China’s love-hate relationship with gaming won’t stop it from dominating the industry

4 min read
(Image credit: BigStock/nopponpat)

China has long been ambivalent about technological change, attempting to reap the rewards of innovation while also protecting existing traditional structures. In the 15th century, the treasure fleet commanded by the eunuch admiral Zheng He that brought riches and territorial expansion to the Yongle Emperor was destroyed, some historians theorize, after it threatened the Confucian hierarchy by allowing merchants to become very rich, very quickly. The first railroad in China, just outside Shanghai, was dismantled in 1877 because it threatened Confucian social order, not to mention the steamships used to navigate the canals surrounding Shanghai.

Nowadays, this ambivalence manifests itself as a strained relationship between the market forces of entertainment and an older generation wary of things they don’t understand. However, unlike in the past, China not only recognizes the importance of embracing change, but also the capability to shape how it impacts the broader culture, putting it on the path to become a gaming powerhouse.

In 2018, the country had an estimated 463 million mobile game players, according to a report by China’s Game Publishing Committee and Gamma Data. That’s almost 60% of all mobile phone users in China and 44% of all mobile game players worldwide, according to Statista data; around 33% of all Steam users come from China, based on calculations via publicly available figures about the platform’s user base. In 2019, data from Statista shows that the country is projected to lead the world in mobile game revenue, and just recently, the central government recognized gaming as an official profession.

However, since PC and console games first became popular, governments, teachers, and parents have warned that video games will not only cause nearsightedness but also may lead to antisocial behavior and even addiction.

Just as Honour of Kings—aka Arena of Valor—was taking off in 2017, the People’s Daily—a publication referred to by some as the “mouthpiece of the Chinese Communist Party” and frequent host to moralistic opinions—ran an opinion piece comparing the top-grossing game to poison.

After the July 3, 2017 piece, titled “Honour of Kings: Is it entertainment for the masses or a lifetime trap?”, asserted that the game was a carrier of “negative energy,” Tencent lost $17.5 billion in market value. Even before the scathing piece sent shockwaves through the market, the content and entertainment company had already been responding to negative feedback by introducing methods to limit minors from playing its most popular game.

Intoxication

Much as the US and most of the Western world have grappled with the implications of violence in games, China finds itself continually debating the place in society of one of the most entrancing uses of technology. That intoxicating sense of reward, accomplishment, and achievement—gained by earning badges, acquiring virtual items, and actually completing something—keeps people coming back for “just one more level,” the holy grail of game design.

While the attention economy incentivizes ease of player reward, it wasn’t always that way. Dwarf Fortress, Rogue, Ghosts ’n Goblins, Battletoads, and the many point-and-click adventure puzzle games were all designed to be extremely hard. As the entire games industry expanded, developers and publishers toned down the difficulty to attract more “casual” players, culminating in the mobile game revolution with infinitely playable hits like Candy Crush, Clash of Clans, and Honour of Kings.

The basic stance of China’s guardians of culture, however, has remained consistent: fostering the “healthy” development of gaming in China.

“The Chinese government has had youth gaming protection policies for as long as there has been digital gaming in China, or at least for as long as Niko Partners has covered the market, which is now 17 years,” Daniel Ahmad, an analyst at Niko, a research firm that focuses on gaming in China and Southeast Asia, told TechNode.

Anti-addiction policies for PC games have been in place since 2007, when online game operators were required to implement timers for minors. However, when mobile games were taking off in 2014, regulators specifically stated that anti-addiction systems were not needed. It wasn’t until after gaming regulation was put under the remit of the Publicity Department of the Central Committee of the Communist Party of China (aka the Propaganda Department or zhongxuanbu in Chinese) in 2018 that Tencent and Netease began to seriously implement anti-addiction measures for minors.

And yet, while Tencent’s cash-cow may be “poison,” these protections actually have limited impact on margins, according to Ahmad. Jiguang, a Chinese internet research firm, says that 3.5% of Honour of Kings’ user base is 14 or younger, while 22% are between 15 and 19 years old.

Moreover, it’s not just the games themselves, but a whole new industry around games that is proving extremely lucrative. In 2017, Niko Partners predicted the professional e-sports market in China would grow that year to $1.26 billion, not including revenue from regular gamers playing the games themselves.

Another report in 2017, by Chinese research firm iResearch, estimated that the overall e-sports market was worth $13 billion. That same year, Tencent announced an agreement with the government of Wuhu in East China’s Anhui province to build an e-sports “village.” In 2018, the company said they would invest $150 million a year in e-sports. On top of that, the only live-streaming model to grow after the sector cooled off was e-sports and gaming.

Douyu, backed by Tencent and leading the live-streaming industry, is rumored to go public in the US to raise $500 to $600 million. The company is currently valued by CBInsights at around $1.51 billion.

Economic goldmines

Realizing that gaming and e-sports are not only economic goldmines but also vehicles to achieve other goals, including greater prominence on the global stage, the Chinese government has spearheaded initiatives to capitalize on the rapidly growing industry.

In November, Hangzhou unveiled its own e-sports town, built at a cost of RMB 2 billion ($280 million). It is expected to attract more than 10,000 e-sports professionals and RMB 1 billion in tax revenues. The city also plans to invest RMB 15.45 billion ($2.2 billion) in 14 additional e-sports facilities.

In December, Xi’an held a “summit” dedicated to e-sports and signed partnership agreements with prominent teams and event organizers, all of whom will move part of their operations to the city. At the conference, the Xi’an government also announced they would support individual companies up to RMB 100 million (around $14.52 million).

Given that many boom-bust cycles in China are fueled—at least in part—by government support, “smart money” tends to follow where government money flows. If the improving performance of Chinese teams is any indication, including the stunning wins at the 2018 Asia Games (the first Olympic Council inclusion of e-sports), China’s dominance of gaming will soon stretch beyond Asia.