Nintendo and Sony Group have struggled to find a Chinese audience for their Switch and PlayStation 5 consoles, with regulatory barriers keeping all but a fraction of their video games out of the roughly USD 42 billion market.
Tencent Holdings and other big Chinese game makers were among the highest-profile exhibitors at the ChinaJoy video game expo in Shanghai, one of the largest such events in Asia. The four-day show, which wrapped up on July 29, drew around 370,000 people.
There was a Japanese presence at the expo as well. The local arm of Sony Interactive Entertainment (SIE) had a PlayStation booth, showcasing three in-development games made with local creators.
But some Chinese consumers take a skeptical view of Japanese games.
“Chinese games have interesting storylines that make you want to play them more and more,” said a ChinaJoy attendee who was cosplaying as a character in an outfit inspired by ancient China. “Japanese games use a lot of IP, but I feel like they don’t measure up to Chinese ones.”
SIE set up a China unit in 2014 and launched the PlayStation 4 there in 2015, followed by the PS5 in 2021. Nintendo rolled out the Switch in China in 2019 in partnership with Tencent. Neither has seen the sort of growth they had hoped for.
SIE says it plans to release more new games once they are greenlighted by regulators. This has been a major barrier for Japanese video game companies.
Authorities have so far approved 30 or so Switch titles imported from Japan or elsewhere, and 20 developed in China, based on announcements from the Chinese government’s National Press and Publication Administration (NPPA), which oversees the industry. The PS5 has even fewer approved titles, with ten imports and eight locally developed titles.
By comparison, since the Switch’s 2017 global release, the console has accumulated roughly 1,900 titles in Japan and 2,300 in the US as of March.
The Chinese government censors game content to avoid potential negative effects on society, rejecting games seen as too violent or political, for example.
Switch games from Nintendo’s flagship Legend of Zelda series have yet to go on sale in China. Skeleton enemies appearing in them were seen as inappropriate, an employee at a major Chinese game developer said.
“For Japanese companies, getting regulators’ approval costs a lot for little return, so it’s unrewarding for them,” said Hideki Yasuda, senior analyst at Toyo Securities.
Consoles with thin game libraries have little appeal for consumers.
Data from research firm Gamma Data shows China’s game market grew 14% to RMB 303 billion (USD 41.8 billion) in 2023, bouncing back from a slump triggered by tighter restrictions on online gaming by minors. But console-related sales, including for the Switch and PS5, came to just RMB 2.9 billion (USD 400 million).
Nintendo has said there are “many unknown factors” in the Chinese market, and it is “not easy to achieve significant sales in a short period of time.” In its fiscal 2023 annual report, China was included in the “other” category of the geographic breakdown, which accounted for less than 10% of overall sales.
The popularity of mobile games in China presents another hurdle for consoles. Sales of mobile games rose 18% in 2023 to RMB 226.9 billion (USD 31.3 billion), making up 70% of the overall market. Most of the nearly 6,000 games approved by regulators in the five years since Nintendo launched the Switch in China are for mobile devices.
In Tencent’s Honor of Kings—one of the biggest titles, with hundreds of millions of users, mostly in China—players team up with multiple partners to defeat enemies. It offers the ability to play with friends or coworkers, a firmly rooted part of China’s gaming culture, along with the accessibility of a mobile game.
“It’s a way to socialize,” a 19-year-old ChinaJoy attendee said.
Tencent plans to “use generative artificial intelligence to speed up game development and improve user satisfaction,” an executive said. Other developers look to implement the technology as well, and competition in the space looks set to escalate.
Japanese companies have not given up on the Chinese market. The Asia Pacific region made up 46% of the USD 183.9 billion global video game market in 2023, according to research firm Newzoo, with China accounting for a sizable chunk of this.
Nintendo said it will “strive to demonstrate Tencent’s and our appeal.”
Sony, meanwhile, is focusing on its Shanghai-based “China Hero Project,” which supports local developers, and has launched several games globally through the initiative.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.