The Sword of Yi Gongzi: Understanding the World from a Business Perspective

Having witnessed the rectification of the internet, anti-corruption in finance, and the restructuring of global supply chains, I often tell people around me that we are living in a "period of unprecedented great change" and should only engage in businesses that align with this trend.

From this perspective, China's problem is not overcapacity but rather undercapacity. Overcapacity is a phenomenon, but it is not a problem from a policy standpoint. When combined with a "wartime preparation mindset," it is necessary to have moderate overcapacity to cope with an international environment filled with uncertainties and constant conflicts.

However, the emergence of "Black Myth" suddenly made me realize that China's bigger problem is actually undercapacity.

There is already sufficient capacity for household appliances, clothing, and automobiles. No matter how many new product launches there are, people still have no desire to buy. But for "Black Myth," many of my friends who previously didn't play games have bought it. The reason is simple: it's China's first 3A game, and our high-quality games are in short supply. There are many similar cases of "undercapacity." As a heavy movie fan, I check daily on apps to see what movies are playing in theaters, but there's really nothing worth watching. Similarly, when I browse bookstores looking for new good books, there are almost none. I'm willing to pay for good music, in-depth news reports, TV series like "In Long Season," concerts, stage plays, and so on, but there's a clear shortage of supply. I want to spend money, but there's nowhere to spend it.

In 2019, China had the most cinema screens in the world. However, the 2024 summer movie season was disastrous, marking the worst performance since the three years of the pandemic, with box office revenues plummeting back to 2014 levels. The problem lies in supply. The flagship films, represented by "Against the Tide," were not up to par.

Another source of this sentiment comes from my recent work in overseas expansion. Going overseas is a business that aligns with the "period of unprecedented great change," and there is an urgent need for "quality Chinese content" as support. Cultural exports are at the forefront of overseas expansion businesses, and stronger cultural influence is beneficial for overseas expansion.

One observation I've made is that expanding into Southeast Asia is easier than expanding into South America or the Middle East. Because of cultural influence, Chinese culture is deeply ingrained in Southeast Asia. When interacting with people from this region, one can clearly sense their familiarity and even admiration for China. However, in South America and the Middle East, there is a lack of familiarity with Chinese culture, and people only talk about cost-effectiveness when doing business with Chinese. Nevertheless, they generally look up to the United States, and whatever is popular in the US tends to gain importance in the Middle East and South America. They are also more willing to listen to advice from American partners. The contrast is stark.

After "Black Myth" was released, a German friend told me that he didn't know Sun Wukong (Monkey King) was from China, as he had always thought he was Japanese due to Japanese manga. Recently, he's been obsessed with "Black Myth: Wukong," and I can clearly sense that he has gained a deeper understanding and familiarity with China through this game.

Looking at the restructuring of the international order, both the United States and Japan have prioritized the export of commodities before cultural products. Let me use an analogy: commodities are like steel, while culture is like cement. When combined, they build a solid foundation for international status.

As someone who enjoys gaming, "Black Myth" doesn't bring me much novelty in terms of gameplay (I've already spent over a hundred hours on a single game like Elden Ring, to my embarrassment). However, it brings me endless joy in terms of culture. Defeating a boss, flipping through the original "Journey to the West," and strolling through the Western Paradise, admiring the murals, architecture, and statues, have been my recent private joys. It's truly delightful.

This is a high-level cultural experience. From the perspective of the "period of unprecedented great change," the issue of undercapacity must be taken seriously in terms of products and industries.

01

Rome conquered the world three times. The first time was through military might, the second through religion, and the third through the natural law spirit of Roman law. The first conquest was the shortest, while the third was the most enduring.

When discussing changes in the times and the international environment, many people often say that due to Western values, the United States, Japan, and Europe are naturally close and united. However, this is not the case, and the cause and effect are reversed.

Just a hundred years ago, Europe greatly looked down upon the United States and rejected American influence. Both Americanization from the US and Communism from the Soviet Union were strictly guarded against by Europe.

At that time, there was a high ideological divide between the US and Europe. The US saw Europe's scholastic aristocracy as feudal remnants, while Europe believed that social equality in the US would only lead to turmoil and tyranny similar to the French Revolution.

In 1901, British journalist William Stead published a book titled "The Americanization of the World," detailing Europeans' fear of Americanization.

Ultimately, the US conquered Europe through its superior commodities, technology, and culture. The key factor was popular culture, specifically movies at that time.

The advent of cinema brought people the charm of visual imagery for the first time, drawing crowds in droves.

Carl Laemmle, the founder of Universal Pictures (one of Hollywood's "Big Six" studios), met US President Woodrow Wilson in 1915 and began to instill the potential and power of the Hollywood film industry. Eventually, Wilson came to believe that Hollywood films were not only economically beneficial but also a more effective propaganda tool than the propaganda department, serving as a formidable diplomatic instrument.

