Ban on Video Game Consoles Tentatively Lifted in the Shanghai FTZ

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SHANGHAI – On Monday this week, details were announced regarding the lifting of China’s 14-year ban on video game consoles, set to begin as a pilot program in the Shanghai Free Trade Zone (FTZ). The lifting of the ban is poised to fundamentally alter China’s lucrative video gaming market, which is currently dominated by PC and mobile games, as the giants of console gaming compete over the world’s 3rd largest video game market in terms of revenue (valued at 123 billion yuan).

Under the changes, foreign-invested enterprises (FIEs) must apply to the Shanghai Municipal Administration of Culture, Radio, Film & TV on a case-by-case basis for approval to manufacture and sell video games in China – a process stipulated to take 20 days. Application requires the submission of a thorough catalog of all content to be included in the final market version of the product, including bilingual transcripts of all video, audio and text, and images of the product exterior.

Some industry analysts have expressed concern over the broad interpretability of the criteria by which games will be evaluated, including violating China’s constitution, threatening national unity, sovereignty, or territorial integrity, or harming the nation’s reputation, security, or interests.  The announcement indicates that authorities will be especially on guard against gambling features, as the new provisions also extend to other gaming equipment, such as arcade machines, and potentially, video lottery terminals (or VLTs).

Another concern is to be found in a clause requiring that, in the event of product content, model, or classification undergoing significant modification (e.g., a software patch), the FIE must reapply for approval to manufacture and sell the product in question. It remains to be seen how stringently this will be applied, as it threatens to further complicate the operations of foreign game companies in China.

However, the good news is that even in the event of a rejected application, authorities must provide the applicant with the grounds for their decision, thus allowing them to remove the offending material and reapply.

News of the lifting of the ban comes in the wake of partnerships recently created between foreign video game giants Microsoft and Sony and China-based distributersBesTV New Media Co Ltd. and GoerTek Inc., respectively.

Not wanting to lose any more time than necessary to begin shifting the Chinese market towards console gaming, Microsoft is estimated to be aiming at late April as the earliest possible date for the Xbox to go on the market.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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