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China’s gamers hit pause button amid few releases, tough economy – Al Jazeera English
Beijing, China – Before China began cracking down on video games, Zhang “Yvan” Yifan had no shortage of new titles to play.
These days, Zhang and his friends struggle to find games that grab their interest, after authorities implemented a nine-month freeze on issuing licences amid concerns about rising addiction in the world’s most populous nation.
So far this year, the Chinese market has released just 105 new games, compared with 755 titles in 2021, and more than 9,300 in 2017.
“Most of my friends like playing competitive first-person shooter games,” Zhang, a university student in Beijing, told Al Jazeera. “But we cannot find a game we all want to play these days. Having fewer games to choose from is really sad to me.”
Zhang’s frustration is reflected in falling sales across the sector.
Video game revenues in the first half of 2022 fell for the first time since data became available in 2008, declining 1.8 percent to 147.8 billion yuan ($21.9bn), according to industry figures published by the China Audio-Video and Digital Publishing Association and the Gaming Industry Research Institute of China. Excluding overseas sales, revenue shrank a steeper 4.25 percent.
China’s slowing economy under “zero COVID” has compounded the sector’s woes, with many young people finding they have less money for non-essential purchases such as video games.
The world’s second-largest economy barely avoided contraction in the last quarter, growing just 0.4 percent, as authorities continued to roll out harsh lockdowns to control the spread of COVID-19.
In June, youth unemployment hit 19.3 percent, the highest level on record.
For Jon, a 29-year-old Shanghai resident who often plays mobile games such as Honor of Kings, the dicey economic conditions have meant cutting back on his hobby.
“I spend less on games now than I used to, even though I earn more now than in previous years,” Jon, who asked to be referred to by his English first name, told Al Jazeera.
“That’s because I’m worried I’ll have to save more during these uncertain times, because I might be put under lockdown or face unemployment.”
Free-to-download games have not escaped the downturn either. Popular mobile titles such as Fate/Grand Order and Azur Lane rely on in-game purchases by players trying to get a leg up on their peers to make money.
“The economy and the job market are really bad,” Wang Liang, a 22-year-old university student in Beijing who enjoys first-person shooters, told Al Jazeera.
“So most gamers like me will inevitably have less disposable income to spend on games.”
The sector’s current difficulties follow an even rockier 2021. Under a sweeping regulatory crackdown on the sector, Beijing introduced time limits for online gaming by minors and real-name verification rules to prevent anonymous in-game purchases.
Although the end of a nine-month freeze on new titles in April provided a glimmer of hope for the industry, the number of releases has been a trickle compared with previous years.
The two biggest domestic players, Tencent Holdings and NetEase, which together account for about 60 percent of the market, and foreign publishers have yet to have a single title approved for release.
“Although many dozens of titles have been approved, these resourceful players who understand the Chinese gaming market and tastes of the players very well have not been able to launch new titles,” Nir Kshetri, an economics professor at the University of North Carolina at Greensboro who has researched China’s gaming industry, told Al Jazeera.
Once thriving industry
The industry’s declining fortunes mark a sharp reversal for the once thriving industry.
In 2017, China became the world’s gaming capital on the back of popular smartphone titles such as Honor of Kings and Fantasy Westward Journey, taking almost one-quarter of the $101.1bn global market, according to research by venture capital firm Atomico.
Despite the regulatory and economic challenges, China’s gaming market raked in 296.5 billion yuan ($46.6bn) in sales revenue in 2021 overall, up 6.4 percent from the previous year, according to official government data.
China’s e-sports sector the same year was worth an estimated $403.1m, making it the largest market on earth, according to research by Niko Partners.
Some industry figures see this strong foundation as cause to be optimistic about the future.
The co-founder and COO of a Tencent-owned gaming studio, who spoke on condition of anonymity, said greater regulation had been needed and the easing of the licensing freeze was a cause for hope.
“There are still many ways to stimulate the market,” the co-founder told Al Jazeera, pointing to in-app purchases and advertising, greater efficiency in production, and emerging technologies like VR and the metaverse as potential solutions.
He played down the negative effect of the economy on the outlook for the industry.
“Less disposable income means that people will be more cautious about spending on games. But it does not necessarily mean that they will spend less on games,” he said.
“Gamers will be more and more demanding, so poor-quality games can’t earn money as easily as they used to. Only high-quality games can attract gamers to continue to pay. Therefore, game companies need to follow trends, focus on improving the quality of games, create more high-quality content and explore more monetisation possibilities.”
Others suggest the industry will need a significant period to recover.
