Industrial executives say that domestic firms will soon challenge the pre-eminent position of overseas companies, which have so far dominated China's online games market, as they earn increased profits from their own games and operations.

"Foreign games may not continue to flood the online game market, as Chinese developers are catching up," said Jing Huang, managing director of Soft Bank Infrastructure Fund (China), which invested US$40 million in Shanghai Shanda Networking Technology Co Ltd, the nation's biggest online game operator, in 2003.

Jing told a Venture Capital and Online Game seminar organized by the Chinese Venture Capital Associations in Beijing that the enthusiasm of domestic companies has been rising because of increasing costs in importing games from overseas markets like South Korea. Game licenses which cost US$300,000 two years ago have now rocketed to about US$1 million–not including sharing revenues from operations. Inc, one of the top three Chinese Internet portals, alongside Inc and Sina Corp, has decided to launch a free trial of its first in-house game, Blade Online–created in co-operation with a domestic design house–in the second quarter of this year. Sohu launched Knight Online, its first game imported from South Korea last February, but the game's business contributed virtually nothing to the company's total revenues, due to Sohu's lack of experience in operating online games and fierce market competition.

Another of the attractions of self-developed games is their higher profit margins. The profit margin for Inc, which earned 44% of its revenues from online games, was 84% in Q4 2003, however those of Sohu and Sina, which rely on wireless message services and online advertising, were 72%.

Many Chinese companies are starting to jump on the bandwagon in response to the industry prospects. Shanda has said that it will spend US$10 million this year to develop about six games, while Kingsoft, which is one of the biggest domestic software game firms, has decided to suspend all development projects on offline games, and will spend US$6 million in 2004 mainly on the development of online games.


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