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Theoretical and Applied Economics
Reference:

Analysis of the Impact of the System Restrictions Imposed by the Chinese Regulator on the Key Performance Indicators of the Chinese Gaming Industry

Tsymlyakov Aleksei Maksimovich

ORCID: 0009-0003-2546-4960

Student, Department of World Economics, National Research University Higher School of Economics

101000, Russia, Moscow, Myasnitskaya str., 20

alextsymliakov2015@gmail.com

DOI:

10.25136/2409-8647.2024.1.70010

EDN:

DXVNBM

Received:

29-02-2024


Published:

15-04-2024


Abstract: The subject of this study is to conduct a survey aimed at assessing the functioning and development of the Chinese gaming industry under the restrictions imposed by the Chinese regulator on this industry. Accordingly, the object of this study is the gaming industry of mainland China. The gaze, within the framework of this research, is directed specifically at the Chinese gaming industry, insofar as it is the Chinese market, within the Asia-Pacific region, that is the largest both in terms of "money" and in terms of the number of game users – gamers. Nevertheless, the Chinese gaming industry is the only market in the region (and in the world as a whole) that has been subject to various kinds of systemic restrictions and regulations for more than 20 years, since 2000. In fact, the Chinese gaming industry is a "testing ground", the study of which seems relevant in order to draw conclusions regarding the impact of restrictions imposed by states on creative industries, industries related to the production of content in general, and the gaming industry in particular. As part of the study, the segmentation and systematization of data related to the system restrictions imposed on the Chinese gaming industry was carried out. Also, an analysis of the dynamics of statistical data on key indicators of the functioning of the gaming industry was carried out. The scientific novelty of the work consists in an attempt to assess the potential impact of the introduction of certain restrictions imposed on the Chinese gaming industry on the key performance indicators of this industry. As part of the study, the primary conclusions concerning the possible negative impact of government restrictions imposed by the Chinese regulator on the Chinese gaming industry are presented.


Keywords:

The gaming industry, China, System limitations, Political aspects, Government restrictions, Censorship, Content regulation, The development of the gaming industry, Neotechnonationalism, Economic development of the industry

This article is automatically translated.

Introduction

In the context of an ever-increasing level of digitalization, greater accessibility of mobile and desktop devices, increased Internet connection speed and coverage [1], the observed trend towards leveling the distinctions between the real world and its virtual version [2], the mechanisms of functioning of the industry – the gaming industry-, which is likely to be immersed more and more more inhabitants of the Planet are of interest and, moreover, require attention, since, of course, the future of the gaming industry is seen as colossal: by 2032, the industry can reach, on a global scale, a volume of 1 trillion US dollars [3].

According to the data presented in the report "Global Games Market 2023" [4] authored by the research company NewZoo, in 2023 there are about 3.305 billion people in the world who can be considered gamers (those who play video games). At the same time, the Asia-Pacific region is the largest macro market both in terms of the number of gamers (1.73 billion people) and revenue ($84.1 billion with a total global market volume of $ 184 billion).

Within the Asia-Pacific region, the largest market within the gaming industry is China: the largest number of gamers in the region is 710.3 million people and the highest volume of the industry in the region is 47.86 billion US dollars [5]

Of interest is the fact that for more than 20 years, the Chinese video game market has been subjected to various types of restrictions related to various aspects of both game development and their sale to consumers.

Within the framework of this article, an attempt will be made to systematize the "foundation", which may indicate the absence or presence of the influence of state restrictions (systemic restrictions – a set of rules, policies and regulations established by the Chinese regulator, limiting various aspects of game content, monetization of games, etc. [6]) on the development of the Chinese gaming industry.

Regulation of the Chinese gaming industry

China's gaming industry is hugely regulated: restrictions apply to issues of game development, issues of content presented in games, and issues of gameplay mechanics, and issues of game product sales.

The main functions of regulating the industry are performed by the General State Administration of the People's Republic of China for Press and Publishing (NPPA), however, issues of regulating the industry, among others, lie in the activities of the State Council of the People's Republic of China, the Ministry of Commerce of the People's Republic of China, the Chinese Association of Audio, Video and Digital Publishers and other departments [7, p. 5].

Referring directly to the measures aimed at regulating the Chinese gaming industry, we will note only those that, in our opinion, can most influence the development and functioning of the Chinese gaming industry (we will omit such regulatory measures as: cybersecurity regulation, intellectual property rights regulation and other regulation related to the direct legal basis of functioning industries) the following restrictions:

1.                 A mandatory licensing process for newly released games.

The licensing process is carried out by the General State Administration of the People's Republic of China for Press and Publishing.

