Chinese video game companies have evolved from domestic PC gaming operators to global entertainment powerhouses, trading at 17-25x P/E versus EA (now private) at 42-58x and Take-Two at 92x.

‘Guochao’ or ‘national pride’ of having a Chinese preference for domestically produced consumer goods that are now being exported globally, has transformed BYD from a local battery supplier to the world’s largest automobile manufacturer, propelled a general variety store to become the most valuable toy company in Pop Mart with its Labubus. We’re now about to witness the third act of this play with video games. 

The 2021 regulatory crackdown and persistent US-China tensions have created a valuation gap that persists even as Chinese studios have proven they can compete globally: Genshin Impact generated $5 billion in three years, Black Myth: Wukong sold 26 million copies and crossed $1 billion in revenue.



In this edition of Impactfull Weekly, we dive into the history of the video game industry, how China got its foot in the door, its growth drivers today, and how ‘guochao’ inspired video games are poised to ramp up with the success of Black Myth: Wukong, the biggest high-budget success of the Chinese industry so far.

Global gaming industry, how China got its foot in the door

(source: Newzoo Global Games Market Report 2025)

Size of the video game industry:

The video game industry generated $188 billion in 2024, making it the largest interactive entertainment segment globally, rivalling the film, music and book publishing industry combined.

Gaming revenue splits across four distinct gaming styles: free-to-play (52% of revenue, monetised through in-game purchases and gacha “lucky draw” style mechanics), premium titles priced at $60-70 upfront, also called the AAA titles by publishers (25% share & declining), subscriptions like Xbox Game Pass (6-7%), and in-game advertising (15%). 

In terms of devices, mobile dominates at $103 billion (55%), followed by consoles at $46 billion (24%) and PC at $40 billion (21%).

Here’s an idea of comparison on how big gaming is in relation to other forms of entertainment:

Filmed entertainment, of which theatrical releases alone made $30 billion in 2024. Add streaming (Netflix alone generated $30 billion+), home video, and TV licensing to this and the total approaches $200 billion annually.

Music similarly exceeds its recorded revenue figure ($29.6 billion per IFPI) once you include live concerts ($23 billion via Live Nation alone), publishing (€16 billion), and sync licensing, bringing the total music economy past $70 billion.

But revenue only tells part of the story. The real competition is attention. Americans now spend 16.5 hours per week gaming, up from 12.7 hours in 2019. Gaming captures 16% of total screen time, up from 12% just two years prior. Among 13-24 year olds, gaming commands 25% of screen time: equal to TV and movies combined. 

Netflix's Reed Hastings put it plainly: Fortnite is more of a competition to them than HBO.

Historic players getting bloated & complacent

For decades, American and Japanese studios monopolised the industry. Activision Blizzard built Call of Duty into gaming's most consistent franchise (best-seller annually for 15+ years). EA leveraged exclusive sports licences to generate $7.5 billion in annual revenue. 

Take-Two's Grand Theft Auto V sold over 200 million copies. Nintendo's Mario, Zelda, and Pokémon represent unmatched brand equity. Sony's PlayStation Studios ($31.7B gaming revenue) is the world's largest gaming company.

Japanese studios pioneered console gaming and still dominate certain genres: Capcom's Resident Evil (115M copies), Square Enix's Final Fantasy (145M+), and FromSoftware's Dark Souls series that spawned an entire genre.

The conventional wisdom was that Chinese companies could compete in mobile and PC free-to-play, but lacked the talent and patience for premium AAA (high-budget, long development cycle games) development. That assumption was recently proved wrong.

China’s trump card

China's unique entry point came from a regulatory “accident”. In June 2000, Beijing banned the production, import, and sale of video game consoles, citing concerns about gaming addiction among youth. This created a PC-centric gaming culture centred on internet cafés (wangba), which grew from 40,000 in 2000 to over 110,000 by 2002.

Without consoles, Chinese gamers gravitated toward free-to-play PC games. Chinese developers mastered monetisation through microtransactions rather than upfront purchases. This wasn't a disadvantage: it was training for the mobile era that would follow.

NetEase pioneered domestic development with Fantasy Westward Journey in 2001, which generated an estimated $6.5 billion lifetime revenue. Tencent built a global empire through acquisition: Riot Games (League of Legends) for $400 million, Epic Games (40% stake) for $330 million, Supercell (Clash of Clans) for $8.6 billion.