In 1918, the film industry was recognized as a "basic industry" by the US government, enjoying policy support and thriving as a result.

Culture can devastate businesses, and the film industry is a prime example. As I wrote in "Tobacco in China | Yi Gongzi," the rise of the tobacco industry was due to cinema. Before that, humans could only see products through words, paintings, and at most photographs, but the impact of cinema was far stronger, directly reaching consumers' hearts and minds. Actors smoking elegantly in movies made smoking seem cool, and children would come up to you in the theater, asking you to buy a pack of cigarettes. (Isn't this similar to live streaming commerce a hundred years later?!) Cigarettes became ubiquitous, and a super-industry emerged at an unprecedented pace on our planet.

Cinema also played a crucial role in elevating the US to the status of the world's leading power. American films not only promoted American goods but also exported American values.

Europe took American cultural exports seriously, with France leading the charge in boycott American films. In 1928, France implemented a film quota system, citing reasons such as "the interests of good order and public morality," "internal and external security," and "preserving French customs and traditions."

However, history has shown that popular culture is uncontrollable. This remains true today, from films to video games to TikTok. As Chen Peisi put it, "Can you control me, but can you control the audience?"

After World War I, France owed the US a significant debt. In exchange for debt relief, France signed the "Bloom-Burns Agreement," which opened its markets, including for films. Subsequently, American films swept through Europe, and Hollywood exports sailed smoothly.

Former Republican leader Wendell L. Willkie stated that Hollywood films played a vital role in fostering friendly sentiments towards the US among foreigners.

Hollywood is the propaganda department of the US.

After World War II, the US established its dominance as a Western power. In addition to commodities and technology, the US's popular culture products, including films, jazz, rock music, news magazines, bestsellers, comics, theme parks, TV shows, and novels, established a monopoly-level advantage.

As I've said before, commodity trade is like steel, while cultural products are like cement, in the context of changing international order.

After the US, Japan followed suit.

After World War II, Japan's image was extremely poor as an aggressor country during the war. In 1974, Japanese Prime Minister Kakuei Tanaka visited Southeast Asia and encountered anti-Japanese protests in all the countries he visited. In Indonesia, the protests even turned violent.

Although Japan's economy took off in the 1960s, its image remained poor, with the world describing Japanese people as "nouveau riches." Japanese people did have money and traveled the world, spending freely wherever they went. However, while countries enjoyed earning money from Japanese tourists, they did not genuinely like or accept Japanese people. (This is similar to the situation with Chinese tourists later on.)

Once, when a Japanese prime minister visited France, the media directly referred to him as "the transistor salesman has arrived." When it came to Japanese people, the world's impression was that they were "buck-toothed, glasses-wearing individuals with cameras around their necks."

Japan's image transformation relied on cultural exports following commodity trade, specifically popular culture. While the US primarily relied on films in the past, Japan capitalized on manga, games, and popular sports in the 1980s and 1990s.

Apart from well-known Japanese manga and games, two popular ball sports in Japan are baseball and football. Coincidentally, Americans love baseball, while Europeans love football.

More and more Japanese players are appearing in top leagues. When Americans and Europeans turn on their TVs on weekends to watch their favorite teams play, they see more and more Japanese players. This is the highest level of product placement, as it promotes national goodwill and cultural narrative ability. Conversely, Chinese players are rarely seen in popular sports competitions every weekend, and even in national team matches, China has been humiliated by Japan 7-0. Ordinary people in other countries may inevitably think that China only has an economic narrative and lacks in other areas. Football is often likened to modern warfare, and this is what it's all about. In short, subtly and imperceptibly, Japan's image has transformed from that of an "economic animal" to that of a "polite and well-behaved people."

Working in overseas expansion business gives one a deeper understanding. In the past, foreigners were attracted to Chinese-made products for their affordability and quality. In recent years, when it comes to Chinese technology, foreigners have also started to give thumbs up. Following historical trends, China's next step is to improve cultural exports through high-quality popular culture, similar to "Black Myth." I'm not trying to preach anything; I just want it to be fun. The more you play, the more you'll understand and feel close to China, ultimately leading to sincere admiration.

Only through popular culture can the world recognize that China is a vibrant and innovative powerhouse.

02

Currently, domestic demand is insufficient, and the international environment is changing. The entire country is searching for new growth points.

At the beginning of the year, policies proposed developing the low-altitude economy, "seeking GDP from the sky," which gained popularity. Flying cars are an excellent growth point, driving investment growth and supporting technological innovation.

However, a high-quality cultural industry also possesses these two advantages. Why look for GDP in the sky when we have it right here?