In particular, as part of the licensing process, content regulation is actually carried out: game products undergo a rather strict selection process, including, in particular, the following criteria, failure to comply with which leads to a ban on access to the game product for sale in China [7, pp. 7-8]:

-                   The product must not contradict the Constitution of the People's Republic of China;

-                   The product does not question the sovereignty and territorial integrity of China;

-                   The product is not aimed at inciting hatred and enmity;

-                   The product does not contain materials that can be interpreted as spreading information about supernatural forces, cults, etc.;

-                   The product does not contradict the cultural characteristics and morals of Chinese society;

-                   The product does not contain erotic scenes, violent scenes, gambling scenes;

-                   The product does not undermine public order or encourage extremist manifestations.

In particular, the application for a license for a game product includes data on game mechanics, the full game code and engine data, screenshots and gameplay videos. In particular, the game product must [8, p. 10]: comply with the accepted Chinese view of history and political and ideological course; must have an uncopied, innovative design; must have high-quality game mechanics; must immerse the user in Chinese culture and, if possible, be ready for implementation (completed), which also It is evaluated by experts from the regulator.

Among other things, experts are considering issues related to the player identification system implemented in the game product and the list of censored words.

If we talk about the expert assessment by the regulator as a whole, then we can say that each of the above categories is evaluated on a five–point scale - from 0 to 5 points. The license is issued to those gaming products that have not received 0 points in any of the categories and whose average score in all designated categories is higher or equal to two points.

Sanctions in the form of a fine or complete confiscation of the proceeds from the sale of the game product will follow from the regulator if the developer company decides to publish the game without a license [8, p. 10].

2. Restrictions on playing time and gaming expenses of minors.

As part of the fight against the gambling addiction of minors, the Chinese government has limited the time that minors are allowed to spend in the gaming process to three hours a week: 1 hour on Friday, Saturday and Sunday [8, p. 7].

The restriction, in particular, is ensured by the need to introduce a user identification system into the game mechanics: a potential player, upon entering the game interface, enters his identification number, according to which the age of the gamer is determined and the appropriate restrictions are included.

Similarly, monthly gaming spending by minors is limited to a range of $30 (for 8-16 year olds) to $60 (for teenagers aged 16-18).

3. Regulation of the monetization of games.

The regulation of game monetization in China includes rules that restrict the sale of goods and services inside the game interface.

In particular, game developers, in relation to users, should provide information on the prices of in-game goods and services, and the conditions for making an in-game transaction should be set out in detail.

In particular, the Chinese regulator regulates advertising in games: As with the criteria for licensing games, advertising inside gaming products must not violate Chinese cultural norms and laws, contain erotic scenes, information about gambling, and so on.

4. Regulation of online game development.

To release online games that can be monetized, developers must have specialized licenses issued by the General State Administration of the People's Republic of China for Press and Publishing.

5. Regulation of the use of AR/VR technologies.

The scope of application of AR/VR technologies in gaming products is regulated in the context of the use of these technologies by developers within the framework of the norms adopted by the Chinese regulator regarding content and other issues voiced above. The use of AR/VR technologies in gaming products is regulated by the Ministry of Industry and Informatization of the People's Republic of China.

For greater clarity, the restrictions ever imposed by Chinese regulators on the local gaming industry will be presented by year in table 1.

Table 1 – System restrictions imposed on industries. China Games

The year 2000

The year 2002

2005

The year 2010

2011

A ban on game consoles has been introduced in China (the ban was lifted in 2014 as an agreement was reached with Sony and Microsoft, which agreed to release specialized versions of their "consoles" for the Chinese market)

Mandatory licensing of online games for personal computers is being introduced (all games must be approved by the regulator before publication)

The Chinese Government's non-blocking requirement for the implementation of game time tracking systems for minors

The introduction of mandatory licensing for all online games that have the ability to monetize built in.

Prohibition on publishing beta versions of games without first obtaining a license from the regulator to publish the product

After 3 hours of gaming, in-game rewards for minors were reduced by 50%, after 5 hours - by 100%.

It is important to note that at this stage, beta versions of gaming products were not subject to mandatory licensing, which was actively used by gaming companies, which bypassed the need for licensing through the release of beta versions of games.

The blocking requirement of the regulator concerning the introduction of mandatory verification of users of the gaming product through the "Reference and Identification Center" developed by the Chinese government

The year 2016

2017

2018

2019

The year 2021

The introduction of a requirement obliging gaming companies to license games for mobile devices that previously did not require licensing.

