1 Daron Chu Fudan ID# 07309086016 Chinese Media & Politics December 18, 2009 Final Paper Gaming

in China: New Cash Cow? The video gaming industry is one of the fastest growing industries in the world. In the Unites States alone, the video gaming industry made about USD$9.5 billion in the US in 2007, and 11.7 billion in 2008 (Lowenstein). And that number is only expected to grow, by 2010, there will be 75 million Americans between the ages of 10 and 30-years, 69% of which will be playing video games (Lowenstein). Doug Lowenstein, the president of the Entertainment Software Association says that, the game industry is playing a pivotal role in shaping the economy of tomorrow. It is being added to the list of industries television, automobiles and telecoms that have transformed the lives of Americans (Lowenstein). The U.S game industry was worth $10.3 billion in 2004, but it generated a further $7.7 billion in economic value," he said. "Even that figure under-estimates the impact the game industry has on improving the performance of industry (Lowenstein). He also pointed out various examples of game industry technology being used to grow other businesses, including IBMs use of Cell technology in medical image-, mapping, the militarys use of games for training purposes, how real estate agents use game-technology to entice buyers and how games are driving uptake of mobile phones, broadband and home networking. Companies like Verizon and Comcast love that gems industry, said Lowenstein. The president of the ESA also pointed out that the game industry was directly or indirectly responsible for 144,000 jobs in 2004, a number that would grow to

2 265,000 by 2010. He also argued that the competition among young people to gain jobs in this industry is driving growth of interest in maths and physics education, key skills in a growing competitive global environment. And he talked about studies which link gaming with skills such as strategic thinking, problem solving and adaptation to rapid change (Lowenstein). Compare these statistics to China, and one can easily tell that China also has an ample opportunity to reap the obvious benefits and capital gains the gaming industry can provide. And indeed it has already started to do so, video games in China represents one of the largest and fasted growing electronic business sectors in the country. With an estimated 338 million Internet users currently active in China, the country now has the largest online user base in world, of which two-thirds engage in online game play (Radoff). Thats more than the entire population of the United States, and at a reasonable 5-7% annual rate of growth for the Chinese Internet population, it wont be long before there are more Chinese online gamers than the entire US population (Radoff). Official Chinese statistics regarding online gaming state that as of the close of 2006, revenue from China's online gaming industry reached 8 billion RMB or around 1.04 billion US dollars, with earnings reaching around 33 billion RMB or 4.3 billion US dollars. Additionally, while American, Japanese, and Korean companies have traditionally dominated the market, Chinese developed software now holds a 65% market share on the mainland, with an additional 20 million in revenue generated by users outside of China. The online gaming market in China grew to $1.6 billion in 2007, and is expected to exceed $3 Billion in 2010 (Xinhua). Just like the United States, the rapid growth in online gaming has created opportunities for telecom, Internet, computer, software and consumer electronics firms, which earned 33 billion Yuan (4.3 billion U.S. dollars) from online gaming in 2006 (Xinhua). However, China has still largely missed out on the first few chapters of the gaming boom that started in the 1990s, and is still booming,

3 because of economic limitations. Few of the country's 1.4 billion citizens can afford a game console or a PC. And at the same time, widespread software piracy has resulted in many game developers to refrain from releasing game software in China. This same piracy problem has also led to the limited distribution of Western movies, music and other entertainment. However, at this years Electronic Entertainment Expo, gaming and Internet industry executives all agreed that China is a potentially huge market for online computer games, but one that's hindered by a maze of regulatory, cultural and business factors (Becker). The video gaming industry has very often pushed the envelope for personal computing technologies, and owes in large part many advancements and innovations to the gaming industry. So the basic question to ask now is, why China throws up so many obstacles, regulations, and restrictions, to an industry that is ready to offer so much economically, socially, and technologically? And after finding the many possible answers to this question, then we can ask what can be done to ease these barriers and make the gaming industry more acceptable in China so they can reap the rewards? I have a few hypothesiss to answers these two main questions, but the main assumption is that the Chinese government still strives to control all information coming in and out of China to retain power. Whoever controls the information will be the same faction that wields the most power. That is of course an obvious answer. The reason why the government still tries to control this aspect of Chinese society has to do with several issues, all of which ranges from the political, economical, and social aspects of Chinese life and society. The economic aspect of why China insists on tightly managing the video game industry is basically the opposition to the influx of an industry that is, for the most part, completely foreign. The United States and Japan dominate the worldwide gaming industry and if China allowed them

4 free rein into their country, Chinese game developers would be quickly shutout. Although Chinas growth and adoption of the Internet since the 1990s has been staggering, certain technological sectors such as software development have only begun to take shape in China. Due to the poor economic climate before the economic reforms of Deng Xiaoping, most information technology has been completely imported from foreign sectors, and has had to start from scratch. Japans and the United States technological industries and software development have had a much longer time to mature and do not suffer from the same restrictions on content as Chinas creative industries, so innovation on the part of Americas and Japans industry has been quick to grow and is a key part of the gaming industry culture there. Therefore it is only natural that Chinas video games industry lags compared to the competition. So far, the barriers set up to resist the would-be flood of foreign game developers have been paying off. According to stateowned Xinhua news agency, China-made online games held 65 percent of the domestic market in 2006 and had export revenues of 20 million U.S. dollars last year. And in 2003, China's first domestically developed game, Legend of Knights Online, hit 80,000 paid simultaneous players in a week, a positive sign for the growing Chinese software industry in a Western-dominated market (Becker). Chinas stance on strict regulation of video game content is its response to the possible political and social implications of liberalizing the gaming industry. The governments policymakers believe that they have to in order to maintain Chinas current steadfast commitment to the construction and preservation of a harmonious society. In 2004, Chinas Ministry of Culture established an imported game products screening committee in an effort to step up examination on the content of online games. The committee regulates that online games with content violating basic principles of the Constitution, threatening national unity, sovereignty

