How China's gaming regulations affect its market and the rest of the industry

If we go back to anywhere between 2015 and 2020, China was riding an unprecedented wave of gaming prosperity. Consoles, mobile and PC were all booming and increasingly turning China into the biggest gaming market in the world. All eyes were turning in the same direction.

Fast forward to 2020 and 2021, and here we are: successful foreign games in China can almost be counted by a handful, strict regulations keep choking the market's potential, and prospects look grim. So what can we expect?

Evolution and rise of the Chinese gaming market

Let's take a step back. While context is important in almost everything in life, it is really important when trying to understand the Chinese market. Otherwise, we end up with disingenuous generalizations and keep perpetuating misconceptions.

In the year 2000, and after a decade of extraordinary economic growth in China, the country banned consoles. This is a tale well told by now, but still worth mentioning. While the ban went on to last 15 years, we did see some consoles trying to "infiltrate" the Chinese market during that period.

Notably, Nintendo created a new brand called iQue specifically to launch its hardware in China. Besides versions of the Nintendo DS, the most peculiar product was the iQue Player -- essentially a repurposed and redesigned N64 launched in 2003, with an extremely limited catalog of games (but a very ambitious distribution system for its games, involving digital downloads, and physical distribution centers).

While Nintendo's iQue venture was commercially unsuccessful, it did demonstrate that while Chinese regulations often look strict and unavoidable, the reality can sometimes be exactly the opposite. In order to launch its consoles under the iQue brand, Nintendo essentially licensed them as educational products, which technically allowed it to circumvent the console ban. As anecdotal as this may be, it helps to demonstrate how complex the Chinese market and its regulation can actually be.

During the console ban however, Chinese consumers never lost access to gaming. PC gaming became the de facto platform for most, and later on the smartphone became a substitute for even the PC in many aspects of daily life in China.

Stricter and increasing regulations in gaming -- who's the target?

Gaming, just like all other means of commercialized art and entertainment in China, is heavily regulated.

Simply put, games legally launched in China need to abide by a set of rules that regulate its content: politically sensitive topics/themes and dissent, gore and ultra-violence, gambling, and depictions of 'vulgarity' are the most obvious elements that can't be present in a game. The official list of 'problematic' content is as long as it is ambiguous. Its interpretation is ultimately the subject of regulators' own criteria, as is the case with many aspects of Chinese law and regulations in general.

More critical even, all games that are to be legally launched in China are required to have a publishing license (ISBN) and IP certification. These are handled by corresponding authorities and can take anywhere between six months to a year to get approval, if they do get approved.

How games should and can be consumed has become an increasing target from authorities

This applies to both Chinese and international titles, although foreign games are required to be published by a Chinese publisher (foreign publishers cannot attain a publishing license for games by themselves), and are allowed into the market in far less quantities than their Chinese counterparts. Also, foreign games need to be fully localized.

More recently, however, regulators have been more explicitly advocating for games falling in line with 'Chinese values,' which makes it even murkier for developers to align their titles with what is expected to be passable by regulators. This is also demonstrative of a more protectionist and nationalistic approach to content regulation.

How games should and can be consumed has become an increasing target from authorities. Recently we witnessed new regulations setting new time limits for young users in China -- three hours a week for online games -- as well as stricter control over children livestreaming. Like most previous restrictions, it demonstrates who the main target usually is: young users, children and teenagers.

Authorities are particularly focused on shifting the behavior of the younger generation, and not so much targeting gaming as a whole, broadly speaking. Exemplifying that is the fact that while PC and console gaming are technically subject to most of the same regulations as mobile gaming (which is where the vast majority of younger gamers is perceived to be), they are still being somewhat 'left alone' by comparison.

Imported consoles and their games are openly and widely available on the biggest e-commerce platforms of the country, and international digital stores for PC with unlicensed games for China are still easily accessible, in spite of regulations.

Is the Chinese market worth considering for international developers?

Yes, and no. While each case would be worth its own consideration, to most, I would definitely say no. This might sound counterintuitive and against all indicators about the Chinese market being so attractive due to its sheer size, but the truth is very few non-Chinese games actually become big hits in China.

Those that do, I would argue, are the exceptions that prove the rule. Looking ahead and considering the ongoing political and social context, even fewer international games are expected to be launched in China, as the number of approved games has been drastically diminishing in the last year.

This might sound against all indicators about the Chinese market being so attractive, but the truth is very few non-Chinese games actually become big hits in China

Obviously, not every game needs to become a big commercial hit to be considered a success. Depending on the team's ambitions, size, and other factors, a relatively small game selling a relatively small amount of copies (or having a small amount of users) can still be immensely profitable for its creators.

The challenge with China is, if you're a foreign developer or publisher who wants to launch a game in China, you better have a mobile game. The vast majority of games approved by authorities to be launched in China are mobile games. PC games, and even less so console games, are much less and far between.

If you do have a mobile game, you'll be jumping into a huge ocean filled with countless sharks, figuratively speaking. Worse of all, as the original developer, you'll never be in control of your product and its distribution in China. You'll always be dependent on others' channels, methods, approval, regulations, know-how, and access.

Let's run the scenario for the three main platforms separately.

• Launching a non-Chinese console game in China

Whether the game is still in development, in pre-production, or already finished, the first step will be to find a Chinese publisher.

The game will be required to have a publishing license. As I explained before, this is a complex and lengthy process that can only be performed by a Chinese entity. Meaning, a non-Chinese company can not independently launch a licensed game in China.

