Video gaming in China
The video game industry in China currently is one of the major markets for the global industry, where more than half a billion people play video games. Revenues from China make up around 25% of nearly US$100 billion video game industry as of 2018, and since 2015 has exceeded the contribution to the global market from the United States. Because of its market size, China has been described as the "Games Industry Capital of the World" and is home to some of the largest video game companies. China has also been a major factor in the growth of esports, both in player talent and in revenue.
China had not always been a major factor in the industry, having been on the verge of economic recovery during the industry's formulative years in the 1970s and 1980s. With the introduction of the second generation of home consoles in the mid-1980s, a new black market of illegally-imported goods and video game clones arose to avoid the high costs of imports, driving away foreign companies. Notably, China imposed a near-complete ban on video game consoles in 2000, fearing the addicting-like impact of games on its youth; the ban was ultimately lifted in 2015. During that time, China's video game market greatly expanded in the area of computer games, including massively multiplayer online games (MMOs), social games, and mobile games, all which could be free to play titles with monetization to appeal to the average lower income of Chinese players. This massive growth from 2007 to 2013 led the games' publishers and operating companies like Tencent and Netease to become large global companies. Despite the legitimate growth of the industry, China's video game market continues to be offset by illegal importing and intellectual copyright theft.
As with other parts of its media, China's government has strong oversight of the video game industry. All games released there must go through a government approval process to affirm content is appropriate for the values of the nation; a 2018 approvals freeze, a result from the government reorganizing the agencies responsible for this process, caused numerous game releases to be held up, reflected in economic factors over the next year. Additionally, the government fears the potential for its youth to become addicted to video games, and have required games to include anti-addiction measures to limit playtime.
- 1 History
- 2 The video game industry in China
- 3 Esports
- 4 Intellectual property protection
- 5 Government oversight
- 6 See also
- 7 Notes
- 8 References
Broadly, the growth of the video game market in China is tied to expansion of its technology and digital economy from the 1990s to present day, which by 2016 represented over 30% of its gross domestic product.
Initial growth (1980s-2000)
At the time that the video game industry was being established in North America in the 1970s, China was in the midst of major political and economic reform following the death of Mao Zedong in 1976. The country was technologically behind much of the rest of the world in terms of its media. Part of the reform was modernization of its media systems, helping to boost economic prosperity for citizens. As such, China saw little of arcade games or the first generation of home consoles, like the Atari 2600.
After the video game crash of 1983 which devastated the North American video game market, Japan became a dominant factor in the global market leading off the second generation of consoles such as Nintendo's Famicom. By this point, China's economy had significantly improved, and Japan started to make inroads into selling consoles into China. However, importing these into China was costly, with a 130% tariff on hardware and games along with value-added taxes. Console systems were in high demand, but because of the high costs of importing, only few foreign companies did so. This created the video game clone grey market in China – reverse manufacturing of consoles and games at much lower costs than imported system, even if this required dubious or illegal copyright infringement. Outright copyright theft ("piracy") was also rampant in China due to the country's poor intellectual property controls. The sales of cloned console hardware and games outpaced that of legitimate imports, and further drove many foreign companies away since they could not compete with this area, such that by the 1990s, most video game systems in China were manufactured there.
Console games continued to grow in popularity through the 1990s, which created a broader concern in the media of video game addiction, with terms like "digital heroin" being used to describe video games. Even before the 1990s, there had been a broader stance in China that video games created negative effects on those that played them, which only grew during this decade. The impact on youth was particularly of concern, as video games were known to detract students from schoolwork, leaving them unprepared to enter China's college system. This situation was partially created by China's one-child policy, with sibling-less children having few others to interact with and little to do outside of school. The anti-addiction facet also discouraged foreign companies from trying to break into the Chinese market.
Chinese console ban (2000–2003)
The concerns about video game addiction and negative influence on the youth came to a head in June 2000. The State Council passed a bill crafted by seven ministries specifically aimed at video games. The bill established certain provisions on video game content and regulations on operations of Internet cafés and arcades. The most significant facet of this bill was a ban on the production, import, and sale of consoles and arcade machines. This ban was not absolute, as it allowed for some consoles to be released in China, notably Sony's PlayStation 2 in 2004 and several of Nintendo's consoles rebranded under the iQue partnership. However, with the restriction on game imports and their content, these consoles did not catch on in China. The ban did not include games available on personal computers (PC), and as a result, the PC gaming market in China flourished over the next fifteen years. Internet cafés flourished, growing from 40,000 in 2000 to over 110,000 by 2002, and have remained numerous since.
