China's video game industry, once a booming market, is now facing economic headwinds, as reported by China's top gaming industry association.

The industry's sales have dropped for the first time since at least 2005, grossing 265.9 billion yuan ($39 billion) in 2022, which is a 10.33% decrease year-over-year.

Additionally, the overall user size shrank to 664 million, 0.33% fewer than the year before. The industry's challenges are compounded by a slew of crackdowns on video games, limiting playtime among underage users, and clamping down on content that is ideologically objectionable.

To find new growth opportunities, Chinese developers are going abroad. They are exporting games to the West, with China-made titles accounting for as much as 20% of mobile gaming revenues in the US. Additionally, 39 of the top 100 mobile games by revenue worldwide were from Chinese firms.

Despite a decline of 3.7% YoY, made-in-China games raked in $17.3 billion in overseas sales in 2022, according to the industry report. This success has driven Chinese gaming giants such as Tencent and NetEase to develop high-budget global hits that will stand the test of time.

Tencent, the world's biggest games company by revenue, is developing a AAA console game in its Lightspeed outpost in Los Angeles (Lightspeed is most famous for devising the mobile version of PUBG), while NetEase has established its first US office in Austin and teased the launch of another new studio.