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China Loosens Grip With Game Consoles Ruling

Stocks in this article: MSFT SNE

BEIJING (TheStreet) -- Chinese entertainment companies may come off the biggest winners now that Beijing authorities have inched toward opening the country's vast consumer market to the Sony (SNE) PlayStation, Microsoft (MSFT) Xbox and other foreign-brand video game consoles.

Shares in companies such as Internet game portal Shanghai 37Wan Network and Alpha Animation rose on China's stock exchanges after the government Monday said it had conditionally suspended a ban on consoles imposed in the year 2000 on grounds that video games corrupt youths.

Investors drove domestic entertainment company shares higher on expectations that Beijing policymakers will continue to loosen the government's grip on the entertainment and media industries.

The console decision clears the way for sales by foreign companies "engaged in the production and marketing of gaming entertainment equipment" located in the new Shanghai Free Trade Zone (FTZ), which was formed last year to attract overseas investors and encourage trade.

On the Shenzhen Stock Exchange, 37Wan rose 10% to 29.24 yuan a share and Alpha jumped nearly 10%, to 38.42 yuan. On the Shanghai exchange, shares in Internet protocol television provider BesTV New Media were heavily traded Wednesday, closing up 6% at 42.79 yuan.

BesTV is a controlling-stake partner with Microsoft in a gaming terminal and content company, launched with a joint US$79 million investment last September, and based in the Shanghai FTZ.

Exactly what the government meant by approving console "production" has yet to be spelled out. Electronics contractor factories across China already crank out plenty of components for the consoles sold globally by Sony, Nintendo and others.

The directive (in Chinese) issued by China's cabinet, the State Council, did not state how long the ban's suspension would last, nor did it explain a stipulation that all gaming content must "undergo inspections by relevant culture administration authorities" before sales are allowed on the mainland beyond the FTZ's borders.

The Shanghai FTZ encompasses several small sections of the city, altogether 28 square kilometers, open to foreign companies since September. The zone has fewer administrative restrictions than anywhere in China. So far, state media recently said, about 20 foreign firms have registered.

Chinese are no strangers to Nintendos and PlayStations. Genuine and fake models are available on the black market, and travelers bring game consoles home after buying them abroad.

And online gaming has exploded in the 13 years since the ban took effect. The state newspaper Securities Daily said online game sales totaled about 57 billion yuan in 2012. Gamers are mainly young adults playing on home computers and mobile devices, or at game arcades.

Two gamers at a Beijing arcade, college students Ye Yichuan and Yu Shu, told TheStreet on Wednesday they think more Chinese parents would buy game consoles to play with their children if openly sold on the mainland. "It's not only about a game, but about having good relations with your children," said Ye.

Yu said he bought a black market Xbox three years ago for about 3,000 yuan. These days, though, he'd rather play online with friends at an arcade. "Playing Xbox at home is kind of boring," he said.

By Eric Johnson in Beijing

At the time of publication the author had no investments in companies mentioned in this article.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Eric Johnson is a journalist with 30+ years of experience. Chinese business-financial news has been his mainstay since 2006.

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