When smartphones arrived, Chinese companies were perfectly positioned. They'd spent a decade perfecting free-to-play monetisation on PC. They simply applied the same playbook to mobile.

China’s gaming strategy: PCs to mobile…console next?

Two games fundamentally changed perceptions of what Chinese studios could achieve.

Genshin Impact proved Chinese studios could create global AAA content. 

Shanghai-based miHoYo launched this open-world action RPG in September 2020 with a reported $100 million development budget. The results exceeded all expectations: $1 billion in mobile revenue within six months (the fastest mobile game to reach this milestone), $5 billion+ lifetime mobile revenue by 2023, and 110 million downloads globally.

Revenue distribution across geographies gives us a better picture: 32% China, 24% Japan, 18% USA.

(source: Sensor Tower Mobile Gaming Revenue Data 2024)

Black Myth: Wukong shattered the AAA development ceiling. Game Science's August 2024 release represented Chinese gaming's single most significant moment: a premium-priced ($60), single-player, console-quality action game based on Chinese mythology (Journey to the West) that achieved:

  • 26 million copies sold as of June 2025
  • 2.4 million peak concurrent Steam players (second-highest in platform history)
  • $1 billion+ Steam revenue
  • 96% positive Steam reviews

The game was developed over 7 years for $42 million: 10x lower than Cyberpunk 2077's budget. 76-80% of sales came from Chinese consumers, proving domestic willingness to pay premium prices for quality content.

Black Myth: Wukong’s sales numbers:

(source: Statista, Game Science investor reports)

Regulatory trauma & ‘guochao’ recovery

Understanding Chinese gaming valuations requires understanding the regulatory trauma of 2021-2023.

The 2021 crackdown was severe. In August 2021, state media labelled online games "spiritual opium," causing Tencent to drop 10% in a single day. September 2021 brought new restrictions limiting minors to 3 hours of gaming per week (one hour on Friday, Saturday, and Sunday evenings only). Licence approvals froze from July 2021 to April 2022.

December 2023 delivered another shock. Draft regulations targeting "irrational consumption" in games caused Tencent to drop 12-16% and NetEase to plunge 24-25%. Combined, $80 billion in market value was wiped out in one day. The regulations were quickly softened, but the episode reinforced perception of regulatory unpredictability.

Data from H1 2025 gives us an insight into this accelerating recovery:

  • China's domestic market generated $44.8B in 2024: a record
  • H1 2025 grew 14% year-over-year to $23.4B
  • Console gaming grew 30% in H1 2025 as consumers demonstrated willingness to pay for premium
  • Chinese games generated $18.6 billion in overseas revenue in 2024 (+13.4% YoY): the first increase in three years
  • The NPPA (Chinese Press & Publication Authority) approved 1,416 games in 2024 (including 110 imports): the highest since 2019
  • Through August 2025, 1,119 domestic games plus 69 imports have been approved

(source: China Gaming Industry Report H1 2025, Niko Partners)

Tencent's international games revenue grew 43% year-over-year in Q3 2025. That doesn’t sound like a company being strangled by regulation.

Growth drivers

The guochao movement creates domestic tailwinds. This "national tide" cultural trend drives Chinese consumer preference for domestically-produced content. Black Myth: Wukong's success (75-80% domestic sales) exemplifies this phenomenon. 

Journey to the West and Three Kingdoms-based content resonates strongly, with upcoming titles like WUCHANG: Fallen Feathers (July 2025) already topping Steam China pre-order charts.

As seen in the above graphic, having 6 studios be part of the top 25 gaming companies in the world by revenue is a feat that is only otherwise replicated by the US & Japan.

China’s AAA development capabilities are now proven. Following Black Myth: Wukong's success, industry observers expect 5-10 more Chinese AAA games within the next decade. Development costs averaging 10x lower than Western equivalents provide sustained structural advantages for this trade.

Mobile comprises 68-73% of Chinese gaming revenue, making it nearly untouchable by others with WeChat Mini Games revenue growing 40% in H1 2025 to $3.2B. 

Honor of Kings maintains 260m MAU (monthly active users) and 139m DAU (daily active users). Tencent's VALORANT Mobile launch became China's most successful mobile release of 2025.

In the age of AI-driven creative & operational output, Tencent's Seedream AI model ranked first globally among text-to-image models, driving advertising targeting and game development efficiency, only recently beaten by OpenAI’s Image 1.5 and Google’s Nano Banana Pro.

(source: Artificial Analysis)

NetEase is implementing AI across titles. While AI hasn't yet transformed AAA development, it's improving operational margins.

