Critical Intel

Critical Intel
Lifting China's Console Ban: The Bigger Picture

Robert Rath | 10 Oct 2013 16:00
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Video game consoles have been banned in China since 2000, when the government caved to a moral panic that young people might waste their lives in front of an Xbox. However, recently the Chinese government announced that companies would be able to sell game consoles in China, provided they're manufactured in the Shanghai Free-trade Zone. It's effectively an end to the console ban and was reported as such all over the gaming press. But reversing the console ban is only a small chip in the high-stakes economic game the People's Republic is playing with the Shanghai FTZ-and the console ban has gone on so long that it's possible the Chinese market has turned away from consoles altogether.

Lifting the console ban was not an isolated act, but part of a new trade venture called the Shanghai Free-trade Zone, an economic incentive program that the government hopes will increase foreign investment in its largest city. Shanghai already has a reputation as China's financial capital as well as a center for high-tech industry, but onerous trade regulations have meant Shanghai consistently loses business to nearby rivals Singapore and Hong Kong. To offset this, Chinese Premier Li Keqiang championed the creation of an 11 square mile section of the city that would have a business-friendly climate based on Hong Kong. Inside the FTZ, foreign financial companies will be allowed to invest with more freedom than in the rest of the country, interest rates will be liberalized, cross-border financial transactions freed up and China will allow its currency, the renminbi, to be more easily tradable.

In theory the Shanghai FTZ is a return to the economic liberalization of the 1980s and 90s, when Special Economic Zones in the manufacturing sector created China's booming export industry. These Special Economic Zones allowed foreign firms to build and invest in factories in China, turning Guangdong province into the world's factory and introducing the term "Made in China" as a facet of modern life. The experimental zones were so successful that the reforms gradually expanded to the rest of the country, essentially providing a blueprint for introducing capitalism to China. Premier Li hopes that the Shanghai FTZ will recreate that success for the financial industry-positioning China as a global financial player with a currency that rivals the US dollar. The Shanghai FTZ is supposed to be the proving ground for these new policies, as well as a way to move toward a consumer economy that would continue the country's explosive growth without risking a hard slowdown. It's a smart idea, frankly, and continues the badly-needed economic reforms that were left unfinished during the 1990s.

So if the FTZ is all about financial markets, how does lifting the console ban fit into the picture? That's a good question, and the Chinese government hasn't provided any explanation. One possibility is that the FTZ's proponents see the zone expanding to accommodate tech companies as well, creating a better nexus between Chinese and western game studios that will eventually lead to exporting Chinese games to foreign markets. On the other hand, the government may hope that access to new platforms could expand and strengthen Chinese game companies, (though that would also expand competition from foreign studios). My personal suspicion is that the provision was simply tacked on at the last moment because lifting the console ban has been brought up at so many economic meetings that it was beginning to look like unfinished business.

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