By Sunny Um and Park Jun-young WIRED Korea

Chinese games are flooding into the South Korean market. But not a single Korean publisher has obtained a permit to launch a new game in China since March 2017. Given this imbalance that goes against the principle of reciprocity, calls for redress the anomaly are growing louder in South Korea. But all to no avail.

The reason is undoubtedly a diplomatic row that was sparked by the 2017 South Korean decision to override Chinese opposition and approve the U.S. deployment of the Terminal High Altitude Area Defense (THAAD), or a U.S. transportable system that intercepts ballistic missiles.

China had warned against THAAD deployment in South Korea, saying the system’s radars would see deeply into its territory. In doing so, China had ignored the South Korean claim that THAAD was being deployed to detect and shoot down North Korean missiles if and when they were launched against South Korea.

There is no denying that the frequent test firing of missiles by North Korea, not to mention the not-so-secret nuclear weapons held in its possession, posed a grave threat to the security of South Korea and the United States. Nor is it deniable that China found a security threat in the U.S. deployment of THAAD in South Korea. In other words, the strategic interests of Korea and the United States on one side and those of China on the other collided over THAAD.

One consequence was the worsening of overall relations between South Korea and China. With China slapping a boycott on South Korean media contents, South Korean cultural organizations canceled events they had scheduled to hold in China. Some South Korean entertainers working in China quit.

Even more serious, sales of South Korean products plunged in the Chinese market. They included Hyundai and Kia cars. China also banned group tours to South Korea.

Among those who fell victim to the conflict were South Korean game publishers, who were denied permits to launch new games in the Chinese market. Before THAAD was deployed, it had taken only a few months or less for a new game of South Korean origin to obtain approval from China’s State Administration of Press and Publication.

China withheld official comments on its virtual ban on South Korean titles. But few would doubt it was part of China’s retaliation against South Korea’s decision on THAAD deployment. The ban was limited to new titles. Its impact would have been much worse if it had been placed on those being serviced to Chinese gamers as well.

One way to circumvent China’s non-tariff barrier would be for South Korean game publishers to have their offshore subsidiaries develop games and apply for permits to launch them in the Chinese market. This business strategy, however, should be cumbersome and costly. It explains why there have been just two such cases in the past three years.

One case involved NHN Entertainment, whose subsidiary incorporated in Japan, NHN PlayArt, jointly published a title, “Compass,” with Dwango of Japan and obtained a permit to launch it in China. The other involved Line, South Korean web portal Naver’s subsidiary incorporated in Japan, which set up a joint venture with Longtu Game of China. The joint venture was licensed to release a game, “Crayon Shin Chan Link Game.”

With pre-2017 releases being serviced in China, South Korean game exports to Greater China, the bulk of which was undoubtedly bound for mainland China, had the largest share of the total game exports in 2018, which stood at 46.5 percent. But the ban on new titles apparently was responsible for a whopping 14 percentage point drop in China’s share of South Korea’s total exports amounting to $6.4 billion in 2018 from the previous year, according to a white paper on Korean games.

Consequently, the South Korean game industry’s year-on-year growth rate dropped from 20 percent in 2017 to a mere 5 percent in 2019.

While South Korean game publishers were anguishing over their future, their Chinese counterparts were doing well in the Korean market. They had few obstacles to doing business in South Korea.

China’s game exports to South Korea hit a record high of $1.7 billion in 2018, according to a report from the Chinese Game Publishers Association Publications Committee.

On the list of bestselling titles in Korea are some Chinese-published games. “Rise of Kingdoms” by a Shanghai-based game publisher, Lilith Games, ranks third on the list of the top 10 bestselling games on Google Play Store. “Miracle Sword” by another Chinese publisher, 4399 Network, is placed fourth.

Against this backdrop, South Korean game publishers and other interested parties demand that their government take action to guarantee free trade in games with China. Otherwise, they say the South Korean government should take action against imports from China.

Representative Cho Kyoung-tae of the Liberty Korea, said in a National Assembly hearing last October: “Korean game publishers have been banned from releasing new games in China, but Chinese games are sold in Korea with no restrictions. Based on the principle of reciprocity, the government should take action to regulate games published by Chinese developers.”

It should. But it is wary about taking action against China, South Korea’s largest trading partner. It apparently wishes to avoid confrontation over the dispute, as it does not want it to spill over to overall trade with China, with $162.1 billion in exports and $106.5 billion in imports recorded in 2018.

South Korean game publishers and others involved, who are well aware of where their government stands, instead pins high hopes on Chinese President Xi Jinping’s Seoul visit, which many expect will be made later this year. As Wi Jung-hyun, who recently assumed the post of president of the Korean Academic Society of Games, said the visit is likely to provide a momentum for settling the dispute over game trade.

Wi said on his inauguration on January 16 that he was told that the dispute is a matter of great concern to the minister of foreign affairs. But it is yet to be seen that the minister will press ahead with a demand that China lift a ban on new game releases by South Korean publishers.