We've updated the report below with a comment from Niko Partners analyst Daniel Ahmad.
China has frozen licenses for South Korean developers in a move that prevents games made in the country from being published in China.
The move is thought to be in response to the arrival of a new THAAD missile defence system in South Korea. It's being built in partnership with the US to help protect the country and its allies from perceived threats by countries such as North Korea. China however claims the deployment is a threat to its own security.
As part of its response, China has frozen new licenses on South Korean games. The ban will affect any and all games yet to be released in China that are developed in South Korea.
It's not known how long such a ban could last, though existing Korean games already published in the region are currently unaffected.
The licensing freeze has already started to affect some developers. Nikkei reports that shares in Nexon dropped by as much as 7% on March 7th following the news.
That said, Nexon's share prices are still much higher than they were in August 2016. The publisher is also said to have already obtained the license for its upcoming Dungeon & Fighter 2D mobile title, which would therefore allow it to launch in China despite the ban.
One game that stands to be affected is Netmarble's Lineage 2: Revolution, which is currently being translated for the China market. It has proven to be a huge success for the developer, generating over $100 million in revenue in its first 17 days of launch.
Launching games in China is already difficult for any developer outside of the country. Games released in the region have to be approved 20 days before launch and must follow a stringent set of guidelines to pass the test.
Niko Partners analyst Daniel Ahmad has shared his opinion on the current ban and what it could mean for developers and publishers in South Korea.
Ahmad said the Chinese government has been regulating the import of foreign games using a licensing system for some time, requiring companies to partner with a Chinese publisher to operate in the region.
Such a freeze on this could cause problems for South Korean companies with large business interests in China.
"This regulation has been in place for a few years on PC and became effective for mobile games in July of last year. Games that have already acquired a license, such as Dragon Nest Mobile by Eyedentity Games and Dungeon and Fighter Mobile from Nexon, have not been affected," he told PocketGamer.biz.
"Upcoming games such as Netmarble's Lineage II Revolution, to be published by Tencent, has not yet been approved and so it’s likely it could face issues launching in China.
"Nexon have already seen their share price dip yesterday after the news, because around 40% of their revenue is generated from the China market each year.
"With rising tensions between the two countries, an unofficial travel ban and blocks against Korean entertainment imports, it's not that surprising that games would be affected eventually.
"It is unclear at this time how long this ban will last and whether already approved games will have their licenses revoked."