Attorney Shao Shiwei | Latest Legal Commentary on the “Measures for the Administration of Online Games (Draft for Public Comment)”

 

Introduction:

On December 22, 2023, the National Press and Publication Administration issuedthe Notice on Publicly Soliciting Comments on the “Measures for the Administration of Online Games (Draft for Comment)”(hereinafter referred to as the “Draft Measures”). Upon its release, the stock prices of major game publishers plummeted.

 

“(How many billions in market capitalization evaporated? Countless—truly countless. Indeed, capital markets have always responded to policies and regulations in the most direct and unforgiving manner.)”

 

Today, Attorney Shao provides a brief interpretation of the Draft Measures.

 

Article 2 [Scope of Application] These Measures shall apply to online game publishing and operational activities conducted within the territory of the People’s Republic of China.

For the purposes of these Measures, “online games” refer to game products and services composed of software programs and information data, made available to the public for download or online interactive use via information networks.

For the purposes of these Measures, “online game publishing and operational activities” include activities such as the research and development, publishing, and operation of online games, as well as the issuance and trading services of in-game virtual currency.

 

Attorney’s Interpretation:

Article 2 of the Draft Measures defines the concept of online games, expressly including “game products and services made available to the public for download or online interactive use via information networks.”

 

Article 12 [Approval System for Online Games] Prior to the publication and operation of an online game, an entity holding a Network Publishing Service License with the scope of business for online game publishing shall submit an application to the provincial-level publishing administrative authority in its locality. Upon review and approval, the application shall be submitted to the national publishing administrative authority for approval.

After obtaining the approval document for an online game, the entity responsible for the publication and operation of the online game shall organize the publication and operation of the game within one year from the date of issuance of the approval document, in accordance with the requirements set forth therein. If the game cannot be published and operated within this period, the entity shall promptly provide a written explanation of the reasons to the provincial-level publishing administrative authority in its locality.

 

Lawyer’s Interpretation:

Article 12 of the Draft Measures delivers a significant blow to game developers that hoard license numbers: they must launch and operate their games within one year.

Existing regulations in the gaming industry, such as the Provisions on the Administration of Network Publishing Services, do not impose any restrictions on the validity period of game license numbers. Due to the tightening of national policies on game license numbers, it has become increasingly difficult for domestic game companies to obtain them. In this context, many companies have begun to hoard license numbers. For example, reports indicate that “Yaoji Poker” had accumulated more than 20 game license numbers five years ago. Henceforth, hoarding license numbers will no longer serve any meaningful purpose.

 

Article 16 [Prohibited Content] Online games shall not contain the following content: ……

Entities engaged in the publication and operation of online games that distribute and operate games overseas shall voluntarily comply with the prohibitory provisions regarding online game content, uphold the stance of Chinese culture, adhere to international rules and the laws of cultural dissemination, and shall not endanger national security or harm national honor and interests.

 

Lawyer’s Interpretation:

Article 16 of the Draft Measures extends regulatory reach to overseas markets. Therefore, game developers planning to expand globally cannot rest easy; they must also carefully study domestic laws and regulations related to gaming. For instance, the previously popular live-action interactive romantic simulation game “Love Is All Around!” was listed on Steam. Attorney Shao previously discussed in the article “(“Love Is All Around!” Goes Viral: What Are the Legal Risks of Listing a Game on Steam?)” that listing a game on Steam still requires caution regarding content and promotion. For example, if a launched game involves explicit adult content, violence, terrorism, or politically sensitive material, and violates relevant provisions of the Criminal Law of the People’s Republic of China, criminal liability may still be unavoidable.

 

Article 17 [Prohibition of Forced Combat] Entities engaged in the publication and operation of online games shall not incorporate forced combat mechanisms into online games.

 

Lawyer’s Commentary:

Article 17 of the Draft Provisions prohibits forced player-versus-player combat, a requirement that was also present in prior regulations.

Interim Measures for the Administration of Online Games (2017 Revision) (no longer in effect)Article 18 Operators of online games shall comply with the following requirements:(1) They shall not configure forced player-versus-player combat in online games without the consent of online game users;

 

However, the current Draft Provisions have deleted the phrase “without the consent of online game users,” possibly on the view that the wording in the earlier regulation was somewhat verbose. Nevertheless, Attorney Shao believes that this provision will be difficult to achieve its legislative intent in practice. Game operators are adept at designing user agreements that users must check in order to participate in the game, thereby deeming participation as constructive consent to such arrangements.