What could go wrong (and what to watch)

Regulatory unpredictability remains the primary concern

While 2025 shows strong licence approvals, the December 2023 episode (when draft rules wiped $80 billion in value before being withdrawn) demonstrates Beijing's capacity for sudden policy shifts. Minor playtime limits (3 hours/week) remain in effect.

US-China geopolitical tensions have escalated

In January 2025, Tencent was designated as a "Chinese Military Company" on the US Department of Defence Section 1260H list, causing its stock to drop 7.3% ($35.4 billion in market value). Tencent owns Riot Games and holds stakes in Epic Games and Reddit: assets potentially subject to scrutiny under forced divestiture frameworks established by the TikTok precedent.

VIE structures create fundamental legal uncertainty

US investors in Chinese ADRs own shares in Cayman Islands holding companies with contractual (not equity) control over Chinese operating entities. These Variable Interest Entity structures were never formally approved by Chinese authorities and could theoretically be invalidated.

Macro headwinds pressure consumer spending

China's Q3 2025 GDP growth of 4.8% (weakest in a year), November retail sales of +1.3% (sharply missing forecasts), and the ongoing property crisis create uncertainty around discretionary spending.

Companies to watch

(here’s our list of 14 players bound to benefit from this second wave of guochao)

Tencent Holdings (0700.HK) - Dominant ecosystem play 

Tencent has a $715 billion market cap and gaming comprising 50% of revenue. Q3 2025 showed domestic games at RMB 42.8B (+15%) and international games at RMB 20.8B (+43%). The portfolio spans Honor of Kings (260M MAU, $1.9B annual revenue), full ownership of Riot Games, 84.3% of Supercell, and 40% of Epic Games. At 17-20x forward P/E versus 10-year median of 28x, valuation reflects regulatory discount despite accelerating growth. The US DoD designation creates headline risk.

NetEase (9999.HK / NTES) - Pure gaming exposure at cheaper valuations

NetEase has gaming comprising 83% of revenue and $20 billion in net cash. Q3 2025 showed games & VAS up 11.8% to RMB 23.3 billion with 69.3% gross margin. The restored Blizzard partnership (World of Warcraft, Diablo, Hearthstone returned to China) is a major catalyst. Fantasy Westward Journey achieved 3.58 million record concurrent players in November 2025. At 14-16x forward P/E with a $5 billion share repurchase programme and 2.1% dividend yield, this is the value play.

Bilibili (BILI, 9626.HK): Unique gaming + video platform play

Bilibili has a $10.3 billion market cap combining YouTube-like streaming with game publishing. Reaches 376 million MAU and 117 million DAU among Gen Z demographics. Gaming revenue grew 40% in 2024 to $768 million. Achieved its first GAAP profitable quarter in Q4 2024. At 95x P/E, valuation reflects the profitability turnaround rather than current earnings. Higher risk, higher reward.

Smaller companies to invest in

To dig further into smaller companies bound to benefit from the Chinese video games recovery, create your own StockScreener like we did:

Bonus: ETFScreener

To find out more about ETFs available to index the Chinese video games recovery, make your own ETF Screener like we did:

Our take

Chinese studios already own the two largest gaming segments. 

Mobile: with Honor of Kings, Genshin Impact, and a decade of free-to-play expertise built during the console ban years.

PC: Steam China is the platform's second-largest market, and Black Myth: Wukong just became the second-most-played game in Steam history.

Console gaming remains the last barrier. Sony, Microsoft, and Nintendo still control the hardware. Western and Japanese studios still maintain some control over software. This is where the interesting question sits.

Black Myth: Wukong sold 26 million copies across PC and PlayStation. Chinese studios now have a proof of concept: they can ship premium console content that Western audiences will pay $60 for. 

They can do it at one-tenth the development cost. And they have a pipeline of culturally resonant IP (Journey to the West, Three Kingdoms, etc.) that travels globally better than anyone expected.

If Chinese studios replicate their PC and mobile playbook, the implications will ripple across the entire industry. Western publishers carrying $300-400 million development budgets are already facing margin compression against competitors shipping comparable quality at $40-50 million.

China’s strength since the 1980s has always been in being the global manufacturing powerhouse, but this next era asks of them to become good at intangible assets and services, which has been a major lacuna for the past decades. This is perhaps the final push required to make China into a “high-income” country. Whether they manage to pull this feat is to be seen.

Stay invested, cautiously.