Last week, China issued a ban on the launch of new mobile games developed in South Korea in response to a political dispute. In this report, we take a closer look at non-domestic publishers' ongoing struggle for adoption in China and the main reasons behind foreign games' shrinking popularity there.

Based on our analysis of Sensor Tower's Store Intelligence data, foreign developed games accounted for only 25 percent of the top 250 mobile games' downloads on China's App Store last year. This was down from 33 percent in 2015 and 39 percent in 2014.

Stronger Presence of Domestically Developed Games

As the chart above shows, mobile games developed by domestic publishers have steadily gained a stronger presence in China over the last three years.

In 2014, 61 percent of downloads for the top 250 iOS games came from domestically developed apps. That percentage rose to 67 percent in 2015 and 75 percent in 2016, increasingly crowding out non-domestic games year after year.

By contrast, last year, mobile games developed in the United States accounted for approximately 42 percent of downloads among the top 250 games on the U.S. App Store. More than half of the top games downloaded by U.S. users were made by developers based outside of the country.

Although foreign developed games have been losing ground in China over the past three years, Chinese players are still downloading Western titles—and those have consistently come from the same three countries: The United States, France, and Finland.

This is not surprising as some of the world's most prolific game developers are based in these countries. Specifically, our analysis shows that mobile gaming giants Electronic Arts (U.S.), Gameloft (France), and Supercell (Finland) were Chinese gamers' preferred foreign publishers between 2014 and 2016.

Two Forces in Play: Growing Domestic Publishers and Increased Regulations

We see two main drivers behind the decline of foreign mobile games' presence in China. The first is that leading domestic publishers such as Tencent and NetEase have been rapidly expanding their market share. At the same time, they are developing more mobile games that suit Chinese players' cultural and aesthetic tastes, creating stronger preference towards domestic games.

The second factor we see is China's increasingly complex regulatory landscape concerning the mobile space. Banning South Korean games aside, the Chinese government also began implementing more stringent regulations on foreign mobile games in 2016.

China's licensing system now requires that foreign publishers obtain government approval before releasing their games on one of the country's app stores, a process that can take up to several months. This process can have a significant impact on foreign publishers, deterring them from launching in China altogether.

That said, these factors haven't stopped some of the most prominent Western publishers from making efforts to crack the Chinese mobile gaming market. Some, such as Kabam, have even seen impressive results. As more companies decide to tackle this challenge, we'll keep track of how they fare.