George Tsemberlis, Kapitall: China recently lifted a 13-year ban on imported game consoles. What does this mean for foreign developers?

This summer the Chinese government announced the end of the 2000 ban that kept foreign-made game consoles from being legally sold in the country.

(Read more from Kapitall: Next Gen Gaming with New Xbox One and PS4 Consoles)

While domestic-made consoles and illegal imports are easily found on the Chinese gray market, the Xbox One   (MSFT) and PlayStation 4  (SNE) will be the first console generation in 13 years to challenge the $11 billion dollar a year Chinese gaming industry with the full support of its developers.

Restrictions on communications and dealing with foreign businesses have fostered a truly unique gaming culture in China. PC games dominate the market share with the most popular genre being MMOs, digital CCGs and other free-to-play games.

These genres are disproportionately popular in Asian countries, where gaming is more likely to occur in an internet café than at home. Some of the most successful Chinese games include:
  • Long Jian 龍劍 (Dragon's Sword Online) and Fantasy Westward Journey 梦幻西游 by Netease Inc. (NTES)
  • 天龙八部 (Eight Part Heavenly Dragon) by LTD (CYOU)
  • 天龍八部 (Demi-gods and Semi-Devils) by Inc. (SOHU)
  • Perfect World by Perfect World (PWRD)
  • Million Arthur by Shanda Games LTD (GAME)
  • ZT Online by Giant Interactive Group INC. (GA)

​Click the interactive charts below to see quarterly sales for these Chinese gaming companies.

Many of these games attribute their popularity to the use of aesthetics and themes from romanticized stories from Chinese mythology and history, such as Sun Wukong and the Three Kingdoms period.

Activision (ATVI) was one of the first western developers to attempt an entry into the Chinese market. Blizzard’s highly successful World of Warcraft MMO was released to China in 2009 and continues today through a partnership with Netease as an infrastructure provider.

The game differs from its western counterpart in its pricing structure and content, to reflect Chinese gaming habits and cultural sensibilities. Blizzard hopes to build their foothold with the impending release of its Hearthstone CCG, based on the Warcraft universe and currently in beta.

This may be easier said than done. After the in-game store for Hearthstone was temporarily taken offline for maintenance, rumors quickly swirled that Hearthstone had run afoul of Chinese anti-gambling regulations. Netease was forced to issue a statement correcting the story and insists that these rumors were the result of “ black pr ” companies paid by Blizzard’s domestic competition to denigrate and damage Hearthstone’s reputation.

Meanwhile Sony and Microsoft face an interesting challenge in their Chinese homecoming. Previously, the Xbox 360 outperformed the PlayStation 3 on the gray market due to it being more easily hacked to accept pirated and region-locked games.

But as console gaming goes legitimate in China it remains to be seen whether mainstream offerings take hold among Chinese audiences. FPS’s like Call of Duty and Battlefield, which dominate western gaming, have not had as much success in Asian gaming markets, and it’s questionable whether some of the more imaginative geopolitical plots the two games are known for would be approved by China’s Ministry of Culture.

The answer may lie in one of the initial ideas used to skirt the console ban. Both companies announced their upcoming consoles would be classified as “media devices” and courted Chinese developers and entertainment providers. It is also likely that these partnerships will be leveraged to develop original console entertainment, to create “next generation family games and related services”.

So will western gaming catch on in China? With a game-playing population of over 300 million, a lot of companies hope so. Use the list below to begin your own analysis.

1. Sony Corporation ( SNE): Designs, develops, manufactures, and sells electronic equipment, instruments, and devices for consumer, professional, and industrial markets worldwide. Market cap at $18.9B, most recent closing price at $18.72.


2. Microsoft Corporation ( MSFT): Develops, licenses, and supports a range of software products and services for various computing devices worldwide. Market cap at $309.9B, most recent closing price at $36.92


3. Activision Blizzard, Inc. ( ATVI): Publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Market cap at $19.6B, most recent closing price at $17.52.


4., Inc. ( NTES): Engages in the development of applications, services, and other technologies for the Internet in China. Market cap at $8.8B, most recent closing price at $67.50.


5. Limited ( CYOU): Develops and operates online games in the People's Republic of China. Market cap at $1.6B, most recent closing price at $29.60.


6. Inc. ( SOHU): Engages in the brand advertising, online gaming, sponsored search, and wireless businesses in China. Market cap at $2.5B, most recent closing price at $66.29.


7. Perfect World Co., Ltd. ( PWRD): Engages in the research, development, operation, and licensing of online games primarily in the People's Republic of China, the United States, and the Rest of Asia. Market cap at $768.2M, most recent closing price at $17.95.


8. Shanda Games Limited ( GAME): Engages in the development and operation of online games in the People's Republic of China. Market cap at $1.1B, most recent closing price at $4.05.


9. Giant Interactive Group, Inc. ( GA): Develops and operates online games in the People's Republic of China. Market cap at $2.2B, most recent closing price at $9.39.



( List compiled by George Tsemberlis, a Kapitall writer. All charts provided by Zacks Investment Research. All other data sourced from Finviz.)