China’s E-Sports Market: Opportunities and Challenges for Foreign Players

China’s e-sports market, the world’s largest, continues to grow despite mounting regulatory hurdles, and cities like Shanghai and Shenzhen have launched initiatives to become major e-sports hubs. We discuss the country’s e-sports consumer base and the unique challenges and opportunities for foreign stakeholders in China.

In 2021, China’s e-sports market generated over US$400 million in revenue, extending its lead as the world’s most lucrative e-sports market.

Further, in H1 2022, that is between January and June this year, the Chinese e-sports industry generated revenue worth US$11.3 billion, as per the China Audio-visual and Digital Publishing Association (CADPA) report “China Esports Industrial Report H1 2022”. It must be noted that CAPDA’s methodology for estimating e-sports revenue differs from Newzoo’s methodology that is used by Western e-sports bodies.

The growth of the China e-sports market has come despite numerous regulatory hurdles that observers feared would curtail the industry, such as limits on children’s ability to play video games and freezes on new video game titles.

E-sports, which are professional video game competitions that are typically livestreamed to a mass audience, have been rapidly growing in popularity worldwide. While China is no exception to this trend, it is a distinct market with its own unique challenges and opportunities.

In June, CADPA, associated with the Communist Party’s Publicity Department, established the China Esports Working Council, a government-backed e-sports association, which has over 120 e-sports-related companies as its council members. Member companies include large game publishers (Tencent, NetEase, Perfect World, Ubisoft, Microsoft China, Sony Entertainment), tournament organizers (VSPN, TJ Sports), teams (Edward Gaming, All Gamers), and livestreaming platforms (DouYu, Huya, Huaishou, Bilibili).

E-sports in China at a glance

Over the past decade, e-sports have exploded in popularity worldwide, with China among the market leaders.

In 2021, China’s e-sports revenue grew by 14 percent to reach US$403.1 million, making it the largest e-sports market in the world. By comparison, e-sports revenue in all of Southeast Asia grew by 27.3 percent to reach US$80.1 million in 2021, while e-sports revenue in India grew by 26 percent to reach US$20.3 million in 2020.

E-sports consumers in China are large in number and are predominantly young men. According to the market research firm Niko Partners, there are about 720 million people in China who play video games, about 70 percent of whom play e-sports games.

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According to CAPDA, there are 487 million e-sports players and users in China. Similarly, the market research firm iResearch estimates that there are 470 million e-sports consumers in China, over three quarters of whom are male. Another report by Tencent and Nielsen estimates that there are about 400 million e-sports consumers in China, 70 percent of whom are under the age of 35.

In part because video game consoles were banned in China until 2014, most gamers in China use mobile devices or computers. Mobile games account for close to half of video game sales in China, while computer games account for about a quarter.

Although China’s video game market is vast, it has slowed this year due in part to government restrictions on the industry. Through the first half of 2022, the total revenue of Chinese video game companies fell by 1.8 percent year-on-year, the first decline since such data became available in 2008.

Tencent, the Shenzhen-based tech titan, is the most significant player in China’s video game and livestreaming market. Tencent developed the popular e-sports video games Honour of Kings and Game for Peace, among other games.

In addition to developing many of China’s most popular video games, Tencent has ownership stakes in the video game livestreaming platforms Huya and DouYu. Another major livestreaming platform in China is Bilibili, although it is also popular for many other types of livestreams in addition to video games.

These livestreaming platforms are similar to Amazon’s Twitch, which is a popular platform for livestreaming video games and e-sports in Western countries. E-sports competitions and livestreaming platforms typically generate revenue through advertisements, endorsements, and merchandising.

Chinese cities launch initiatives to become e-sports hubs

Some cities in China are looking to capitalize on the rapid growth of e-sports to emerge as hubs for e-sports development and competitions.

Shanghai, for instance, is seeking to become a world-leading host of e-sports competitions and talent. In 2021, construction began on a 500,000 square meter, RMB 5.8 billion (US$815.1 million) e-sports arena, which is designed to be among Asia’s premier e-sports event hubs. In 2020, Shanghai hosted the world championship for League of Legends, which is one of the world’s most popular video games for e-sports competitions.