The ban on arcade machines was dropped in 2009, but while arcade were permitted to operate, they had to take several safeguards to prevent excessive use by youth. However, since such arcades offered a low-cost way to play games without a PC, they still became a thriving industry comparable to PC gaming at internet cafes. As a result, Chinese gamers frequently visit the arcades to play action games, particularly fighting games, and occasionally unlicensed arcade ports of popular PC or mobile games such as Angry Birds or Plants vs. Zombies.
Online gaming (2004–2007)
Legitimate acquisition of games and the hardware to play them was still relatively expensive in China, which continued to fuel the video game clone market in China. A large number of PC gamers in China acquired software through illegal downloads and pirated software websites to avoid the cost. Developers of legitimate games in China recognized that, to compete with this black market, they had to develop games that had a free or low upfront cost model but offered a way to monetize their games over time. Many Chinese-developed games became online games offering numerous microtransactions to recoup costs; such games could be offered at Internet cafés, which became a popular option for Chinese players that could not afford computer hardware, even as the price of computing equipment dropped over the next decade. This created a boon of massively multiplayer online games (MMOs) in the Chinese market and which helped to establish market dominance of companies like Tencent, Perfect World, and NetEase. PC cafes proliferated in urban centers as China's population continued to grow. Western free-to-play and subscription-based games like League of Legends and World of Warcraft, poised to take advantage of this model, also became successful. It also prompted Chinese developers to develop numerous clones of popular Western games that they would offer at low cost, an issue that still persist presently.
Online gaming became of serious concern to the government around 2007, re-raising the issues of gaming addiction that had prompted the 2000 console ban. A government report claimed that 6% of the country's teenaged population, about 3.5% of the country's population, were playing online games more than 40 hours a week. In July 2007, the government required that online game publishers and operates incorporate anti-addiction software on their games, specifically by monitoring how long underaged persons played. If a minor played for more than three hours straight, the game was to wipe half of any in-gaming currency that had earned that session, and lose all credits if played for more than five hours. Additionally, these systems were required to have the player to log in using their national identification. However, at the time of implementation, not all publishers incorporated the required controls, and for those that did, players would find ways around the limitations, such as using family member IDs, or otherwise would simply play past the time requirements as there was nothing else to do beyond the video game.
Social and mobile gaming (2008–2014)
By 2007, the size of the Chinese video game market was estimated to be about US$1.7 billion with around 42 million players, having grown 60% from the previous year mostly driven by online gaming. At this stage, China's impact on the larger global market, valued at US$41.9 billion, was not considered significant, as much of it was still driven by the grey market for clones and pirated games. However, the rapid growth led to forecasts that China would be a major contributor to the global market within five-years time.
Online gaming readily led way to the rise of social network games in China around 2007–2008, given that players were accustomed to free-to-play nature of online gaming. The Chinese game Happy Farm (2008) was included in Wired's list of "The 15 Most Influential Games of the Decade" at #14, for its major influence on global social network games, particularly for having "inspired a dozen Facebook clones," the largest being Zynga's FarmVille. A number of other games have since used similar game mechanics, such as Sunshine Farm, Happy Farmer, Happy Fishpond, Happy Pig Farm, Farm Town, Country Story, Barn Buddy, Sunshine Ranch, and Happy Harvest, as well as parodies such as Jungle Extreme and Farm Villain.
This further prepared the China market for mobile games around 2012, where there are about one billion mobile phone subscriptions in China owned a mobile phone according to a United Nations report,, and after Apple secured deals to distribute their iPhones within China. Mobile devices in China are less expensive than computer or console hardware, as well as provide Internet functionality, and for many, the only form of Internet connectivity they have, making them popular gaming devices. Mobile games in China grew rapidly over the next several years, growing from about 10% of the Chinese video game market in 2012 to 41% in 2016. This expanded to more than 50% by 2018. Furthering the growth of the social and mobile game markets was the fact that the anti-addiction measures applied to online games did not apply to these types of titles; it was not until 2017 where renewed concerns about mobile titles like Honour of Kings led Tencent to implement a similar anti-addiction system for its portfolio.