Considering that you intend to launch a console game in China, you'll probably be looking for some sort of advice/support from either Nintendo, Sony or Microsoft in order to find the right partners associated with their respective platforms in the country.

While there are channels and programs to assist towards this goal, it's important to keep in mind that the official catalog of licensed games available for all licensed consoles in China (PS5, PS4, Xbox Series X|S, Xbox One, Switch) is extremely anemic, to say the least.

Also, the install-base for these local models is smaller than that of imported models in the country. Add to that that most games would never be cleared for publishing due to their content going against regulations, and you would be lucky to have a console game breaking 100,000 units sold. In the meantime, imported non-licensed games can sometimes sell by the millions.

• Launching a non-Chinese PC game in China

If following all the legal steps in order to have a fully licensed title, the scenario is ultimately not much different than that of console games.

However, due to the (still) more flexible and dynamic digital context of PC gaming in China, there is higher incentive to at least invest more in a full Chinese localization of your game, even if it's never going to have an official launch in the country.

Through the international Steam store and other platforms/methods, it's reasonable to assume that a foreign PC game can, potentially, become quite successful and popular in China. Especially if it's an online game with microtransactions and other methods of monetization, a full Chinese localization can prove to be worthwhile. In some cases, even single-player games can become hits, as Cyberpunk 2077 did.

But again, that would not necessarily be a Chinese licensed launch, but more like an imported console game. Although in the case of PC games and their prevalent digital format, it is easier and more accurate to track sales in China, and strategize accordingly.

• Launching a non-Chinese mobile game in China

The majority of games released in China are mobile games intended to be played on smartphones, and tablets. Most international developers and publishers at some point or another will at the very least consider China as a logical step to increase their profits and reach.

Despite its popularity, the mobile market is considerably more complex and layered than the PC or console ones.

There is no Google Play Store in China. Google services are mostly banned and/or inaccessible for most of the population. Instead, the Android market is composed of hundreds, perhaps thousands, of different app stores. While these numbers may seem overwhelming, about 80% of the Android market share resides within less than 20 app stores or so. Still, a big number compared to elsewhere.

So, how to get your game in all the right app stores, and how to get it noticed? That's the local publisher's work.

The developers will want to find the best partner to assist them in launching their game across a wide spectrum of big app stores. This first step is the most time-consuming, and usually when a lot of devs lose the will to even launch in China.

There will be a natural inclination, especially from smaller teams, to reach out to the most well-known Chinese publishers, like Tencent. What most very quickly realize is that these big companies won't even bother to respond, for most cases. From there, a more nebulous journey begins to find mid-tier or even smaller publishers.

Finding these publishers can be extremely challenging for those who are not familiar with the Chinese market and/or can't use Chinese as a language. Remember, most games in China are Chinese. Publishers aren't particularly interested or in need of foreign games. They already have their hands full with the many games being developed locally.

There are some publishers more dedicated to bringing international games to China, but even those are sometimes tricky to find, for the uninitiated. Besides, some publishers will exclusively focus on iOS games, while others only on Android games. Some may do both, but those are rarer.

You're looking at a research and business development process that can take months, and upwards of a year sometimes, just to find the right publishing partner in China.

You're looking at a research process that can take months, and upwards of a year sometimes, just to find the right publishing partner

Assuming a developer or publisher does find said partner, then the real work begins. The original developers of the game will need to fully localize their game to Chinese, make sure that no content in the game infringes regulations, plus integrate SDKs into their game to make it compatible with Chinese app stores, login systems, and national networks of personal identification and payment methods.

After all this is done, and with the assistance of the local publisher, an application will be made for the publishing license of the game. This, as previously mentioned, will take at least six months, with no guarantees of success. Considering the small number of international licensed games launched in China annually, even after going through all this process, the likelihood of successfully launching the game is paltry.

You might hear about many smaller studios that do launch games in China legally and feel confused about everything I just wrote as if it doesn't add up. Yes, many mobile games do get launched legally, and are monetized, but not fully licensed.

Legally launching an unlicensed mobile game in China, with a twist

If a mobile game is a paid-to-download title, has microtransactions, or any kind of paid subscription-based service, it cannot legally operate in China without the aforementioned publishing license.

However, if a game is free-to-play and monetized only through ads, at least some major app stores will allow the game to be launched on their platforms. This is how a lot of developers ultimately manage to release their mobile games in China without having to wait for the lengthy and uncertain process of the publishing license.

Does this make it worth launching a mobile game in China then? For most, still not. The localization work, possible content editing to fit regulations, and SDK integration are still required. Plus, not only will the publisher take a cut of the profits from the ads monetization (which are slim to begin with), as each app store will take its own cut.

For a game to be even remotely profitable under these conditions, it will require a large amount of average daily/monthly users, which are in itself very costly to come by, usually. Unless a game has a very recognizable IP or for some reason becomes a viral hit, it will depend on user acquisition to attract traffic and users.

For most free-to-play games monetized with ads, local publishers invest little to no money on UA for most of its games, leaving them dead in the water to begin with. Of course there are exceptions, but once again I emphasize, this is a market of thousands of games!

When negotiating a publishing deal with a Chinese publisher, it is critical to include UA/marketing/promotional budget in the deal, otherwise it's very unlikely the game will ever become profitable for the content providers. Money guaranteed in advance is another wise and desirable requirement.

Much more could be said about publishing, negotiating publishing deals in China and so on, but ultimately, if you manage to have a successful title launched in China, then congratulations! You're part of the 1%. Or less.