After meeting basic needs, people transition from material consumption to spiritual consumption, and the cultural industry dominates this market, which is enormous. The domestic box office for the film industry is in the tens of billions, with additional revenue streams from merchandise, IP licensing, collaborations, novel adaptations, TV series remakes, theme parks, and more. The "Korean Wave" generates $76 billion in global consumption, projected to reach $143 billion by 2030.

Gaming is the largest content industry worldwide, with a market size in the trillions. A 3A production like "Black Myth" starts with investments in the hundreds of millions, all poured into technology.

Hollywood's vitality owes much to the film industry. Stanford and USC have the world's best AI, computer science, and computer graphics programs. From CG effects to rendering technology, the film industry funds young engineers to experiment with their latest ideas. Pixar, initially focused on tech hardware and software, has become a leading animation studio, using in-house software for its films.

NVIDIA is an even more typical example. Fueled by gamers for decades, it allowed Huang Renxian (Huang Renxian, the co-founder and CEO of NVIDIA) to focus on parallel computing for graphics cards and GPUs, ultimately leading to breakthroughs in computing power and the AI revolution.

Moreover, the content industry is one of the few where supply can significantly stimulate demand. For example, smartphones haven't seen groundbreaking innovations in supply in recent years, leading people to replace them less frequently.

But with "Black Myth," many of my non-gaming friends have jumped on board, despite my warnings about the game's difficulty. Many even bought gaming consoles specifically for "Black Myth." A week after its release, sales of computers and gaming consoles surged on JD.com. It's estimated that Game Science can earn over 6 billion yuan from game sales alone, not to mention collaborations, which undoubtedly bring in substantial revenue.

This shows a severe shortage of quality products in supply.

The best way to increase supply is to loosen management. I've also been involved in film production. When a group of filmmakers gather, someone might propose a brilliant idea that keeps them awake for nights with excitement. But suddenly, a senior member says something like, "This part might not pass censorship, and that part is risky too." To produce quality content, significant investments are required. If a project can't pass censorship, the losses are too great to bear. Eventually, everyone disbands, and nothing gets done. Over time, the industry only invests in safe, predictable, but boring products, relying on popular stars, safe scripts, and targeted marketing to cash in on fans.

The gaming industry faces similar challenges. First, there's the need for a license. Second, there's the risk of public opinion backlash from parents concerned about violence and bloodshed. A single controversy can doom a game.

An unexpected consequence is that it forces companies to expand overseas. Currently, China's gaming industry is doing well in overseas markets.

Japan is a gaming powerhouse, but three of the top ten mobile game developers in Japan are Chinese. As the world's second-largest mobile gaming market, Japan generates a quarter of its revenue from Chinese developers. miHoYo's Genshin Impact is a global hit, and a third of Tencent's gaming revenue comes from overseas.

However, China's gaming industry's success in overseas markets has primarily been in technology and operations, drawing on expertise accumulated in the domestic market. Themes often revolve around cartoons, board games, fantasy, xianxia (immortal cultivators), parties, and shooting, with limited cultural expression and limited contributions to cultural exports.

In 2023, China's self-developed games generated $16.366 billion in overseas revenue, a substantial amount but declining for the second consecutive year.

As the old Chinese saying goes, "to conquer, you must first conquer hearts." For the cultural industry to thrive, it must win through culture and profound expression.

Japan places great emphasis on using cultural products to capture the narrative of the East, ensuring that when people think of Eastern beauty, they think of Japan first, capturing consumers' minds. There's a popular 3A game renowned for its stunning graphics, hailed as the most oriental-looking game – "Ghost of Tsushima," which tells the story of Japan's resistance against the Mongols centuries ago. In the game, Japan is invaded, and samurai defend their country and protect their people. Surprisingly, the game wasn't even made by Japanese but by Americans fascinated by Japanese culture since childhood, who went on to create this "epic anti-Mongol drama" game.

Another example is the documentary "Jiro Dreams of Sushi," where the West actively sought out Japan to mythologize its sushi culture. This demonstrates that Japan has successfully infiltrated the world through popular culture.

Therefore, I'm delighted that "Black Myth" has set a good precedent, proving that creating quality popular cultural products in China can also be successful and lucrative.

"03","The film "Zhou Chu Eliminates Three Evils" was first released in Taiwan, China, and grossed only a few million yuan at the box office. Due to the subject matter and scale, the local market has seen plenty of similar content, but when it was introduced to mainland China, it unexpectedly became a blockbuster. Its popularity in mainland China then reversed the situation, drawing attention back to Taiwan. An originally obscure film suddenly found itself in the spotlight.

