The country of 1.3 billion people takes its first steps towards a 'respectable' games and gaming industry...

Let’s face it, there’s not a lot that’s been ‘respectable’ about China when it comes to games and gaming. It remains very, very difficult to get into the market; there is every prospect of being totally ripped off; national laws are often loosely interpreted and enforced at local levels; and, to top it all, plagiarism is rife.

For all that, however, there is the unquestioned attraction of a population market totalling 1.3 billion people, many of whom now have disposable income in what has become the world’s fastest growing economy.

Problems with plagiarism

So how do you do it? First, get a Chinese partner. How do you get one you can trust? Go via Taiwan. While political tensions between China and Taiwan may still be running high, there is a tacit understanding that leaves commerce free to rage on unhampered. The Taiwanese are used to dealing with westerners; and, importantly, they have a similar business structure and business culture to those in the west.

Plagiarism is another matter to take into consideration. Pusher machine specialist Harry Levy from the UK once visited a number of Chinese factories as part of a business delegation and was amazed to find his own machines on the production line - copied right down to his own logo!

That was a few years ago, and although things have changed since then, they have not changed that much. Copying still happens. Ask Merit, which made such a detailed and determined campaign against copiers in mainland China that the company prodded the authorities into making a - probably token, but nevertheless thorough - seizure of copied games and documents from a number of illicit manufacturers.

Success is possible

But some companies do succeed in conducting respectable business with Chinese game makers. The whole crop of American redemption and novelty game makers, such as Benchmark, Family Fun, Bromley, Skee-Ball, Valley-Dynamo and ICE have all licensed games from Chinese designers. They do this because the games are imaginative and good - not forgetting the fact that they can make significant savings on development costs. Now they are taking entire games from China, as improvements in Chinese quality are reaching satisfactory levels.

Lower labour costs and lower parts costs are key elements. Together they can save American manufacturers as much as 50 per cent over US costs - even after taking freight and import expenses into account. Although savings are no longer as vast, with Chinese workers’ hourly rates rising from US20c to $1.50 an hour in just a few years, they still remain significant.

Al Kress of Benchmark commented: “You must be careful in selecting your sub-contractor in Asia. You have to have someone there to watch production and ensure that quality control is there.”

Rich Oltmann of Family Fun has a Shanghai-based partner in Universal Space, which has just opened a huge new factory to build games. He said: “In the early days we had to go in to talk to them about American manufacturers’ expectations and how to meet standards. They have grown enormously and Universal Space is now making for half a dozen American machine makers.”

Indeed, many believe Chinese game makers will provide significant competition for western producers within the medium term. And this threat is not concentrated solely upon amusement games either. Parts for all kinds of machines - whether fun or gambling - are now built in China. Major UK parts supplier Suzo International and its partner in the US, Happ Controls, source many of their components in China. Not only this, they are full partners in a Chinese manufacturing company.

The field of gambling itself is a different matter. It is of course illegal in China, apart from in the former Portuguese enclave of Macau, where there is a development under process which is now on the verge of overtaking Las Vegas in terms of gross take. There is no question that the development of gambling in mainland China will come. One could indeed argue that it is already there to some degree, with video lottery terminals beginning to take off.

Illegal trade

And, of course, there is the illegal trade. Ten years ago there were upwards of one million illegal video poker machines being operated across China, usually using Taiwanese boards installed in cheap local cabinets. Although they were seized from time to time, there were, of course, many stories of how the authorities could be persuaded to turn a blind eye to what was going on. Token seizures or not, by the time the games had been impounded they had no doubt already turned in a handy profit for the operators and the owners of the locations.

Most of that market has now been swept away by the slow, but irrevocable progress of litigation and policing, and sometimes replaced by products with more appeal - such as VLTs. But the casino slot may be some way off yet, subject to the Chinese Government’s appraising eye on the progress of Macau.

Much of what happens in China from now on will depend upon how the country expands its business and commercial processes in general. What happens to Chinese heavy industry and consumer products output will be mirrored by the growth in the games and gaming business. The Asian powerhouse is, of course, a $1.6tn industrial giant, within a short step of becoming the largest economy in the world. This ‘short step’ will actually take about 35 years, but this is miniscule in the broader historical viewpoint.

China is flooding world markets with inexpensive goods, to the pitch where some regions are imposing artificial barriers to slow it down in order to protect their home-grown industries. At the coin-op industry level, manufacturers aren’t just turning to China for monitors, power supplies, microswitches, buttons, or even complete machines; this list often stretches to include the merchandise so many of them use in their direct-vend games or as ticket redemption prizes. At a gambling level, similar electronic components for slot machines also come from China, as do the products for table games, such as layouts, croupiers’ rakes, chips, dealers’ shoes, even complex technologies such as chip counters and sorters.

International impact

There is no question that Chinese makers of games, gaming equipment, merchandise and components are beginning to make a very serious impact on the international scene. A visit to Panyu, close to the city of Guangzhou in the Guangdong Province, is to tour a veritable games and gaming machine powerhouse of companies. They line the roads in serried ranks, turning out all types of amusement and gaming machines, sometimes illegally (the casino slots), sometimes copying (Merit and co.), but they are there to be counted - not on the fingers of two hands but by the dozen. That is the size of the Chinese domestic market, in essence, but it also reflects just what might come, should those companies get their exporting act together to the same degree as Universal Space up in Shanghai.

Thirty years ago, China was represented in the international amusement industry by Taiwan. Different country - same people, in essence. They built pool tables for their domestic market and that of mainland China, becoming the overwhelming source of pool table components and accessories. From there, the Taiwanese broke into the amusement industry via gambling machines, which largely applied to what is generally known as the ‘grey area’ market, co-producing its often complex gambling machines with what was to become an infinitely more successful genre in video poker games.

At one stage, up to a couple of years ago, Italy had a suspected 600,000 video pokers in operation before a clampdown and subsequent change in the law drove most of them out of the market. Now Taiwan is much more broadly based, offering games from kiddie rides to novelties; from cranes to redemption games; from nine-liners to pushers; from video games to pokers. Nearly all the heavyweight manufacturers - Entropy is a prime example - have offices, showrooms, everything, in Taiwan. But they manufacture in mainland China. That was an inevitable result of the Taiwanese growth in living standards and income. 

A visit or two to Taiwan, and mixing with the Taiwanese suppliers, leads inevitably to the realisation that they all have ‘cousins’ in mainland China. It becomes apparent that when we refer to China and Taiwan, we are not only talking about the same culture and, arguably, the same nationality, but to deep-seated blood-ties. This leads to successful partnerships that last. And this is why the Taiwanese are always the middle men between western and Chinese undertakings.

It all leads to alliances, and these days alliances that are held together by a deal more based on trust than papered-over cracks, as it once was. There are moves to clean up China’s act in terms of its illicit and misguided ways over copying. There are also some significant inroads being made into operating in the country - at least by VLTs, if not in the amusement industry. The Chinese market is growing up. It is growing up in the games and gaming industry at a similar gallop to the rest of its industrial and commercial life. This will inevitably lead to some degree of ‘indigestion’ and the occasional clumsy lapse back into the bad old ways. But progress is unquestionably there. And it is unrelenting.

Come back in another 10 years - no, five - and see where it’s at by then.