China has always been a hard market to crack for non-Chinese game companies. But the regulatory approval of games imported into China has started to improve, according to our latest market research report. We have tracked games licenses in China since 2009 and aggregated the data based on country of origin, genre, developer, domestic publisher, platform, and more to show how the game approval landscape has changed for foreign developers over the years.
In our research on China’s games imports we recognized that Japan emerged as the #1 country of origin, as well as the critical importance of the bilateral Japan-China relationship. Niko’s newly released report What’s Behind Japan’s #1 Share in China’s Games Market explores the reasons for Japan’s phenomenal success in the China games market, and how China’s games industry has benefited from Japan.
Chinese law requires all digital games to receive a license from the regulator in charge of games, including a publishing number (ISBN), to be published in China. The current regulator is the State Administration of Press and Publication (SAPP), and this entity took control over digital games regulations in 2018. Western multinational game developers and publishers began the business of games development long before Chinese companies entered the industry.
Over the past 20 years, Chinese developers have grown from working predominantly on outsourced art and QA services, to full game development and operations. The domestic industry for games services revenues alone is more than $33 billion per year and rising. Despite multinationals, such as Electronic Arts, having a longer history of game development, far more licenses have been granted to domestically developed games than to foreign (imported) titles. Some say this is critically unfair, as most other countries allow for any game to be published and success would be determined by demand for it.
Trade debate aside, China sets its own policy and as such all companies, Chinese and foreign, must comply. The primary reason for the licensing requirement is to restrict game content, limiting it to only what is deemed permissible and denying games with content deemed dangerous or inappropriate. Rules include restrictions on depictions of blood, gore, certain geographical maps, use of language and much more. All companies need to submit to the licensing process for games they hope to publish in China, and only Chinese majority owned companies are allowed to submit to that process.
Niko Partners has tracked games licenses in China since 2009. We aggregate data on the country of origin, genre, developer, domestic publisher, platform, and more. Our data, which is based on official data published by the Chinese government, shows that the peak year for games licenses was 2017. Until June 2016, mobile games were not required to be issued a license prior to publication, and until 2014 sales of consoles and their games had been banned in China (thus those games would not have applied for a license). From June 2016, all three platforms – console, PC and mobile games – had to be licensed prior to publication, and data for 2017 reflects that volume. Because regulatory changes increased approval volume for 2017, we will never hit that peak again.
In 2018, there was a changeover in regulators and this resulted in a 9-month ban in games licensing which Niko Partners has written about extensively. Few games were licensed in 2018 because that process was open only 3 months of the year. In 2019 licensing resumed, yet there was a backdrop of a trade war between the United States and China.
Digital games were not explicitly part of the US-China trade war, but there is a possibility economic tensions are a factor in the decline. Coincidentally there were fewer games from the US licensed in China in 2019, including several global hits such as Fortnite. One more political consideration is that games from South Korea have not received a license since early 2017, without stated reason. Usually when there is no official stated reason, there is a political issue preventing licensing. PUBG, a global phenomenon from South Korea, was not granted a license in China, yet a similar domestic title by Tencent called Peacekeeper Elite was.
Foreign game companies entering China
Of 185 foreign games granted licenses in the 12 months of 2019, merely 17 were from the United States down from 81 in 2017. In 2018, with only 3 months of licensing, the US and Japan each had 15 licenses. However, in 2019 Japan got 63. Notably there were 1,385 domestic games licensed in 2019 – nearly 8x the number of foreign titles. In 2019 there was a declaration to stop licensing low quality and copycat games, which comprised many of the licenses in the years before the hiatus, so we expect that 2017 will maintain its status as the peak year and expect future years will be lower.
In 2020, Niko Partners predicts that there will be around 20-30 foreign games approved each month, on average, for a total of 240-360 new licenses expected this year. Importantly, the ratio of licenses of import games does not align with the ratio of revenue generated by foreign games – the revenue ratio is much higher. For example, foreign PC games accounted for 60% of games revenue in 2018, but far less than 60% of the games commercially available or newly licensed. It is also important to note that Steam international version is a popular platform for PC games and is currently unblocked in China. Foreign game developers are currently able to launch games on the platform, without needing to go through the approval process, to reach Chinese gamers. Steam China version is coming in the future, which would require games to be fully licensed prior to launch, with 40 titles announced for the launch. The point is, there is a lot of game play and spending on unlicensed games, despite the rigid system.
June 2016: Mobile games must be approved
Apr 2018 – Dec 2018: 9 month game approval freeze
April 2019: New game approval process
One aspect of the revised policies announced in April 2019 was a limit on the number of games that would be approved each month. Another aspect was a crackdown on certain genres such as poker and mahjong games, and the halt of licenses for low quality and copycat games. This is the main reason we foresee lower license numbers in 2020 and beyond.
