The Chinese Government Wrecks the World Economy

Thought that would grab your attention. No I'm not talking about the recent global stock market meltdown caused by the selloff on Chinese stock market. I'm talking about the recent announcement from the Chinese government about their intention to regulate virtual economy. Many Chinese media outlets have reported the announcement and Financial Times also published an article on March 7th. According to the FT article:

A formal notice quietly issued to officials last month by the Communist party and government departments, including the central bank, has ordered “strict differentiation between virtual exchanges and online commerce in material products”.
The notice says: “The People's Bank of China will strengthen management of the virtual currencies used in online games and will stay on the lookout for any assault by such virtual currencies on the real economic and financial order.”

Virtual money can only be used to buy virtual products and services the companies provide themselves, issuance will be limited, and users are “strictly forbidden” from trading it into legal tender for a profit, says the notice.

The curb on virtual money reflects concerns that it has been used to circumvent China's strict laws against gambling.

The intervention of the Chinese government in the virtual world will impact not only gaming companies such as Tencent which generates a lot of revenue through its QQ coins but also a large number of Chinese "Gold Farmers" who spend time leveling up in Massively Multiplayer Online worlds to exchange their powerful characters and rare items for money. Many of these Gold Farmers are students and they sell a lot of the items to U.S. gamers. This announcement may also impact companies such as IGE, which generates a lot of revenue through charging commisions for such virtual trade. Of course, it's not all bad news-at least the annual U.S. deficit with China, which stood at $266 billion in 2006, will get some room to breathe...

Remember WAPI?

According an article on Sina.com, the WAPI Indutrial Union is indicating that there will be volume shipments of WAPI products this year. There will be more than 30 WAPI certified products on the market and Lenovo has a line of WAPI laptops. In fact, the MII has a document that requires government purchase programs to first consider WPAI products. The WAPI Industrial Union forecasts hundreds of millions of dollars in sales of WAPI products just for 2007.

It's been a while since I last read about WAPI (Wireless Authentication and Privacy Infrastructure). Wiki has a good definition here. WAPI is the Chinese technology standard for WLAN networking. Although the focus appears to be on security and national interest, the Chinese government is effectively shutting out foreign vendors from the Chinese wireless home networking market. The WAPI specs are only disclosed to 11 Chinese vendors and any foreign vendor who wants to make WAPI products would have to work with one of these 11 vendors. Although the Chinese government wants to set up its own technology standard, such tactics maybe considered technology trade barriers and harm the long-term development of Chinese technology companies. The South Korean government is taking a different route. It wanted to push its own mobile broadband standard WiBro but later folded it into Mobile WiMAX, so that Korean power houses such as Samsung and LG can leverage their early to market advantage and become strong mobile WiMAX competitors on a worldwide basis.