China and the Globalization of the Gaming Industry

It was just a year ago that a large segment of America’s youth spent much of their free time online stocking up on firepower and ammunition and jumping out of flying blue school buses, but now many are spending that time running around the beautiful continent of Teyvat fighting goblin-like Hilichurls with a party of anime characters with names like Kazuha, Bennett, Zhongli, Venti or Kokomi. At its release in September 2020, “Genshin Impact” was already highly anticipated, with around 10 million people pre-registering for the game before it had even come out. Since then, it’s become clear that the hype was legitimate. In its first year, “Genshin Impact” earned an estimated 3.5 billion USD, breaking the record for highest revenue in first year of launch and beating the previous record holder, the American game “Fortnite,” by around 1 billion USD.

Despite this amazing success, “Genshin Impact” occupies a much less prominent place in the American public’s consciousness than “Fortnite.” A quick look reveals one major reason why. Genshin’s character designs are based on anime, and it has many game mechanics, such as parties and the gacha system, that are derived from Japanese games. However, what sticks out most is that despite these Japanese game characteristics, “Genshin Impact” is not a Japanese game, but a Chinese one.

Developed by Shanghai-based MiHoYo, “Genshin Impact” is not the first Chinese anime-style mobile game, but it is by far the most successful. This success has not gone unnoticed by the Japanese gaming industry, whose major fear is that they will not be able to match enormous investments being made by Chinese companies

That politicians in Washington, D.C., are largely unaware of Genshin’s success has benefits as well as drawbacks. The game’s success has implications for future U.S. competitiveness in the gaming industry and potentially beyond, and there are legitimate concerns about the increased influence of Chinese companies in cultural industries. On the other hand, MiHoYo’s low profile has likely kept it safe (thus far) from xenophobic attacks by opportunistic politicians seeking to break all ties between the two largest economies in the world. To interpret the success of Genshin and the Chinese gaming industry as a whole in purely antagonistic terms would be just as inaccurate as missing its importance entirely. In addition to pointing out potential areas of future conflict, the rapid recent success of “Genshin Impact” also offers instructive lessons about the future globalization of the online entertainment industry for both the United States and China.

Like many Chinese and Japanese mobile games, Genshin primarily monetizes itself through use of a gacha system. Named after a type of vending machine that deposits little toys, gacha are a form of lottery in which players pay in-game currency to draw a random item or character, with a small chance (usually 1%) of getting a rare item or character. These games generally provide their players with free in-game currency to entice them to try the gacha lottery. Furthermore, such games often advertise “banners,” or special lottery pools with different items from the ordinary pool. These often feature limited characters who are otherwise not available, and “Genshin Impact” in particular has experienced multiple financial windfalls using this technique.

But perhaps the largest factor in Genshin’s success is its ability to attract a very diverse international audience. Around 30% of its revenue comes from its home country of China, 23% from Japan, and 20% from the United States. Given that Western markets are traditionally less profitable than Asian markets for these games, these are unprecedented figures for the U.S.

Furthermore, “Genshin Impact” has tapped beyond the traditional East Asian markets into emerging markets for Japanese digital media in Indonesia and the Philippines. Although dwarfed by Japanese and Chinese figures, Indonesia has over 950,000 “Genshin Impact” players. Though hardly talked about in elite circles, it is talked about among university students all around the world, enough for many to write and about the game.

Genshin’s success is thus part of a broader transnational phenomenon. It extends to other related industries revolving around anime culture as well. For instance, Indonesia has become a major market for vtubers, virtual content creators and streamers (not necessarily limited to YouTube despite the name) who portray popular characters through avatars, with the professional scene dominated by two Japanese agencies, Hololive and Nijisanji, and an Indonesian one, MAHA5, which openly states that its goal is to connect Indonesia with Japan.

This is not to say that Genshin is free from problems related to its Chinese origins. In order to comply with Chinese laws, politically sensitive words such as “Tiananmen” and “Tibet” are automatically censored with asterisks in the in-game chat. This is universal across all versions, resulting in unrelated homographs in other languages also getting censored.

And while foreign Genshin players don’t have to deal with the heavy hand of the Chinee government beyond such censorship, other examples of transnational digital media companies expanding into China have ended with far unhappier results. While Hololive is one of the biggest vtubing agencies in the world, it no longer has a presence in China after controversies over self-censorship and creative freedom caused it to withdraw from China in order to focus on Western markets instead.

Though apparently largely benign, Genshin is also a harbinger of a much bigger issue — the ability of Chinese investment capital to give domestic companies an enormous boost when expanding into global markets. While these moves are apparently motivated by profit, they may also come to receive encouragement from the Chinese government as part of its ongoing effort to co-opt private enterprise toward Chinese geopolitical goals, a digital extension of the much-discussed Belt and Road Initiative, as it were.

As explained by Rush Doshi, founding director of the Brookings China Strategy Initiative and now director for China at the National Security Council, in testimony before the U.S. Senate, China believes that upcoming technologies such as quantum computing, big data, and AI are part of a “fourth industrial revolution” beyond the current digital one. Establishing Chinese dominance in these industries is key to China’s desire to overtaking the United States in global leadership.

For China, this involves strategically encouraging investment in specific industries, concentrating its financial power on each target individually. It is particularly enabled through large media conglomerates that can funnel revenues from one part of the company into investment into other parts, creating, in the words of prominent China media scholar Aynne Kokas, “an intersection between technology and entertainment.”

In all of this, the geopolitical considerations take place at a far higher level than that involving the individual consumer. But at the individual level, Genshin offers constructive lessons about the future of global competition and cooperation as well.

Although a common belief is that MiHoYo’s success is simply from copying Japan, “Genshin Impact” is a Chinese soft power success story in its own right. Genshin is accepted by anime fans not just because of its character designs but also because it is true to conventional anime tropes. But within these frameworks, Genshin has the freedom to express Chinese culture, and it does exactly that in Liyue, a nation in the game based on China.

Genshin adopts the conventions of a foreign medium without trying to co-opt it, creating an audience much more receptive to Chinese culture than those who read the ham-fisted tweets of China’s “wolf warrior diplomats.” As a result, characters based on qilin and Taoist priestesses are some of the most popular in the fandom, and characters with conspicuously Chinese names like Zhongli and Ganyu are no longer considered obscure and sketchy to gamers. Perhaps most tellingly for the future of this new game-based Chinese soft power, when Yelan (“Night Orchid” in Chinese), a character from Genshin’s Chinese-based nation, was released last month, she broke the game’s record for first-day sales. Chinese soft power has never looked more alluring.

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