Stir Fried China

China’s GAPP (General Administration of Press and Publication) announced yesterday that foreign investment in China’s online gaming industry won’t be allowed (I presume from this point on and not retroactive). In this case, foreign investment includes foreign entrepreneurs, as the edict from the GAPP also denies foreigners from setting up wholly owned enterprises (WOEs) and/or joint ventures.

If this sticks (which it may not – there is certainly a long history of these kinds of decisions being overturned and/or not enforced), then it is really a blow to both foreign entrepreneurs in China and foreign companies looking to enter and expand into China’s lucrative online gaming market. The gaming market has been a consistent target of foreign entrepreneurs, one main reason being the well established system of virtual currency spearheaded by QQ, as well as China’s hundreds of millions of mobile users.

Obviously, we are seeing some extreme protectionism going on here, but I think that in GAPP’s collective mind there is something else going on as well – better control of the content of games, which many higher-ups in China (as they once did/still do in the US) feel are corrupting young minds – this really is a major focus of the government. That said, this seems to be an extreme measure in either case.

My guess is that this is a short-term restriction that the GAPP is enacting in order to reconfigure the industry so that when/if it lifts the foreign investment ban, there will be a quite a number of hoops to jump through. There is also the ongoing strife of China’s ministries, and often these proclamations come out of jostling for supremacy between the ministries to try to determine who controls industries. Of course, I would imagine that companies such as Activision and others are going to bring this to the WTO, but again, my guess is that the sector will open up again (in a new form) before it really comes to a head. China’s online gaming industry is simply too lucrative to keep the rest of the world out for too long.