 

Article 18 [Restrictions on Excessive Use and High-Value Spending] Online games shall not provide inducement-based rewards tied to daily logins, first-time top-ups, or consecutive top-ups.

Entities engaged in the publication and operation of online games shall not provide or tolerate high-price trading of virtual items through hype, auctions, or similar means.

All online games must establish user top-up limits, disclose such limits in their service rules, and provide pop-up warnings to alert users against irrational spending behavior.

 

Lawyer’s Commentary:

Article 18 of the Draft Provisions prohibits rewards tied to daily logins and similar mechanisms. This provision is likely to have a significant impact on the gaming industry, as it restricts common industry practices. Game operators are likely to be greatly concerned. From well-known titles such as Legend of Mir and Genshin Impact to smaller browser-based games, daily login bonuses and first-top-up rewards are standard operational practices. If such mechanisms are no longer permitted, how will new users be attracted to enter the market?

“All online games must establish top-up limits,” soWhat is the specific limit? This requires further clarification.

 

Article 24 [Standards for Trading in Game Currency] Entities engaged in providing services for the trading of online game currency shall comply with the following provisions:……

(2) Transactions in online game currency shall be conducted through real-name digital renminbi (e-CNY) wallets, and no anonymous digital renminbi (e-CNY) wallet transaction services may be provided to users;

 

Lawyer’s Interpretation:

With respect to Article 24 of the Draft Measures, game top-ups are required to be settled in digital renminbi (e-CNY). This is a notable development. Since the initial pilot testing in 2019, China has vigorously promoted the adoption of digital renminbi (e-CNY), although the perceived impact has not been significant. The innovative provision introduced in these Draft Measuresrequires that top-up services be settled in “digital renminbi (e-CNY),” meaning that the vast majority of game users will have no choice but to adopt it.This measure is also expected to exert an effective regulatory influence on groups seeking to launder money through online games, constituting another robust measure against money laundering in the financial markets.

 

Article 27 [Random Draws] When providing random draw services, online game publishing and operating entities shall set reasonable limits on the number of draws and the associated probabilities, and shall not induce online game users into excessive consumption.At the same time, such entities shall provide users with alternative means to obtain virtual items of equivalent functionality, including exchanging virtual items and directly purchasing them using online game currency, as well as othervalue-added servicesin such manner.

 

Attorney Commentary:

Article 27 of the Draft Measures regulates probability-based games. This provision states that: (1) limits on the number of draws and the associated probabilities must be established; and (2) virtual items obtained through random draws must also be available through alternative acquisition channels, such as direct purchase. Neither of these requirements is new; they were already addressed in the 2016 Document [Wen Shi Fa [2016] No. 32]. After that document was repealed in 2019, no new regulations were issued for a considerable period. After long anticipation, the Draft Measures have finally been released.

The availability of alternative acquisition channels for virtual items will significantly reduce the potential for user addiction during gameplay, thereby curbing the tendency of users to repeatedly top up and spend money on gacha draws in an effort to increase their odds of obtaining rare items. However, it must be acknowledged that determining the redemption channels and mechanisms for high-scarcity gacha items, such as “SSR” or “five-star” cards, will affect the game’s overall economic model and pose a significant challenge to game publishers’ revenue streams.

 

Article 26Paragraph 2 Online game publishing and operating entities shall not allow users to exchange online game virtual items for legal tender. Where such entities provide users with the option to exchange online game virtual items for small-value physical goods, the content and value of such physical goods shall comply with the provisions of relevant national laws and regulations.

 

Attorney Commentary:

Article 26 of the Draft Measures provides that “users shall not be allowed to exchange online game virtual items for legal tender.” This is a reiteration of prior regulations. The reason for this prohibition is that the ability to cash out at the terminal level may give rise to suspicions of gambling-related or money laundering-related criminal offenses. Nevertheless, such practices have persisted despite repeated prohibitions.

It is understandable from the perspective of certain operators who use the guise of gaming to engage in illegal or criminal activities: if there is no cash-out mechanism at the terminal level, how can they attract participants? And without participants, how can they generate hype around their platform?

