China online gaming industry Report Interpretation

Overview

Citi’s ChinaJoy 2026 review argues that AI adoption, a fuller new-game pipeline and continued domestic and overseas industry growth support a healthier China online-gaming outlook than cautious investor sentiment suggests. The report retains positive views on Tencent, NetEase and Century Huatong.

Core views

Citi characterizes ChinaJoy 2026 as a larger and more international event than in 2025: exhibition area exceeded 140,000 square metres, up 4% year on year, and exhibitor count exceeded 900, up 13%, across 39 countries and regions. BTOC exhibition area rose 9% and exhibitors rose 12%; overseas and foreign-funded firms represented 46.6% of BTOB exhibitors, up from 43%. Citi argues that more mature AI-gaming adoption, updates from major studios, emerging AAA and indie titles, and the extension of gaming into broader digital entertainment could make the event’s outcome better than market expectations and support resilient sector earnings. The industry backdrop was constructive in 1H26. China’s domestic online-gaming market reached Rmb188.45bn, up 12.17% year on year, while the gamer base rose only 0.82% to 684.33m. Citi highlights implied monthly ARPU of Rmb45.9, up 11.3% year on year and 7.3% half on half, as evidence that revenue growth was driven more by monetization than user growth. In-house-developed games reached Rmb163.356bn, up 16.31%, increasing their share to 86.7% from 83.6% in 1H25; licensed games fell 8.9% to an implied Rmb25.1bn. Mobile remained the largest platform at 71.75% of revenue, but PC gaming grew faster, up 27.92% to Rmb45.288bn on cross-platform games. Mini games expanded 36.01% to Rmb31.657bn, while web and console games declined 8.47% and 7.06%, respectively. Citi also notes strength in overseas revenue from Chinese-developed games, up 30.22% to US$12.372bn; the US, Japan and Korea accounted for 32.31%, 14.05% and 7.48% of that revenue, respectively. AI was the central ChinaJoy theme. Tencent displayed 15 products, including seven that were AI-native or AI-related. Its offerings ranged from AI-enabled game creation and asset-production tools such as Code: Craft, Lap AI and MagicLomix to AI-enhanced consumer game experiences such as Digital Jingdezhen and Meowntain. Citi interprets this as a strong commitment to applying AI across creation, production and gameplay. Other exhibitors reinforced the trend: Century Huatong highlighted AI creation, testing and game-art partnerships, while 37 Interactive described AI involvement in more than 80% of production, 78% coding penetration, more than 70% of video ads and more than 50% of automated ad placement. For Tencent, Citi forecasts 2Q26 online-games revenue of Rmb64.1bn, up 8.3% year on year, comprising domestic revenue of Rmb43.6bn, up 8%, and international revenue of Rmb20.5bn, up 9%. It expects reported revenue to be smoother than mobile grossing data imply because of deferred revenue and stronger PC performance. The report points to 109 mobile games in Tencent’s pipeline, of which 64 had received NPPA approval, as well as recent releases, scheduled launches and beta tests. Citi believes franchise resilience, the broad pipeline and evidence of consumer engagement at ChinaJoy support steady gaming revenue and profit streams in coming quarters and years; it maintains Buy and a HK$758 target price. For NetEase, Citi forecasts 2Q26 online-games revenue of Rmb24.3bn, up 6.4% year on year, and total revenue of Rmb29.6bn, up 6.1%. Sea of Remnants has shown only moderate initial performance, but the report sees scope for improvement following the July 30 chapter update, the August 6 SpongeBob SquarePants collaboration and further themed updates on August 17, 20 and 27. Citi’s reasoning is that content updates and management responsiveness have helped some prior NetEase releases improve monetization after a weaker initial reception. It therefore remains relatively optimistic on the title’s subsequent performance and retains Buy with a US$174 target price. Century Huatong is Citi’s preferred A-share gaming name. The report argues that the licensing of AION 2 for mainland China by Shengqu Games, supported by the title’s performance in Korea and other overseas markets, is a catalyst not yet fully reflected in the share price. It also flags early download and grossing traction for the new SLG Lordrush, alongside steady Whiteout Survival and Kingshot and accelerating profit growth for the latter two. Citi expects Century Games’ industrialization capabilities to support longer-term traction across its SLG and casual portfolio. Its unchanged A-share pecking order is Century Huatong, Giant Network, Kingnet, 37 Interactive, G-Bits and Perfect World.

