China: Issues Foreign Video Game Developers Face in Introducing Online Games to the Chinese Market

Last Updated: 29 September 2010
Article by Wang Rui

With the rapid growth of China's online video gaming market, China has become a particularly appealing target market for both Chinese and foreign online game developers, particularly those developing Massively Multiplayer Online Role-Playing Games (MMORPG). In 2009, 35 imported online games obtained approval for release in China, and imported games have accounted for 38.8% of China's CNY 25.8 billion online gaming industry.

I. Introduction

In China, a series of regulations have been promulgated to directly govern online gaming, the latest of which is the Interim Measures on the Administration of Online Games (the "Measures") issued by the PRC Ministry of Culture on June 3, 2010, and effective as of August 1, 2010. The Measures expand upon previous legislation regulating online games and provide updated and clearer rules regarding permissible content, market access, game mechanics, administration and supervision from the state, and potential legal liability. Although the Measures include additional requirements for foreign game developers, the basic dynamics of the industry for foreign online game have not drastically changed.

While all online games must obtain government approval before release, domestically produced games face a less complicated road to market than games produced outside of China. However, imported online games that obtained regulatory approval often compete quite successfully with domestic games. As a MMORPG pioneer and major factor in China's online gaming world, World of Warcraft's entry into the Chinese market offers many lessons for all foreign game developers.

Using World of Warcraft's example, this article introduces the issues that foreign game developers will be most interested in and offers a comparison on how the Chinese regulatory environment differs from that of the U.S.

II. Key Issues facing foreign online game developers in China

In considering China's current regulatory regime as a whole, foreign game developers should pay particular attention to the following issues:

  1. Market Access

    Online games, according to the Interim Provisions on the Administration of Internet Culture(the "Interim Provisions"), are categorized as Internet Cultural Products. Literally, these are products whereby the production, dissemination and circulation of which are done through the internet. Creation of Internet Cultural Products and subsequent activities including production, copying, uploading, import, wholesale, retail, broadcasting, lease of such products, and the operation of online games, are all deemed as Internet Cultural Activities. Under the Interim Provisions, Chinese companies seeking to undertake any such Internet Cultural Activities must satisfy certain specific conditions to be empowered to operate on the internet as Internet Cultural Operation Entities. To this end, Internet Cultural Operation Entities for profit need apply to the PRC Ministry of Culture or its local corresponding branch at provincial level for an Internet Cultural Operation License.

    In addition, since developing online games accessible to the public via the internet is regarded as an online game publishing activity , an Internet Cultural Operation Entity seeking to operate online games should also obtain an Internet Publishing Services License issued by the PRC General Administration of Press and Publication covering the service scope of the online game. Meanwhile, those Chinese companies issuing virtual currency and providing transactional services regarding virtual currency in online games for another company need only obtain the Internet Cultural Operation License as they are not actually publishing anything, but do have operations online.

    Foreign online game developers, on the other hand, do not have open access to the Chinese market both in terms of establishing an entity to develop games locally and in the actual hosting and operation of a game produced locally or abroad.

    Under the Catalogue for the Guidance of Foreign Investment Industries and the Catalogue of Prohibited Foreign Investment Industries, "internet cultural operations" fall under a prohibited sector for foreign investment. These restrictions are further reinforced by the Several Opinions on the Introduction of Foreign Capital into Cultural Industry and Decree No.13 – these regulations explicitly forbid foreign entities and individuals from establishing and operating any Internet Cultural Operation Entities to engage in online games operational activities directly or though de facto control . Notably, establishment of Internet Cultural Operation Entities is necessary for both online game development and online game operation although these are distinctly different businesses. As such, foreign companies are not permitted to participate in the development of online games domestically in the form of a commercial establishment.

    As foreign online game developers are banned from developing or operating their games within China on their own, this necessitates a partnership with domestic Chinese enterprises that will obtain the necessary licenses, including the Internet Cultural Operating License and Internet Publishing Services License as well as the import approvals to operate the foreign produced game or jointly developed games. Foreign developers do not deal with such applications themselves as their domestic operator licensee usually undertakes those procedures. The foreign copyright owner of these imported online games typically must grant Chinese online game operators the exclusive right to operate their online games in China. Blizzard Entertainment, for example, owner of the World of Warcraft game works exclusively with Chinese company NetEase.com to distribute, operate and coordinate regulatory approval for the game in China.

  2. Interplay Between Import Examination and Approval Authorities in China

    Typically, once a Chinese distributor has been selected for an imported online game, approval from the two above mentioned Chinese regulators are still required before the game can be launched in China.

    In contrast to the U.S., where there are no direct regulations on the importing of online games, the PRC General Administration of Press and Publication is the authority responsible for examining and approving such games from the "publication" perspective. Even those foreign online games intended for display, demonstration and promotion in exhibitions and events held in China are also deemed as publishing and therefore require formal approval from the PRC General Administration of Press and Publication. In terms of approval of content, the PRC Ministry of Culture believes it is the primary content regulator of online games in China. Foreign developers through their exclusive local distributors intending to import foreign online games are responsible for applying to the PRC Ministry of Culture and must present their Internet Cultural Operation License, among other things, as prescribed in Article 11 of the Measures.

    In reality, both authorities have some role in content review leading to regulatory turf battles. For example, World of Warcraft suspended charging customers throughout part of 2009 as the two authorities jockeyed for regulatory position. While the duties of the aforesaid two authorities regarding online games have been explicitly provided in the "Circular of the PRC State Commission Office for Public Sector Reform on Interpretation of Certain Sections in the 'Three Determine' Program" ("ZHONG YANG BIAN BAN FA [2009] No.35"), the struggle for content regulatory primacy has not been fully resolved as ensuring compliance with Chinese law still requires some degree of review of content on the part of the PRC General Administration of Press and Publication . Since the newly issued Measures reinforced the authority of the PRC Ministry of Culture in approving content in imported online games, the rival between the two authorities may intensify.