A game anti-addiction system is being introduced into both gaming products on a personal computer and games on mobile devices, which modernizes the user identification process. All users are required to register in the games by entering and confirming personal data

The termination of the issuance of licenses for the release of gaming products by the regulator in connection with the redistribution of powers: the Main State Administration for Press and Publishing Affairs of the People's Republic of China began to deal with licensing of games instead of the Ministry of Commerce of the People's Republic of China. The licensing process was suspended from March to December 2018.

Restrictions on gaming expenses of minors (per month): $30 for 8-16-year-olds and $60 for teenagers aged 16-18

Stopping the issuance of licenses (until April 2022); notification of an increase in the frequency of inspections of game content, closer attention to game content (for compliance with Chinese values) - notification of the Propaganda Department of the CPC Central Committee (IntentaDigital, 2021)

Restrictions on playing time for minors: 1.5 hours of playing time is allowed every weekday and 3 hours a day on weekends

The limit on the playing time of minors is up to three hours per week: from 21 to 22 p.m. on Friday, one hour each on Saturday and Sunday.

Regulation of the gaming industry, as can be seen, in particular, based on the data presented in Table 1, is mainly aimed at:

1. Protection of children and adolescents from gambling addiction declared by the Chinese government;

2.                 The non-admission of content that may in any way affect the political situation in China, or in any way affect the social structure of Chinese society.

Actually, despite the fact that the Chinese government declares the goal of systemic restrictions to be the fight against child gambling addiction, as well as the preservation of national identity, a number of researchers note [7] that censorship restrictions imposed against the local gaming industry can serve as a tool to preserve political stability within China, avoiding possible externalities on Chinese society through gaming products developed by foreign companies.

Analysis of the impact of systemic restrictions on the performance of the Chinese gaming industry

Summarizing the available data on the volume of the Chinese gaming industry [9], it seems possible to present a graph that will reflect the dynamics of growth rates and impose data on the restrictions imposed in each specific year (Figure 1).

 

Figure 1 – The growth rate of the Chinese gaming industry, broken down by periods of introduction of systemic restrictions

 

Based on the illustration shown in Figure 1, it can be noted that as the restrictions imposed on the Chinese gaming industry accumulated, the growth rate of the Chinese gaming industry decreased by an order of magnitude: if in the period between 2009 and 2014 the average growth rate of the industry was 35.5%, then in 2015-2017 the average growth rate decreased to 21.19%, and in 2017-2022, the average growth rate of the market completely collapsed to 8.78%. However, in absolute terms, from 2008 to 2022, the Chinese gaming industry grew in volume by 14.3 times (from $2.59 billion up to $37.22 billion.

It is interesting to compare the global average growth rate of the gaming industry with a similar indicator of the Chinese gaming industry.

Data on the volume of the global video game market are presented in Table 2.

Table 2 - Global video game market volume [10]

Year

Billion dollars

Growth rate

Growth rate

2017

148,04

2018

173,01

116,87%

16,87%

2019

203,54

117,65%

17,65%

2020

245,01

120,37%

20,37%

2021

301,68

123,13%

23,13%

2022

319,91

106,04%

6,04%

The global gaming industry grew by an average of 16.81% over 6 years from 2017 to 2022. In general, the market has grown by 116.1% in 6 years.

Comparing the performance of the Chinese gaming industry over the same period, it can be noted that since 2017, in which the volume of the gaming industry was $28.5 billion, the market has grown by only 30.6% with an average volume growth rate of 5.94%, as indicated above, reaching a volume of $37.22 billion in 2022. (Table 3) [9].

 

Table 3 – Data on the volume of the Chinese gaming industry

Year

Billion., dollars

Growth rate

Growth rate

2008

2,59

2009

3,67

141,59%

41,59%

2010

4,66

126,71%

26,71%

2011

6,24

133,96%

33,96%

2012

8,43

135,13%

35,13%

2013

11,64

137,97%

37,97%

2014

16,02

137,65%

37,65%

2015

19,69

122,90%

22,90%

2016

23,18

117,68%

17,68%

2017

28,5

122,98%

22,98%

2018

30,02

105,32%

5,32%

2019

32,32

107,67%

7,67%

2020

39,01

120,71%

20,71%

2021

41,37

106,04%

6,04%

2022

37,22

89,97%

-10,03%

Indirectly, based on a comparison of data between the growth rates of the Chinese gaming industry and the global one, one can make an assumption about the possible impact of government restrictions on the development of the Chinese gaming industry.

Let's look at the number of players in the Chinese gaming industry by year (the data is presented in Table 4).

