From Thursday to Sunday this week, the Shanghai ChinaJoy Game Expo is on. The Expo is a big opportunity for companies to showcase their new titles to a mass gathering of hardcore Chinese gamers.  Like car enthusiasts being wooed by gorgeous car models, gaming companies are using an arsenal of attractive female models, dressed in tight character costumes to fulful some type of fetish fantasy of their players. It seems they haven’t taken much notice of government directive against “vulgarity” and “obscene, sexually proactive behavior” as reported by Shanghai Daily. Held at the Shanghai New International Expo Center, the convention will feature sessions for game companies, game veterans, developers and of course players to discuss and experience the latest trends in the industry.

Online game market hits 9.48bn yuan in Q2 2011

The dynamic of Chinese consumers is starkly different to other countries. Since Chinese people don’t like paying for things online, companies have accepted this fact and monetize from selling virtual goods and online advertising. This is in contrast to many Western or European countries where avid game geeks would line up for hours to pay for the first copy or subscription of a game. However this doesn’t mean there is not much money in this industry. On the contrary, iResearch values the Chinese consumer online game market to be 9.48bn yuan in Q2 2011, representing a 23.9% increase year on year.

This new model of free to play but paying for in game items has been popularized by companies like Tencent, who we reported recently is teaming up with American game giant, Zynga. Kabam, who we also interviewed sees free to play as a friction-less way to scale users and monetize at the right time.

Online Web Game Advertising market shrinks 7.2% – Shift to Mobile Internet Games

In 2011Q2, China’s online game advertising market size was $173 million, a decrease of 7.2%. iResearch reports that, China’s user conversion and retention rate of online advertising is falling and online advertising costs are increasing.

As online advertising effectiveness for web games decreases, advertisers are looking to shifting budgets towards mobile internet games where iResearch values the mobile game market size to be 980m yuan in Q2 2011, a year on year growth of 66.1%. The explosion of Android and iOS has been a major factor of this growth.

Chinese game companies looking to expand overseas markets

As if the China market wasn’t big enough, Chinese companies are looking (as they should) to go global. Many have already started shipping titles overseas. However like many other Chinese tech companies which have listed on the NASDAQ in America, game companies like Shanda and CYOU, suffered steep stock price declines shortly after listing.  Also Chinese game companies face challenges of intense competition from Japanese and South Korean game developers. To support their homegrown gaming industry, even the government is supporting with new industry regulations and favorable policies as well as encouraging overseas expansion.