Like Japan and Korea to the east, gaming is a cultural phenomenon in The People’s Republic of China, however few realize that console-based videogames are actually illegal under Chinese law. The rather Orwellian-sounding Ministry of Culture first officially banned consoles in June 2000 as a response to concerns over the corrupting influence of videogames. The law clearly states that it is forbidden for any individual or business to manufacture for, or sell games and consoles to China, and while the vast majority of consoles and peripherals are still produced in China’s factories, they are all exported for foreign markets. Blanket banning is typical of the government, which seems to prefer an all-or-nothing solution rather than going the trouble of setting up regulatory bodies, especially for something it sees as insignificant.
This grey market operates outside the law, comprised of a dedicated group of dealers and storeowners who distribute and sell imported games and consoles across the whole of Mainland China.
After consoles were made illegal, computer games, somehow spared the ban, exploded in popularity – particularly MMOs that have sadly been responsible for many of the same social problems the console ban was supposed to prevent. China now boasts what is quickly becoming the biggest market for online games in the world, but the ban on consoles is still yet to be overturned. Another side effect of this law has been rampant videogame piracy. With no legal market or regulation, it is much cheaper and usually easier for gamers to modify their systems and play widely available bootleg discs. While China’s issues with endemic piracy are no secret, what is most surprising is that there also exists a robust grey market for legitimate, imported games. This grey market operates outside the law, comprised of a dedicated group of dealers and storeowners who distribute and sell imported games and consoles across the whole of Mainland China.
As a foreigner in China, and a consumer of these imports, I was mostly ignorant to how the games and consoles were making their way into the country, and I certainly had no idea of the struggles these businesses faced. However, over time I got to know the sellers and I began to understand the scale of the grey market. My curiosity was piqued – how could businesses like this operate so freely in a country as controlled as China? What I discovered was a classic story of supply meeting demand, and an exciting glimpse of the market potential for gaming in China.
Beijing’s neighborhood of Gulou isn’t the only place to buy games in the city, but it’s certainly one of the most famous and iconic. Many of the shops are concentrated on Gulou East Street; a long strip surrounded by a dense network of historic houses and twisting alleyways, bookended by two ancient towers. That such a historic neighborhood is host to so many high-tech shops is one of the many enjoyable ironies you encounter in China. Still, these are not the franchised outlets of the West; stores here are small and often situated in converted residences. Some are general and carry products for all systems while others are specialized. Some of them have even set up their own competitive gaming leagues. The interiors are personal in decoration and often crowded with the owner’s family or friends, eating and playing games while customers bustle in and out. One such store and the focus for our story, is Long Xiang Dian Wan.
Long Xiang is a tiny store, not much larger than your average bedroom. Lining both walls are large glass cabinets, stuffed to the bursting point with all manner of games and peripherals. The store is piled high with boxes, and the remaining floor space is constantly crowded with customers, as money and games change hands in a complex series of transactions. Owner Zhao Chun Gu, an energetic man who runs the store with his wife, is eager to speak with me. He seems surprised that a foreigner would take an interest in his humble shop, but speaks freely, unconcerned with discussing the intricacies of a business that for all intents and purposes is completely illegal. Gu has been running the store for about 7 years, after his family brought him into the gaming business. In the beginning, the store was extremely profitable, but now with ever-increasing rent and competition, things are starting to get a bit tighter. While Gu enjoys playing games himself, managing his burgeoning business occupies most of his waking hours. The store is open from 10 to 10 nearly every day of the year, and he operates with limited staff and resources. Along with the retail outfit, he also runs an online store via Taobao, China’s wildly popular online marketplace, which has become his main source of revenue. “Even after we close, I’m still in here for 2 or 3 hours every night; packing deliveries, talking to customers, unpacking orders and updating our website …” says Gu, counting the tasks off on his fingers.
In a market rife with inexpensive fakes, selling legitimate games seems like an extremely risky proposition.
I cast my eyes over the games inside the cabinets of his store. The selection is impressive; for example, not only does he stock The Ico and Shadow of the Colossus Collection as a dual disc release, but also the individually packaged Asian-region releases and a boxed, Japanese special edition. There are also many titles that have only just been released in the Western markets displayed prominently. I inquire as to how sellers are able to import so much so quickly, especially considering that there is no legitimate distribution available to them. Gu informs me that few of the storeowners import games themselves, instead relying upon a network of dealers to provide them with merchandise.
