Episode 1 – Chinaverse: Who Will Be “Ready Player One” in Middle Empire?

Apple, Microsoft, Meta, Nvidia, Google… So many companies across the Atlantic that come to mind when we talk about this “world of tomorrow”. You know, this world where the line between the virtual and the physical blurs. If the race is now underway in Uncle Sam’s land between the tech giants without really knowing which direction to go to conquer the metaverse, in the middle of the Empire side, the government and the companies in technology also venture into this universe.

Metaverse? Kesako?

Defining it in 2022 is no easy task as it is constantly shaped by the ambitions of the people who use it. Simply put, the term “metaverse” is a portmanteau of the words “meta” (referring to an overview) and “to” for “universe”. The word refers to digital spaces that are much more advanced than virtual reality (VR) or augmented reality. It is about extending our reality into shared virtual spaces, which are modeled in a 3D environment. In a sense, the metaverse includes any digital experience on the Internet that is persistent, immersive, three-dimensional, and virtual. The word is translated into Chinese as “yuan yuzhou”.

The metaverse is not new to the entertainment industry. There are many TV series and many movies that can refer to the metaverse: “2001: A Space Odyssey” (1968), “Tron” (1982), “Matrix” (1999), “Black Mirror” (2011), ” Ready” Player One” (2018), to name a few. In fact, the video game sector also plays a large role in the history of the metaverse, with Second Life (2003), Roblox (2006), Fortnite (2017) and Axie Infinity (2018) being the most notable titles.

For those who have never heard of one of these titles, I leave you to discover a preview of Steven Spielberg’s “Ready Player One”, which is probably the most evocative achievement when it comes to the metaverse. At least that is generally the image that the general public has of it at the moment.

Has metaverse fever reached the Great Wall of China?

In China, discussions about the metaverse began in the investment, technology and gaming communities around the time Roblox went public in March 2021. Five months later, online searches for meTraders exploded when ByteDance, TikTok’s parent company, bought Chinese virtual reality headset maker Pico. The renaming of Facebook’s parent company to Meta in October 2021 added the final layer that made the term a household name around the world. The metaverse frenzy accelerated in China afterwards.

By February 2022, more than 1,500 companies filed 16,000 trademark applications containing the word “metaverse”, double the total of 8,534 registered two months earlier. In the first quarter of 2022 alone, 15 metaverse-related companies were established, worth at least four billion yuan. Tencent has applied for about 100 “yuan yuzhou”-related trademarks, including QQ Metaverse, QQ Music Metaverse and Kings Metaverse. Other tech players, mostly in entertainment, quickly followed suit.

In contrast, China’s National Intellectual Property Administration (CNIPA) said in response to the high number of trademark applications that it would only approve projects that contribute to the development of core technologies around metaverse. The authority rejected several requests it said were only intended to generate buzz around the concept, including filings submitted by Tencent, e-commerce pioneer Alibaba and video game giant NetEase.

The battle: The state vs the municipalities

The “yuan yuzhou” investment frenzy has prompted Chinese state media to warn against speculative trading in the unregulated new cyber frontier. This is the first sign of Beijing’s attention to metaverse developments. So far, the central government is waiting and taking no explicit measures to oppose or support the expansion of the sector.

The only recent initiative that can create a connection with “yuzhou yuan” would be the announcement of the opening of its own platform dedicated to non-fungible tokens (NFT) called “China Digital Asset Exchange”, which will be operated by China Technology Exchange and Art Exhibitions China, both government supported. But it is far too early to confirm anything about a potential government-sponsored national Chinese metaverse/internet 3.0.

Basically, Beijing does not have a total aversion to the metaverse. After all, this is not only an $8 trillion digital opportunity, but also an arena where the country can position itself as a global leader. The embryonic nature of the Chinese metaverse leaves Beijing free to steer its development, trying to strike a balance between regulatory control and the risk of stifling technological innovation.

It is true that the highly immersive and decentralized characteristics of virtual 3D space can give rise to new ideologies that pose national security, economic and societal risks. Thus, the term has not appeared in any document issued by the Chinese central government at the time of this writing.