Social and mobile gaming significantly grew the Chinese video game market beyond earlier estimates. By 2013, the Chinese market for video games saw nearly a ten-fold growth since 2007, valued at US$13.5 billion of the global US$83 billion, with over 490 million players, counting only those on personal computers; since consoles were still banned, these numbers do not take console players into account.
Lifting of the console ban (2014–2017)
In 2014, China partially eased the restrictions on video game hardware by allowing game consoles to be manufactured in the Shanghai Free-Trade Zone (FTZ) and sold in the rest of China subject to cultural inspections. In July 2015, the ban on video game consoles within the country was completely lifted. According to a statement from the country's Ministry of Culture, companies like Sony, Nintendo, and Microsoft — among others — were now allowed to manufacture and sell video game consoles anywhere in the country.
Microsoft and Sony quickly took advantage of the lifting of the ban, announcing sales of the Xbox One and PlayStation 4 platforms within the FTZ shortly after the 2014 announcement. Microsoft established a partnership with BesTV New Media Co, a subsidiary of the Shanghai Media Group, to sell Xbox One units in China, with units first shipping by September 2014. Sony worked with Shanghai Oriental Pearl Media in May 2014 to establish manufacturing in the FTZ, with the PlayStation 4 and PlayStation Vita shipping into China by March 2015. CEO of Sony Computer Entertainment Andrew House explained in September 2013 that the company intended to use the PlayStation Vita TV as a low-cost alternative for consumers in an attempt to penetrate the Chinese gaming market. Both Microsoft and Sony have identified China as a key market for their next-generation of consoles, expected to be unveiled in 2020.
Nintendo did not initially seek to bring the Wii U into China; Nintendo of America president Reggie Fils-Aime stated that China was of interest to the company after the ban was lifted, but considered that there were similar difficulties with establishing sales there as they had recently had with Brazil. Later, Nintendo had teamed up with Tencent by April 2019 to help sell and distribute the Nintendo Switch as well as aid its games through the Chinese government approval process led by National Radio and Television Administration. The Nintendo Switch went on sale in China on December 10, 2019.
Even with the ban lifted, console sales were slow, as consoles requires dedicated space in home and did not have additional functionality, like personal computers, and further slowed by continued popularity of Internet cafès. The hardware grey market also persisted, drawing away legitimate sales of consoles. Of the US$37.9 billion industry revenue in 2018, only about US$1 billion was attributed to console sales. It is expeced that as more interest in legitimate sales of consoles increases in the future, the grey market will wane.
Approvals freeze (2018-onward)
In March 2018, the organization structural of SART was changed, created a period of several months where no new game licenses were given out. Further, MOC had made the process of getting these licenses more stringent. This period has significantly impacted Tencent, one of the largest publishers of video games for China. In August 2018, Tencent was forced to pull sale their version of Monster Hunter World from China as they had not gotten their license for it and the government received complaints about its content. Tencent were also blocked on publishing personal computer versions of PlayerUnknown's Battlegrounds and Fortnite Battle Royale. The license freezes was reported to have significant effects on those game publishers and developers that rely on Chinese sales. In late August 2018, the Chinese Ministry of Education called on the Chinese government and SART to also address the growing issue of myopia in children which was attributed to long hours of gaming on small screens like with mobile devices. the Ministry of Education had asked SART to consider placing restrictions on the number of hours each young player can play a game. On news of this, Tencent shares lost 5% of their value, an estimated US$20 billion on the stock market the next day. A further approval route was closed by Chinese authorities in October 2018; this "green channel" route that had been in place by August 2018, which allowed a game to have a period of one month on the market for purposes of consumer testing without having full government approval, but which had been seen by game publishers as temporary relief from the current ban. Tencent had been planning on distributing and monetizing from Fortnite Battle Royale via this method before this route was closed.
With China's effective ban of new games continuing into October 2018, Chinese players have found other routes of getting new games, which include using Steam which uses overseas servers. Further, existing titles released before the freeze that continue to offer new content have seen a resurgence in players and spending as a result. To comply with the planned new rules, Tencent announced that all mobile games it manages in China will require users to use their Chinese ID to play. This will be used by Tencent to track the time that minors play the game and implement time limitations on them, among other steps to meet new regulations.