Analysis framework

Citi combines observations from ChinaJoy with CNG industry data and company-specific product, pipeline and operating updates. It evaluates sector growth by platform, monetization type, domestic versus overseas markets and genres, then links those trends to the game portfolios, AI capabilities, upcoming releases and earnings forecasts of selected companies.

Methodology notes

• Industry AnalysisSupply-demand framework

  Gaming-market growth analysis by platform, product type, user base, ARPU and overseas revenue.

  The report uses market size, growth rates, platform mix and monetization data to explain where industry growth is coming from and which segments are accelerating or declining.

• Industry AnalysisVolume-price decomposition

  User-base growth and implied ARPU comparison.

  Citi contrasts the 0.82% growth in gamers with 11.3% year-on-year growth in implied monthly ARPU to show that monetization is a key driver of revenue expansion.

• Event-Driven and Behavioral FinanceEvent-driven analysis

  ChinaJoy observations, game launches, content updates, licensing and earnings releases as catalysts.

  The report treats exhibition evidence and identified product milestones as near- to medium-term events that may affect operating momentum and market expectations.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tencent Holdings (0700.HK)

  Citi views AI-gaming transformation, franchise resilience and a large approved pipeline as supporting steady gaming revenue and profit streams.

  Strengths

  15-product ChinaJoy showcase, seven AI-native or AI-related products, 109 mobile games in pipeline and resilient franchise titles.

  Risks

  Seasonal normalization in gaming grossing is indicated by tracking data.

• NetEase (NTES.US)

  Citi views Sea of Remnants content updates and the broader IP portfolio as supporting a potential improvement in game monetization after a moderate launch.

  Strengths

  Six major IP exhibitions and a planned sequence of Sea of Remnants content and collaboration updates.

  Weaknesses

  Sea of Remnants appeared to show only moderate initial performance.

  Comparison

  Citi notes that some prior new NetEase titles improved revenue generation in subsequent months after content updates.

  Risks

  Initial traction may not meet market expectations immediately.

• Century Huatong (002602.SZ)

  Citi identifies AION 2 licensing, Lordrush early traction and established games as catalysts supporting its preferred A-share gaming view.

  Strengths

  AION 2 mainland-China licensing, Whiteout Survival and Kingshot momentum, and industrialization capabilities in SLG and casual games.

  Comparison

  Citi ranks Century Huatong ahead of Giant Network, Kingnet, 37 Interactive, G-Bits and Perfect World in its A-share gaming pecking order.

  Risks

  The anticipated catalysts may not be fully realized in performance or market recognition.

Key data

• China domestic online-gaming market, 1H26Rmb188.45bn+12.17% year on year
• China gamer base, 1H26684.33m+0.82% year on year; implied monthly ARPU was Rmb45.9, +11.3% year on year and +7.3% half on half
• China PC-gaming market, 1H26Rmb45.288bn+27.92% year on year, driven by cross-platform games
• China mini-game market, 1H26Rmb31.657bn+36.01% year on year
• Overseas revenue from Chinese-developed games, 1H26US$12.372bn+30.22% year on year
• Tencent 2Q26 online-games forecastRmb64.1bn+8.3% year on year; domestic/international forecast at Rmb43.6bn/Rmb20.5bn
• NetEase 2Q26 online-games forecastRmb24.3bn+6.4% year on year
• Tencent mobile-game pipeline109 titles64 titles, or 59%, had received NPPA approval

Impact & implications

Citi believes industry momentum is broadening beyond mobile games through PC, mini games, in-house development and overseas expansion. It sees AI as both a production-efficiency and product-innovation driver, while new releases, licensing and content updates provide differentiated catalysts for the companies it favors.

What to watch

• Tencent’s 2Q26 results, PC-game contribution, upcoming launches and beta tests.
• NetEase’s Sea of Remnants updates on August 6, 17, 20 and 27 and management commentary on the title.
• Century Huatong’s AION 2 mainland-China rollout, Lordrush traction, and performance of Whiteout Survival and Kingshot.