More than 14,000 gaming-affiliated companies shut down during the first six months of the licensing freeze, according to a report in the South China Morning Post in January. Many other firms in adjacent sectors such as merchandising, advertising and publishing also suffered heavy losses during the period.
“Chinese developers are likely to face significant challenges to monetise their games until the ecosystem is rebuilt again,” Kshetri said.
In the meantime, frustrated gamers like Zhang can only wait in hope for a loosening up of the government’s grip on the sector.
He also hopes that the current turmoil will give the industry a necessary shake-up, ultimately leading to better quality games.
“The most important thing for multiplayer competitive games is the game environment, even more so than the game content, I think,” he said. “So if the game makers can give a better environment to the player, that will definitely make them happy again.”
Analysis | Industrials' Long Coattails Can Carry the US Economy – The Washington Post
If the US avoids a recession, or at least a deep one, it will most likely be able to thank industrial companies.
While demand on the consumer side of the economy is weakening, it remains solid in the manufacturing sector and, more important, appears to be sustainable even if shoppers cut back further. Consider the outlook from a few companies most people pay little attention to.
Eaton Corp. Chief Executive Officer Craig Arnold said variations of “strong” and “strength” more than 45 times during a conference call with analysts on Aug. 2, and that’s not counting references to the dollar. “It feels positive, in some cases, too positive,” Arnold, whose company makes electrical gear for construction, power, autos and aerospace, among other goods. With a market value of about $60 billion, Eaton isn’t small.
Illinois Tool Works Inc., which is even larger than Eaton, said its organic sales were up 18% in July from a year earlier, the highest monthly growth rate all year. The company makes all kinds of products for the food service, test and measurement, welding, construction and auto industries, and most of those areas are “off to a really strong start in Q3.”
Companies as diverse as chemical maker DuPont de Nemours Inc., industrial distributor W.W. Grainger Inc. and a metal-bender like Arconic Corp. are saying the same thing: The manufacturing economy is sizzling.
“The industrial parts of the economy are certainly growing faster for us than the non-industrial parts right now,” said DG Macpherson, CEO of Grainger, which sells just about any industrial-related part or gadget you can think of.
While the strength of the industrial economy isn’t new, its ability to power through a downturn in consumer spending is a change from past cycles.
“We strongly believe that the industrial economy will decouple from the consumer economy,’’ Scott Davis, an analyst with Melius Research, said in an email. “There’s just too much pent-up demand for projects and megaprojects that are based more on secular changes than cyclical.”
The reasons for this decoupling are multifold. An obvious one is the recovery of investment in the oil and gas industry. Although some industrial companies pulled back exposure to energy, especially in activity closer to the wellhead, after oil prices sank in mid-2014, the increase in drilling reverberates broadly through the industrial economy with increased demand for steel, construction, trucks and safety equipment.
Another is that the makers of autos and heavy trucks are still struggling to keep up with demand and have huge holes in their inventories that will take a while to rebuild. There were 95,000 cars in inventory in June, down from a monthly average of 660,000 in 2019, according to the Bureau of Economic Analysis. The number of Class 8 trucks, as the big rigs are known, in backlog as a ratio of the build rate was about 10 for the first six months this year, which is lower than last year when the computer-chip shortage was at its peak, but still higher than 6.6 in 2019, according to FTR Associates data. It’s the opposite problem from large retailers, which are grappling with too much inventory.Makers of commercial and private jets also have big backlogs to fill as people, restless from the Covid-19 shut-ins, are on the move again. Construction projects are moving forward, and even consumer-facing companies are continuing with projects to improve their logistics, an area where costs jumped during the pandemic.
The transition to cleaner energy also is also feeding the fire of industrial demand, and the climate change bill passed by the Senate over the weekend would keep those flames burning for some time — perhaps even through a consumer recession.
Eaton’s Arnold has positioned his company to ride the wave of electrical power demand as economies wean themselves off oil. The company has a long history of selling transformers and circuit breakers for power generation and transmission and recently made a push to become a key supplier to electric vehicle manufacturers. The company boosted its 2002 earnings-per-share guidance by 4 cents to a midpoint of $7.56 and increased its forecast for annual organic sales growth to as much as 13% from 11%.
“So despite all the talk about potential slowdown and downturn in the market, and we’ll be ready if we have one, we’re focused on investing to capitalize on what we see as the super growth cycle, driven by favorable trends in the recovery and some of our other end markets,’’ Arnold said on the call.
