Jan 09, 2014
Microsoft, Nintendo and Sony have finally gained the chance to enter China’s multibillion-dollar video game market, after the Chinese authorities lifted a 14-year ban on the sale of foreign-made consoles.
When it implemented the ban in 2000, the Chinese government had cited concerns about harmful effects that violent video games might have on the country’s youth. But the relaxation of the measure, which was formalised on Tuesday, will allow foreign-invested enterprises to ship their products into the country from factories in Shanghai’s new free trade zone.
Despite the restrictions, Microsoft’s Xbox, Nintendo’s Wii, and Sony’s PlayStation consoles became available to buyers in China, as many units were smuggled into the country. In 2012, Lenovo unveiled its own home entertainment console, which it marketed as a family exercise device or “sports machine” to circumvent the equipment import ban – the device was initially priced at more than $600, twice the cost of a comparable Xbox.
The ban also failed to dent the rapid rise of PC, internet and mobile gaming in China. Tencent, China’s most valuable internet company, now makes more than half of its $6.9bn annual revenues from gaming.
Together, these activities feed a total Chinese games market estimated to be worth $14bn annually.
Most of the world’s most popular consoles are already made in China – by contract manufacturers, for export. Such operations offer another potential source of leakage into the market.
However, the requirement that overseas manufacturers must base factories in the Shanghai free-trade zone means they cannot simply redirect their current output to China’s domestic market, and take advantage of existing economies of scale.
In September, Microsoft said it would establish a $240m joint venture with BesTV, an arm of the state-owned Shanghai Media Group. The two companies intend to produce “family games and related services”. BesTV’s Shanghai-traded shares rose more than 8 per cent on Tuesday.
Nevertheless, analysts noted that the Chinese State Council had said the ban’s suspension was “temporary” and consoles manufactured in the zone would be subject to “content examinations by cultural departments” – both factors that could dissuade foreign investors from risking their capital there.
“China’s game console market is virgin territory,” said Zhang Yi, head of iiMedia research. “But lifting the ban is like ice melting – it won’t happen overnight. There are still many obstacles. The most important one is approval from cultural departments.”
The liberalisation also highlighted the piecemeal impact of Shanghai’s new trade zone, the establishment of which was originally likened by its proponents to the rise of special economic zones in the early 1980s under Deng Xiaoping to kick-start China’s reform and opening programme.
Some of the zone’s backers had held out hopes it would bring big-bang reforms ranging from an opening of the country’s closed capital account to relaxation of strict internet censorship.
Source: THE FINANCIAL TIMES