Table 4 – Data on the number of gamers in China [11]

Year

Number of players, million

Growth rate

Growth rate

2012

410

2013

495

120,73%

20,73%

2014

517,31

104,51%

4,51%

2015

533,96

103,22%

3,22%

2016

565,51

105,91%

5,91%

2017

538,18

95,17%

-4,83%

2018

625,66

116,25%

16,25%

2019

641,08

102,46%

2,46%

2020

664,79

103,70%

3,70%

2021

666,24

100,22%

0,22%

2022

664

99,66%

-0,34%

Based on the data presented in Table 4, the number of gamers in the Chinese gaming industry increased by 61.95% from 2012 to 2022, reaching a value of 664 million people. The average annual growth rate of the number of players over the specified period was 5.18%.

Data on the number of gamers in the world are presented in Table 5.

Table 5 – Data on the number of players in the world [12]

Year

Number of players, million

Growth rate

Growth rate

2015

2030

2016

2170

106,90%

6,90%

2017

2330

107,37%

7,37%

2018

2490

106,87%

6,87%

2019

2640

106,02%

6,02%

2020

2810

106,44%

6,44%

2021

2960

105,34%

5,34%

2022

3090

104,39%

4,39%

It can be noted that the average growth rate of gamers in the world in the period from 2015 to 2022 was 6.19%, while the number of players increased from 2.03 billion. people up to 3.09 billion. people – by 52.2%.

During the same period (2015-2022), the average increase in the number of players in China year-on-year was 3.32%, and the total increase in the number of players from 2015 to 2022 was 24.35% - from 533.96 million to 664 million people.

It is likely that the Chinese government's restrictions on the gaming industry could lead to a decrease in the growth rate of the number of players in comparison with global indicators.

Regarding income per gamer, the growth rate of this indicator in China was lower than when considering industry indicators on a global scale during 2017-2022. (Table 6).

 

Table 6 – Data on average income per video game user [10, 13]

Year

Average income per player, $ (China)

Growth rate

Growth rate

Average income per player, $ (World)

Growth rate

Growth rate

2014

30,98

n/a

2015

36,89

119,07%

19,07%

n/a

2016

40,98

111,10%

11,10%

n/a

2017

48,87

119,25%

19,25%

52,52

2018

47,98

98,17%

-1,83%

55,67

106,00%

6,00%

2019

50,41

105,07%

5,07%

58,14

104,44%

4,44%

2020

58,68

116,40%

16,40%

63,91

109,92%

9,92%

2021

62,3

106,16%

6,16%

70,82

110,81%

10,81%

2022

56,06

89,97%

-10,03%

78,9

111,41%

11,41%

The growth rate for the period 2017-2022., %

14,69

 

50,23

 

The average growth rate in 2017-2022.

3,15%

 

8,52%

In this context, it is important to mention that the Chinese regulator introduced restrictions in 2019 regarding the spending of underage players on games. In particular, as mentioned earlier, spending was limited for people from 8 to 16 years old in the amount of $30 per month, for people from 16 to 18 - $60 per month.

In general, a lower rate of increase in average income per user may be an indicator by which it is possible to analyze user interest in gaming content. The more content there is on the market, the higher the user's interest in this content is expected to be.

Turning to the statistics on the issuance of licenses for gaming products by the Chinese regulator, it can be noted that the number of licenses issued for foreign gaming products is several times lower than the number of licenses issued for domestic gaming products (Table 7).

 

Table 7 – Data on the issuance of licenses by the Chinese regulator [14]

Year

The number of licenses issued for domestic (Chinese) games, units.

The number of licenses issued for imported games, units.

2009

n/a

29

2010

245

46

2011

452

49

2012

576

50

2013

567

63

2014

680

63

2015

621

87

2016

4021

226

2017

9177

456

2018

1893

50

2019

1365

180

2020

1308

97

2021

679

76

2022

314

0

The fact that there are a small number of licensed foreign games is most likely due to the rather high technical requirements for the product and, along with this, the need for deep localization, which is required for the game to enter the Chinese market. In particular, the researchers note that the required localization changes the game enormously, sometimes leading to a complete leveling of its original plot idea [15].

A special example of the game "Civilization IV": for the Chinese market, the game had to be localized quite deeply. In particular, China was renamed the "Qin Empire", MaoZedong was replaced by a character who never existed in reality, and the Mongolian Empire was renamed altogether, replacing, at the same time, the ruler of Mongolia in the world release – Genghis Khan - with Ho-Orluk, since, apparently, the latter never intervened in China. In particular, as part of the localization of the game for the Chinese market, the ideology of "communism" was replaced by the "Doctrine of National Welfare" [16].

