Gambling and Lotteries in Mainland China

Gambling

Gambling is strictly prohibited in the mainland of the People’s Republic of China (“Mainland China”). In Mainland China, activities related to gambling are subject to administrative penalties and even criminal liability in serious cases.

No substantial regulatory developments have occurred during the past year with regard to gambling in Mainland China. However, the competent authorities (especially the Ministry of Public Security) have tightened enforcement over all types of gambling, and they have, especially, boosted regulatory efforts on the supervision and control of new gambling in recent years. On 18 July 2023, the “first case of virtual currency” was resolved by the local public security authority, which involved cross-border online gambling, and a total amount of up to RMB400 billion (note that RMB and CNY – Chinese Yuan – are interchangeable) was involved in this case. The server used for gambling in such case was set up overseas, and all gambling transactions were settled in virtual currency.

In contrast to lawful gaming, games that involve gambling (eg, fishing games) usually have the following characteristics:

• there tends to be a two-way channel for exchanging cash for in-game “virtual currencies” or props;
• they contain a function module for drawing benefits or winnings from the game; and
• the game operator provides services such as:
1. trading or exchanging game points; and
2. exchanging cash or products in a disguised form (eg, virtual currencies).

The competent authorities may deem games to constitute gambling if they involve funds above a certain threshold (such as RMB300 in Beijing – RMB is Renminbi; the terms Yuan and Renminbi are interchangeable).

Lotteries

In Mainland China, lotteries are licensed by the government and operating lotteries is subject to a strict access system. The sale of lottery tickets online without permission is prohibited, according to the Lottery Regulations and Implementing Rules for the Lottery Regulations (Revised in 2018).

The regulation of lotteries has long remained governed by administrative regulations and departmental rules. As yet, no laws have been adopted to establish a licensing system for lotteries. If a market-oriented mechanism is introduced for the operation and sale of lottery tickets in the future, it is clear that the relevant licences will be extremely valuable and follow-up compliance supervision will become more important.

Although the regulations of lotteries do not rise to law level yet, some regulatory and promotional measures have been issued in 2023. For example, the relevant authorities have further incorporated the lottery industry into the regulatory track by issuing industry standards and other measures. In July 2023, the Ministry of Civil Affairs issued Guidelines for Responsible Gaming of the China Welfare Lottery, which proposed the basic principles, main objectives, main contents, and work priorities of responsible gaming of Mainland China’s welfare lottery, with non-compulsory effect. On the same date, such authority also issued the General Requirements of Signage and Display for Points of Sales of the China Welfare Lottery, which included recommended but non-compulsory industry standards proposed for welfare lottery logos and other aspects. In addition, the General Office of General Administration of Sport issued the Work Plan on Restoring and Expanding Sports Consumption, proposing measures to enrich the supply of sports lottery tickets.

Gaming in Mainland China

Overview

The gaming market in Mainland China in 2023 has been characterised by a blend of obstacles, unexpected developments, and promising opportunities. While Chinese gaming companies’ revenues declined by 2.39% on an annual basis to RMB144.263 billion in the first half of 2023, they increased by 22.16% when compared with the second half of 2022, according to Chinese data firm CNG.

The market’s resurgence can be explained by the following positive trends.

Regulation

In the first half of 2023, the National Press and Publication Administration (NPPA), the regulatory body responsible for issuing game licences in Mainland China, approved a total of 548 games, surpassing the entire count for 2022. This uptick in the regular issuance of licences, occurring almost monthly, reflects a more positive outlook for the gaming industry.

Mini-games

Mini-games played inside mobile apps, such as WeChat, without the need for separate installations, are rapidly gaining popularity within China’s gaming industry. According to the 2022 WeChat Mini Games Growth White Paper, the number of WeChat mini-game developers has now exceeded 100,000 and the monthly revenue for games in the tens of millions has seen a year-on-year increase of 50%. Additionally, data from Douyin (TikTok) reveals substantial growth in mini-games hosted on its platform, with Daily Active Users (DAU) experiencing a notable jump from 41% in 2022 to an impressive 150% in 2023.

AI

AI is being used to streamline game development and decrease budgets in China. For example, at the Game Developers Conference 2023, Tencent AI Lab presented a 3D virtual scene generation solution capable of creating varied and realistic virtual cities. This can significantly improve the efficiency of 3D scene production while minimising costs. Tencent’s demonstration of this solution showcased the process of creating a 3D virtual city from scratch, with an average time of just 17.5 minutes to generate a unique-looking building.

E-sports

In recent years, Chinese government has supported the development of the e-sports industry, as evidenced by the recognition of e-sports as an official medal event at the 2022 Asian Games in Hangzhou. Different levels of the Chinese government have seen the great economic potential in e-sports and are competing to establish a local e-sports hub by introducing encouraging policies to the industry. As of June 2023, there are a total of 191 searchable e-sports clubs in China. Cities with more than ten e-sports clubs include Shanghai, Beijing, and Guangzhou.

