China’s online game industry has maintained steady growth in recent years. According to China Internet Network Information Center (CNNIC), as of June 2020, the segment recorded 540m online gamers, increasing by 8.05m over the past three months and making up 57.4% of total internet users in China. The number of mobile game players reached 536m as of this June, up by 6.99m from March 2020. Moreover, while the COVID-19 pandemic is disrupting offline entertainment at the beginning of this year, the industry experienced significant expansion during the national lockdown. CNNIC indicated that China’s online gaming market generated RMB139.5bn in sales revenue in 1H20, up 22.34% YoY. Also, the number of game apps in the Chinese market amounted to 925,000 by June, representing 25.8% of the total number of mobile apps.
Existing social issues in China’s online game segment
Current real-name registration systems in games are relatively ineffective
While China’s online game industry is undergoing rapid expansion, some social problems, such as game addiction among minors, lax real-name registration, non-compliant storage of user information, and harmful content still exist on gaming platforms and are yet to be solved. According to a 2019 report on China’s game industry, Chinese research institute Gamma Data saw that the segment is making progress in improving corporate social responsibility (CSR) performance; the sector’s overall CSR score increased from 11 in 2018 to 12.4 in 2019. However, some game operators still showed poor performance, for instance, in failing to implement strict real-name authentication systems and allowing underage players to log in to games with the wrong identity (ID) information.
This May, CNNIC reported the number of underage internet users in China stood at 175m as of 2019. Based on the center’s 2019 research on 34,661 students across China, 61% of them said playing games constituted the majority of their time spent online. Additionally, Gamma Data also reported that game players aged under 18 made up around 23.1% of total players in China in 1H19. To better protect minors from unhealthy online content and excessively indulging in games, regulators enforced a set of rules governing online gaming providers in May 2017. Under the rules, game operators had to require players to register with their own ID and were restricted from offering in-game payment services for unauthenticated users.
Real name registration procedures aim to limit minors’ playing time and their access to indecent content. However, such a feature was ineffective as minors have easy access to other qualified users IDs disseminated online and can use such information to create gaming accounts. Moreover, most underage players still can secretly use their parents’ or older relative’s IDs to log into games. For instance, Chinese internet giant Tencent [0700:HK] began implementing anti-addiction features in its games in 2019, setting time and in-game limits on minor players. Sometime afterwards, Tencent disclosed that 95% of total refund requests came from minors using their parent’s IDs to make in-game purchases.
Inadequate personal information protection also raises social concerns
To understand customers’ preferences and thus offer more targeted services, some app developers tend to collect private data, often without the user’s consent. In the 2020 clean-up campaign carried out under the National Computer Virus Emergency Response Center (CVERC) to crack down on harmful online activity, authorities issued warnings to 14 mobile games against improper collection or handling of user data, including two games operated by Tencent’s TiMi Studios. Additionally, a survey jointly conducted by Tencent and Gamma Data in September indicated that 65% of participants encountered cybersecurity issues such as gaming account hacks, information leakage, and so on.
Market experts said that while internet users have an increasing demand for better cybersecurity, inadequate privacy protection in the online game industry has become a major concern. Specifically, non-compliant privacy policies might deter users from playing games, which could hinder their revenue generation and sustainable development in the long run. Furthermore, citing an expert from a think tank of state-run enterprise China Electronics Corporation, light punishment measures under authorities could be one of the reasons why privacy breaches continue to occur. For apps violating privacy rules, China imposes penalties such as issuing small fines or removing the game from app stores, which is not significant relative to their revenue. For instance, in a 2019 internet clean-up campaign launched, which dealt with over 1,400 privacy violation cases, the combined fines amounted to only RMB19.46m.
Insights for Regulators and Game Enterprises
Since 2018, Chinese policymakers have been focusing on maintaining steady growth in the online gaming industry, strengthening governance of the approval and issuance of new game titles, enhancing the protection of minors in the internet environment, etc. China’s first administrative rules regarding management of online games came into effect on August 1, 2010. These set of rules gave detailed directives on online gaming content, market players’ engagement, business scope, etc. In addition, China’s national laws for the protection of minors and the Cybersecurity Law also list some provisions that require gaming companies to fulfill their social responsibilities. Regarding the protection of underage game players specifically, this March, the National Press and Publication Administration issued another notice on preventing gaming addiction among minors, ordering producers to implement a real-name system for online game accounts and strictly controlling the amount of time minors spend on online games. More recently, in December, China Audio-Video and Digital Publishing Association launched drafted standards of age-appropriate tips for online games. Nevertheless, it is worth noting that though relevant authorities have issued a series of administrative regulations and documents so far, no special national laws have been formally issued in the online game industry.
China’s digital development has made it easier for internet platforms to utilize their data pools to make short-term profits. However, this increases the possibility of information leakage. With rising data security risks, regulators have paid extra attention to ensure personal information protection, from the Cybersecurity Law effective June 1, 2017, to the Personal Information Security Specification published in March 2020. The Standing Committee of the 13th NPC has also begun discussion of a drafted Personal Information Protection Law this past October. In a recent forum, Yao Qian, science and technology supervision bureau chief at CSRC, said authorities should consider levying data tax on tech firms that hold a large amount of personal information, according to Reuters.
Enterprises should also take the initiative to perform their social responsibility in promoting the online gaming industry’s sustainable development. As juvenile players tend to use adults’ IDs to get away with anti-addiction systems, real-name registration procedures, or even facial recognition, firms should improve their tech capabilities to solve such problems. Take Tencent as an example. The game developer constantly updates its tech mechanisms, leveraging user profiles from China’s police department, and big data to identify underage users. So far, Tencent has implemented anti-addiction measures in 116 mobile games and 31 desktop games, covering 98% of its total active users. Additionally, NetEase [NTES:US] began updating its anti-addiction system for its games in January 2019, including banning all underage gamers from logging in from 9:30 PM to 8:30 AM the next day. Such companies should also form internal procedures to properly deal with user data, eliminate unauthorized access, prevent data leakage, and take technical measures to monitor network security incidents.
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