 

“Where such entities provide users with the option to exchange online game virtual items for small-value physical goods, the content and value of such physical goods shall comply with the provisions of relevant national laws and regulations.” As legal professionals, we cannot help but express our frustration with the legislators. It is not easy to enact regulations, so why not put in more effort? Instead, they have copied prior provisions verbatim, essentially using a one-click copy-and-paste approach ( Document [Wen Shi Fa [2016] No. 32], issued on December 1, 2016 (now invalid): Notice of the Ministry of Culture on Regulating the Operation of Online Games and Strengthening Interim and Ex Post Supervision, Item (10): Online game operating enterprises shall not provide services allowing users to exchange virtual items for legal tender. Where such enterprises provide users with the option to exchange virtual items for small-value physical goods, the content and value of such physical goods shall comply with the provisions of relevant national laws and regulations.) The key issue is,The existing provisions have long been ambiguous.：

 

(1) What constitutes“small-value physical items”?

What amount qualifies as “small-value”? Is it RMB 500, RMB 100, or RMB 50?

How is “physical item” defined? Common examples include e-commerce platform gift cards, mobile phone top-up cards, and video streaming platform memberships. Such virtual cards may better align with the current business model of online games. Are virtual card services therefore strictly prohibited? If so, on what basis?

 

(2) Can further clarification be provided regardingthe requirement that “the content and value of physical items shall comply with relevant national laws and regulations”?

What are the “relevant provisions”? Document No. 32 [2016] of the Ministry of Culture was issued in 2016, and seven years have passed since its promulgation. Have the “relevant provisions” still not been finalized? This gives a slight impression of legislative uncertainty. How should this be implemented in practice? If the legislators themselves are unclear, it may be preferable not to impose such restrictions.

 

Article 29 [Standards for Promotion and Advertising] Entities providing promotion and advertising services for online games shall verify the relevant supporting documents of their clients, review the advertising content, and shall not publish online game advertisements that are inconsistent with the content or lack complete supporting documents. High-value tipping shall not occur in online game live streaming. The promotion and advertising of online games shall not contain any content listed in Article 16 of these Measures or any other content prohibited by laws and regulations.

 

Legal Commentary:

With respect to Article 29 of the Draft for Comments, “high-value tipping shall not occur in online game live streaming””, the provision is intended to regulate money laundering and gambling-related crimes. However, what threshold constitutes “high amounts”? It is hoped that legislators will provide clear and specific rules so as not to inadvertently penalize game operators that strive for compliance and seek to abide by the law. Incidentally, this provision also intersects with the recent DouYu live-streaming gambling incident; for details, please refer to Attorney Shao’s series of articles titled “Live-Streaming Platforms Involved in Gambling Convicted of the Crime of Operating a Casino: What Are the Key Points of Criminal Defense?》

 

Article 36 [Cessation of Operations] Where an online game publishing and operating entity ceases the publication or operation of an online game, it shallissue a public notice at least 60 days in advance, and complete deregistration procedures with the provincial-level publishing authority in its locality, which shall report to the national-level publishing authority for record-filing. For unused online game currency and unexpired game services held by users of online games, the online game operating entity shall refund users in legal tender or through other methods accepted by the users, in proportion to the amounts paid by the users at the time of purchase.

Where an online game experiences continuous service interruption exceeding 30 days due to reasons attributable to the online game operating entity itself, such as cessation of service access or technical failures, it shall be deemed a termination.If the game operator, due to reasons attributable to itself, continuously interrupts services for more than 30 days, such interruption shall be deemed a termination.

 

AttorneyInterpretation:

Under Article 36 of the Draft Measures, a continuous 30-day interruption of service is deemed a termination of the game. Upon such termination, the operator must compensate users for their in-game currency and in-game items through legal tender or other means.

The 30-day limit helps prevent game publishers from using updates or maintenance as a pretext to effectively abandon operations and abscond. In addition, the compensation measures for game termination further underscore that “in-game items and in-game currency possess the attributes of virtual property, and players’ rights and interests are protected under relevant laws,” while also outlining a path for termination: if a large company can no longer sustain a game product, it may convert balances into another game currency within the same corporate group. For smaller companies, if they can no longer sustain a game product, they may issue refunds.

If some of the preceding provisions have drawn lamentations from both publishers and players, Article 36 of the Draft Measures may well elicit cheers from players even as publishers lament.

 

 

Concluding Remarks:

In summary, the majority of the content in the Draft for Comments consolidates existing regulatory provisions by drawing from various sources, thereby serving as a comprehensive compilation. Accordingly, game operators need not be overly alarmed. Furthermore, the Draft for Comments has not yet entered into force and remains open for public consultation.

It is hoped that the subsequent Measures for the Administration of Online Games will incorporate more detailed and practically operable provisions.