Overseas

Amid growth slowdown and regulatory uncertainties, Chinese gaming companies have been eager to expand into overseas markets, including mature markets (such as the US, Japan, and South Korea) and emerging markets (such as Southeast Asia, the Middle East, and South America). These companies have achieved considerable success despite new modes of competition and substantial cultural challenges.

Gaming industry market access and publication licence

In recent years, the gaming industry in Mainland China has seen no substantial progress with regard to supervision and market access, since the repeal of the Interim Measures for the Administration of Online Games in 2019. Dynamic supervision is mainly reflected in the relevant licences required for game operators and publication licences and/or record filing required for games.

Licences for game operators

Game operators are required to obtain different licences and certificates depending on the content of their services, which sets restrictions on the top-level ownership structure of game operators, including the permissibility of foreign investment. In order to offer online games in Mainland China, for example, most operators must first obtain a “value-added telecommunications business licence” and have a registered business scope that includes the operation of online games. Up until now, these licences have not been granted to applicants who have more than 50% foreign ownership.

Game operators have also encountered great difficulties in Mainland China’s capital markets. According to public market information, there are few gaming operators who have successfully completed IPOs in the A-share market, which reflects the increased tightening of supervision in the gaming industry.

Publication licence (banhao) for games

After a lengthy suspension from July 2021, the NPPA has begun granting new publication licences since April 2022. The current publication licence approval process has demonstrated the following trends, which are poised to boost the prosperity of the gaming industry.

• From January to July 2023, the NPPA granted publication licences to 610 domestic online games, exceeding the total of 512 in 2022.
• Specifically, during the first seven months of this year, the number of domestic online games granted has been 88, 87, 86, 86, 86, 89, and 88 respectively, indicating a stable frequency and quantity in licence granting.

Besides domestic online games, the granting of imported online games has also made significant progress this year. Previously, the NPPA granted publication licences to imported online games only once a year. However, in 2023, imported online games were granted in both March and August, marking the first time in recent years that multiple batches of imported online games have been granted within a year. As of now, the NPPA has already granted publication licences to a total of 58 imported online games in 2023, surpassing the total of 44 games in 2022. Noteworthy points from the data include the following.

• Multiple top domestic and international gaming companies have obtained the publication licences for their imported online games, like Tencent, NetEase, Perfect World, Archosaur, Verycd, ZQGame, and TopJoy.
• In March, 27 games received publication licences, with a significant focus on Anime and Manga Culture, while in August, 31 games with more diversified IPs were granted licences.

ICP filing for games

According to the Notice of the Ministry of Industry and Information Technology on Record-filing for Mobile Internet Applications (the “Notice”), on 8 August 2023, organisers of apps engaged in internet information services are now required to complete Internet Content Provider (ICP) filing procedures. Shortly after the Notice, major app stores such as App Store, Tencent MyApp App Store, Huawei App Store, Oppo App Store, and WeChat quickly followed up and announced that all applications and mini-programs (including game applications and mini-games) must be registered before being launched on their platforms. Additionally, applications that have already been launched also need to complete registration before a specified deadline; failure to do so will result in removal.

AI

Industry trends

The gaming industry in China is at a critical stage of reducing costs and increasing efficiency, and it is recognised that artificial intelligence plays a vital role in it. Since AI could be exploited in every aspect during game development, like game resources production, game operation, and game ecological construction, the gaming industry is expected to achieve new improvements in revenue and profit margins with the help of AIGC.

Statistically, more than 80% of listed game companies mentioned in their financial reports that they will strengthen the application of AIGC in the future. Giant gaming companies have already established their own corresponding platforms and templates, like Tencent (CDG AI Lab, IEG Cros, and others), NetEase (Fuxi, AI Lab, and others) and Mihoyo (Anti-Entropy). Small and medium-sized game companies are considering collaborating with external AI technology vendors based on their own needs. All their attempts at artificial intelligence demonstrate that “gaming + AI” has become an irresistible trend.

Challenges

Currently, AIGC is in rapid development, while game developers may face the following risks and challenges:

• Collection and use of training data may infringe on third parties’ right.

Training of the AI model requires a massive amount of training data, which is likely to contain copyrighted content. Unauthorised use of others’ copyrighted works for AI training may not be considered fair use in current judicial practice in Mainland China, and therefore may constitute copyright infringement. Besides, online mining or crawling itself may also constitute unfair competition as the collection of data is determined as protectable interests under Anti-Unfair Competition Law of the People’s Republic of China (“Anti-unfair Competition Law”).

