The video game industry in China currently is one of the major markets for the global video game industry, where more than half a billion people play video games. Revenues from China make up around 25% of the nearly US$100 billion global video game industry as of 2018. Since 2015, China 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 has 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 home gaming 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 addiction-like impact of games on its youths; 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, browser games, social network games, etc.) and later 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, copyright violation and intellectual property theft.

As with other parts of its media, China's government has strong oversight of the video game industry; all new titles go through a governmental approval process to assure that content aligns with the nation's values. In 2018, an approvals freeze due to the reorganisation of China's content vetting agencies caused numerous game releases to be held up. The video game market plummeted for a year. The government also fears the potential for its youths to become addicted to video games, and have required games to include anti-addiction measures. User verification is used to enforce playtime restrictions, which currently limit minors to three hours per week.^{[citation needed]}

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.

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 and locally made Pong consoles.

By the 1980s, China's economy had significantly improved. 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 third generation of consoles such as Nintendo's Famicom. The first widely-available video games in 1980s China were arcade games. The number of arcades in China increased significantly during fall 1985.

Consoles were introduced to China in the late 1980s and were primarily imported from Japan. 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 – manufacturing of reverse-engineered 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. Xiaobawang Company created the first Chinese-produced console; it came with a keyboard and was intended both for gaming and educational purposes. By the end of 1993, over 60% of secondary school students in Beijing owned a gaming console. China also had a small market of legal consoles. Sega released the Master System in the late 1980s as the first officially distributed console in China ever, and in the 1990s it continued to distribute newer systems. The most popular was Mega Drive, which like Famicom was cloned by local manufacturers. Sega was one of the most famous arcade producers alongside Namco in the region. Nintendo entered in 1994 with the Game Boy and Super Nintendo through a Hong Kong distributor. There was also a market for smaller producers like UMC with Gamate and Super A'Can.

As home ownership of computers in urban China increased after 1995, the Chinese PC games market grew significantly.