This summer, the imported film "Alien: Covenant" performed modestly in North America – an old IP with a stereotypical American horror plot lacking in novelty. However, in China's summer movie season, it was a huge hit. China's box office surpassed that of the United States, becoming the top market (before 2019, many Hollywood blockbusters had their highest grosses in China, with the US, the production country, coming in second. However, this hasn't been the case for quite some time). After the screening ended, I stood outside the theater for a while and overheard many people saying they found it incredibly entertaining and stress-relieving.

This illustrates two points. First, the mainland Chinese market suffers from a severe shortage of supply, and what might seem mundane in other markets is highly sought-after here. Second, the fact that "Zhou Chu Eliminates Three Evils" and "Alien" were released virtually uncut indicates that regulators are placing importance on industry development and adopting a more lenient approach.

As a participant in the content industry, I sincerely hope that the industry will be allowed more expressive space. Standing at the crossroads of history, we must attach great importance to the popular culture industry in light of the "great changes unseen in a century." Strengthening and expanding the popular culture industry is a top priority, both for stimulating the economy and international competition.

We all know that investing in hard technology is challenging. However, investing in the content industry is even more difficult because there are no clear patterns to follow, and previous successes cannot be easily replicated. For example, if we try to identify what makes "The Dark Myth" successful and then seek out similar projects, we are bound to fail. Consumers in the content industry grow tired of the same old thing and reject "second copies." Similarly, with patriotic films, the first wave might evoke tears and prompt audiences to spend money in support, but if subsequent films repeat the same formula of big productions, stars, and grand narratives, their impact will diminish.

For the content industry to thrive, it must rely on the power of the market to innovate, experiment, and think outside the box. While adhering to basic guidelines, openness and sufficient tolerance are essential. We can capitalize on the popularity of "The Dark Myth" by offering substantial incentives to encourage capital and entrepreneurs to seek opportunities amidst "great changes unseen in a century."

There's a concept in economics called 'externalities,' which refers to the impact an industry has on its external environment beyond its own investment returns. Polluting industries exhibit negative externalities, as the profits accrue to the owners while the pollution remains in the local community. In contrast, high-quality content industries exhibit positive externalities. Firstly, they drive advancements in cutting-edge technologies. Secondly, they facilitate much-needed cultural exports in contemporary China.

To illustrate, let's take Quaker Oats as an example. When time is tight, my breakfast often consists of Quaker Oats with cold milk. This is an old American brand that was mentioned in "The Americanization of the World," a book written a century ago about Europe's fear of Americanization.

An ordinary Englishman wakes up and shaves with Williams' soap and a Yankee safety razor. He puts on Boston boots over his North Carolina-made socks and checks the time on his Waltham or Waterbury watch. Then, he sits down for breakfast... He eats bread made from American prairie flour... canned oysters from Baltimore and a slice of Kansas City bacon, while his wife nibbles on a sliver of Chicago beef tongue, and the children munch on Quaker oats. As they eat, they read the newspaper, printed on American machines, using American paper and ink, and produced by an editor in New York City.

When Europeans realize they are surrounded by American-made products, even their breakfast cereal is Quaker Oats, they know there's no need to fear and can only accept it.

This conquest demonstrates two things. Firstly, at the product level, it proves the strength of American productivity in conquering Europe. Secondly, it reflects a change in lifestyle. Traditionally, European aristocrats emphasized ritual and class distinction at breakfast, but now everyone embraces the American way, prioritizing convenience and practicality. Quaker Oats with milk for breakfast has transformed their lifestyle, subtly influencing Europeans to adopt American values.

But it doesn't end there. From product exports to cultural exports, Quaker made a comeback in the 1980s with the rise of video games, a highly promising segment of popular culture. In 1982, Quaker established a game division and released 14 video games within a year.

This brings us back to the beginning of the article. When businesses sense the trends of the times, even a cereal company invests in games. That's what we call 'overcapacity.' In contrast, China is currently experiencing a lack of capacity.

Before "The Dark Myth" was released, venture capital investment in China's gaming industry had already stalled. Despite its success, "The Dark Myth" did not significantly revive game investment. Similarly, last year's "Long Season" was highly acclaimed and popular, but quality scripts with depth still struggled to secure funding.

The success of "The Dark Myth" was serendipitous. Over dinner, I told my friends that "The Dark Myth" might be like Yao Ming or China's entry into the 2002 World Cup. We all thought it marked the beginning of a new era, but in reality, it was the end of an old one.

No, I still have faith. In recent years, China has excelled in many areas once considered beyond its reach, challenging conventional wisdom. For instance, swimming was once dominated by Caucasians, but now Chinese athletes have firmly established themselves, breaking the monopoly. It's like this: when you start winning, they'll question if you cheated or doped. Keep winning, keep winning, keep winning, and they'll accept and admire you.

That's just human nature. The same goes for industry development. Don't go against human nature or market laws.