The Shifting Landscape Of Premium Game Development In China

Over the past twenty years, the Chinese gaming industry has surged forward like a raging phoenix. China is the world’s second-largest gaming market, with total sales revenue surpassing 300 billion RMB (US$42 billion) in 2023. While the global gaming industry has a nearly fifty-year history, gaming as an industry gained social acceptance by the public in China only during the early 2000s. Over the past decades, China has undergone a significant shift in its policy stance towards gaming, transitioning from initial criticism and suppression by the authority referring to it as “spiritual opium” to today’s hyped popularity and flourishing. In this article, we analyze the journey of the Chinese gaming industry trends and examine the current condition and what it means for the industry’s future.

Over the past decade, based on the number of game approvals, the Chinese gaming market has added over 20,000 new games. In 2023 alone, the total number of new game approvals issued by the National Press and Publication Administration was 1,075, marking a year-on-year increase of 109.96%. This doubled the total compared to 2022. This also signifies a return to growth in game approvals after five consecutive years of decline.

Today, the discussion surrounding the Chinese gaming industry revolves around its success but also around its challenges and difficulties. “Involution” or “Internal competition” has become one of the most resonant keyword among game developers. Behind this phenomenon undoubtedly lies the increasingly fierce market competition and the diversified demands of players. This pressure is driving big companies to transition from scatter shooting, trend-catching “hoping one game will succeed out of 10 games” method to a path to devote and invest in high-quality, innovative, long-lasting premium IPs. Many major game companies believe the key to supporting this transition is the enhancement of “ industrial capabilities”.

“Industrial capabilities” or “game development industrialized” is a term commonly used within the Chinese gaming industry. It essentially means constantly pushing and developing high-quality gaming-related assets and patches in a fast yet stable manner while ensuring a game’s innovation and creativity. This entails achieving controlled quality, processes, and output under unified standards to stay ahead of the competition.

Wei Liu, the co-founder and chairman of miHoYo, once commented on his company’s industrialization process: “Without industrialized production pipelines, it’s challenging for a development team of over a thousand people to produce products of large volume and equivalent quality. We might need at least six months to carry out a version update, expand maps, and add new characters,” said Liu Wei. However, miHoYo’s industrialization capability currently allows us to maintain stable updates for Genshin Impact every six weeks. He compares culturally impactful innovations and creativity to the sky for a game company, whereas he sees matured industrialized processes as the road leading to success.

While the term “Chinese gaming industrialization” is merely a new concept, in today’s gaming industry in China, companies with thoroughly developed industrial capabilities are still relatively limited. In contrast, while recognizing the importance of industrialization and tech evolution, many local Chinese gaming companies struggle to initiate the transformation. What is the future of game development in China? Is it simply following the footsteps of overseas AAA games? If not, where do the prospects lie for development teams with over thousands of people?

Additionally, the globalization of Chinese gaming, referred to as “出海/Chu Hai,” has emerged as a pivotal determinant for survival. With the domestic market reaching saturation, and excruciating long wait for an ISBN license, venturing into international markets has become paramount for the gaming industry, signifying a vital avenue for sustained growth and expansion.

While large game companies may survive based on their domestic market share, for small to mid-sized companies, ventering into global markets has become vital for survival, considering that the process of obtaining a publishing licence in China is likely to take more than a year, or may not happen at all.

The wave of Chinese games going global has been underway for many years, and 2023 was another year when Chinese games swept across the globe. Chinese game developers have been advancing steadily, spreading the presence of Chinese games to all five continents and connecting players worldwide through gaming. According to data from the industry annual conference, the overseas revenue of Chinese games in 2023 reached 16.366 billion USD, nearly nine times the figure from a decade ago.

Opportunities and challenges coexist, a topic that is always present when it comes to game globalization. Every globalizing game developer must constantly face the challenge of overcoming difficulties, establishing a firm foothold in advance, and seizing opportunities. Many games that were major hits domestically in China have underperformed after going global. This is often not due to a lack of quality but rather localization issues. Localization entails various considerations and cultural nuances. Simply translating the language only scratches the surface of understanding for local players, whereas cultural localization delves deeper, allowing players to connect with the game on a more profound cultural level. Other than that, user acquisition strategy also faces strategic repositioning. Since 2022, due to shifts in privacy protection policies by tech giants like Apple and Google. Game developers found it increasingly challenging to acquire target users with the same ease and appropriate funding as before.

For gaming giants such as Tencent, NetEase, miHoYo, and many more, acquiring users through purchasing traffic is a necessary step for product accessibility, but it’s only an initial measure. To most companies, a successful IP needs to be built from scratch, making ecosystem management and brand building crucial for the longevity and survival of evergreen games.

The launch of Genshin Impact in 2020 truly sparked industry-wide anxiety. Unlike NetEase and Tencent, miHoYo is not a company with a long history. Yet, it produced an open-world game with a budget exceeding $100 million, boasting exceptional quality and vast content.

At this point, almost everyone has come to understand one truth: in an era where players are already well-versed, only launching a game that meets the industry’s top standard and competitor challenges in every aspect can make you last.

Years ago, many PC games touted themselves as “next-generation,” Now, many mobile games are marketing themselves as “AAA.” However, after several years, it has become evident that this is quite challenging. Some companies even resorted to hiring overseas talent at high salaries, only to end up in a mess. Today, an increasing number of Chinese gaming companies are establishing studios overseas to develop premium games.