It can be assumed that it is a change in the original idea of games, a change in a number of important plot characteristics, that can lead to a decrease in user interest in games, since they cannot get the original product, which is distributed all over the world. This fact, of course, leads to a decrease in revenue within the Chinese gaming industry, as user interest in gaming products in the local market as a whole decreases. Actually, with a decrease in total revenues in the markets, combined with the enormous technical and content requirements of the Chinese regulator, international gaming companies are also losing interest in entering the Chinese market.

It seems possible, in particular, to pay attention to an interview in China Business Daily, in which an analyst from one of the Chinese gaming companies pointed out a decrease in interest in games from users [17]. Of course, a decrease in user interest may be the effect of censoring game content.

The concept promoted by the Chinese authorities should also be outlined

"neo-technonationalism" within the framework of which, among other things, protectionist measures are applied to the local gaming industry [18], which are expressed in the following:

1.                 VAT has been abolished for games intended to be "exported" (in particular, promoting Chinese values and culture in their plot. The whole promotion of companies whose gaming products are aimed at creating a positive image of China);

2.                 Encouraging the creation of local companies operating within the gaming industry;

3. The use of a licensing mechanism to make it difficult for foreign companies to access the local market.

Conclusion

Within the framework of the article, an overview of the system limitations was made, which, according to the author, directly affect the development of the Chinese gaming industry.

As part of the analysis of the potential impact of restrictions imposed by the Chinese regulator, by reviewing statistical data, the primary conclusions concerning the possible negative impact of systemic restrictions on the functioning and development of the Chinese gaming industry are presented.

In summary, it should be noted that by introducing bans on gaming for children and adolescents, negative prerequisites are being created for the further development of the Chinese gaming industry. New generations of Chinese will probably not be in the habit of spending time playing video games and, thus, the Chinese gaming industry will "lose" potential users.

Regarding the investment attractiveness of the industry, in the long term, it is also worth noting some caution, since excessive regulation and a potential decrease in the user base of games undermines the investment potential of the Chinese gaming industry.

Further research within the framework of this issue can be aimed at quantifying the systemic restrictions imposed by the Chinese government against the local gaming industry and building a regression model that illustrates quantitatively the impact of these restrictions on the development of the Chinese gaming industry.

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The article is devoted to the study of the impact of systemic restrictions on the key performance indicators of the Chinese gaming industry. The research methodology is based on a generalization of the systemic restrictions imposed on the gaming industry in China from 2000 to the present, an analysis of data on the gaming industry in China and the world. The authors rightly attribute the relevance of the work to the fact that China is the largest market in the gaming industry within the Asia-Pacific region. The scientific novelty of the reviewed study, according to the reviewer, consists in the systematization of restrictions affecting the development of the Chinese gaming industry. The following sections are structurally highlighted in the article: Introduction, Regulation of the Chinese gaming industry, where several restrictions are highlighted, designed, in fact, as subsections of the publication: "Mandatory licensing process for newly released games on the market", "Restrictions on playing time and gaming expenses of minors", "Regulation of monetization of games", "Regulation online game development", "Regulation of the use of AR/VR technologies", Conclusion and Bibliography. In the text of the article, the authors note that the regulation of the gaming industry is mainly aimed at protecting children and adolescents from gambling addiction declared by the Chinese government, as well as preventing content that may in any way affect the political situation in the country or offend the social structure of Chinese society. Of interest are the growth rates of the Chinese gaming industry shown in the publication, broken down by periods of introduction of systemic restrictions, data on the volume of the global video game market, the number of gamers in China and the world, information on the issuance of licenses by the Chinese regulator. The bibliographic list includes 22 sources – scientific publications on the topic of the article, as well as official documents and Internet resources, to which there are address links in the text confirming the existence of an appeal to opponents. As comments, it should be noted that the fourth subsection "Regulation of online game development" looks undisclosed - its text is presented in just one sentence, the procedure for obtaining a specialized license is not reflected here, it is not clear what documents need to be submitted, in what form the interaction of online game developers with government agencies issuing licenses is carried out, the timing licensing and other important details. It seems that this subsection should either be expanded or combined with the previous one, or the enumeration of restrictions should be arranged without bold font so that they do not look like subheadings. The article reflects the results of the research conducted by the authors, corresponds to the direction of the journal "Theoretical and Applied Economics", contains elements of scientific novelty and practical significance, may arouse interest among readers, and is recommended for publication after the authors consider the reviewer's proposals aimed at improving the article.