With an impressive $4.25 billion in gaming-related revenue projected for 2020 (a 0.8% YOY growth rate) and roughly 325 million gamers (a 2.1% YOY growth rate), it should come as no surprise that the stakes are remarkably high when it comes to China’s online gaming industry, in light of it representing the global leader in terms of sheer number of users at this point in time despite the fact that we are “only” looking at a user penetration level of 22.4% for 2020, a value more than likely to continue heading north.
From a demographic perspective, it should come as no surprise that gamers are predominantly younger males, oftentimes at least reasonably educated and who live in urban areas. In terms of online game categories, the most popular ones are MMORPGs which revolve around a wide range of users interacting in a certain gaming “universe” such as the (in)famous World of Warcraft on the one hand and so-called MOCGs on the other, which includes anything from Ma Jiang to a wide range of other games, games of varying complexity levels.
Can online gaming-related developments constitute yet another example of let’s say the Westernization of China?
However, an important nuance arises yet again: the fact that as time passes, industry after industry adapts to Chinese realities and ends up dominated by Chinese players, even if that was not always the case. The very same principle applies to the online gaming space, which was indeed initially dominated by Western companies but at this point in time, the majority of active companies in the industry are Chinese, with important trends emerging such as:
- Popular Chinese platforms continuously approaching the market with their own set of games, for example WeChat, which enables its users to play mini-games within the platforms, without the individuals in question needing to install third-party apps
- Mobile gaming representing the elephant in the room in terms of mega-trends, with mobile gaming growth poised to keep outpacing PC/console growth
- Cloud gaming shaping up to represent a force to be reckoned with, especially in light of China’s dominance when it comes to the 5G dimension (with estimates pointing to a number of 5G connections in the 40 million zone for 2020, a number expected to grow more than ten-fold by 2025, all the way to 460 million)
- “China-specific” policies sometimes being implemented, for example the fact that gaming licenses were suspended for a period of 9 months in China back in 2018, in an effort to… of course, control the content of the video games in question, hardly an initiative that takes those familiar with this jurisdiction by surprise but nonetheless, one which affects the growth of the online gaming sector
- Controlling content does not represent the only reason why certain restrictive policies are being implemented. For example, to tackle health issues which range from gaming addiction to nearsightedness, China has imposed a strict curfew for minors last year, with young people under the age of 18 no longer being allowed to play online games as of 22:00 and until 08:00. Furthermore, their weekday online gaming “quota” was set at 90 minutes, a quota extended to 3 hours on weekends as well as holidays
- Such measures, however, aren’t stopping the rapid ascension of let’s call them sub-sectors such as eSports, with more and more Chinese individuals manifesting interest not just in playing games for entertainment purposes but actually making a career out of it
… the list could go on and on.
As mentioned previously, the Chinese online gaming industry tends to be dominated by domestic companies at this point in time, primarily:
- Tencent Holdings Limited
- NetEase, Inc.
- 37 Interactive Entertainment
- Beijing Kunlun Technology Co. Ltd.
- Perfect World Games
However, there are enough international players present in the market for it to be reasonably balanced, unlike with other industries where the market is excessively consolidated (fiercely dominated by a very low number of players) or on the contrary, excessively fragmented. Furthermore, there are acquisitions of domestic companies by international players planned and it remains to be seen how things will unfold, with it not being outside the realm of reason to envision an eventual trend change at one point or another, a state of affairs which should make it clear that we are dealing with a reasonably dynamic industry.
All in all, it would be a severe to the point of reckless understatement to merely use the term “promising” when referring to China’s online gaming industry. Career-altering profits are definitely on the table for investors wise enough to make smart decisions with respect to grabbing a piece of this particular pie but on the other hand, this industry is most definitely not for the naïve. On the contrary, those who do not understand the (many) particularities associated with conducting business in China in general and particularities associated with the online gaming industry in particular will most likely be caught off-guard in a most unpleasant way. Let’s just say that expecting strict government intervention comes with the territory, for reasons which range from ones that have to do with meaningful concern related to the dominant demographic involved (young people) such as the previously-mentioned curfew to reasons that are political in nature and have to do with the desire of the Communist Party of China to carefully control the manner in which online gamers spend their time online and especially the type of information they have access to.
Still, despite these shortcomings that are in no way limited to online gaming but perhaps more obvious when it comes to this industry given the demographic dimension, opportunities abound. Should you be in need of assistance with respect to exploring them properly and gaining exposure to the right (!) assets, the ChinaFund.com team of experts is only a message away and is looking forward to helping you make the most of this jurisdiction in general and, in this particular case, the online gaming dimension.