Independent Presence in Chinese Market
The Korean government is working to tackle Chinese trade barriers to the gaming industry through the Korea-China FTA.
By default, it has not been possible so far for a foreign game company to launch their own service in China, but the FTA’s removal of this barrier is expected to allow Korea’s popular games to freely enter China, the world’s biggest game market.
According to an announcement by the Ministry of Culture, Sports and Tourism (MCST) and Ministry of Science, ICT and Future Planning (MSIP) on December 17, one of the issues in the second round of Korea-China FTA negotiations is whether or not to allow Korean companies to launch their own Internet game services in China.
The Chinese government so far has barred foreign game companies from servicing their own games directly in China. Launching games in China has not been possible without the aid of a local company. The services should be provided through a Chinese company or a joint venture with a Chinese firm. In a joint venture, the service is allowed on the condition that the Chinese partner owns more than 51 percent of the venture.
As such, Korean companies have relied on local Chinese service carriers such as Tencent and Shanda to launch their games in China. Further, the domestic game firms received only about 20 percent of revenue earned. This arrangement has often led to mass production of knockoffs of Korean games in China, as the Chinese companies use the source code given as part of the agreement.
Recently the MCST and China’s Ministry of Culture signed a Memorandum of Understanding (MOU) in order to bolster cultural exchanges between the two countries, which allows Korean companies’ independent entry into the Shanghai Waigaoqiao Free Trade Zone. As a different scenario, if the FTA removes the reciprocal trade barrier altogether, direct game services could be possible in any other area in China.
A government source said, “It is one of the subjects to be dealt with in the second round of negotiations, but it is difficult as of now to predict if an agreement will be reached.”