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

Apple, Microsoft, Meta, Nvidia, Google… So many companies across the Atlantic that come to mind when talking about this “world of tomorrow”. You know, this world where the line between the virtual and the physical is blurring. If the race between the giants of technology is now open in Uncle Sam’s land, without really knowing which direction to take to conquer the metaverse, on the side of the Middle Empire, the government and technology companies are also trying their hand at this universe.

Metaverse? Kesako?

Defining it in 2022 is no simple task, as it is constantly shaped by the ambitions of the people using it. Simply put, the term “metaverse” is a contraction of the words “meta” (which refers to an overview) and “a” for “universe.” The word refers to digital spaces far more advanced than virtual reality (VR) or augmented reality. It’s 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 isn’t new to the entertainment industry. There are many television series and many films that can refer to the metaverse: “2001: A Space Odyssey” (1968), “Tron” (1982), “The Matrix” (1999), “Black Mirror” (2011), ” Ready Player One” (2018), just to name a few. Indeed, the video game industry also plays a huge 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 let you preview Steven Spielberg’s “Ready Player One” which is probably the most evocative undertaking when it comes to the metaverse. At least, that’s generally the image the general public currently has of it.

Has Metaverse fever reached the Great Wall?

In China, discussions about the metaverse began within the investment, tech and gaming communities around the time Roblox went public in March 2021. Five months later, online searches for meTraders exploded when TikTok’s parent company ByteDance acquired 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 has accelerated in China.

In 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 enterprises worth at least four billion yuan were established. Tencent applied for about 100 trademarks related to “yuan yuzhou”, including QQ Metaverse, QQ Music Metaverse and Kings Metaverse. Other tech players, mostly in entertainment, quickly followed suit.

Conversely, in response to the high number of trademark filings, China’s National Intellectual Property Administration (CNIPA) said it would only approve projects that contribute to the development of core technologies surrounding the metaverses. The authority rejected numerous requests it said were only meant to create buzz around the concept, including filings filed by Tencent, e-commerce pioneer Alibaba and video game giant NetEase.

The match: central government VS local governments

The ‘yuan yuzhou’ investment craze has prompted Chinese state media to warn against speculative trading in the new unregulated cyber frontier. This is the first sign of Beijing’s attention to metaverse developments. For the moment, the central government remains wait-and-see and does not take explicit measures to counter or support the expansion of the sector.

The only recent initiative that can make a connection with the “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 managed by China Technology Exchange and Art Exhibitions China, both supported by the government. But it’s too early to confirm anything about a potential Chinese national/government-backed internet 3.0 metaverse.

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

It is true that the highly immersive and decentralized feature of 3D virtual space could give rise to new ideologies, posing national security, financial and social risks. Therefore, the term has not appeared in any documents issued by the Chinese central government as of this writing.

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

As of November 2022, 20 local governments have included the metaverse in their development plans. Beijing’s Tongzhou District has set up a fund to finance metaverse startups and encourage metaverse research. Shanghai will develop software, attract talent and strengthen R&D. Interestingly, the Middle Country naturally supports innovation, but more importantly it 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 realm will be no different; There are strict government controls, content censorship and blocking of foreign suppliers. The country will undoubtedly build the metaverse on its own terms to serve the economic priorities and ideological goals of the state, while separating it from the rest of the world. The experience will be very different, comparable to what the Internet looks like behind the “Great Firewall”.

Overseeing illicit financial activities and limiting speculative trading in the metaverse are high on China’s agenda. The country actively monitors the token markets supported by the various blockchains. After canceling cryptocurrency mining and transactions in 2021, Beijing announced plans in May 2022 to further ban the resale of NFTs and limit the donation of what it calls “digital collectibles.”

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

Unsurprisingly, Chinese authorities are well on their way to finalizing 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 – were formed to promote the healthy, orderly and sustainable development of the virtual space industry. Regardless of regulations, China’s domestic metaverse may have quite a different user interface and experience than other markets.

The rise of live streaming and voice-based social media in China reflects consumer demand for real human interactions. Instead of focusing on the visual aspect, as is the case with many platforms in the American metaverse, Chinese yuanyuzhou will probably be richer in audio content. It may also be more industry-oriented, as Chinese authorities are studying its potential for the digital economy and multi-domain industrial transformation, such as healthcare 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 forcing them to find new ways to appeal to the younger generation of internet users. The future of social media could be a solution to stagnant growth. However, Beijing’s determination to curb the power of its tech titans could make their journey into the metaverse more difficult. Since the end of 2020, new rules have been adopted in areas ranging from anti-monopoly and personal data to privacy protection. Protecting children’s online play time has come into effect. In January 2022, the authorities adopted new standards on recommendation algorithms, followed by draft standards on so-called deep algorithms.

Synthesis technologies, which will likely also be used to limit applications of the metaverse. This means Chinese tech companies should tread carefully as regulations could be tightened on key elements of the digital worlds, namely gaming, VR/AR technology and payments.

Conclusion

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

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

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