China’s video game soft power

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. You can subscribe here.

From Nezha 2 to Labubu, it’s been quite a year for Chinese cultural exports. Now, one of the latest titles to hit the $189 billion global gaming market is also from China.

More than 2 million people played the martial arts video game “Where Winds Meet” within 24 hours of its overseas release this past weekend on PlayStation and PC, according to the game’s Chinese publisher NetEase. The free-to-play game puts a player in the shoes of a “young sword master” living in 10th-century China, whose backstory is developed through the journey of play.

“Players can feel like they are a special character in history, finding their own life in the past, and striving for the future,” Beralt Lyu, lead producer of “Where Winds Meet,” said in Mandarin, translated by CNBC. He said the team aimed to create a global game from the start, at least five years ago.

The game was released in China late last year, boosting NetEase’s second-quarter earnings. The company will report its third-quarter results on Thursday. That game release came just months after Tencent-backed Game Science launched China’s first global top-tier video game, “Black Myth: Wukong,” which sold more than 10 million units in three days.

“In the last two years, the biggest trend has been Chinese [companies] starting to slowly gain market share for PC, console games,” Will Wang, partner at Beijing-based BAI Capital, said in Mandarin translated by CNBC. “They must go global because the hardcore [console] gamers are all overseas.”

While many venture capital firms are focused on AI and semiconductors, about 10% of BAI’s portfolio is related to gaming because the firm “believes a lot of business models and new innovations are all related to gaming,” Wang said, pointing to investments in augmented reality glass maker Viture and generative AI 3D animation creator Meshy.

Even Nvidia, now known as the AI juggernaut, got its start as a graphics hardware producer that only gamers were interested in. And companies from The New York Times to Duolingo apply gamification to drive subscriptions.

China’s emerging soft power in games has captured the attention of wealthy investors in Saudi Arabia. Executives from Savvy Games, which is owned by the country’s sovereign wealth fund PIF, visited China this month for two major esports events: the League of Legends World Championship in Chengdu and the Honor of Kings KPL Grand Finals in Beijing.

“We haven’t yet had an opportunity to enter the PC console space, and so that’s another area, either in the West or in the East, so that’s also a focus for us,” said Brian Ward, CEO of Savvy Games.

“It’s been a good market for buyers,” he said, noting the favorable environment could last for another year or two as it’s still expensive to borrow. In 2023, Savvy spent $4.9 billion to buy “Monopoly Go!” developer Scopely, which this year acquired the game business of Niantic, the maker of “Pokémon Go.”

While Ward said the Scopely acquisition gives Savvy an edge in Western mobile games, the company has its eye on another opportunity — smartphone games in China and other markets.

Mobile-based “Honor of Kings” last month claimed an average of 139 million daily players in China, with 260 million monthly active players worldwide. The game rolled out last year to the Middle East, North America, Europe and Japan — even snagging a collab with Luckin Coffee in Singapore when I visited last month.

This year’s “Honor of Kings” live China championship not only nearly doubled its attendance from last year, but set a Guinness World Record with 62,000 attendees in Beijing’s Bird’s Nest stadium, the venue for the 2008 Summer Olympics opening ceremony. Tickets sold out in 12 seconds, according to Hero Esports, which organized the event.

The finals also create opportunities for international interaction.

Ahead of watching the game in China, Saudi Prince Faisal bin Bandar bin Sultan Al Saud, chairman of the Saudi Esports Federation, said he played a match with some Honor of Kings All Stars players.

“The growth that you’ve seen in [the championship] is not simply because of the game itself and the players, but being able to tell the story of the players and get people engaged with the human beings behind the game,” the prince said. He is also the vice-chairman of Savvy Games.

“You see that with Wukong, the story being told there was really engaging, and that made it accessible, no matter where it went in the world.”

“That’s something that we’re learning from,” he said. The Saudi Esports World Cup Foundation, which is also owned by the PIF, organizes the annual Esports World Cup and recently launched a documentary series with Amazon Prime about the gamers’ stories.

While the esports industry is booming, it’s still a small world, and all the money is interconnected.

Savvy has a 30% stake in the Chinese esports organizer Hero Esports, which is also backed by Tencent — the biggest company by market value in Hong Kong. Tencent also owns “Honor of Kings” through a subsidiary, and owns U.S.-based Riot Games, the developer behind “League of Legends”

Tencent on Thursday reported 43% year-on-year international games revenue growth in the latest quarter to 20.8 billion yuan, or nearly one-third of its games revenue. The company also noted growth in “mini games” that sit inside its widely used WeChat social messaging app.

The takeaway: producing high-quality games requires capital, risk tolerance and talent — factors favoring giants like Tencent and NetEase, BAI’s Wang said.

But he sees a fundamental macro play: “We have a rather wild assumption that if AI replaces many people’s work and improves productivity, and if there is no war, then other than watching short videos, people will spend their time on games.”

Chinese companies are also pushing into the global games market as new technology lowers barriers such as language and physical requirements.

Although “Where Winds Meet” draws heavily on Chinese culture and literature, translation didn’t seem too much of an issue for its global launch. The 9,000-plus English reviews on popular gaming platform Steam mostly rated the game “very positive” and praised the “beautiful” graphics. Their main complaint? A confusing interface of navigation menus.

But that wasn’t enough to deter gamers: “Where Winds Meet” still ranked among the five most popular global titles on Steam as of Tuesday.

Yicong Zhu, VP of Renewables and Power Research at Rystad Energy, said renewables in China will account for 40% of its energy generation by 2030.

Jasmine Bai, Vice President of Equity Research at Guangfa Securities Hong Kong, analysed China’s tech giants, especially their retail & AI playbooks.

Carlos Casanova of UBP said Beijing can still hit its 2025 GDP growth target even if the economy slows down, making any additional stimulus unlikely until after the National People’s Congress in March 2026.

China’s property drag worsens. Official data for October showed a steepening decline in real estate, while retail sales growth slowed from September.

World’s biggest sale fades. The extended Singles Day promotional period saw a slowdown in growth to 14.2%, down from 26.6% year-on-year growth reported last year, according to consumer research firm Syntun.

China-Japan rhetoric escalates. Beijing over the weekend warned its citizens about travel to Japan, following a public war of words between the two countries around Taiwan.

The CSI 300 was set to clock its second consecutive weekly decline, ticking 0.8% lower this week. The mainland index has risen more than 16% this year.

While Hong Kong’s Hang Seng Index was also down 2.8% this week, amid a broader tech-led sell-off globally. The index is up over 28% year to date.

The offshore yuan last traded at 7.1111 against the dollar.

— Nur Hikmah Md Ali

Nov. 20: China releases one-year and five-year benchmark lending rates; NetEase reports quarterly results

Nov. 21 – 23: Chinese Premier Li Qiang attends the G20 meeting in South Africa

Nov. 25: Alibaba reports quarterly earnings