Valve's solution was to add value to its products and to make them as easily available in countries outside of the typical Western markets. I guess there's some stigma about developing nations because the governments might not be as steady, but the more I read, the more it seems to me that doing business globally requires one to understand the market in which you're trying to do business, more than worrying about which way the government policy winds are blowing.
China is probably the far-off wet dream for many game developers and publishers right now; a huge market potential, but piracy, oh the piracy! It ruins the market, makes it unprofitable.
I say bullhonkey. It's just that these companies' expectations don't match the situation on the ground. They want it to be tons of customers = easy money, but they don't want to make the deep investments required to get into the market and understand it. The profit will not be as explosive and ridiculously amazing as they think it should be. No one's going to be sleeping under quilts of stitched-together Ben Franklins. Any game company that really wants to reap the rewards has to think long-term, and has to really figure out what Chinese gamers want.
So what do they want? One place to look are the current successes: WOW, for example. I don't play it so I can't speak to why China loves it so much, but I'm sure market research companies can do the case studies other game developers/publishers would love to have. I think they will find that gamers here actually have a variety of interests, as FPS like CS are popular as well as RTS like StarCraft.
I think they also want video games, as my earlier post about console sales indicates. The government has yet to approve the sales of consoles, but that it will happen is inevitable, and everyone should be preparing for this.
Most importantly, companies need to rethink how they're going to promote and sell their products. Rampant piracy makes traditional methods difficult, but Valve's experience is a valuable insight on alternative methods. Would that work in China? I have some doubts, but I think it stands a chance.
Additional suggestions I have:
Work with the gov't to promote "healthy" gaming (but only so far as that includes addiction rather than content)
Microtransaction gaming--sell the game for cheap or nothing at all and sell in-game accessories.
Episodic content--just a hunch, but I think Chinese gamers would enjoy this.
Understand that Chinese still don't have the spending power of the Western countries. Games need to be sold cheaper here (and if they're in Chinese, you don't have to worry much about overseas piracy anyway).
Sell online, partner up with Chinese online stores, e.g. Joyo-Amazon, Dangdang, buy360.
Support the gaming community: sponsor events, competitions, tournaments, charitable causes, etc. It's very important here to show you care about your customers. You need to show your loyalty in order to get theirs.
Any activity you want to engage in to limit piracy or warn piraters, get the government to support you first. If you have their backing, you'll be much better off if the Chinese public doesn't go for it.
In the same vein, remember that Chinese BBS forums can turn on you pretty quickly if you make a wrong step. Monitor the big ones and always be ready to respond. Engaging with consumers is one of the best ways to show you care about them.
And for me personally, would you console makers get busy persuading the gov't to allow console sales here? As that data I posted a few days ago shows, Chinese will buy them, and I guarantee you they want to play online.