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China technology

Steam forges ahead in China as domestic gaming industry squeezed by Beijing’s freeze on approvals

  • There are an estimated 30 million Chinese users playing games that are not approved for domestic sale via Steam
  • Chinese developers, frustrated with Beijing’s suspension of new game approvals, have flocked to the platform as a workaround to sell their latest games
PUBLISHED : Tuesday, 23 October, 2018, 7:03am
UPDATED : Tuesday, 23 October, 2018, 5:01pm

China has some notable grey areas – from shadow banking to the sale of parallel goods. Now there’s another one.

Amid concerns over internet addiction, childhood myopia and unsuitable content, Beijing has sought to rein in the gaming industry by tightening controls this year and freezing approvals of new titles.

The move has helped to wipe US$220 billion in market value off Tencent Holdings – a shocking reversal for the Chinese internet titan that enjoyed a 67,000 per cent rise since 2004. What many people may not realise though is that against the backdrop of an escalating trade and technology war with the US, the unlikely winner of Beijing’s crackdown is a US company.

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Step forward Valve Corp’s Steam, the world’s largest online PC game distribution platform, which while not officially available in China, is not blocked either. While all video games need to obtain a licence to be published in China, there are an estimated 30 million Chinese users playing games that are not approved for domestic sale via the Bellevue, Washington-based Valve’s Steam platform.

These offerings include blockbuster titles Chinese regulators would consider too violent or sexual, such as Grand Theft Auto V, which simulates what it’s like to be a gangster by shooting rivals, stealing cars, and dressing to impress on your way to becoming a criminal mastermind.

But it’s not only overseas developers such as Rockstar Games that are tapping Steam to reach Chinese gamers. Lately a raft of independent Chinese developers, frustrated with Beijing’s suspension since March of new game approvals, have flocked to the platform as a workaround to sell their latest titles in the country.

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In fact, a number of Chinese-only indie games have beaten off big name titles in recent weeks to rank among Steam’s top-sellers. One of them is a martial arts simulation game called The Scroll of Taiwu, which has sold over 800,000 copies since its release on September 21, according to its developers. The martial arts game sells for 58 yuan (US$8.4), which means Steam, after taking a 30 per cent cut, has earned at least 13 million yuan (US$1.9 million) from it.

“Steam currently operates in a grey area in China although regulators have blocked Steam’s community feature and applied pressure on Valve to ensure the storefront is as compliant as it can be,” said Daniel Ahmad, an analyst with research firm Niko Partners. He added that thanks to the large number of Chinese Steam users, “even creating a title specifically for the Chinese market can be successful.”

A spokesman for Valve did not respond to an emailed request for comment sent through their website's press inquiry form.

Zheng Jie, the 32-year-old amateur coder behind a team that took three years to create Taiwu, said he opted to publish the title on Steam because the platform has fewer restrictions for indie developers and he has no idea when game approvals in China will resume. “My team has an urgent need to survive,” he said.

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Steam first took off in China in 2013 when Valve published its battle arena title Dota 2 on the platform in partnership with China’s No. 3 gaming firm Perfect World. Then in 2017 a burst of popularity for Korean developer Bluehole’s survival shooter PlayerUnknown's Battlegrounds (PUBG) attracted more Chinese users to Steam, who bought 15 million copies of the title via the platform, according to an estimate by Niko.

Setting up a Steam account requires a simple email and a few clicks, but one crucial step is to select your country of residence, which is associated with what products you see in the store, the currency you see prices in, and your payment method. Steam users in China, for example, are allowed to pay via WeChat and Alipay, the country’s two most-popular mobile wallets.

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Steam only allows users to set the country of residence to their current location, which means they would have to use a VPN service to change the store to other regions.

There are now over 30 million Chinese gamers with an active Steam account, more than double the number last year, according to estimates from Niko. As of September, about 26 per cent of total Steam users had their default language set as simplified Chinese, second only to English, according to Steam’s monthly survey.

Steam is currently an outlier among the hundreds, if not thousands, of foreign websites that are banned in China ranging from major news services such as The New York Times to social media platforms like Facebook and YouTube. Added to the list recently was Amazon-owned game-streaming service Twitch, which gained sudden popularity in China before being blocked in late September.

What makes Steam’s under-the-radar growth such an anomaly is the shift in fortunes for China’s biggest games developers amid Beijing’s crackdown. Some popular games have been dismissed as “poison” by a government increasingly concerned about the impact of gaming on the nation’s youth.

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Amid the pause in game approvals and a reshuffle of the departments responsible for regulation, total revenue in the domestic gaming sector in the first half rose 5 per cent year-on-year to US$15 billion – the slowest growth rate in at least a decade, according to data from research firm CNG.

Meanwhile Tencent, the world’s top grossing games publisher last year, posted its first profit decline since 2005 in the second quarter on lower gaming revenue, with president Martin Lau – who must have steam coming out of his ears by now – blaming the disappointing results partly on blocked game approvals.

Last year Tencent bought the rights to publish the wildly-popular PUBG in China, and has since adapted the PC title into two mobile games. However, Tencent is still waiting for approval to launch PUBG’s PC version in China and the two mobile titles – released in January and February – still need a licence for Tencent to earn money off them.

Steam’s biggest competitor in China is Tencent’s online games platform WeGame, which was launched last September and now offers about 270 titles for sale, compared to about 1,800 on Steam. In August though, WeGame pulled hit role-playing title Monster Hunter: World from its platform less than a week after launch, saying regulators had received “numerous” complaints about the game’s content.

A spokesman for Tencent did not comment on Steam’s loophole in China, but said the WeGame platform “will strictly follow relevant policies, laws and regulations to put games on sale after they pass the approval process.”

There have been some changes at Steam too. Earlier this month Chinese Steam users reported that they no longer had access to adult-only games on the platform even though Steam recently stopped censoring such content in other regions. Steam’s discussion forum has also been blocked in China since the end of last year.

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China’s media regulator, the State Administration of Press and Publications, which is now in charge of game licensing, could not be reached by the Post. The agency has yet to establish a website, or make its contact public, after being formed in April amid a government shake-up of regulators.

Change could be on the horizon. In June, Valve announced that it is partnering with Perfect World to launch an official Chinese version of Steam. A month later, Perfect World opened job positions for Steam China including a senior manager role in charge of content censorship. A spokeswoman for Perfect World said the company has no further information to provide on Steam China, which does not have a release date yet.

Valve said in a statement announcing the partnership that Steam China will have nothing to do with the existing Steam platform. But Chinese gamers are concerned that the government will ban the global version once the domestic platform is launched. If that happens, Chinese gamers may have to look elsewhere for their fix.

“I’ll have to see how bad the censorship is before deciding whether to accept it or not,” said Chen Shihuai, a 28-year-old Steam user in Shanghai, adding that he would not rule out switching to WeGame for better offerings.