01 Nov 2017
William Lam, Asian Equities Fund Manager, Invesco Perpetual
A few weeks ago NetEase, a top ten holding across the portfolios managed by the Asian equities team, launched Minecraft in China. Minecraft is a very popular game worldwide that was created by a company called Mojang a few years ago. Mojang was bought by Microsoft in 2014.
Minecraft has been popular in China for some time, but no legal versions of the game have been available until now. This is because it is illegal for foreign-made games to be sold in China unless they are sold through a Chinese company. Hence Microsoft struck a deal with NetEase to launch an official version of Minecraft, and the revenue from the game will be shared between the two companies.
The launch has so far been successful with approximately 30m players of the game in China.
Now just in the last couple of days, NetEase has made a breakthrough with a self-developed game which it has launched both in China and in markets outside China. It hasn’t needed to use a foreign partner to launch the game in the US, and last Friday this game hit the top of the charts in the US.
This is a very significant breakthrough in our opinion – NetEase is so far a brand that is unknown outside China, but this game (called ‘Rules of Survival’ – based loosely on a concept similar to that of the film Hunger Games) could change that.
These two examples – Minecraft on the one hand and Rules of Survival on the other – are a good illustration of Donald Trump’s point about Chinese protectionism. (But I’m not sure he was thinking about the mobile game industry when he was making the point!)
Clearly regulation favours companies like NetEase, and we have benefited from this in our portfolios over the last few years.
There is a risk that regulations change in future which makes the playing field more level for foreign companies in China, but our sense is that the Chinese government is happy for the time being to allow its large internet companies to continue growing. China would like to see some of these companies – who are already dominant at home – to succeed abroad. One day some of these companies could help to spread Chinese culture abroad, in the way that companies like Disney spread Western culture.
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