Of the 185 import games approved in 2019, 139 were mobile games, 32 were PC & web games and 14 were console games. Currently there is one batch of import games approved every month, and more than one batch of domestic game approvals. Each batch contained approximately 23 import games on average with the largest batch being in August 2019 where 38 games were approved. No import games were approved in December.
Number of Import Games in 2019, by Month
#1 Country for China’s Game Imports: Japan
Niko Partners analysis identified that Japan is the #1 country for China’s imported game titles. Japan accounted for 1/3 of all imports in 2019. While Japanese developed titles also lead import games in 2017, 2019 was the year of Japan’s biggest lead. This is due both to a decline in the number of approvals for other historical top countries like the US and Korea, and an overall broader set of countries receiving game approvals. Kairosoft was the leading Japanese company exporting games to China, with 8 of its titles receiving licenses, followed by SNK, Capcom and Square Enix with 4 titles each.
Hit Japanese themes were popular anime games, such as Hunter x Hunter, Naruto: New Generation and My Hero Academia. Others were popular original IP from Japanese developers such as Pro Evolution Soccer Mobile from Konami (PES has long been a hit franchise in China) and Romance of the Three Kingdoms (ROTK) from Koei Tecmo. The approval of Nintendo Switch hardware for Chinese distribution by Tencent also led to the first Nintendo game license. We expect Japanese imports to continue to dominate in 2020, especially as Nintendo has confirmed that it plans to submit 8 first-party titles into the licensing process.
Top 10 Japanese Game Exporters to China
#2 Country for China’s Game Imports: United States
The U.S. was the second largest exporter of games to China in 2019 with 17 titles, a total of 200 have been approved since 2009.
The majority of US games licensed in 2019 were in casual and midcore genres such as Sports, Racing, Simulation and Strategy. Core games such as Call of Duty Mobile, H1Z1 and Fortnite have yet to be approved. Fortnite is an interesting case as the title was submitted for approval in early 2018 and started an open test later that year in July, yet the game still hasn’t received approval for monetisation. One concern is that China is not licensing the big core hit titles that are coming from the US, yet the reasons remain unclear.
Top US Titles Granted License in 2019
#3 Country for China’s Game Imports: South Korea – but not since 2017
South Korea ranks #3 with 158 total titles exported to China over the past 11 years. As mentioned previously, no South Korean titles were granted licenses in 2017 or 2018, despite some titles launching to much popular acclaim in the global markets, for example Lineage 2: Revolution and PUBG. Korean hits Dungeon and Fighter and Crossfire are still very popular in China, and have been for many years. According to the Korea Creative Content Agency, China accounted for 60.5% of Korean game exports in 2017, showing how important the market is to Korean firms. This number dropped to 30% in 2018 as Korean game developers found success in other markets, but also due to the fact there had been zero new Korean games released in China for the past two years.
One theory about why game approvals have ceased is due to political issues between China and South Korea in 2017, after which Chinese unofficially blocked Korean entertainment imports from entering China including games, TV shows and music products. Relations between the two countries began to improve in 2019 and China’s Ministry of Culture and Tourism recently allowed two Korean dramas to be broadcasted in the country. Despite this strengthening of relations recently, there has been a significant impact on Korean companies who have been unable to launch games in China.
This has notably had a large impact on Tencent who were unable to launch Lineage II: Revolution and PUBG/PUBG Mobile due to lack of monetisation approval. Tencent had to go as far as removing PUBG Mobile from the app store and launching their own self developed battle royale game (Peacekeeper Elite) which was able to receive a license for monetization. Although Tencent has stated that it intends to publish Korean-developed DnF Mobile in 2020, there hasn’t been official notice of a ban on games nor when more Korean games will be granted licenses in China.
Number of Import Games from Korea, by Year
All games published in China must be operated by a Chinese majority-owned company according to China law designed to protect the domestic telecom infrastructure. Among local publisher/operators, Tencent and NetEase are the leading importers, with 17 titles each in 2019. iDreamsky, East2West, and Oriental Pearl also shared a significant part of this market, yet these three are relatively new operators of import games. Oriental Pearl is a significant player due to its control over publishing rights for PS4 and Xbox One games in the country.
By genre, role playing games, puzzle games, and simulation games received the most approvals. These figures reflect titles most popular among mobile games, and reflects the continued significance of mobile titles for the import market. This corresponds also to a decrease in relative number of casual and shooter titles imported before the freeze. 17% of import games in 2019 were imported IPs that were then developed domestically. This is a higher percentage of import IPs than in the pre-hiatus era and suggests growing confidence in Chinese game development and the importance of IP in the games market.
In 2020 we project a run rate of 20 to 30 import titles to be approved each month, leading to between 240 and 360 import titles being approved this year. Trade resolutions in early 2020 suggest may see a warming of US-China trade relations, this could produce an increase in US game approvals. We expect that Japan will continue to lead the approvals list in 2020, carried by popular IP and a strong relationship between Tencent and Nintendo.