  3. Specific Content Regulation
    1. Content regulation in China

      Chapter 3 of the Measures includes restrictions on content that violates the PRC Constitution, harms national sovereignty, calls into question the territorial integrity of the country, divulges State secrets, promotes cults, uses obscenity or pornographic images, and so on. The list also includes catch-alls and restricts content that violates social morals and PRC law. For example, in the past "Command & Conquer: Generals - Zero Hour," a game simulating war, was previously banned for "smearing the image of China and the Chinese army." The Measures also place restrictions on "obligatory hostility" between players and "gambling by using virtual currency or legal tender" for all players.

      Moreover, previously approved imported online games must undergo import procedures again if the games are updated, or new versions and new material were added. When the content of an imported online game is materially altered, the new proposed content must be submitted to the PRC Ministry of Culture for content censorship. In this case, the PRC General Administration of Press and Publication also requires approval of the proposed changes beforehand. More recently, Blizzard Entertainment and NetEase will finally be able to launch Wrath of the Lich King, the add-on expansion for World of Warcraft, in China on August 31, 2010, about 22 months after the expansion launched in the U.S. "The delay was due to the regulatory and content review process." Finally, the Announcement on Regulating Applications for Content Censorship for Imported Online Games makes it clear that games undergoing content censorship should be fully developed and in conformity with the versions officially operated (or in public testing).

    2. Protection of Minors

      Other specific content prohibitions are provided by Chapter 4 of the Measures , many focusing on the protection of minors. Online games intended for minors must not contain content which encourage minors to imitate criminal behavior or are against the interests of society. Content involving horror or cruelty which could impair the physical and mental well-being of minors is also prohibited.

    3. Comparison with Content regulation in the U.S.

      In contrast to China, there is no singular law governing online games in U.S. Instead, distinct areas of internet gaming are governed by the U.S. Constitution, national and state laws, and case law. Generally speaking, video games are protected by the First Amendment freedom of expression and content regulation is generally not permitted. Video games constitute protected "speech" under the U.S. Constitution, particularly given the extensive themes and artistic/literary content included in modern games. However, a rating system for questionable material is generally acceptable. There are a host of applicable state laws that are applicable as in Washington state or New York state. State lawmakers have struggled to define what constitutes a "violent" videogame, and how such determinations should be made. Some have focused on specific acts of violence towards police officers, while others have attempted to use a modified "obscenity" test; focusing on whether the game has serious literary, artistic, political, or scientific value with respect to what is appropriate for minors. However, First Amendment jurisprudence dictates that the government may only regulate the sale and distribution of erotic, as opposed to violent, media. Only when an expressive work crosses a certain line of eroticism will the courts approve restrictions on otherwise protected speech. In contrast, China's regulatory regime is much more stringent and violence and horror are reviewed as well.

    4. Industry Self-Regulation
    5. Going forward, the Measures also establish a system mandating self-examination and active supervision for online game operators. This requires them to employ professionals to examine content and business behaviors to ensure compliance with the law and when the local operator/distributor of an imported online game is replaced by a foreign company, the successor must reapply to the PRC Ministry of Culture for approval.

  4. Online Game Real Name System

    To implement the policy objectives of protecting minors and protecting societal interests, online game operators are required to adopt technical measures to prohibit minors from accessing "inappropriate" games or offending game functions and, in order to prevent minors from excessive play online, operators are also requested to limit playing time for minors.

    Controversy regarding the Internet Real-name System first started in 2002, but this concept still found its way in a series of legislation afterwards, such as the "Online Game Anti-addiction System" and the "Online Shop Real-name system" . The "Online Game Anti-addiction System" is intended to control the playing time of minors and therefore requires that online game users must submit their personal information to complete registration in order to identify which players are minors that need to be protected. In addition, the Legislature intends to have technical measures to be implemented by online game operators that would not only prohibit minors from accessing inappropriate games or game functions, but also be useful in resolving disputes arising out of online games.

    However, the effectiveness of the real name system depends on how it is implemented. Challenges include the technical restraints of online game operators and simple lack of incentives for implementation by the operators. Enforceability of this system is also expected to be quite poor as users may just use another person's identification certificate, fabricate information, or even login to overseas online game servers via proxy IPs. According to the Measures, online game operators are responsible for collecting and keeping the personal information submitted by online game users , so how to protect this information and avoid leaks is a major concern for most online netizens.

    There is no legal requirement for registering real names and IDs in online games in the U.S. The U.S. Supreme Court has found the concept of "privacy" to be protected by a number of the Amendments, typically known as a "penumbra right". Thus, there are no legal requirements requiring use of any real names for internet games, although occasionally individual companies may require it. Past experience, however, has shown that most gamers stage a revolt when one is suggested by individual companies. On July 6, 2010, for example, Blizzard Entertainment announced that it will display the real names tied to user accounts in its game forums. Blizzard Entertainment, with Facebook, agreed to allow Facebook friends to share their real identity. The integration of this feature has created a major uproar among the fans of the game and was eventually cancelled.

III. Conclusion

Compared with that of the U.S. and other jurisdictions, China has a markedly more stringent regime for governing online video games. Greater restrictions are placed on market access, content, and what is permissible for minors. The policy behind this is to protect domestic political and societal interests. Special care and attention should be placed on the selection of the Chinese licensee, working with them to obtain content and import approval, the protection of minors, and instituting the required technical requirements. The alternative is to face bans or long delays. However, foreign game developers are able to operate and take advantage of China's massive online community by playing by its rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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