By December 2018, the Chinese government had formed the "Online Game Ethics Committee" falling under the National Radio and Television Administration, which will review all games to be published in China for appropriate content as well as issues relayed to childhood myopia. The committee, by the end of the year, had restarted the approval process and will be working through a backlog of submissions to review in an expedited manner to allow new games to be released. Initial approvals to 80 back-logged titles was granted within days, but notably lacked games published by Tencent and Netease, the two largest publishers in China. After several more rounds, Tencent had two games approved near the end of January 2019, but did not include either Fortnite Battle Royale or PlayerUnknown's Battlegrounds, two major titles that were financial drivers in other countries.
A second freeze on approvals started in February 2019, as any further approvals on new games were suspending until the committee has been able to clear the backlog of the titles from the prior freeze. By this point, only about 350 games had been approved from the previous freeze.
According to China's State Administration of Press and Publication, the freezes were put in place as the video game industry had growth too rapidly in China at a rate that passed the capabilities for regulation to keep up. The second freeze that started in February 2019 was to put in place to give regulators a change to tune the game approval process to meet the current market size. The freeze is expected to be lifted in April 2019, alongside a new set of regulations for game approvals. These new changes include limiting the number of games that can be approved each year to around 5,000 games, strictly banning video game clones and games with obscene content, and placing more anti-addiction controls on mobile titles aimed at younger players.
The nearly year-long freeze has had rippling effects on the global gaming industry. Whereas in 2017, around 9,600 new games were approved, only around 1,980 were approved within 2018. Tencent had been one of the top 10 companies in the world at the start of 2018, but by October, its stock had dropped in value by 40%, an estimated US$230 billion, and knocked the company out of the top ten. Apple Inc. attributed revenue loss in the fourth quarter of 2018 to China's approval freeze, which had also affected mobile gaming apps. The freeze is expected to impact total revenues of the video game industry in 2019, with one analysis projecting a decline in revenue from the previous year, the first time in only a decade.
The video game industry in China
Today, the video game market is dominated by the Tencent Games division of Tencent Holdings, which is estimated to contribute to 46% of the overall revenue in China, and nearly 10% of the global video game market as of 2017, making it the largest video game company in the world. Other major players include NetEase, Perfect World, Shunrong, and Shanda.
These companies are noted for having made aggressive investments in foreign video game developers, particularly from South Korea and the United States, and for making strategic agreements with other entities to serve as the China-based operating arm for foreign interests to meet Chinese government regulations. Notably, Tencent's acquisitions have included: US$400 million to acquire Riot Games in 2011 to gain right to the online game League of Legends and US$8.6 billion for Supercell in 2016 for its mobile game Clash of Clans. Among major investiments include approximately 5% of Activision in 2013, a 40% interest in Epic Games in 2013, and a 5% controlling interest in Ubisoft in 2018.
China has domestically produced a number of games, including Arena of Valor, Westward Journey, The Incorruptible Warrior, and Crazy Mouse. There are a large number of domestically made massively multiplayer online role-playing game MMORPGs in China, although many generally remain unheard of outside of the country.
Esports in China had been significant since 1996, as the country gained access to the Internet and PC gaming cafes began appearing across the county, also added by the popularity of QQ, a Chinese instant messaging client that helped with long-distance communications. Players quickly flocked to existing Western games that supported competitive Internet play such as Command & Conquer: Red Alert and Quake II. However, it was the release of StarCraft in 1998 that established the formation of organized competitive esports in China, including the formation of the China StarCraft Association to arrange unofficial tournaments for 1999 and onward. That same year was also the first official esports tournament in China based on Quake II. By 2000, the China E-Sports Association, formed from StarCraft players, was established, and Chinese players and teams participated and won medals starting with the World Cyber Games 2001. By 2003, the Chinese government recognized the success that Chinese players had in these games, and despite the stigma that the government had towards the addicting qualities of video games, recognized esports as an official sport in 2003, encouraging youth to excel in this area and that participating in esports was "training the body for China".