Most of the games and consoles for sale in China originate in Hong Kong, where they are purchased in bulk by the dealers and smuggled across the border into Shenzhen. There are no taxes to pay with illegal importation, which keeps the eventual retail price down, but the dealers face considerable risk of running afoul of customs officials. If caught, they face potentially severe penalties, but the staggering amount of product entering the country suggests that for many of the dealers, the risk is worth the reward.
Once the games arrive safely in Shenzhen, the dealers mark the prices up and distribute to sellers all over the country. To stay competitive in a market that is fast becoming crowded, the sellers must keep their prices low. After paying the dealer, the seller’s retail markup is low, with an average profit being between 50 cents to a few dollars per game. Because a single sale represents such a low profit, the storeowners must rely on volume of sales to make ends meet. In a market rife with inexpensive fakes, selling legitimate games seems like an extremely risky proposition. Paying dealers for a big order constitutes a huge overhead for the storeowner and if he can’t move stock he may find himself unable to afford future orders. Many stores have gone out of business this way, Gu informs me, although he consistently makes large orders, sometimes 200 copies of a single game as he nurtures a dedicated client base of regulars who support his store. “Customer service and honesty is everything if you want to be successful in this business,” he tells me. As if to illustrate this point, during our conversation a customer walks out of the store with a game on IOU, promising to forward Gu the money online.
Some stores now offer their own rudimentary pre-order service, where customers can reserve games via Taobao. This is a safer proposition for sellers as they are assured of a sale before purchasing games from the dealers. Unfortunately with no stable market, prices are still subject to change and many customers end up cheated when a storeowner has to renege on the price. Legitimate distribution would alleviate a lot of these issues, but in its absence storeowners are forced to do the best they can with what they have.
Harassment from the police is not uncommon and storeowners find themselves walking a fine line between promoting their business and staying under the radar.
Compounding the uncertainty of pricing and importation is the very problem of legality – the inescapable fact that these stores sell a product that is illegal under Chinese law. While enforcing the console ban is a relatively low priority for the government, harassment from the police is not uncommon and storeowners find themselves walking a fine line between promoting their business and staying under the radar. When I first learned of the console ban, I was surprised by how obvious some of the stores were; with games lining the windows and gaming icons like Solid Snake and Mario splashed across their signs. Surely the owners must be inviting police trouble by being so brazen? “I try not to be obvious,” says Gu. “Many stores have been raided but I have been lucky so far. If I hear that there will be raids in the area, I close my store for the day.” Police often use the threat of raids to bully bribes out of storeowners and Gu tells me he has often had to pay police off in the past. “They’re not really concerned with the ban; it’s a low priority but it is also an opportunity for them to make money.”
In light of these illuminating answers, I ask Gu why he bothers operating such a troublesome business at all? I’m also curious as to what he believes the future will hold and whether there will ever be a legal market for videogames in China. “I’m not sure if it will ever be legal,” he replies, “but the market for console games will continue to grow regardless, as the demand is huge. Whether it’s legal or not, I would like to keep doing this.”
It’s now 10:30 in the evening and Gu is still doing a fair trade. I leave Long Xiang and walk down Gulou East Street, passing several other game stores on the way. I reflect upon what I’ve heard and the issue of consoles in China today and I am reminded of prohibition in America, which failed spectacularly and gave rise to a mess of corruption and made criminals out of the common man. People will continue to play games and clearly no ban is going to deter them, just as businesses will continue to supply that demand as long as it exists, and unlike prohibition, there are no clearly defined “bad guys” here.
Unfortunately, there’s no obvious solution or convenient ending for this story as there is no real way for gamers or businesses to appeal the ban with the Chinese government. We can only assume that as the grey market continues to expand, driven forward by the demands of Chinese gamers, someone in power will eventually have to take notice. Perhaps they will see the cultural significance of games and the opportunity for China to develop its own game industry or, more likely, they will be enticed by the taxes and profits a legitimate marketplace would provide. Either way, I hope they will make the right decisions.
Luke Ume is a foreign designer and keen gamer residing in Beijing.
Published: Dec 15, 2011 07:00 pm