Eaton, DuPont and ITW, which raised its guidance in May, called out international weakness from the China lockdowns and Europe’s difficulties with soaring energy prices. Still, there are no signs the international weakness is bleeding over to the US. The year-over-year increase in US industrial production in June was more than 4%, a solid pace, and that comes on top of the big rebound of more than 9% in June last year.Ironically, the same supply chain snags that stoked inflation because demand wasn’t being met also kept a lid on the overbuilding of vehicles, homes, electronics and other goods that normally would occur and then cause a pullback in output. The trucking industry, for example, is notorious for the boom-and-bust cycles because companies buy too many trucks when freight demand is strong and then have too much capacity when cargo cools. Those truckers were never able to purchase all the trucks they wanted. There will be no big bust this cycle.
Add it all up, and it makes sense that the manufacturing industry can buoy the economy through a downturn in consumer spending.
More From Other Writers at Bloomberg Opinion:
• It’s (Still) Going to Be Hard to Get a Car: Anjani Trivedi
• Customer Demand Is There. Supply Still Isn’t: Brooke Sutherland
• New Chips Act Could Become a $280 Billion Boondoggle: Editorial
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, he covered U.S. industrial and transportation companies and Mexico’s industry, economy and government.
More stories like this are available on bloomberg.com/opinion
©2022 Bloomberg L.P.
Statistics Are Mixed But On Balance Say The Economy Is Weak – Forbes
If you listen to the White House, you hear that the economy is strong. Others will tell you that it has already sunk into recession. Such “analytical” differences are common at almost all times and almost always reflect the speaker’s political agenda more than any straightforward reading of the statistical evidence. These days things look more ambiguous than usual. Statistics offer ammunition for both views. The president can point, and he does, to the robust growth in payrolls. Those with a less sanguine view of things can point to among other things two consecutive quarterly declines in the nation’s real gross domestic product (GDP). Although the balance of the evidence points clearly toward a weakening economy, it is also fair to admit that the statistics paint a strangely mixed picture.
The Labor Department’s monthly employment report illustrates. On the positive side, the July survey of employers showed a striking expansion in payrolls, a gain of 528,000 positions. Private payrolls expanded by 471,000 positions. Though these are not record increases, they are nonetheless beyond most historical experience and far beyond where consensus expectations were. But in the same report, the survey of households showed July jobs up only 179,000. This tells quite a different story from the employers’ tally. The jobs gain was not only much smaller but was insufficient to overcome the June decline in jobs so that over the two months June and July the nation by this measure shed some 136,000 jobs.
Despite this contrast – still unexplained by the Labor Department – what tips the balance to the negative side is the flow of information from elsewhere and from the rest of the department’s monthly report. True, the unemployment rate dipped slightly from 3.6% of the workforce in June to 3.5% in July, but department also reported that some 538,000 people dropped out of the workforce in July. Since they are neither working nor seeking work, this movement more than accounts for the fall in the unemployment rate. What is more, the average weekly hours worked remained unchanged in July at 34.6, still down from April’s measure.
Outside the Labor Department’s accounting, there are of course the first and second quarter declines in real GDP, precipitous declines in consumer confidence, and reporting by the Institute of Supply Management (ISM) of slowing overall and an outright decline in the new orders part of the measure. This list of negatives is of course far from complete, but it is nonetheless indicative.
Apart from the current statistics that point to economic decline, two other considerations weigh heavily on the economy’s prospects. One is the ongoing inflation. At last measure, for June, the consumer price index (CPI) rose 9.1% from year-ago levels. This kind of price pressure seems likely to last. Even if it abates some — say to 8% or 7% — it will remain sufficient to impair economic growth prospects by eroding business and consumer confidence and discouraging the saving and investment on which economic growth ultimately depends. These effects could bring on recession all on their own. It certainly would not be the first time in history that inflation did so.
A still more potent recessionary threat emerges from the Federal Reserve’s (Fed’s) fight against inflation. The Fed began this effort last March. Before then, it had pursued a pro-inflationary monetary policy. It had kept short-term interest rates near zero and poured new money into financial markets buying bonds directly – mostly treasuries and mortgages – a practice the Fed refers to as “quantitative easing.” But since the March policy shift, the Fed has drained money from financial markets by selling from the hoard of bonds it had previously acquired and by pushing up short-term interest rates some 1.75 percentage points. While these are standard anti-inflation moves, they also restrain economic activity. What is more, the Fed seems determined to take further steps along these lines in coming weeks and months – a pattern that will make recession still more likely.
If this assessment is correct – and it does seem likely – then the statistics on which the optimists rely – including the White House – will turn negative in coming months. The evidence of economic weakness, if not outright recession, will become overwhelming. Whether this resolution of the economic picture takes place in the next month or two remains uncertain, but it is hardly likely that the ambiguities will remain in place very much longer.
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