Although video game arcades had become something of an endangered species in the United States and Europe in 2000, they were still thriving in China and other parts of Asia–booming, in fact. However, they were often illegal and poorly managed, which caused people to generally regard them as a threat to the growth and development of their youth. This "threat" prompted several branches of the government, which included the Ministry of Culture, the State Economic and Trade Commission, the Ministry of Public Security, the Ministry of Industry and IT, the Ministry of Foreign Trade and Economic Cooperation, the General Administration of Customs and the State Administration for Industry and Commerce, to band together in a crusade to end the corrosive influence of video game arcades. Many believe that the ban is a result of vocal parents complaining about how video games would waste away the minds of their children, which might also be true enough to fuel a campaign to regulate them.
That year, three months after the PlayStation 2 released in Japan, a bill titled "Feedback regarding the launch of special operation on video game arcades" was proposed and passed. The measure was meant to regulate the operation of arcades, but its wording states:
"..the manufacturing and selling of any electronic gaming equipment plus its parts and accessories headed to China are stopped immediately. No company or individual can partake in the manufacturing and selling of electronic gaming equipment plus its parts and accessories headed to China.
To be clear, the ban had nothing to do with the epidemic of video game addiction that would sweep the nation and prompt the government to set up reformative boot camps. Nor does it share any of the historic and political roots that led to the ban of Japanese consumer products in South Korea, although the outcomes are very similar. China's ban was specifically geared towards protecting its youth from going to dangerous venues and being exposed to unhealthy content. But Chinese gamers would not be suppressed, even as the ban stayed in effect for fourteen years. The result of the ban caused a meteoric rise in PC gaming. Although the ban does include language that prohibits internet cafes from running businesses related to video games, that portion was rarely enforced. As a result, video game revenues in China topped over 13 billion dollars in 2013, with the PC in the lead and a fast growing mobile sector behind it.
Unsurprisingly, consoles did not figure into the revenue report, but it's not for lack of trying. In 2004, Sony tried to work around the "strictly limited" portion of the ban with a low-scale launch of the PlayStation 2, but it only managed to release it in two out of the five intended cities. Hitting Shanghai and Guangzhou, Sony's official statement referred to the system specifically as "the PlayStation 2 Computer Entertainment System," with the implied emphasis on "computer."
Even with this attempt to distance itself from being a video game console, the PS2 would see a number of different problems, the greatest of which being the China's auditing system. China's government must approve all media content to make sure they fall within strict guidelines, and much of the PS2's library failed to do so. The roadblocks didn't end there. High tariffs on imported foreign products made the PS2 considerably more expensive than ones picked up from the (largely un-policed) black market, which tied in to the country's long standing culture of software piracy. Although the PSP and PlayStation Vita never officially launched in China, they both had a healthy share of knockoff systems (such as the unabashed iReadyGo), and the real ones were quite popular on the black market.
That doesn't mean Sony was ready to give up. In June of 2012, Sony Computer Entertainment opened a headquarters at Guangdong Animation City as part of a government backed initiative in Guangzhou to help strengthen its local animation and gaming industry. A month later, Sony made a surprise appearance at Chinajoy in Shanghai, China's largest video game expo, after skipping it for four years. Around the same time, an outdated PlayStation 3 model quietly passed China's certification process, but was soon withdrawn by Sony after it was discovered.
That leaves Nintendo's brand of iQue consoles as the only success story out of the big three console manufacturers. Partnering with an American entrepreneur Dr. Wei Yen in 2003, Nintendo launched an inexpensive gaming console in China. It was essentially a version of the N64, with the processor built into the controller, and used rewritable cartridges for its games, which also plugged into the controller. In an effort to curb piracy, games could only be downloaded from iQue Depot stores, and each cartridge only had enough memory to hold one game at a time.
The console never really took off due to its inconvenience, but it soon reemerged with a focus on the handheld market. iQue now sells its branded version of the Nintendo 3DS XL, which is popular despite its library being limited to a handful of games mostly developed by Nintendo itself like Mario Kart 7 and Super Mario 3D Land. Nintendo gets a pass because it develops relatively nonviolent games that are free of pornography and consistent with China's regulations and sense of morality. Although other countries might see violent 3DS games, they are conveniently filtered out for China. It might seem like a minor victory, but the iQue is among the few console systems that are openly sold in China. In 2008, Nintendo announced that the Wii would release in China, and the system was certified, but nothing ever became of it. However, similar to what Sony experienced, the console became very popular on the black market.
The ban on manufacturing arcade machines was lifted in 2009, but the ban on foreign-made video game consoles remained in effect.
In January 2014, after seeing the kind of revenue video games brought in, the Chinese government announced that it would temporarily lift the ban on gaming consoles. However, consoles could only be manufactured and sold in the Shanghai's Free Trade Zone, an area where economic reforms are put to the test. Additionally, games can only be sold after an inspection by China's cultural departments. Nintendo shares leapt by 10% in Tokyo following the announcement, Microsoft added 1%, and Sony remained flat.
There was a great deal of excitement in the months leading up to September, when the ban was scheduled to lift. Nintendo teased plans to develop a new low-cost console for emerging markets. Microsoft, partnered with Chinese company BesTV, ramped up by ordering 5 million Xbox Ones in preparation for its launch. A hiccup, three days before the Xbox One's anticipated September 23rd launch, caused a six day delay. Finally, on September 29, 2014, the Xbox One launched in China. It garnered 100,000 pre-orders despite a slim lineup of games. No doubt spurred by Microsoft's success, Sony has announced its own plans for launches of PlayStation 4 and Vita. The launch has since been delayed.
The figure of 100,000 units for Xbox One might sound a bit low, but it still far exceeded sales of the console in Japan. Reports speculate that Microsoft is hoping to reach one million sales in the following year. Those might be high expectations, given the hurdles the console still faces.
Obstacles include high prices that brought other attempts to bring consoles to China down. A base model Xbox One in China currently goes for roughly $500 USD, and that's after a sizable price cut in the region. No one knows how successful an expensive console will be in the long run, especially since China's PC-centric gaming market largely takes place in pay-per-time internet cafes. Then there's the sales model in a country that is famous for pirating software and cheap knock-offs. It's largely for this reason that the most popular PC games in China are free-to-play with microtransactions.
Don't expect Grand Theft Auto V to be approved anytime soon. Also, the ban suspension is temporary, with no indication of whether or not it will be reinstated. Microsoft, Sony, and Nintendo will have to live with that Sword of Damocles hanging over them.
Then there are other cultural and social concerns. The high population density of China's urban areas means that living spaces tend to be small by American standards. In some cases, really small if console sales ever go beyond the Shanghai Free Trade Zone. That's not exactly an ideal environment for Kinect motion controls or four-player get-togethers. Not to mention China's official recognition of video game addiction, and its ultra-competitive school system. Few parents may want to buy an expensive gaming console for their kid if they still believe that it will rot their minds and lead to decreased academic performance.
Coincidentally, publishers like Ubisoft are experimenting with a different strategy by developing Just Dance Now for mobile platforms, which circumvents many of the hurdles consoles still face and brings the popular series to previously inaccessible markets. Good for Ubisoft, but perhaps not so good for gaming consoles that rely heavily on third party development support for its games library.
