China Angle: 'A Tale of Two Cities and Even More Laws'

[In Gamasutra's latest China Angle column, Frank Yu looks at the ongoing Beijing vs. Shanghai rivalry for best outsourcing and development base, and at China's exploding game market, as its government again undertakes a "morality" crackdown and sets regulations that may hamper foreign companies from operating in the region.] China saw its first ever Game Developers Conference in Shanghai on August in 2007. This year, the China GDC will be held in Beijing on September 2008. The move to Beijing for 2008 has been met with some grumbling from the Shanghai game developer community and with cheers from Beijing game developer community. I was dragged into a flame war over this very topic myself. This brings up a major point for anyone interested in doing game development or outsourcing work in China. Which city is the best to base a game development or outsourcing studio in? The rivalry between Beijing and Shanghai extends beyond the New York vs. Los Angeles variety. We are talking about two cities with different languages, different attitudes and somewhat very different types of people. Although not a hostile rivalry, it’s a little more than a friendly competition. The attitude that one city is better than the other extends beyond the local Chinese population but also to the many foreigners and expatriates who fiercely call each respective city home. (full disclosure – I live and like Beijing) A great way to make friends in each city quickly is to disparage the other city over some beers and the local “firewater” known baijiu. In all fairness, Shanghai is now the current hotspot for game companies in China. Ubisoft Shanghai, or at least the many ex-employees of it, have seeded the city with a whole generation of game professionals from designers, programmers, and producer to executives and marketing folks in the way that Origin Systems seeded many of the early game companies in Austin Texas. In many ways the infrastructure, the game development eco-system and the retail sophistication of the Shanghai population makes it a great place for many companies to start their operation. For foreigners and particularly Chinese Yuppies, the Shanghai standards of service, modernity and support for expatriate talent and their family appeals to many who are new to or returning to China from abroad. Shanghai already has an extensive list of local and foreign game companies that attract talent but also provides a ready source to poach talent from as well. The savage competition for top talent in Shanghai and the rising high development and real estate cost continues to cloud the potential future of the city as a gaming hub. However, the air is cleaner than Beijing and it actually has an IGDA chapter (at least on paper). Beijing, however, even with all its shortcomings may eventually become the central hub for China’s gaming industry by decree or “encouragement” of the central government. As the Chinese domestic game industry becomes more of a strategic and regulated industry, having a geographical as well as relational proximity to the ministries that oversee them becomes vital. In the next few years for better or worse, the government will become more of an active investor in the growing multimedia boom of the country. Telecom, Energy and Banking companies find that being in a regulated industry behooves them to have a strong presence in Beijing. For some of the game companies that simply do overseas outsourcing with no domestic distribution, Shanghai can still serve as a great home for operations without the choking smog of Beijing. Aside, from the central government, Beijing is home to the country’s top universities and students with some of the most talented engineers and artists in the whole country graduating in large numbers every year. Many foreign technology companies like Microsoft, Google, Intel and IBM use Beijing as their headquarters for access to both the government and talent. Beijing’s Zhongguancun in the university district can be described as China’s version of Silicon Valley and Cambrige Mass. Like Shanghai, Beijing shares the problem of rising wages and real estate that hinder it from being a better operational solution for software development but in the mean time, the wages for game professionals remains slightly lower but less competitive than the cutthroat market of Shanghai. One can see Beijing and Shanghai continuing to be the headquarters for many game multinationals and domestic game companies but planners already see the potential of smaller emerging cities like Chengdu, Hangzhou and other cities as the new game development satellite centers for talented engineers and artists in hedging against the rising costs, pollution, traffic and rents of both Beijing and Shanghai. Since game development is in some ways a “creative” field, getting foreign and domestic top talent to move to these “hinterlands” and give up the high life of Beijing and Shanghai’s discos, food and “social scene” will still be a challenge though. Whatever city in China people choose, the industry continues to grow. Another China Explosive Growth Factoid No China column is complete without some fascinating mention of how fast the China game market is growing, so with prior apologies here it goes: The number of online game players in China rose 23 percent to 40.17 million last year, Xinhua news agency said this week, citing an industry survey. Regular subscribers, accounting for over half the players, soared 30 percent. The demand propelled online games sales to top 10.57 billion yuan ($1.46 billion) in 2007, up 61.5 percent, the agency said. Xinhua net reports that “the sales revenues of China's independently developed network games reached 6.88 billion yuan, accounting for 65.1% of the total domestic market share, and with 62.3 percent growth over 2006. To throw a downer on things the government has once again undertaken a “morality” crackdown on internet games with the usual internet café shutdowns and enforcement of the player fatigue system. However one point in a new regulation may further hamper foreign companies wanting to operate games in China. Government bodies regulating the online game industry have released new regulations regarding foreign online game companies operating in China, reports 163.com. Under the new regulation, the General Administration of Press and Publication will postpone the examination, approval and licensing of foreign company products if the companies are arbitrated or sued by Chinese online game companies. The GAPP will not continue consideration of the products until after the complaints have been resolved, according to the report. That would be just plain mean for a domestic company to hinder a foreign company’s license request with time consuming litigation for the sake of protecting market share right? The Gold Rush Is Real We all hear stories of how Chinese virtual gold pharmers are #1 in the world for virtual assets but it seems the virtual has become the real as China this year surpassed South Africa as the world’s largest supplier of real Gold (the non-virtual kind). “China has ended more than a century of South African dominance of the gold mining industry to become the world’s biggest producer of the ore. Chinese gold output jumped to a record high of 276 tonnes last year, a 12 per cent increase over 2006, while South Africa produced 272 tonne” In a Perfect World, maybe the Gold companies will relocate to Beijing in the future too. [Frank Yu is a director of strategy at eCitySky Beijing. Prior to his current position, Frank started and led the first China game team for Microsoft Casual Games. He has also served as the first Regional Business Manager in Asia for the Xbox and Home Entertainment Division. He can be reached by email at [email protected]].