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In Gamasutra's latest China Angle column, Frank Yu looks back at the major developments in China's industry in 2007, and what to expect in 2008, including an expose on the "innovative and perhaps insidious" business model of Zhengtu Online, and the

frank yu, Blogger

January 11, 2008

5 Min Read

[As former China Angle column author Shang Koo embarks on a new project for 2008, Gamasutra's column will now be written by eCitySky director of strategy Frank Yu. Yu was formerly Microsoft's Asia-region Xbox business manager, and led the first China game team for Microsoft Casual Games.] So what can we expect in 2008 for the Chinese game industry according to the Chinese Zodiac? “The Rat year is a year of plenty, bringing opportunity and good prospects. It will be marked by speculation and fluctuations in the prices of commodities and the stock market; the world economy in general will boom. Business will be on the upswing, fortunes can be made and it will be an easy time to accumulate wealth.” Sounds good, but this actually sounds like the prediction for 2007 -- the year of the Pig -- which was a pretty good year as well. As we get ready for the coming Year of the Rat in 2008, let us look back at what 2007 and what it gave us. In the 2nd half of 2007 alone we saw the IPOs of Perfect World, Beijing Kingsoft Co., Ltd. (SEHK: 3888), Alibaba.com Ltd. (SEHK: 1688), NetDragon Websoft, Giant Interactive Group Inc. (Nasdaq: GA), and Pacific Online Ltd. (SEHK: 0543). Almost all the major game portals launched a new game, and we have begun to see companies like Perfect World and Giant starting to license games and technology outside of China. Although 50 percent of the game revenues are still concentrated in the top three game companies in the market, some research houses see a further 30 percent growth in the industry in the next few years. If we look at the market cap of China’s internet companies -- and the game companies comprise the bulk of the revenue from the Chinese internet -- we see a market value of almost $70 billion, according to NBD.com.cn. For Google China’s Zeitgeist rankings for the Chinese web in 2007, we see the top four being QQ (Tencent’s IM system), China Merchant and ICBC Banks (for IPO and online banking reasons) and casual games like Audition, Kart Rider and World of Warcraft. However, we are starting to see some criticism of this remarkable growth in gaming in the domestic media of China. Chinese Crack Giant Interactive, makers of China’s #1 online game Zhengtu Online, has been the target of a recent expose on what the writer calls “the System.” In the article, the writer tracks the many innovative and addictive mechanisms that the game uses to suck in users and lighten their wallets through various mechanisms and appeals to vanity, status and social commitments. It's a worthy read for any western game designer to see how the virtual items model in China has become more than a game but a lifestyle. Zhengtu Online in many ways, both in game design and business model, is truly an innovative and perhaps insidious product of the hyper competitive Chinese game industry and the mind of Shi Yuzhu (史玉柱), the CEO of Giant Interactive. If you are going to read one article on the China gaming industry this year, this is the one to read. “Like ZT Online creator Shi Yuzhu says, this is a game well-suited to the rich. In this world, the authority to bully others and the legal right to harm them are both for sale. Although everything is virtual, Lu Yang once believed that she could find a golden road to glory and dreams. But like so many others, Lu Yang discovered that what was crafted from the endless inflow of RMB was actually a road to bondage.” The original article in Chinese has mysteriously disappeared from various portals and news sites due to what some Chinese bloggers have expressed as pressure not from the government, but from Giant Interactive themselves and their potential massive advertising muscle. An English language translation can be found here from the Danwei Chinese Media site (while it lasts). Divorce China Style In what harks to be an interesting year in the converging of China’s virtual worlds with the real world comes this news from China’s western city of Chongqing. A divorce in Chongqing turned ugly when both parties wanted a bigger portion of their joint online game accounts. Chongqing Business Post reports that a divorce between Mr. Wang from Chongqing and Ms. Ye from Huibei turned downright ugly when it came time to split their virtual assets. Wang saved Ye's character from being killed by another player in Shanda’s game of Legend of Mir 2 last September. By October they were married, and by June they were getting a divorce all in real life. When it came time to divide their 10 Mir 2 accounts containing high level characters with a combined value of about $8,000, Wang wanted to keep the virtual stuff and give Ye their real life apartment to keep. Ye, on the other hand, wanted to split everything equally, including the virtual assets. This case, although being one of the first public ones, hints that even larger legal and social implications for online games and assets looms in China’s future. Good Luck Shang I would like to wish a hearty good luck and thank you to Shang Koo, the founder of the China Angle column, on the new project that he will embark on in 2008. I have been a fan and reader of Shang’s work and his passion for games since we met at Chinajoy and I feel honored to continue his column. [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]].

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