Keep in mind that if guns are available and there is nothing to prevent them from being owned, they will be used.
They're even being used in schools today so, very quickly at least the opponents will be armed to the teeth.
Something has to suppress the usage of weapons if you want to keep it focused on Martial Arts.
Underground "Fight Clubs" may be another option but even then guns will show up as the losers take revenge for their loss (or their friend's loss.)
Those may be acceptable exceptions though.
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I recall attending a martial arts tournament years and years ago, when I was in college -- the school I attended was hosting the tournament.
One of our teachers -- the one collecting the money -- was wearing his karate uniform, as he usually did, but with a *massive* .357 strapped to his thigh.
We (the students) stared at it for a moment.
Sensei: "Would *you* try to rob a karate tournament unarmed?"
It was a good point. Later we all agreed that upward of 70% of the people in the place probably shared the fantasy of facing a bunch of unarmed robbers.
So: basic agreement.
My resistance to your initial suggestion is that it introduces a bunch of elements (a huge earthquake, a massive, and oppressive martial law presence, a post-apocalypse vibe, etc.) that I think would take the focus of the game away from where I'd prefer it.
It seems like a huge change to accomplish something that (I hope) can be achieved with less... fictional infrastructure.
As I see it, the guns issue comes in two flavors
1) Limiting the PC's use of weapons
2) Explaining the (relative) absence of NPC's using weapons
I aim to achieve #1 by making the characters a bit more powerful than, say, a guy with a 9mm pistol. Their "super powers" could include throwing Qi fireballs (so there are ranged attacks).
Now, the characters won't be more effective than upper-end light arms or even, say, shotguns. And, frankly, if the in-game situation warranted it I wouldn't object to the characters arming themselves (this sort of thing has happened before). Moving exclusively to armed combat, however (or choosing to 'go armed' without sufficient provocation) would be a breach of the 'social contract' -- with the group I'm playing with, I don't think this'll be a problem...
Provided: I don't continually throw opponents at them that they'd have to be stupid to fight unarmed. Which brings us to point #2...
#2 is a bit trickier. Unarmed mobsters would strain credibility without some kind of explanation. The cops in anything approaching modern-day-reality *certainly* carry guns. I take a dual-pronged approach: the first one is to posit a world much like this one but with stricter gun control, policies and culture. This is subtle -- it certainly doesn't eliminate firearm crimes, but it does make it... less common. It also means that most bad-guys with guns will be significantly less skilled than they might otherwise be: lots of rounds miss (which is, I believe, fairly common in reality but not the way most games work out).
The second approach is to make the PC's more powerful than lightly (gun) armed opponents. This puts the PC's at the outer edge of mundane martial arts credibility, but it fits the fiction and it allows a fictional backdrop that's closer to reality than one where all sorts of rules have been put in place to explain the absence of firearms.
Note: I've done these kinds of games before in various configurations. Gun escalation *has* occurred... the approach I've outlined above is far *less* failure-proof than your suggestion; I'm taking a risk using it... But given the level of trust in the group, I think it's a calculated and acceptable risk.
If things start going pear-shaped, I'll drop an earthquake on them and see how they like martial law
Cheers,
-E.