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Beijing, China – China’s nine-month computer game licensing freeze is over after approving 45 new titles earlier this month, and gaming shares are up.
But the country’s computer games sector faces a difficult road to recovery as Beijing continues its crackdown on games, industry insiders and experts say.
Measures introduced by Chinese authorities since last year include time limits on online games for underage players to discourage addiction and strict real name verification rules that prohibit adults from making anonymous in-game purchases.
The rules have resulted in fewer young players and scared off enough adults that “games are losing money on in-game purchases and relying more on advertising revenue,” according to Francesca Yu, marketing manager at AppInChina, a Beijing-based software publisher, the company helps publishing and promoting mobile apps and games.
Another major hurdle, according to Yu, is the “tough” competition in the Chinese gaming sector. With juggernauts like Tencent and NetEase controlling well over half of the market, smaller and independent developers are vying for the rest. According to the Tianyancha company database, there were about 300,000 game companies in China last year with capital of less than 10 million yuan (1.5 million US dollars).
That means, “With tens or hundreds of ISBNs being issued every month, many companies are still facing bankruptcy,” Yu told Al Jazeera.
Nir Kshetri, an economics professor at the University of North Carolina at Greensboro who has studied the dots of China’s gambling industry, said tens of thousands of companies went out of business when China implemented its licensing freeze in July 2021.
“Many gaming-related companies that are in operation have significantly reduced their workforce,” Kshetri told Al Jazeera. “Due to the lack of a rich gaming ecosystem, Chinese developers will likely face significant challenges to monetize their games until the ecosystem is rebuilt.”
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 license freeze has hurt mobile games, “the established global user base for distribution platforms like Steam, Epic Store, etc. is just too big to ignore, and Chinese Games without proper government licensing can still reach Chinese audiences through them and usually get a free pass unless they contain strong political or pornographic content.”
He said the industry remains attractive to him and many of his colleagues. Not only does the sector offer competitive salaries and substantial overtime and other benefits, he said, its notoriously long hours are not very different from the grueling hours at Western studios.
“Personally, I will stay in China unless I get a job in a studio from a Nordic country,” he said, referring to the Scandinavian work-life balance draw.
A Beijing-based employee of a video game advertising company, who also spoke on condition of anonymity, expressed a similar sentiment, saying he had little desire to go abroad given the language and cultural barriers and competitive salaries in China.
Still, the work pressure is intense as many teams from Chinese game companies demand “to update things like the themes of their games within a week,” he told Al Jazeera. “A similar company in America often had a month to create a new theme. So the intensity of the work is much stronger here.”
Kshetri, the UNC Greensboro professor, said there are benefits to staying in China despite intense pressure on workers and an increasingly repressive regulatory environment.
“With 720 million players in 2021, the Chinese gaming industry is the largest in the world and offers many opportunities for developers and others in the gaming ecosystem,” he said. “Such opportunities cannot be achieved in other countries.”
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The industry may also be able to alleviate some of the growing strains of local restrictions by looking to expand overseas. During the license freeze, numerous Chinese gaming companies switched to publishing their titles abroad.
Yu said Chinese gaming companies are increasingly targeting the international market, not least because the number of licenses issued in China had already plummeted before the recent freeze.
Chinese authorities approved 9,369 titles in 2017, just over 2,000 in 2018, and just 755 in 2021.
This trend suggests that regulators will grant fewer licenses each year, Yu said, suggesting “the number of games that can be released in mainland China is also decreasing.”
“Competition among Chinese game developers for the few ISBNs that can be awarded each year is driving them to look for other opportunities…making distribution in China increasingly challenging and forcing Chinese game developers to publish elsewhere,” Yu added added.
As tempting as the overseas market is, it also presents other challenges, according to Shuyi Han, senior project manager at Daxue Consulting. Companies developing in China have the benefit of greater clarity about “market regulations and the market, but only have to wait a long time for the ‘green light,'” Han told Al Jazeera, “which could be a big challenge for the money flow and.” Company Operations”, while the international market is full of regulatory uncertainties. “Therefore, overseas development requires more localization efforts to avoid illegal operations.”
Kshetri warned that releasing games abroad is easier said than done.
“They mainly consider the preferences of Chinese consumers, which are different from the preferences of consumers outside of China,” Kshetri said, pointing to Tencent’s blockbuster Honor of Kings, whose user base is 97 percent Chinese, as an example of a successful Chinese Game that has relatively little appeal abroad.
“The games developed by most Chinese companies are based on themes that are not popular outside of China, and most non-Chinese gamers don’t understand the stories,” he said.
The Shanghai-based game designer agreed that China’s game industry lags far behind the West in terms of R&D and production processes.
“I’ve worked and spoken to people who came from studios with hundreds of employees who don’t have proper processes and solve most problems with time, money and crunch,” he said. “So if a specialist wants to work on bigger games, studios outside of China probably have better options.”
Still, local industry watchers say the gap is narrowing as talent increasingly migrates from Western giants like Ubisoft and Virtuoso to Chinese game studios.
“In a few years, Chinese companies may catch up because they have more intensive workflows and are constantly tasked with updating their games so quickly,” the Beijing-based gaming advertiser said.