China has banned foreign investment in its online gaming industry in a tightening of its censorship regime and an effort to protect local gaming companies.
Foreigners would be banned from operating online gaming within China through wholly foreign-owned investments, joint ventures or any other forms of co-operation with local companies, the country’s publishing regulator said.
The notice put up on the website of the General Administration of Press and Publication on Saturday is the latest of Beijing’s steps this year to tighten control over China’s booming virtual worlds.
Earlier this year, GAPP announced that online games could only be launched after it had approved them, adding to the risk in marketing products that can take years to develop.
When Netease, one of the country’s leading internet portals, won the licence formerly held by The9, a smaller gaming operator, to operate Blizzard’s World of Warcraft in China, the government delayed approval for the company’s co-operation with Blizzard.
Revenues in China’s online gaming market are expected to grow by up to half this year to Rmb27bn according to GAPP. The industry is dominated by domestic companies such as Tencent, Changyou, Shanda – which launched its shares on Nasdaq in September – Netease and The9.
However, many of them still make a large part of their revenues from foreign-developed games, for which they have to pay royalties. World of Warcraft is China’s most popular game on the web.
“The cost for developing new games is rising exponentially, and many Chinese online gaming companies face the threat that they can no longer afford to develop games and will see themselves forced into agreements to distribute foreign games,” said Edward Yu, head of Analysys, a Beijing-based research firm. “Partly, this new policy is an attempt to protect local gaming companies.”
Analysts said the move was unlikely to lock foreign online gaming companies out of the market because GAPP is only one of several regulators. The Ministry of Culture and the Ministry for Industry and Information Technology also have a stake in regulating online industries and could take different views, especially as GAPP’s move increases the publishing agency’s powers versus the other regulators.
“But things are getting ever more difficult,” Mr Yu said.
GAPP said updates and new versions of already-approved games would need additional approval. It also said games that were already on the market in China would need new approval if they changed distributors.