China continued to expand its esports engagement alongside South Korea over the next several years, with its growth occurring alongside the growth of other online games in China. China became more involved with planning of the World Cyber Games along Korea, who had founded the event in 2000. The growth was further fueled by China's large Internet companies investing in esports teams and players, establishing esport tournaments of their own, and acquiring Korea developers of popular esports games. These companies have also gained investment into foreign companies that have produced popular esports titles in China. Notably, Tencent initially acquired an investment into Riot Games in 2008, which produced League of Legends, and by 2015 had fully acquired the studio. Tencent has also invested into Activision Blizzard, which, through Blizzard Entertainment, distribute StarCraft, World of Warcraft, Hearthstone, and Heroes of the Storm. The Alibaba Group and other e-commerce Chinese businesses have also invested heavily into the esports arena within China as early as 2006, but have made more inroads by establishing the World Electronic Sports Games in 2016 as a replacement for the World Cyber Games. Alibaba's efforts have centered on making the cities of Hangzhou and Changzhou esports centers in China.
Due to both government encouragement and industry investment, the number of professional esports players in China grew from 50 in 2006 to over 1000 in 2016. In early 2019, China's Ministry of Human Resources and Social Security included both "professional gamer" and "professional gaming operator" as an officially recognized job on its Occupation Skill Testing Authority list; by July 2019, around 100,000 people had registers themselves as "professional gamers" under this, and were making an average of three times the average salary in China. The Ministry had stated they believe that the professional esports sector in China can have over 2 million jobs in five years. This expansive growth has led several local governments to offer incentives for bringing esports to their cities.
In esports, China has been the world leader in terms of tournament winnings, possessing some of the best talents in the world across multiple video games, as well as one of the largest pool of video gamers. As of 2017, half of the top 20 highest earning esports players in the world are Chinese.
In addition to talent, China is also one of the largest consumers of esports. The 2017 League of Legends World Championship, held in Beijing, drew an estimated 106 million viewers from online streaming services with 98% of them from China, a number on par with the television audience of the Super Bowl. The event was seen as China establishing its place in the global esports marketplace, and demonstrated how China and Korea's leadership in this area has helped to expand esports popularity to other countries. China is estimated to have about 20% of the global revenue in esports, including sponsorships, merchandising and media rights, with an estimated US$210 million of the global US$1.1 billion by 2019, having surpassed Europe and trailing only behind North America.
Intellectual property protection
As described above, China has had a history of a gray market of illegal imports and video game clones, both in hardware and software, as well as copyright theft/piracy as a result of poor intellectual property laws and enforcement in the latter part of the 20th century.
Chinese developers have been known to copy video games from foreign developers which resulted in multiple clones of established video game franchises. Some developers take inspiration from existing games and incorporate the designs, gameplay and mechanics to their own IPs. There have been multiple lawsuits filed by major video game companies such as the case filed by Riot Games against Moonton Technology for copying its characters featured in League of Legends. There have been reports where plagiarists are credited as the original creators. Analysts have attributed the rise in plagiarism to lack of knowledge of the original IPs due to non-releases of games in the Chinese Markets, delays or outright ban by the Chinese government.
More recently, with the tech industry boom in China, the government has implemented more stricter copyright controls and processes, but it is still considered to be behind intellectual copyright protections in Western nations and poses a threat for foreign companies seeking to sell into China.
Content control and censorship
As with almost all mass media in the country, video games in China are subject to the national policies of censorship. Content in video games is overseen by SART/NRTA; publishers are required to obtain a license for the game in China from SART before publishing, which may be denied if the game contains elements deemed inappropriate. The process to submit games for a license and put them on sale following that is overseen by MOC. The State General Administration of Press and Publication and anti-porn and illegal publication offices have also played a role in screening games.
Examples of banned games have included:
- Hearts of Iron (for "distorting history and damaging China's sovereignty and territorial integrity")
- I.G.I.-2: Covert Strike (for "intentionally blackening China and the Chinese army's image")
- Command & Conquer: Generals - Zero Hour (for "smearing the image of China and the Chinese army")
- Battlefield 4 (for "smearing the image of China and endangering national security")
In addition to banning games completely, several games have had their content screened to remove certain imagery deemed offensive or unfavorable. Common examples include skeletons or skulls being either fleshed out or removed entirely. Cases of which can be seen in Chinese versions of popular video games such as Dota 2 and World of Warcraft.
