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To Protect Economy, China Sets Limits on Virtual Currency

Online transactions with virtual currency in online gaming has become so widespread in China that the government fears it will affect the actual economy, The New York Times reports.

The country is currently one of the world's largest markets for massive multiplayer online games (MMOGs) like World of Warcraft; tens of millions of youth are reportedly trading virtual goods for real money or products, such as clothing or makeup.

Most of China's major internet firms — including Netease, Sohu and Tencent — have a gaming component, with virtual currencies that keep their cyber-communities solvent. Last year, almost $2 billion in virtual currency changed hands in China, according to the Internet Network Information Center — a figure that doesn't even account for what is believed to be a sizable black market.

And the threat to the economy is potentially real: QQ coins, a virtual currency shilled by Chinese internet enterprise Tencent, occasionally rises in value against the renminbi, China's official currency, which has upset officials at the Central Bank of China.

To dampen the menace, new regulations were released this week to restrict online trade.

In particular, restrictions are intended to safeguard against the growing cottage industry of virtual sweatshops — small spaces where young people play online games to earn credits on behalf of overseas customers in the US, South Korea and Taiwan, in exchange for profit. The practice is known Stateside as "gold farming." The government also hopes to decrease online gambling and disputes over the ownership of virtual coins.

China's new regulations generally restrict the virtual currency trade, and bans the exchange of virtual cash for actual goods entirely. The move "shows that at least one government is concerned about the way virtual worlds challenge its control of society," stated Professor Edward Castronova, professor of telecommunications at Indiana University Bloomington, in an e-mail to the NYT.

"As virtual currencies take over more and more purchasing power, control over the effective money supply shifts from the central bank to the game developers."

The rules were issued in tandem between the Ministry of Commerce and Beijing's Ministry of Culture. They appeared just prior to an announcement that Beijing would delay adoption of a plan to install software that censors pornographic and other antisocial websites on personal computers sold in stores.

Internet analyst Richard Ji of Morgan Stanley stated that Chinese gaming companies would experience only a limited financial impact as a result of the regs, as the worst activity occurs in underground online communities or smaller sites, not major destinations hosted by the top internet providers.

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