Specific laws and regulations have been introduced with regard to the collection and use of training data. As stipulated in Interim Measures for the Administration of Generative Artificial Intelligence Services, a generative AI service provider (“Provider”) shall guarantee the legitimate sources of training data, respect the intellectual property rights of others, process personal information in compliance with Chinese laws and enhance the quality of training data, aiming for “authenticity, accuracy, objectivity, and diversity”. During the development stage, Providers are required to establish clear, specific, and practical labelling rules for the training data.

• AIGC may not be protected under Copyright Law.

Currently, two typical cases regarding the copyrightability of AIGC indicate that domestic courts recognise only natural persons as authors, and only works created by natural persons can be protected under Copyright Law of the People’s Republic of China (“Copyright Law”). Consequently, game content created by AI is less likely to be protected under Copyright Law.

Nevertheless, it does not necessarily mean that there is no legal protection for AIGC or even AI games. Currently, the academic community is discussing the feasibility of protecting AIGC through neighbouring rights or Anti-unfair Competition Law.

• Other compliance requirements.

The Cyberspace Administration of the PRC, along with six other Chinese regulators, has published Interim Measures for the Administration of Generative Artificial Intelligence Services, which stipulates multiple compliance requirements for the provision and utilisation of AI services. Here are a few key highlights.

• Content moderation – providers shall assume responsibility as a producer of network information content. If any illegal content is detected, providers must promptly take actions such as stopping the generation and transmission, taking down the content, implementing model optimisation training for correction, and reporting the case to the competent authority.
• Marking of AIGC – providers shall prominently mark the AIGC to remind the public that it is from AI in case of any confusion or misunderstanding.
• Security assessment and filings – generative AI services related to public opinion or social mobilisation attributes are required to undergo security assessment and algorithm filing.

Protection of minors in online gaming

In September 2021, the Notice by the National Press and Publication Administration of Further Imposing Strict Administrative Measures to Prevent Minors from Becoming Addicted to Online Games (“Anti-Addiction Measures”) imposed the “strictest-ever” anti-addiction regulations, restricting minors’ game time to three hours per week. According to the 2022 China Game Industry Progress Report on the Protection of Minors (“2022 Protection of Minors Report”) released by the Game Publishing Council, since the implementation of the Anti-Addiction Measures, the proportion of minors who spend less than three hours a week or none on online games has grown to more than 75%, the total spending of the underaged players remains low, and more than 86% of the parents are satisfied with such results. The 2022 Protection of Minors Report therefore concluded that the Anti-Addiction Measures were effective in managing the minors’ gaming activities.

The success of the Anti-Addiction Measures is contributed by the judiciary and the gaming industry’s joint effort to close up loopholes that allow minors to bypass the restrictions.

For example, pertaining to game boosting services, in February 2023, Shanghai Pudong New District Court held in civil judgment (2022) Hu 0115 Min Chu No 13290 that operating a game boosting service platform constituted unfair competition partly on the grounds that game boosting allows users to circumvent the real name authentication and anti-addiction measures installed in the game, causing disruption to the administration of online games. This is the first case in Mainland China to rule provision of game boosting services as unfair competition conduct.

Chinese authorities have also strengthened protection of minors in terms of the administration over e-sports hotels. In a Notice jointly circulated by China’s Ministry of Culture and Tourism and Ministry of Public Security in August 2023, e-sports hotels are categorised as unsuitable places for minors due to risks associated with game addiction, and minors are strictly prohibited at e-sports gaming areas.

Furthermore, many game companies have now adopted the technology of facial recognition as a routine checkup measure in an attempt to further prevent minors from using adult IDs to log in. However, some experts now argue that facial recognition, as a technology that inevitably collects and processes biometric information, must be employed in accordance with the “minimum necessity principle” stipulated by Article 6 of the newly enacted PRC Law on Personal Information Protection (PIP). As the PRC Law on the Protection of Minors only mandates the use of unified identity authentication systems for age verification, the use of face recognition is not expressly authorised by law for the purpose of enforcing Anti-Addiction Measures, therefore risking violation of PIP. The gaming industry will have to wait for the official promulgation of the Regulations on the Online Protection of Minors to see if facial recognition may be legally adopted for the purpose of enforcing Anti-Addiction Measures.

Intellectual property operation and gaming industry derivatives

Despite the lingering challenges of the COVID-19 pandemic, the overall development of IP derivatives in the gaming industry has been promising. According to Chinese data firm CNG, the market size of China’s mobile game IP derivative products witnessed an increase by 6% in 2022, indicating notable growth for three consecutive years. Representative derivative industries like game live-streaming, murder mystery games, and blind box toys continue to attract attention from regulators in Mainland China.

Game live-streaming

The function of live-streaming on game publicity has been under regulatory discussion this year. The developments indicate that game promotion through live-streaming may encounter further restrictions from the perspective of advertising related laws in the future.