Many believed this growth trend would resemble the history of the gaming industry’s first 30 years, entering another explosive growth cycle. However, game developers quickly realized that winter always comes earlier than spring.

If the industry’s prevailing trend in 2021 was to “learn from Genshin Impact,” then the buzzword within the Chinese gaming industry in 2022–2023 was undoubted “熬过寒冬”, which means “surviving the winter.” Major companies called for cost reduction and efficiency improvement, trimming excess and focusing on core aspects.

The underlying reason was the withdrawal of many casual users from the gaming market after the pandemic’s effects subsided, returning the industry to a competitive state. The plethora of projects launched in the previous two years quickly found that the market was not large enough to accommodate so many games, ultimately leading to poor product performance, layoffs, project cancellations, and even company closures becoming all too common.

This situation is particularly severe in the Chinese market, which boasts the most robust production capacity. A notable example is the anime games in 2023, where 50 anime collectively perished after an avalanche, with only a few games like Honkai: Star Rail making any significant impact. This is also the terrifying aspect of “internal competition” — everyone is caught up in it, and nobody wants to miss out on the biggest trend and wants to be involved, but when everyone is involved and creating the same thing, it takes much more to stand out.

Accompanying the anxiety and pressure regarding quality, speed, and scale, the Chinese gaming industry has officially entered the era of pursuing industrialization. “Premium games never go out of style.” However, when money “comes too easily“ from making P2W mobile games, it is hard to stay grounded to make games that do not prioritize monetization.

Over a decade ago, premium games faced difficulties in the Chinese market. Several overseas gaming giants, including Blizzard and EA from the United States, set up operations in China but later disbanded them. Many industry insiders analyzed that premium games struggled to gain traction in the Chinese market due to their relevance to the target audience. Most Chinese gamers at that time came from lower-tier markets and had certain consumption thresholds for premium games, requiring time to cultivate the market.

In recent years, the Chinese gaming industry has started to pay more attention to PC and console gaming again, thanks to the massive commercial success of Genshin Impact, which is undoubtedly a benchmark. Its multicultural creative approach has successfully opened up the global market. After the global success of Genshin Impact on the PC and console platforms, the breakout of Naraka: Bladepoint on Steam seems to harken back to the era over a decade ago when PC games were flourishing.

Both games have proven that Chinese developers are not just about mobile games. They are no longer confined to greedy but unoriginal pay-to-win models but can create high-quality, thoughtful, and innovative games, competing with top international game companies.

More and more Chinese developers are realizing that Chinese gamers are no longer in the same state as in the early years. With the widespread popularity of various social media platforms and information channels, even ordinary players in lower-tier markets can access frontline gaming news and experience the highest-quality games worldwide today. Amidst an excessive number of derivative works that lack originality and uniqueness, Chinese gamers are increasingly inclined to choose premium games. For example, last year’s Baldur’s Gate III garnered over a million users in China alone. Similarly, earlier this year, Palworld on the Steam platform alone is expected to have exceeded 4 million Chinese players.

Compared to overseas gaming companies, Chinese companies have historically placed less emphasis on branding, mainly due to their later development and rapid growth. In the past, when the industry was rapidly expanding, it was understandable that companies had little time to focus on brand building. However, in today’s fiercely competitive market environment, where numerous categories of games are entering a highly saturated state, a trusted game developer can generate significant buzz and hype well before the game is even released without spending any marketing budget.

For the future trends of Chinese games, based on the current gamer sentiment, most companies have already realized through tough trials that simply following the hottest genre or style of a game will not guarantee the same success. Under “industrialization,” the fundamental aspect that needs strengthening is not just processes and technologies but wholehearted dedication to making a game that gamers can fall in love with.

This year, Black Myth: Wukong, an action RPG from Chinese developer Game Science, is expected to be released on August 20. The game is rooted in Chinese mythology and based on Journey to the West, one of Chinese literature’s Four Great Classical Novels. This game carries the aura of “China’s first premium AAA masterpiece,” yet it also feels overshadowed by it.

From an industry standpoint, Black Myth: Wukong carries far more weight than just being another ARPG game; it also reflects the challenges of creating large-scale premium games in China. Under the pressure of player retention and monetization, Chinese game developers and publishers often have prioritized profitability, constantly lowering barriers in terms of pricing and difficulty in attracting more players. In a market environment surrounded by foreign giants, it’s not easy for a China-produced game to stand out without exceptional quality. Current market feedback indicates that Black Myth: Wukong still has the potential to be the era-defining game. Its success could indicate that 3A single-player premium games can also lead the gaming market in China.

As we gaze ahead, it’s evident that the Chinese gaming industry holds immense potential. Yet, whether we’ll witness a surge in innovative titles pushing the boundaries of creativity and originality or a focus on technological advancements on a grander scale remains uncertain at this stage. The integration of cutting-edge technology from major gaming companies will play a significant role in shaping the future of Chinese gaming. With advancements in areas such as artificial intelligence, virtual reality, and augmented reality, developers will have new tools at their disposal to create immersive and engaging experiences. This technological innovation will not only enhance gameplay but also open up new possibilities for storytelling and world-building.

The globalization of Chinese gaming will continue to accelerate. As developers look beyond domestic borders for growth opportunities, we expect to see more Chinese games making waves in international markets. This will lead to greater cultural exchange and foster collaboration between developers from different regions, resulting in even more diverse and dynamic gaming experiences.