Due to its regulators, the Chinese metaverse industry is shaping up to be different from those in other parts of the world. Tech giants such as Tencent, NetEase, ByteDance, Alibaba, and Baidu will attempt to influence the metaverse industry in China while regulators intend to limit their dominance. Metaverse-related investments will increase over the coming years, but the tech companies must adhere to the government guidelines.

China is a promising market for the metaverse

Thanks to its massive and increasingly affluent user base, China is a potentially lucrative market for the metaverse. Chinese Big Tech and prominent start-ups have the enabling technologies, established consumer bases, and notable global partnerships to build metaverse platforms and experiences. For instance, Tencent owns 40% of Epic Games (the developer of Fortnite), which is in the vanguard of metaverse development. Gaming, social media, and e-commerce are likely to be the metaverse applications that gain the most interest from Chinese companies and consumers. Subsequently, live events and enterprise collaboration will also gain traction as the theme develops and the underlying technologies mature.

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Chinese companies will primarily compete based on experience. For instance, Tencent is expected to contest NetEase’s gaming-specific metaverse while also challenging Alibaba’s e-commerce offering. ByteDance, an increasingly influential disruptor, will challenge Tencent and Alibaba across experiences like social media, enterprise collaboration, and gaming.

Ultimately, the success of any metaverse in China will depend on several factors, including how a company aligns with local traditions to appeal to consumers and comply with the regulators; highlights the value of the metaverse compared to existing social or gaming experiences; and addresses metaverse-related data privacy and safety-related issues.

Regulators are a threat to China’s tech sector and their metaverse ambitions

Strict guidelines on user-generated content have limited the progress of platforms in the past, such as Roblox, which allows users to create experiences. Companies will likely resort to existing intellectual property, such as movies and games, already approved by the government.

China’s ban on cryptocurrencies reflects its disapproval of decentralized currencies. This compels consumers to invest in fiat currencies to trade NFTs, allowing the government to oversee the transactions.

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Finally, China is protective of the mental health of minors and its own traditions. This has resulted in regulations that have impacted the Chinese gaming and ‘virtual idols’ industry. As new experiences emerge on the metaverse platforms, regulators will take measures to prevent what they consider risks to young people and society.

Despite regulatory challenges, metaverse investments will increase

While Chinese regulators recognize the importance of the metaverse, they are cautious about the negative implications of the theme and the dominance of domestic tech giants. In May 2022, the state-backed China Computer Industry Association founded a metaverse committee called The Metaverse Industry Professional Committee. The committee will draft the industry standards, help authorities create industry roadmaps, set up funds to support start-ups, and explore use cases in manufacturing, commerce, tourism, healthcare, and education. This is a positive move, especially given the nascent stage of the metaverse theme, and all tech companies will need to adhere to the standards. Meanwhile, the domestic tech leaders will continue to file for metaverse-related trademarks based on their existing platforms and will start commercializing some of them. However, foreign companies will be wary of expanding their metaverses to China in the foreseeable future.