This ban was lifted in 2013 which opened up one of the biggest markets in one of the fastest developing economies (one that in the last week surpassed the United States’ GDP) to the big players. Much has been said about Microsoft’s meager sales numbers with the Xbox One but this could be their opportunity to turn things around, sort of. Japan and China have a long and unfriendly history, though much of their culture is shared much of it is also antagonistic with a lot of wounds still open from World War II and ongoing territorial disputes despite the fact that Japan relies on Chinese and North Korean manufacturers for their electronics industry China has no such issue with Japanese products and has often slapped punitive embargos on products over political matters. This leaves Microsoft (who has partnered with the telco BesTV a subsidiary of state owned Shanghai Media Group. Essentially the Chinese Government are selling Xbox Ones for Microsoft.
Now, at first blush, given the difficult time Microsoft has had selling in Asia or globally for that matter you’d think this is the goose that laid the golden eggs for Microsoft but not so fast. First the product is only available in the Shanghai Free Trade Zone, basically a petri dish for Chinese Economic Reform where various changes to trade rules are tested by the Chinese Government. So it’s not available to anyone outside this zone. Further the title launched with a limited number of state approved games like Forza Motorsport 5, Kinect Sport Rivals, Zoo Tycon, Neverwinter Online (which I don’t even think is out yet in North America on the Xbox One!) Basically you’re not going to be seeing your Call of Duties in China that’s for sure. So despite having a lead on the competition it has restricted availability and limited availability (which will be the case for the other consoles too). For the most part an even playing field with advantage going to Microsoft in the form of the sales lead and state sponsored vendor. In the first day of sales the company sold 100,000 units to customers (these numbers coming from BesTV’s parent company Shanghai Media Group) compared to their Japanese sales that’s a solid start.
Many North Americans and Europeans have been critical of these numbers but this seems to come from a point of view that is ignorant of a large number of factors. They seem to have the view that there’s this pent up demand so it should be way higher but there are some simple economic factors to take in to account, given it’s only available in one region that impacts numbers dramatically so let’s break it out.
First setting aside geography there’s the matter of income, the console costs RMB 3,699 (602 USD) without the Kinect or RMB 4,299 (700 USD) now think about this for a second. The average income in China varies WILDLY based on where you live, in Urban areas it tops out at RMB 31,838 in Shanghai and bottoms out RMB 13,062 in Gansu. In rural areas it ranges from RMB 13,746 at the high end to RMB 3,308. A national average pegs the urban average country wide at RMB 19,109 and RMB 5,919 for rural citizens (which is actually almost half its citizens and only fell below half in 2012). There is a growing middle class and that's represented by urban dwellers but that's their disposable income per capita after taxes.
So the average salary in the richest areas of china is RMB 31,838 and in the poorest RMB 19,109. Given a price point of at the lowest RMB 3,699 that’s a LOT of money! So let’s break this down further, realizing this is after after taxes but before things like food, rent, heat, etc. let's use a citizen of Shandong. Let’s pretend they were willing to take the 5 hour train that goes between Shangdong 4 times daily, saved up for the 1 hour flight, or drove the 10 hours to get the consoles let’s look at how realistic that would be. Their disposable income is around the national average clocking in at RMB 19,409 for the ENTIRE year. Break that down in to 12 months that's RMB 1,617 and some change. Renting an apartment outside of the city centre costs RMB 1,066 in the city centre it's RMB 2,125 so lets say our hypothetical Chinese person commutes renting an apartment at RMB 1,066 that leaves them with RMB 551 disposable income for the remainder of the month. Since they are living outside the core they need to commute so let's add RMB 60 for a monthly transit pass and then let's ball park it out to about RMB 100 a week for food (the prices on food seem pretty on par with North American prices with items costing about 1 dollar to 1 RMB when it comes to food stuffs). So this leaves our fictional Shandong citizen with RMB 91 disposable income having rented their 1 bedroom apartment, got transit and paid for food to survive.
This is a middle of the road almost exactly at the national average. So if this is the AVERAGE income this means at least half the population in urban centres are below this and everyone who is in a rural area is below this their MAXIMUM national earning level is RMB 13,746 in disposable income for the year. So with 1.357 billion citizens we eliminate pretty much all non-urban dwellers who statistically could not afford the console without saving for years (47% of China's population) that brings us down to 719,210,000 potential candidates (ignoring geography) now let’s eliminate 50% of the urban dwellers who fall below the national average bringing us down to 359,605,000 who could readily afford the console and the remainder would have to save for some time before being able to (and this is eliminating the fact that Shanghai realistically is inaccessible to many Chinese citizens).
In short, for the income disparity of the nation, 100,000 is actually a pretty strong start in that they sold to almost 1/3 of the population who are viable owners and many of those remaining will either have to have been saving since 2013 when the console was announced it was going to be released or need to save for several more months (basically a year to get up the cash to buy a console). In short, this is a fairly strong start for Microsoft in the region. The region itself is economically diverse and is growing in unexpected ways, we may see changes here that makes the product more accessible but this is a strong stepping off point for Microsoft and if it can establish its product in this developing nation it may well be able to use it to leverage in to other nations.