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    Harsh regulatory action in China creates a bleak outlook even for titans like Tencent




    According to a new report from Barron’s, the Chinese video game industry experienced a drop in user numbers and revenue for the first time in 14 years. The report comes after a year in which the Chinese government enforced severe restrictions across the country’s tech industry – restrictions that have only recently shown signs of easing.

    The Chinese gaming industry, especially its biggest companies such as Tencent and NetEase, is struggling with the Beijing approval process for new game releases, which was recently frozen for eight months, according to experts interviewed by Barron’s. Last year, China also introduced new limits on the amount of time under 18s can spend online and tightened censorship of in-game content, making it difficult for the country’s gaming industry.

    14,000 “small game-related studios and firms” have recently closed as of December 2021, according to the South China Morning Post. Things are no better in 2022, with only 172 games approved for release by the Chinese government this year, compared to 755 that were approved during the same period in 2021. Even more troubling for China’s most recognizable gaming companies is that the vast majority of these permissions have been given to relatively small game developers and publishers; NetEase and Tencent are left out.

    Barron’s spoke with business professor Nir Kshetri, who explained that the government’s reluctance to approve licensed foreign games and “hardcore” (more like “big-budget” or “AAA”) games “to some extent explains the desire [Tencent и NetEase] enter overseas markets.” In other words, one of the reasons Tencent continues to buy game companies overseas is because they are not being fed at home.

    The report paints a rather chaotic picture of Chinese game development at the moment. While another expert Barron’s spoke with, Daniel Ahmad of Niko Partners, predicted that the pressure on Tencent and NetEase will ease in future batches of game approvals, it’s not surprising that these companies are focusing on overseas markets such as the US. Meanwhile, Chinese game companies, which do not have the resources of a giant multinational corporation, have simply given up and shut down over the past year, the report said.

    But the good news is that the introduction of Steam China has not ended the ability of the Chinese public to access the global Steam client as feared, and we continue to see interesting games from China appear on the global Steam store.



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