China is now officially the second largest economy on the planet. And video game consoles are technically illegal. One day, that might change.

"Consoles have been banned in China since the year 2000," Lisa Hanson from market researcher Niko Partners previously told Kotaku. The government thought that was the best way to protect Chinese youth from wasting their minds on video games, after a parental outcry."

According to attorney Greg Pilarowski, the legislation that was drafted in June 2000 was directed against the sale and manufacture of both coin operated arcade games and home consoles. "Although the stated purpose of the notice was to strike against video arcades in order to protect the youth and ensure public order," Pilarowski states, "the notice was drafted broadly and is now the primary legal barrier to the importation, manufacture or sale of game consoles such as the Xbox, PlayStation and Wii."

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China shows huge potential, which is why more and more car companies are skipping the Tokyo Motor Show and heading to Beijing's. And for video games, it's a dormant one — officially, at least. Video game consoles are bought and sold on the gray market throughout the country.

It certainly is a place where game companies see a future. But the question is, who's going to get there first? Sony revealed last month it was planning to release the PS3 in China — something that might be difficult as consoles are still illegal. That could be why Sony did not provide a launch window for the PS3. To help entrench Sony Computer Entertainment, a R&D center is being set up in the Mainland. But Sony is not alone.

"China is a very important market," Microsoft's Phil Spencer told Kotaku at last year's Tokyo Game Show. "We would be foolish to not see it as a place where we have a future." According to Shanghai-based game developer American McGee, "Judging only by the number of games and consoles in the pirate shops — I'd say the 360 has the dominant position, followed by Wii then PS3." Since the consoles are technically illegal, they are relegated to the black market, which is rampant with piracy, and McGee says the PS3 lags only because it hadn't been cracked as early as the Xbox 360 was. McGee and his Spicy Horse studio are currently working on multi-platform title Alice: Madness Returns.

Outside of the black market, Nintendo is making headway under its iQue branding. iQue launched a plug-and-play type console in 2003 that could run games like Mario Kart 64 and F-Zero X. In the past, Nintendo expressed interest in bringing the Wii to China in 2008, which did not happen. Since handhelds are legal, Nintendo continues to release its portable devices in the country where they are manufactured, including the upcoming Nintendo 3DS, which will be sold as the iQue 3DS.

"We understand Chinese culture and customers better than our competitors."

Sony, Microsoft and Nintendo are all positioning themselves and are ready to pounce. But they might face competition not from each other, but Chinese console makers. Lenovo created a spin-off company that is releasing a Kinect-type clone called the eBox. "We are the world's second company to produce a controller-free game console, behind only Microsoft," Beijing eedoo Technology president Jack Luo told China Daily last year. The console's graphics do not appear to be as impressive as Microsoft's, but Luo says that's besides the point. "We understand Chinese culture and customers better than our competitors," he added. "We still hold advantages in terms of Chinese game content, sales channels and customer service." The fact that the eBox is getting released does seem odd, seeing as how it does appear to be a game console.

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There are rumors that the Chinese government is playing wait-and-see with the eBox. If it is a hit and builds up its own market share, then the theory is that the government will then ease up on consoles. But consoles still must compete with computer gaming, which is huge in China. Xbox 360 consoles were found unloved by Joel Johnson even at the Chinese factory where they are made. PC gaming does remain huge — and dominated by billion dollar Chinese online game operators, many of which are listend on the US stock exchanges. That, McGee points out, technically makes them foreign companies operating in China. "But it's not about the technicality," adds McGee, "simply about China doing what's best for China and Chinese companies." And that makes sense.

If and when game consoles are made legal, there will be a scramble, there will be pushing and shoving and foreign game makers trying to get a piece of a very big pie. Don't be surprised, though, if they end up fighting over table scraps and leftovers. But with billions of people, who's counting?

Images courtesy of Getty.