On 14 March 2023, the Game Committee of the China Audio-Video and Digital Publishing Association released the Basic Requirements for Game Distribution and Promotion (Draft for Public Opinions), which specifically identifies game live-streaming as an emerging promotion channel. The draft document further attaches importance to, among other things, the qualifications of various participants involved, as well as the key operational mechanisms and procedures for game advertising.

Not coincidentally, the Internet Advertising Management Measures, effective as of 1 May 2023, explicitly prohibit internet media from publishing online game advertisements detrimental to minors. The Measures for the first time added “game” since its interim version in 2016. Live-stream operators and marketers who are entrusted to provide advertising and publishing services fall into the scope of “participants in advertising activities”. Game streamers will potentially be subject to obligations as advertising endorsers.

Murder mystery games (Jubensha)

Comprehensive progress carries on both at national and local levels in terms of regulation regarding the industry of murder mystery games, the popular role-playing activities.

• Nationwide – on 15 April 2023, the Ministry of Culture and Tourism released the Interim Provisions on Management of Murder Mystery Games (Draft for Public Opinions), which proposes to set forth multiple regimes such as content restrictions, minor protection, and script record-filing. The National Fire and Rescue Administration and the Ministry of Culture and Tourism also released the Guidelines for Fire Safety in Script Entertainment Operating Places (for Trial Implementation), which require offline murder mystery game stores to improve the level of fire safety management.
• Local – in 2023, multiple cities and regions including Beijing, Chongqing, Jilin, and Chengdu successively issued local implementation measures to foster the well-regulated growth of the murder mystery games industry. These measures aim to leverage the game derivative industry for local development while strengthening security supervision of murder mystery games venues.

Blind box toys

Blind box toys remain popular in China for exploiting game IP. In 2023, the systematic regulation over the blind box toys industry became formally established by the Guidelines for the Regulation of Blind Box Business Activities (for Trial Implementation), issued by the State Administration for Market Regulation (SAMR) on 15 June 2023, which sets red lines for blind box toys businesses and urges stringent governance over operators.

The Guidelines place emphasis on four aspects:

• negative sales list – specifying the forbidden items from being sold in the form of blind boxes (including medicine, flammable, and explosive objects);
• information disclosure – requiring key information (such as the value of the blind boxes’ contents, the rules for drawing these boxes, and the probabilities of the outcomes) to be fully publicised;
• consumer protection – encouraging the operators to guide rational consumption; and
• protection of minors – restricting sales to minors under eight years old.

Judicial developments

In 2023, the protection of IP rights in game-related cases has been further enhanced in the following aspects.

Explorations of gameplay protection

In the second instance judgment of the case (2021) Yue Min Zhong No 1035, Minecraft vs Mini World, the decision made by the Higher Court of Guangdong revealed several points that are worthy of attention for the gaming industry.

Firstly, for the purpose of protecting gameplay, seeking protection under the category of other intellectual works seems more promising than merely claiming overall protection as audio-visual work.

It is true that many right holders, inspired by precedent cases, tried to mingle or hide the true subjects of protection among the claims for overall protection for the consecutive images of the gameplay and indeed were supported by the courts, to some extent. However, in this Minecraft vs Mini World case, the Higher Court of Guangdong expressly found that if the gameplay of a game constitutes “work”, the original expression thereof shall be different from the same as an audio-visual work. As the plaintiff only claimed protection under the category of audio-visual work, the court did not support its claim of copyright infringement. In a case commentary drafted by the judicial assistant of the case, the author indicated his personal intention that it may be more appropriate to discuss the gaming rules protection under the category of other work, stipulated by Article 3, paragraph 9 of the Copyright Law.

Secondly, claims for the ceasing of operation of the infringing game may not be easily supported.

In the Minecraft vs Mini World case, the court rejected the claim for ceasing operation considering the facts that the infringing game contains contents of UGC which shall be duly protected, and the infringing elements only constitute a limited part of the target game and could be amended without the need to cease operation. In case (2021) Yue 0192 Min Chu No 7434, Infinite Borders vs Three Kingdoms: Strategy Edition, the first instance court also did not support the claim regarding ceasing operation (this judgment has not become effective yet). These cases demonstrated that the courts intend to find a balance between providing adequate remedies to right holders and the legitimate interests of the operators of the infringing game as well as the player community.

New types of infringement cases in the game-related industry

More cases in relation to unconventional acts of infringement in the game-related industries, such as live-streaming and soliciting new users, have emerged. These rulings expressly indicated the judiciary’s intention to maintain positive competition orders in the game industry. Early this year, Wuxi Intermediate People’s Court, Jiangsu Province, ruled the first case regulating unfair competition behaviours against online game operators for maliciously soliciting new game users. The judgment found the illegality of the acts of malicious soliciting of new game users by pretending to be users of a competing game. In general, Chinese courts have been more flexible when it comes to accepting cases and taking legal action against unconventional acts of infringement.