDance gaming studio Ohayoo, a gaming unit it created in 2018, announced that it has laid off dozens of employees. ‘Nearly 100 employees have been affected,’ the company informed, which has around 350 employees.

Howard J. Klein of Casino Business Review said in a research note on Smartkarma that if China still continues on its policy, it presents a conundrum to the entire gaming sector of Asia.

One of its biggest home-grown gaming platforms and China’s largest company by market value, Tencent Holdings, is also facing the heat. Against the backdrop of the continuous crackdown on the industry, Tencent reported its slowest profit growth in two years. As per Refinitiv data, the revenue of the world’s largest video game publisher climbed slightly below expectations by 13% to 142.4 billion yuan, but it was the slowest quarterly growth since the company went public in 2004. The owner of games such as “Honor of Kings” and “PUBG mobile” said users below 18 years of age accounted for 0.7% of domestic games time in September 2021, down from 6.4% in September 2020.

“During the third quarter, the internet industry, including the domestic games industry, and certain advertiser categories, adapted to new regulatory and macroeconomic developments,” Tencent’s chairman and CEO, Pony Ma, said in a statement.

The ongoing gaming crackdown of the Chinese authorities has also pushed the company to the global market. Tencent subsidiary TiMi Studio Group has launched independent gaming studios in Seattle and Los Angeles, besides China.

Meanwhile, a big industry player from the US – Epic Games – has called quits on China, due to growing restrictions on games in the country. It recently closed the Chinese version of Fortnite – ‘Fortress Night’ – on November 15.

LightStream Research analyst Mio Kato wrote in a research note on Smartkarma that Epic is willing to walk away after two year testing period either means China is now closed for business to games or that Epic did not feel that investing in changes to meet regulatory requirements was worth it.

Role of gaming industry in China

On the other side of the coin, China is also ahead in boasting itself as the world’s most competitive and lucrative gaming market, which saw an outburst of growth due to the pandemic. On the back of many small and large market players, the gaming industry is one of the fastest-growing domestic tech sectors in China, with big techs capitalising on its growing gaming and e-sports industry.

According to SensorTower listing, the top 30 Chinese game publishers accounted for 26% of the mobile gaming revenue worldwide, as of June 2020.

In the first half of 2021, there were total sales of more than US$32 bn (150 bn yuan), as per estimates by China’s Gaming Industry Report. The report added that the nation’s gaming market is expected to grow 14% Compound annual growth rate (CAGR) during 2021 – 2026.

The rising popularity of eSports in China is one of the primary reasons resulting in the growth of the gaming industry, as per the report. It further explained that the mobile games segment of the gaming market is likely to witness significant demand during the forecast period on back of the nation’s growing mobile gamers population.