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While Shanghai is focusing on hosting, Shenzhen is aiming to solidify its leading role in the development of e-sports games. The Shenzhen government recently released a five-year plan for the development of e-sports, which include incentives to attract game developers and e-sports players. The plan offers rewards of up to RMB 2 million (about US$280,000) for e-sports games that are developed and launched in Shenzhen, depending on their popularity, and up to RMB 5 million (about US$700,000) for e-sports games selected for major competitions.

It also offers rewards of RMB 5-8 million (about US$700,000–US$1.12 million) for leading e-sports, companies, teams, and tournaments to come to Shenzhen, as well as cash subsidies for e-sports teams that use “Shenzhen” in their names. The plan also includes designs to build e-sports arenas and encourage the development of related technology and expertise.

Shenzhen is home to many of China’s most innovative tech companies, including over 4,000 video game companies. In 2021, Shenzhen-based companies generated over RMB 160 billion (US$22.5 billion) in video game sales, representing over half of China’s total.

In addition to Shanghai and Shenzhen, Beijing, Hangzhou, and Hainan are other regions that have developed strategies to bolster their status as e-sports hubs.

Regulatory environment

E-sports in China operates within a challenging regulatory environment that features restrictions on both video games and livestreaming. The Chinese government has released an array of new regulations on video games in recent years, coinciding with a broader regulatory overhaul of the tech industry and internet companies.

Playing limits for minors

The video game industry has come under the scrutiny of policymakers in recent years due to concerns about the amount of time children in China spend playing video games. In response, policymakers have released regulations as part of efforts to reduce myopia among children, promote physical activity, address gaming addictions, and curb the spread of content deemed to be immoral.

In August 2021, the National Press and Publication Administration (NPPA) released rules that limit children under the age of 18 to three hours of online video games per week. Specifically, they only allow children to play online video games between 8 and 9 pm on weekends and holidays. Gameplay limits were first introduced by the NPPA in 2019 with rules that limited children to one and half hours per day on most occasions.

The rules are enforced by requiring companies to have real name registration for users to log in to online services. In 2021, the NPPA said that it would increase the frequency and intensity of inspections of online video game companies to ensure they are instituting time limits and anti-addiction systems.

According to the market research company Niko Partners, China has over 110 million minors that play video games. Chinese state media reported that 62.5 percent of Chinese minors “often” play games online, while 13.2 percent of minors who play mobile games do so for more than two hours a day on working days.

Distribution freezes

Chinese regulators have frozen the approval of new video games on multiple occasions over the last several years. Video game companies require regulatory approval to both distribute and monetize games in China.

Most recently, the NPPA froze approvals of new video games for distribution and monetization between July 2021 and April 2022. While the NPPA eventually resumed approving games, it did so in smaller numbers than before. Further, the freeze created a backlog of games awaiting approval and introduced uncertainty about the possibility of future games to be approved or approved according to companies’ release schedules.

This was not the only freeze on video game approvals. In 2018, Chinese regulators suddenly halted licensing to new video game releases, resulting in significant uncertainty in the industry. This freeze presaged the most recent one, which risks becoming a regular occurrence in the industry.

Video game and livestreaming platforms

Twitch, the most popular video game livestreaming website in the West, has been blocked by China’s Great Firewall since 2018. Accordingly, foreign entities must use local platforms to reach the Chinese market.

In addition to navigating China’s unique internet ecosystem, e-sports livestreams and hosts must contend with slower internet in China for content not hosted locally, again because of how the country manages foreign web traffic.

Further, Chinese livestreaming platforms themselves are in a state of flux. In June 2022, the Chinese tech and gaming giant Tencent shut down its video game livestreaming platform Penguin Esports, another Twitch-like platform.

Tencent folded Penguin Esports after Chinese regulators shot down a proposed merger between Huya and DouYu, two livestreaming platforms that Tencent also has a stake in, due to antitrust concerns. Had the merger gone through, Tencent would have integrated Penguin Esports with Huya and DouYu.

Because livestreaming platforms can be used to broadcast a wide variety of grassroots content, they are likely to be under the tight supervision of government censors and internet regulators going forward.

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