SHANGHAI, CHINA: As China attempts to scrub clean its virtual worlds and ensure only wholesome games reach its millions of ardent gamers, most at risk are foreign game companies who may find it harder to enter the market.

Sun Shoushan, a high ranking official with China's video game regulatory body, told an industry conference late last month that China would begin closely monitoring Internet-based games that enter the mainland to ensure fair competition and wholesome content.

The tighter rules, expected to be implemented next year, may affect foreign firms such as Sony Online Entertainment, a unit of Sony Corp, which have yet to make a sustained foray into China's burgeoning online game market, but spare those such as Electronic Arts and Activision Blizzard which already have tie-ups with local firms, analysts said.

The increased scrutiny of foreign-made games may also prove a boon for Chinese video game makers such as Shanda Interactive Entertainment, NetEase.com Inc and Changyou.com.

"It is beneficial to them because it is a little protectionist and they will be shielded from the intense competition by foreign companies," said Guo Cheng Gang, a senior analyst with JLM Pacific Epoch.

"But foreign developers, especially those who haven't gotten a foothold, will be negatively impacted," Guo said.

Late last month, China decided on a sweeping ban of single-player games glamourising a gangster lifestyle, such as Electronic Arts' Godfather, with the Culture Ministry saying such games "undermine morality and Chinese traditional culture".

But it is penetrating China's massively multiplayer online role-playing game (MMORPG) market that is most lucrative for gaming firms where more than 80 percent of China's gamers play, according to data from Analysys International.

China's online gaming market is one of the world's fastest growing with sales expected to rise 30 to 50 percent this year to 24 billion to 27 billion yuan ($3.5-$4 billion), according to industry regulator General Administration of Press and Publication.

Some 50 million Chinese gamers crowd Internet cafes across the country, playing martial arts epics such as NetEase's Fantasy Westward Journey and Changyou's Tian Long Ba Bu for hours on end. Some worried parents are sending their children to boot camps in an effort to curb their Internet gaming habits.

Culture Clash

Foreign firms already face daunting hurdles to enter China's competitive online gaming market, where they cannot legally operate online games directly or through joint ventures.

The new Chinese rules may hinder foreign titles by lengthening the time required to vet games and by scrutinising new tie-ups much more closely, with restrictions on only "wholesome" games adding a cultural dimension to the roadblocks.

"Games, all said and done, are a form of media and there is a lot of space for companies to say and do things that may or may not gel with the Chinese political agenda," said Atul Bagga, vice president of equity research at ThinkEquity.

Blizzard Entertainment was burnt in June when its relaunch of MMORPG World of Warcraft was stalled for a month after it switched operators to NetEase from The9.

The delay was due in part to changes in content by Blizzard and NetEase to placate Chinese regulators, analysts said.

In the Chinese version, a pile of skulls in one background scene was changed to non-descript sacks, suggesting an aversion to inferences of death and violence.

Game Over or Restart?

While these measures may help domestic firms in the short term, they will hurt the industry in the long run, analysts said.

Analysts said that as the market grows, so does gamers' taste for more complex game systems, requiring that Chinese developers create more sophisticated games or players will lose interest.

Protectionist measures would also eliminate much of the impetus for innovation by cordoning them off from more advanced foreign competitors.

China-made MMORPGs dominate China's online game market with a 59 percent share by revenue. They cost only a few million dollars to create, but usually feature two-dimensional graphics and simplistic game designs that offer little variation, for example, in what players must accomplish to move to the next level.

"A lot of the Chinese games are too similar to each other and they rely on killing a monster multiple times. They need to develop deeper game systems," said Guo, himself an avid gamer.

Online games from the United States and South Korea usually feature 3D graphics and more complex designs that are costlier to develop, such as NCSoft's $17 million Aion.

"This growth isn't going to last forever," said ThinkEquity's Bagga. "Having the competition, allowing the Korean and U.S. games easily in the Chinese markets is going to help overall the industry ... You don't grow the pie by restricting competition."