But for their part, local governments are embracing the new phase of the Internet with ambitious action plans. Despite Beijing’s ambiguous stance, local officials are pumping money into metaverse efforts to boost the region’s economic competitiveness.

As of November 2022, 20 local authorities have included the metaverse in their development plans. The Tongzhou district of Beijing has set up a fund to fund metaverse startups and encourage research in this area. Shanghai will develop software, attract talent and strengthen research and development. It is interesting to note that the Middle Country naturally supports innovation, but above all allows local officials to be flexible when the central government changes its position in this area.

How could the Chinaverse be shaped?

Beijing has a long history of filtering politically sensitive internet content. The new digital world will be no different; strict government controls, censorship of content and blocking of foreign providers are expected. The country will undoubtedly build the metaverse on its own terms to serve the state’s economic priorities and ideological goals and separate it from the rest of the world. The experience will be very different, comparable to how the Internet appears behind the “Great Firewall”.

Monitoring illicit financial activities and curbing speculative trading around the metaverse is high on China’s agenda. The country is actively monitoring the markets for tokens backed by the various blockchains. After wiping out cryptocurrency mining and transactions in 2021, Beijing announced plans in May 2022 to further ban the resale of NFTs and limit the gifting of what it calls “digital collectibles.”

Based on past crashes, other similar virtual assets are likely to be problematic. In fact, China has launched a state-backed digital currency known as “digital yuan” or e-CNY, which could be an alternative to payments in the metaverse. Incidentally, China is by far the most advanced country when it comes to central bank digital currency, with over 260 million users last year. NFTs have a special status in China compared to the rest of the world, as they carry the special designation of “digital collectibles” and not NFTs. In addition, it is only possible to get it with fiduciary money, as cryptocurrencies, as mentioned above, are prohibited.

Not surprisingly, the Chinese authorities are well on their way to shaping the regulatory framework for their Chinaverse. Under the supervision of the Ministry of Industry and Information Technology (MIIT), two industry groups – the Metaverse Industry Committee and the Metaverse Industry Professional Committee – have been formed to promote the healthy, orderly and sustainable development of the virtual space industry. In addition to the rules, China’s national metaverse may have a completely different user interface and experience compared to other markets.

The rise of live streaming and voice-based social media in China reflects consumer demand for real human interaction. Instead of focusing on the visual aspect, as is the case with many American metaverse platforms, the Chinese yuanyuzhou will probably be richer in audio content. It may also be more industry-oriented as Chinese authorities study its potential for the digital economy and multi-domain industrial transformation, such as health and education in particular.

There is no doubt that Chinese Internet companies are eager to explore the possibilities of the metaverse. The increasingly saturated smartphone and mobile internet markets are pushing them to find new ways to appeal to the younger generation of internet users. The future of social media may be a solution to stagnant growth. However, Beijing’s determination to rein in the power of its tech titans may make their metaverse journey more difficult. Since the end of 2020, new rules have been adopted in areas ranging from antitrust and personal data to privacy protection. Protection of children’s online gaming time has come into effect. In January 2022, the authorities adopted new standards for recommendation algorithms, followed by draft rules on so-called deep algorithms.

Synthesis technologies, which are also likely to be used to limit metaverse applications. This means that Chinese tech companies should tread carefully, as regulations may be tightened on key building blocks of digital worlds, namely games, VR/AR technology and payments.

Conclusion

Needless to say, the branding craze has hinted at some of the earliest apps in the Chinaverse. As in the US market, efforts have focused on VR, games and interactive social environments. In addition, features already advanced in China, such as payment and WeChat-like integrated online services, are likely to be expanded and integrated into Chinaverse.

Companies with sufficient financial capabilities, a strong focus on scientific research and a long-term strategic vision will be in a better position in the race for the metaverse. According to industry analysts, Tencent, US-blocked Huawei, Alibaba, Google-like Baidu, NetEase and ByteDance are the country’s leaders in this field. These big names in Chinese technology have their own approach to the new virtual world. Although their development axes are quite different depending on their expertise, they are all heading in the same direction: equipping their VR/AR hardware and software with a solid content ecosystem. In future episodes, we will explore the technological advances, use cases and metaverse ambitions of the aforementioned Chinese companies.

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