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.
This is especially true because the ban is blatantly ineffective-consoles and games smuggled in from Hong Kong and Macau (which have separate legal systems that don’t include the ban) are readily available on the grey market. The trade is so open that shops display banned games in their front windows. Even popular culture has caught onto the gag. The 2011 Chinese film Lee’s Adventure, for instance, involved the protagonist traveling through time via an illegal Xbox 360. In the film’s climax, a police SWAT team breaks down the hero’s door and surrounds him with machine guns as he zones out to an FPS. It’s hard to read the scene as anything but satirical, and it demonstrates how the console ban has become little more than a joke. Given the ongoing embarrassment about the ban’s triviality and lack of enforcement, it’s understandable the government would decide that the policy isn’t worth the headache. However, the ban has been in place so long at this point that it may have actually been more effective than anyone ever realized. After living a dozen years without the PS3 and Xbox 360, companies may have a hard time convincing Chinese consumers that they really need the PS4 and Xbox One.
While the console ban was originally intended to stop young people from “wasting their lives” in front of screens, it accidentally served as a form of de facto trade protection. Without foreign consoles as competition, Chinese game studios were able to form their own thriving industry on models that took advantage of the market’s strengths and weaknesses. Because consoles weren’t available and PCs are too expensive for many consumers, studios tailored games for internet cafes. Since piracy is an ongoing issue in the market, many focused on subscription-based online games, free-to-play models and microtransactions. Others cracked the mobile market that’s taken off since smartphones became big in the last few years. By one estimate, China’s game industry generated $9.7 billion in 2012, and only 0.1% of that was from dedicated gaming hardware. Basically, Chinese gamers aren’t accustomed to paying $60 for a game upfront, not to mention dropping a paycheck on a console. While that may change in time, especially with the lure of a shiny new gadget-after all, Chinese consumers love status symbols like iPhones and Louis Vuitton handbags-companies will need to either adapt to local tastes or focus on changing consumer habits. Even then, manufacturing consoles in the Shanghai FTZ and selling them in China may be an uphill climb.
While the big three could avoid Shanghai’s high manufacturing costs by shipping assembled components to the city and only adding a single part there, there are other problems as well. First of all, Chinese studios are in the best position to make games that appeal to the local market-it’s doubtful a culturally appealing game like Age of Wushu would come from a foreign studio, for example. But even putting aside the sociological aspects, there’s the simple problem of logistics. China Daily reporter Eric Jou wrote an excellent editorial for Kotaku laying out the many pitfalls console manufacturers might face. China’s regulatory policy toward games is still a mess, Jou points out, meaning that getting a console certified for release may be a slow process. (According to Jou, seven different agencies claim videogames as part of their purview.) In addition, he’s unsure how the internet infrastructure will hold up-especially given the Great Firewall-and how badly cheap bootlegs would cut into revenue. Regardless of that, he asserts, the whole question is academic anyway, since the government still hasn’t published any regulations about how any of this will work.
In other words, we don’t know how the big three could implement manufacturing, what scrutiny they’ll face, whether there will be quantitative or qualitative controls on distribution, or even if Chinese consumers will want consoles, considering that they’ve been getting along fine without them. Given that, it’s no wonder that some console manufacturers are literally thinking outside the box-Microsoft is investing $237 million to develop downloadable titles with Chinese cable company BesTV, for example. So far the assumption has been that these games will be specifically for the Xbox, but if they turn out to be played directly from the TV, it may be a bellwether for how console makers feel about the Chinese market.
Flagging confidence from foreign companies has similarly dogged the rest of the Shanghai FTZ. Though Premier Li Keqiang was supposed to be the zone’s high-level champion, he didn’t show up to the opening ceremonies, instead sending his lowest-ranking cabinet member to cut the ribbon. In Chinese politics, a no-show like that could be a signal that all isn’t well with the FTZ, and there may be doubts about its success. Nearly a month before the zone opened, the South China Morning Post reported that Li clashed with regulators during closed-door meetings, pounding the table in frustration as subordinates openly opposed his plans and refused to support him.
As if that’s not worrying enough, the government still hasn’t officially published any details about how the FTZ will work or anything regarding foreign regulatory compliance-the only information has come from leaks. Considering the circumstances, it’s understandable that only two foreign banks have actually applied to open a branch there while everyone else just waits and watches. Added to that, the zone’s vague goals and regulations have caused a minor panic in Hong Kong, which worries it might be replaced by a new competitor. All of these missteps could be overcome with some speedy explanations, of course, but it’s an inauspicious start to say the least.
While it’s true that China has nominally lifted the longstanding console ban, larger issues still need to be resolved. The government needs to publish its regulations to avoid speculation, the FTZ needs to become a success in the financial arena so the experiment doesn’t get closed down, and most of all console manufacturers need to figure out how to sell their product to consumers that are unfamiliar with their purchasing model. Should all that happen, we could see China’s gaming renaissance channeled into new and interesting directions, perhaps even creating some interesting cross-cultural experiences for western gamers who might not understand or appreciate Chinese culture. After all, cultural exports like games and Anime did a lot to foster understanding about Japanese perspectives, and there’s no reason the same can’t happen for China. But if that doesn’t happen and consoles flop in the PRC, there’s no doubt Chinese studios will continue charting their own path and living by their own rules without outside influence-and there’s something to be said for that too.