The Rise of a New Regulatory Power in the East?

One form of power states can have in global politics is regulatory power (also sometimes called market power).  The idea is that if your state contains a large, rich domestic market, you can derive influence over other parts of the world eager to gain access to it.  For instance, the United States is by far the largest market in the world for pharmaceuticals, which gives decisions taken by the U.S.’ Food and Drug Administration a significant international impact.  Pharmaceutical companies from all over the world have lobbyists in Washington D.C. who carefully scrutinize the agency’s every move (in fact, Big Pharma is the industry that spends the most on federal lobbying).

Scholars of the European Union (EU) in particular have seized upon the idea of regulatory power.  Most international observers agree that the EU is a powerful actor on the global stage, but few agree as to why.  The EU doesn’t have the most jaw-dropping military in the world (as Donald Trump seems to have recently discovered, the U.S. accounts for the bulk of NATO’s combat readiness – one NATO estimate claims that US defense expenditures effectively represent 72% of the Alliance’s overall defense spending).  And while the EU collectively provides just over half of the Official Development Assistance in the world, claims that it is a significant “civilian power” have yet to attract many adherents.  Others argue that the EU’s power stems from its consistent commitment to human rights and other global norms, but critics retort that the EU is just as hypocritical as any other great power when its interests are on the line.

All of which leaves some EU-philes to fall back on the size of its market and argue that the EU’s main influence in the world comes in the form of regulatory power.  And it is true that the EU’s Common Market is the richest market in the world, even with the U.K. poised to leave in a few years’ time.  Industries in developing countries sometimes live and die as the result of internal EU regulatory whims.  On topics like vehicle emissions standards and food safety regulations, when the EU speaks, the world listens (especially at places like the WTO).

As with so many other things, however, the emergence of China as the major new economic power threatens to disrupt this regulatory status quo.  You can see it in lots of places (for example, regulations surrounding renewable energy), but recently it’s become apparent to me in an unusual corner of the world economy: digital games.

Both the Chinese government as well as Chinese society more broadly are worried about their children spending too much time playing digital games, particularly on mobile phones.  In 2008, China became the first country to officially declare internet addiction a clinical disorder, and the country’s relationship with digital gaming has only become more complicated in the years since.

For instance, earlier this year the Chinese government forced all digital game companies that release games in the PRC to publicly report the formulas that calculate their in-game item drop rates.  For context, in many kinds of digital games, you get rewards for accomplishing various in-game tasks: perhaps a better sword or a cool-looking suit of armor if it’s an RPG, or perhaps a unique color scheme for your character in an MMO.  Game makers discovered decades ago that having an element of randomness to these rewards kept people more engaged (and playing longer) than if it was a simple matter of doing X leading to Y.  Accordingly, semi-randomly generated items that “drop” when the player is successful remains a core mechanic for many of the world’s leading digital games.

The Chinese government is now forcing game makers to publicly reveal the rates at which such items are generated. While the government’s announcement didn’t give a lot of detail about its rationale for the move, most observers agree that the main goal is to try and limit excessive gaming: if players can do the math themselves and realize that it will on average take them dozens or even hundreds of hours of performing a same repetitive action to obtain a given piece of loot, they might just give up on the whole thing.  (Or they might just decide to buy the desired loot at the in-game store using real-world currency, but that’s a separate problem.)

Chinese gaming companies are increasingly paying attention to these signals emanating from Beijing.  Last month, the world’s biggest digital game maker, Tencent Holdings,  took the unprecedented move of voluntarily restricting how many hours a day its younger users could play King of Glory, the leading mobile game in China.  Henceforth, players younger than 12 will be restricted to only one hour of playtime per day, and those between 12 and 18 will be limited to two hours a day.  (In addition, the age-verification system, which is already linked to real-world identities, will be beefed up).

Why would a publicly-traded company interested in its bottom line volunteer to limit access to one of its most profitable products?  Perhaps because the influential state-run newspaper People’s Daily had recently run a slew of editorials against the game, calling it “poison,” with a predictable drop in the company’s share price.

Overall, the big takeaway here is that the Chinese government is displaying a willingness to directly regulate a global media industry in a way that used to largely be the domain of Western nations.  What we are witnessing emerging in China right now has the potential to re-shape the global entertainment industry in a way not seen since the rise of the Motion Picture Association of America (MPAA) and its film ratings system in the 1930s.  With digital games having overtaken movies in terms of both their sales and cultural salience, China is taking the lead on regulating an industry that promises to be one of the most dynamic of the 21st century, with consequences that will likely ripple out for decades to come.  Stay tuned… and don’t spend too much time grinding for that loot.