5 and territorial integrity and that might divulge state secrets should be banned from importing. Online games with content threatening state security, damaging the nation's glory, disturbing social order and infringing on other's legitimate rights will also be prohibited (Xinhua). Although China has strict barriers to the importation of foreign video games and other media, outlets for distribution of unauthorized foreign media is common and easily accessible. Video games made in the United States especially, tend to reflect and represent opinions and perspectives that are oftentimes aloof to the cultural sensibilities of different cultures. In the case of China however, it has more do with the fact that those different opinions and perspectives can run contrary to the official policies of the ruling Communist Party. Their main fear is that with the influx of foreign media will come with it, an influx of foreign ideas. Such ideas can become a direct threat to the States monopoly of information, which translates to a threat to their monopoly of power. The rapid growth and success of Chinas economy is due in large part to Chinas overall improvement in social and political stability since the frenzied days of the Great Leap Forward and the Cultural Revolution. This gives Chinas policy leaders a strong incentive to disfavor any form of media that may undermine its position, no matter how beneficial they otherwise may be from potentially becoming apart of the Chinese social ethos. The government is well aware that once certain freedoms or a certain train of thought takes hold, it can be difficult to undo. The question of why China makes it so difficult to develop a healthy and uninhibited video games industry despite the benefits it will produce is asked, ultimately, in order to understand how to best deal with restrictions and to make a compromise. Because if a solution can be found, then China can reap the positives of having a burgeoning video games industry, without compromising the interests of the Party. Other corporate lobbyists have tried to

6 forcefully open China up, by lobbying legislation that aims to punish China for creating an inequitable business environment to Western software developers, by putting up trade barriers of their own on Chinese industries looking to enter the West. Some video game companies have not only threatened to, but have completely withdrawn from the video game market in China due to the rampant piracy problem. Such as Nintendo, which claims, as of February 14, 2008, China remains the main source of manufacturing pirated Nintendo DS and Wii games. This has resulted in its refusal to release any original products in the country (Becker). Most of these tactics have been complete disappointments for industry advocates and have completely failed to open up Chinas video game industry. The research I would conduct would attempt to accurately measure the level of how foreign video games in China, authorized and unauthorized, actually affect the perceptions of its citizens towards the government and its policies. Whether it negatively affects the image of the Chinese government, weakens the official policies of the government, or has no affect at all. The results of which would finally shed light on whether or not the Chinese government is overreacting and whether or not there is even any reason to be afraid of such an industry at all. The methodology used to carry out such a research assignment would be to create a questionnaire and conduct interviews with video gamers in China. The questionnaire would ask whether or not video games have any impact on their attitudes towards the government and if video games, foreign or otherwise, have changed their perception in anyway towards the government. It would also ask if the official censorship deals any negative effects to their perception of government or its policies. The interviews would catch a more personal view of the opinions of gamers in China. And some questions that could be asked are what their level of patriotism is, or whether or not foreign video games have altered their global views. The way the

7 research would be conducted would be to go to the numerous and very popular Internet cafes all over China and ask random gamers there. Often times Internet cafes in China will have access to unauthorized foreign games as well, since piracy makes acquiring banned video games very easy. All of the information collected would be used to help the government understand the true effect foreign video games have on its people. If it is found that foreign video games have little to no effect on how people view the government, its policies, or their patriotism, then perhaps China can begin the process of easing restrictions and lowering barriers to its video games market. The situation is a possible win-win for all parties involved if the research finds the assumption that all forms of video games are politically docile to the government. The foreign and local video game developers will be able to make profits by making partnerships with each other, local developers can help foreign ones navigate the quirks of a newly opened Chinese market, and the Chinese government can hold onto their position of authority, which is necessary to ensure political and social stability, while at the same time reaping the technological, social, and economical benefits of such a modern and innovative industry.

8 Bibliography Becker, David. " Online-game developers eye China market." Cnet News. 14 May 2004. CBS Interactive Inc., Web. 19 Dec 2009. <http://news.cnet.com/Online-game- developers-eyeChina-market/2100-1043_3-521299.html>. Lowenstein, Doug. "An Industry Shows Its Growing Value ." BusinessWeek. 12 May Bloomberg L.P. , Web. 19 Dec 2009. <http://www.businessweek.com/innovate/content/may2006/id2000511_715050.ht m? campaign_id=rss_innovate>. Radoff, John. "Chinese Online Game Market Roundup Q3 2009." Internet Entrepreneur 2.0. 26 Nov 2009. Creative Commons, Web. 19 Dec 2009. <http://radoff.com/blog/2009/11/26/chineseonline-game-marketroundup-q32009/>. Daily 2006.

"China's online game industry on a roll." People's Daily Online. 13 Apr 2007. People's Online, Web. 19 Dec 2009. <http://english.people.com.cn/20004/13/eng2007013_366346.html>.