China Risk
Pample, a Korean mobile game company, made a contract with Tencent of China last July to launch the game “Devil Maker” in China. However, Pample was recently notified that Tencent suddenly canceled the deal. While localization of game was being processed, the contract has been canceled with no clear reason.
Another medium-sized game company Wemade Entertainment concluded a deal with Tencent regarding release of the mobile game “A Wolf Who Swallowed the Moon” in China in June last year. Tencent canceled this deal as well, even after unofficial testing was completed in China. The cost of the contract breach was solely transferred to Wemade Entertainment.
An official in the IT industry said, “Tencent, with a huge Chinese domestic market behind its back, has become a superpower to Korean game companies. Although Tencent nominally claims that strict localization and verification of games are necessary, the Chinese government and companies are in fact trying to protect their local industry against Korean IT companies.”
As the scope of economic cooperation between Korea and China is expanding, the Korean IT industry is suffering from China risk more often. It is true that Korean companies need to penetrate mainland China, but the barrier to entry is getting more difficult, due to the protective actions of Chinese government and major IT companies. Recently, the Chinese government actually turned the so-called “Great Fire Wall” on for Korean IT companies, blocking the services of Line and Kakao in China. The Korean IT industry interprets this as a tacit warning from the Chinese government.
The Korean game industry is hurt the most by China risk. Especially for the mobile game industry, it is “an equation for success” to launch a game with WeChat, the most dominant mobile messenger in China, created by Tencent.
A staff member at a major company said, “Our number one strategy for the Chinese market is to make an alliance with WeChat. Although there are other Chinese platforms such as Alibaba and Baidu, Tencent is still the strongest one.”
However, as there are many unilateral breaches of contract from Tencent, Korean companies feel offended by Tencent's closed policies. An industry source said, “Tencent requires something beyond the capabilities of Korean companies, such as server increases or operational network technologies of games. Maybe because of verification, but they do not notify us the specific release date.”
A more serious problem is that the expertise of Korean game developers could leak to China in the meantime. Tencent has already created games very similar to Anipang and Wind Runner, supposedly by copying them. Another industry insider pointed out, “Tencent deserves this doubt based on its previous record. There is a possibility to be totally ripped off when trying to enter the Chinese market for great success.”
The game industry is frustrated in front of this tough entry barrier, but mobile messengers are on the verge of being blocked without notice by the Great Chinese Firewall.
The application industry is not an exception. A Korean translation application, used freely in more than 200 countries worldwide, has been blocked in China. It was blocked by the Chinese government, which is basically allowed without amendments to relevant laws. Presumably, this might be one of the containment actions from Chinese competitors.
The recent fact that Kakaotalk and Line services have been blocked in China is the very first case proving that the Korean IT industry can never be free from Chinese cutoffs just like Twitter, Google, or Facebook.
The majority opinion is that Kakaotalk and Line services were suspended as a form of the Chinese government’s media control for political purposes. However, as this suspension continues more than a week, some insist that the Chinese government is trying to contain Korean mobile messengers, which have shown strong growth recently. Although there are not that many people who use Line and Kakaotalk yet, this could be a “pre-warning message.”
Currently, WeChat of Tencent is not dominating Thailand and Taiwan, which are the home ground of China. Line is growing very rapidly in the Southeast Asian market. An industry source said, “This sense of crisis could spread out to mainland China any minute. China would never be able to not care about Korean mobile messengers passing through China.”
Another industry source pointed out, “Although the Korean IT industry witnessed that Google and Facebook were blocked in China previously, the actual experience this time is another story. The Korean IT industry will have to figure out how to solve this problem.”