With the formation of the Online Game Ethics Committee in December 2018, nine titles reportedly were classified as prohibited or to be withdrawn, but this has yet to be confirmed by reliable sources. These included Fortnite, PlayerUnknown's Battlegrounds, H1Z1, Paladins, and Ring of Elysium. Eleven other titles were told that they needed to make corrective action to be sold within China, including Overwatch, World of Warcraft, Diablo 3, and League of Legends.
In addition to content control, the Chinese government has pushed technology companies, including video game distributors like Tencent, into allowing the government to have partial ownership of the companies that can be used to affect the content produced; in exchange, such companies may gain a competitive edge over others in interactions dealing with the government.
China was one of the first countries to recognize the potential for addiction to the Internet, video games, and other digital media, and was the first country to formally classify Internet addiction a clinical disorder by recognizing Clinical Diagnostic Criteria for Internet Addiction in 2008. In 2015, the Chinese government also found that more than 500 million citizens over five years old, nearly half the population, suffered from some form of near-sightednessed, and while video games were not solely responsible for this, the government felt they needed to reduce the amount of time youth played video games.
China has sought to deal with addiction to video games by its youth by passing regulations to be implemented by video game publishers aimed to limit consecutive play time particularly for children. As early as 2005 China's Ministry of Culture has enacted several public health efforts to address gaming and internet related disorders. One of the first systems required by the government was launched in 2005 to regulate adolescents' Internet use, including limiting daily gaming time to 3 hours and requiring users' identification in online video games. In 2007, an "Online Game Anti-Addiction System" was implemented for minors, restricting their use to 3 hours or less per day. The ministry also proposed a "Comprehensive Prevention Program Plan for Minors’ Online Gaming Addiction" in 2013, to promulgate research, particularly on diagnostic methods and interventions. China's Ministry of Education in 2018 announced that new regulations would be introduced to further limit the amount of time spent by minors in online games. While these regulations were not immediately binding, most large Chinese publishers took steps to implement the required features. For example, Tencent restricted the amount of time that children could spend playing one of its online games, to one hour per day for children 12 and under, and two hours per day for children aged 13-18. This is facilitated by tracking players via their state-issued identification numbers. This has put some pressure on Western companies that publish via partners in China on how to apply these new anit-addiction requirements into their games, as outside of China, tracking younger players frequently raises privacy concerns. Specialized versions of games, developed by the Chinese partner, have been made to meet these requirements without affecting the rest of the world; Riot Games let its China-based studio implement the requirements into League of Legends for specialized release in China.
A new law passed in November 2019 limits children under 18 to less than 90 minutes of playing video games on weekdays and three hours on weekends, with no video game playing allowed between 10 p.m. to 8 a.m. These are set by requiring game publishers to enforce these limits based on user logins. Additionally, the law limits how much any player can spend on microtransactions, ranging from about $28 to $57 per month depending on the age of the player.
Most of the large publishers in China routinely collect data on players and how they play their game. One primary reason is that this is information that may be mandated by the government due to its mass surveillance programs and for implementing systems such as for the anti-addiction measures. Secondly, many of these large companies not only provide video games but a range of media across the spectrum including online video, music, and books, and these companies couple that data to have better reach of targeted advertising as to increase revenues. There are fears, but no reported cases, of these large companies sharing data with the government from foreign users. These fears have had impacts for companies that are fully or partially controlled by Chinese companies. For example, Epic Games in 2018 released its own digital storefront, the Epic Games Store which came under some criticism by players in the West, partially due to fear that Epic would share their data with Tencent and subsequently to the Chinese government, and have called the Store spyware.
With the rising success of online games from 2007 onwards, some foreign companies sought to invest full or partial ownership of Chinese companies to help capture a portion of the growing market. The Chinese government, concerned that these foreign companies would have influence on how the Chinese companies manages their video games, passed a law that banned any foreign company from investing or having any type of ownership in a Chinese company, with the General Administration of Press and Publication serving as the watchdog for such violations. This still allows for foreign companies to bring games into China, but only through operating agreements and partnerships with wholly owned Chinese companies. For example, Blizzard Entertainment's World of Warcraft, an extremely popular MMO in China, was run initially through The9[a] and later by NetEase, both companies making necessary changes to parts of the game to adhere to Chinese content regulations.
- Online gaming in China
- Gold farming in China
- Software industry in China
- China Software Industry Association
- Video gaming in Indonesia
- History of Eastern role-playing video games
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