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CHINA TECH

Cheap rent, plentiful graduates spur gaming industry in Chengdu and Wuhan

DAISUKE HARASHIMA and SHIN WATANABE, Nikkei staff writers

JULY 28, 2019 14:14 JST

The company behind Douyu, a popular video-streaming platform, has grown into a top startup in Wuhan, Hubei
Province. (Photo by Shunsuke Tabeta)

TOKYO/DALIAN, China -- Chinese technology startups are flocking to

second-tier cities, taking advantage of large talent pools and operationals
costs that are substantially lower than in main metropolises such as
Shanghai and Shenzhen.

Chengdu, a city in Sichuan province, has become a hive of esports and

gaming startups. In Hubei Province, Wuhan has enjoyed a flurry of startup
activity spurred by the success of streaming unicorn Douyu.

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Commercial rent and staff are cheaper than in key cities such as Beijing or
Shanghai, and a wealth of universities offer fertile ground for companies
seeking engineers. Regional governments are now working at the central
government's behest to cultivate startups, and Chengdu and Wuhan are
seizing those opportunities.

"Chengdu has a good environment for developing games," said Wang Jian,
chairman of game startup Chengdu Uminton Interaction Technology.

Uminton was established in 2014 and began to branch out after landing a
hit in 2017 with a basketball game developed for online services
conglomerate Tencent Holdings and is now worth 200 million yuan
($29 million). It is now working at developing a game for esports
tournaments, Wang said.

Compared with bustling Shanghai, for example, Chengdu residents are

more "laid-back" and enjoy online games more, said Yin Han, chair of the
Association of Chengdu Cyber Game Industry esports organization.

Chengdu is home to roughly 300 production companies, which has in turn

spawned contract developers in the area. One under Tencent was
responsible for the hit smartphone game Honor of Kings, adapted for the
West under the name Arena of Valor.

Startups armed with cutting-edge tech are proliferating in Chengdu and

Wuhan. Wuhan hosted 3,527 such companies in 2018, according to China's
National Bureau of Statistics -- the 10th-highest in the nation, while
Chengdu came in at 13th with 3,000.

This is in part due to a wellspring of talented young people. According to

China's Ministry of Education, Wuhan is just behind first-ranked Beijing in
terms of the number of colleges it has in 2017, at 84 against the capital's
92. Chengdu placed 10th with 56.

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Chengdu and Wuhan still trail Beijing, Shanghai, Guangzhou and

Shenzhen, in terms of the number of startups. The main cities each host
10,000 to 25,000. But Chengdu and Wuhan are catching up with
metropolises like Hangzhou, which ranks eighth with 3,919 high-tech
businesses and hosts the headquarters of Alibaba Group Holding,
China's leading e-commerce player.

Sichuan and Hubei were each home to four unicorns -- unlisted companies
worth $1 billion or more -- in a late-2018 survey by research company
itjuzi.com. This placed them among the top six provinces for unicorns from
a national total of 202.

One Chengdu-based unicorn, Chengdu Yiyun Technology, offers an app

that lets doctors share information. The service now has registered about
550,000 doctors throughout China, and the company is valued at $1.2
billion. Down the road, Chengdu Yiyun plans to expand into new areas like
selling medicine online.

Meanwhile, Hubei's Douyu has risen to unicorn status operating its

popular eponymous livestreaming platform. Over three days in mid-June,
the welcomed crowds of young people to an open-air stadium for an annual
Douyu festival.

The company was founded in 2014 and reported revenue of 3.6 billion
yuan for 2018 -- up around 90% from the preceding year. Having gone
public in the U.S. on July 17, Douyu, which counts Tencent among its
investors, is now valued at roughly $3.3 billion. Registered users reached
around 250 million in 2018. Viewers can interact with streamers in real
time.

Information technology startups in fields from comics production to games

and education have sprung up in Wuhan. Douyu Vice President Yuan Gang
told Chinese media that he hoped his company will help bring greater
prosperity in Wuhan's startup culture.

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"Wuhan's concentration of colleges and research bodies supports the city's

development," said Takehiko Saeki, head of the Wuhan office of the Japan
External Trade Organization. The schools are academically strong and
churn out talented tech workers. People also tend to settle longer in
Wuhan, with a lower population outflow than coastal areas.

Office rent in China's second-tier cities can also be about half that in
Shanghai, and average monthly income about 70%, industry sources said.

Investors are also seeking new targets in cities beyond the major
metropolitan areas, said a report by Reality Institute of Advanced Finance,
a research body.

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