China’s State Council has formally lifted a 14-year ban on foreign-made game consoles, unlocking a potentially huge profit pool that has so far eluded the likes of Microsoft, Sony and Nintendo.
The relaxation, originally announced last year, will allow foreign-invested enterprises to sell their products into the country from factories established in Shanghai’s new free trade zone.
The liberalisation could open a market closed since 2000 to companies including Microsoft, Nintendo and Sony.
When it implemented the ban, the Chinese government cited concerns about harmful effects that violent video games might have on the country’s youth.
In spite of the restrictions, Microsoft’s Xbox, Nintendo’s Wii, Sony’s PlayStation and other consoles are readily available in China, having been smuggled into the country.
The ban also failed to dent the rapid rise of PC, internet and mobile gaming in China, all of which feed a market estimated to be worth $14bn annually.
Tencent, China’s most valuable internet company, makes more than half of its revenues from gaming. In 2012, Lenovo unveiled a home entertainment console that it marketed as a family exercise device or “sports machine” to circumvent the gaming equipment ban. The device was initially priced at more than $600 – twice the cost of a comparable Xbox.
Video games traditionally were an important draw for the country’s once ubiquitous communal internet cafés, which have steadily lost customers as tablets and smartphones become more affordable.
Neither Nintendo nor Sony has announced plans to establish operations in the Shanghai trade zone but in September, Microsoft said it would establish a $240m joint venture with BesTV, an arm of the state-owned Shanghai Media Group. The two companies intend to produce “family games and related services”. BesTV’s Shanghai-traded shares rose more than 8 per cent on Tuesday.
Most of the world’s most popular consoles are already made in China by contract manufacturers for export. Such operations offer another potential source of leakage into the market.
The requirement that factories must be based in the Shanghai free-trade zone means existing game console makers cannot simply redirect their current output on to China’s domestic market and take advantage of existing economies of scale.
The State Council also said the ban’s suspension was “temporary” and noted that consoles manufactured in the zone would be subject to “content examinations by cultural departments” – both factors that could dissuade foreign investors from risking their capital there.
“China’s game console market is virgin territory,” said Zhang Yi, head of iiMedia research. “But lifting the ban is like ice melting - it won’t happen overnight. There are still many obstacles. The most important one is approval from cultural departments.”
The liberalisation also highlighted the piecemeal impact of Shanghai’s new trade zone, the establishment of which was originally likened by its proponents to the rise of special economic zones in the early 1980s under Deng Xiaoping to kick-start China’s reform and opening programme.
Some of the zone’s backers had held out hopes it would bring big-bang reforms ranging from an opening of the country’s closed capital account to relaxation of strict internet censorship.
Additional reporting by Wan Li