Electronic Silk Road: Games, games, games

See also Part 1: Tech venture capital pouring into China

Jay Chen works in Zhongguancun Science and Technology Park (ZSTP), Beijing's first and largest high-technology enclave, often called "China's Silicon Valley". More than 30 hectares in northwestern Beijing, this tech-driven district hosts scores of Internet companies, software developers, startups and even global brands such as Legend Computer Systems, Founder, and Huawei Technology.

Each day, Chen, an overseas Chinese and former bond analyst and hedge-fund trader on Wall Street, applies his business acumen and Columbia University MBA (master of business administration degree) to OurGame, one of the hottest online gaming companies in China. In fact, China's online gaming industry is booming, with more than 14 million players. Some analysts forecast the industry's growth to reach US$300 million by the end of 2004.

"Entertainment is one of the best applications of the Internet, and online games also largely solve the problem of piracy in China," claimed Chen in a recent e-mail interview with Asia Times Online. The digital frenzy is also attributed to the increasing interaction of online communities, said Chen.

While this physical area in Beijing offers the most concentrated intelligence and technology resources in China, it is surprising to some that the ZSTP in Beijing is tapping key technology personnel at state-funded software companies to develop online entertainment.

Not unlike the Massachusetts Institute of Technology (MIT) or Stanford University, this China science park concentrates talent recruited from more than 68 colleges and universities with an enrollment of 300,000, and 213 research institutes specializing in different subjects - 36 percent of its academicians come from the Chinese Academy of Sciences and the Chinese Academy of Engineering. The park is running at full occupancy, with thousands of technology enterprises authorized by the Ministry of Science and Technology.

In fact, scores of other Chinese coastal cities have now established high-tech zones modeled on California's Silicon Valley south of San Francisco, but only a minuscule number are developing any leading-edge technologies. These days the government is keen to bolster entertainment and online gaming at a breakneck pace.

80 million Internet users, most craving entertainment
With almost 80 million Internet users, the government acknowledges that more than 60 percent are logging on to the Internet and crowding Internet bars only in search of entertainment, according to recent statistics from the China Internet Network Information Center (CNNIC). The numbers are staggering, and the number of young people logging on for online games rose by almost 64 percent in 2003, according to China Games Publishers Association.

It's no wonder that OurGame.com is generating more registered players each day and, in turn, receiving an impressive monthly cash flow. Founded in 1998, OurGame.com, a subsidiary of SeaRainbow Holding Corp, is an integrated online entertainment service provider focusing on casual online games such as card and board games.

Piper Jaffray's securities analyst, Safa Rashtchy, says OurGame.com has 70 million registered users and 10 million active users a week, with peak simultaneous players of 320,000.

The company's predominant revenue stream is charging a monthly user fee. In addition, it provides wireless gaming services to consumers through mobile phones and also generates advertising revenue. Since OurGame is currently engaged in sensitive business negotiations, the company declined to comment in detail on financial arrangements and prospects.

OurGame's main competition, Shanda Networking, the largest online gaming firm in Shanghai, is soon to file for a Nasdaq listing. According to the New York investment banking firm Goldman Sachs, about 25 percent of Shanda's shares will be offered. This Chinese firm already has an estimated listing valuation of more than $1 billion.

Shanda maintains it has millions of registered users on its website, www.shanda.com.cn. The official Xinhua news agency recently reported that Shanda's leading user program is the South Korean multi-player fantasy game Legend. All Chinese online players pay a flat fee of $4.25 a month for access. This has made the company very profitable, reporting earnings in excess of $70 million at the close of 2003.

As the number of Internet users is increasing exponentially, the government hosted the first China Digital Entertainment Expo Conference. To no one's surprise, both the Ministry of Science and Technology and the Ministry of Education supported the program, demonstrating that the government is committed to developing the local online game industry.

China one of the largest online game consumers
China is one of the world's largest online game consumption markets, according to key industry analysts, but 70 percent of market share is taken by South Korean game software.

"From our perspective, the gaming industry will see a tremendous phase of growth through online participation. The key driver for this includes increasing broadband services at ever-falling prices - this is for both wired and wireless means," said technology analyst Albert Lin, of American Tech Research in San Francisco.

The development of ZSTP appears to be meeting many of its objectives as a reform experimental zone. Some critics, however, dispute whether developing fantasy gaming is actually helping to rejuvenate the nation through science and education, or even creating a national technology-innovation demonstration base that is competitive internationally.

What is certain is that Beijing has positioned itself to become the country's top software development and production base. With ZSTP's ability to attract the best and brightest young engineers and enterprising developers, the science park has strong advantages in technologies and talents that are essential to develop an attractive and profitable software industry.

Officials of Beijing's Ministry of Science and Technology are also zealously recommending to venture capitalists some promising software startups, in the gaming industry.

China's first innovation fund was first established in 1999 by the State Council to support companies developing new and high technologies and is setting a precedent for additional funds for such startups. To date the four-year-old innovation fund, with almost $360 million capital approved from the state budget, has financed almost 4,000 projects carried out by startups.

For those venture boosters of the online gaming software market, the industrywide projection for sales in 2005 may exceed $950 million.

For years, Beijing has followed Taiwan's sector-specific industrial policy, carefully observing its neighbor building up its demand for the supply of electronics. It has not gone unnoticed among China's leadership just how Taiwan emerged as a global player in information communication technology (ICT) after a long gestation period in which the island government also steered market-based activity and generated an IT-educated workforce and even created its innovative global Hsinchau Science Park.

Does gaming actually promote science, technology?
Questions loom large for Beijing. What role will ICT play in education? What should be the nature of scientific and technology discourse in a web environment? Is online entertainment a viable and effective state-supported enterprise now that is has been officially included into the country's "863 High-Tech Program"? Will Beijing's cyber-bunker-like mentality eventually dissolve as more technocrats take high positions within the reformist new China millennium agenda?

China's accelerated push for an "electronic silk road" to reach the digitally uninvited is ambitious. Leapfrogging to the next generation of digital tools is also understandably recognized on a global basis as technology's greatest opportunity. Nevertheless, the paradox of globalization is dramatic in the People's Republic (PRC). China has attracted more foreign investment by far than any other developing country, nearly $500 billion since it began internationalizing its economy.

Chinese technocrats have coined the word "informatization" to describe the incorporation of ICT into all spheres of daily life. This includes more than 30,000 computer chat rooms and cafes countrywide. However, for most Chinese, access to the Internet or a computer remains a fantasy. Free-market economic policies in the Middle Kingdom are creating a widening middle class, but more than 700 million poor villagers remain far outside the digital commercial zone.

As part of the efforts of the government to transmit benefits to the poor central and western regions, Beijing is increasing its collaboration with business and education.

"As in everything else, all of this technology and connectivity can be a double-edged sword - polarization caused by income disparity, the volatility of our social and natural environment, our vulnerability against terrorism, and more. In view of our frailty, we must think searchingly, with sensitivity and alertness, as to how to master its dynamics and govern our course in this knowledge era," said former deputy minister of education Madame Wei Yu in a keynote address at an online learning conference in Hong Kong in February.

So far Beijing's efforts to buttress venture funding for new enterprises to create "10,000 new IT blooms" mixes fantasy and technology. It may take much more than a science park or two, online gamesmanship, and tea-leaf readers to determine what, if any, deep and far-reaching impact games will have on China's economic, social and political life.

James Borton can be reached at asiareview@yahoo.com.

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