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Friday, March 09, 2007

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...

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