Salvation

It's not just the Internet cafs where the online games fever is palpable, the capital market is also buzzing with games-related activities. Last year, four Chinese online gaming companies - Perfect World, Kingsoft, Interactive Giant and Netdragon - were listed on domestic and foreign stock exchanges, making China one of the countries with the most publicly listed online gaming companies.

The games craze was evident in May, when China Resources Snow Breweries, one of the country's largest beer makers, was reported to be planning an entry into the online game market by posting ads for game designers. Though the news was quickly refuted by the company, many still thought the company was indeed moving into gaming.

"It is not surprising that many Chinese companies are turning to the online game business," says Liu from BDA China. "The market has a mature business model and a huge user base that's increasing much faster than the growth of Internet users. In fact, the turnover of China's online game market is larger than that of the online advertising market."

For many companies, online game is often the salvation. Kingsoft, one of China's earliest software companies established in 1988, has been struggling for long selling office software. In 2005, it turned its focus to developing online games, which helped it list in Hong Kong last year. In the first quarter of this year, online games accounted for nearly 70 percent of the company's total revenue.

The same happened with Sohu.com, one of China's largest portals. The company has announced its first-quarter revenue reached $84.8 million, with the online gaming business growing over 24 times, accounting for about half of the total revenue. That has helped Sohu outpace its major competitor Sina Corp in terms of revenue for the first time.

"The old concept of portal websites is outdated," says Charles Zhang, the company's CEO. "We have managed to differentiate ourselves from other competitors by combining resources in content, games and search engine."

In past several months, companies like Sina and Baidu have all released their game strategies. It was also reported that MySpace China, the social networking website owned by media tycoon Rupert Murdoch, also plans to enter the online gaming business in the second half of the year.

"China's online gaming industry will continue to see rapid growth in the next two to three years," Liu says. "But after that, the market may reach a saturation point, with some small companies forced out of the market."