Tech giants latest moves, regulatory moves

Citizens try out a virtual reality experience during the opening of Cheonan Qianshu shopping mall, Shanghai, China, 22 December 2021. Virtual reality is a key part of the metaverse concept.

Xing Yun | Cost Photo | Edition of the future | Getty Images

Imagine this: the metaverse with Chinese characteristics. This is what the virtual world everyone is talking about will probably look like in the world’s second largest economy.

Chinese tech giants are starting to invest in metaverse, the latest buzzword in internet technology. It’s a term with no concrete definition, but widely considered to mean virtual worlds in which people will play and live.

Censorship is likely to be widespread and regulation strict as Beijing continues to closely monitor the practices of its domestic tech companies.

US companies like Facebook’s parent company Meta are banking on the metaverse concept, while Microsoft has positioned its proposed acquisition of game company Activision as playing on the theme.

Chinese companies are taking a more cautious approach. So what are they doing and how will the regulations play out?

What are the apps?

In China, the total addressable market for the metaverse could be 52 trillion yuan, or about $8 trillion, Morgan Stanley said in a note released last month.

Companies like Tencent, NetEase, TikTok owner ByteDance and Alibaba could be the leaders in this space among Chinese internet companies.

Metaverse is the future of social networking. All Chinese tech giants need to embrace it to find new ways to engage the younger generation of internet users…

Winston Ma

Managing Partner, CloudTree Ventures

It comes down to the type of apps that could be part of the metaverse. Analysts say virtual reality, games and social media could be among the first applications.

This can include things like buying virtual items in games or creating digital avatars of yourself to join in meetings.

“The Metaverse is the future of social media. All Chinese tech giants need to embrace it to find new ways to engage the younger generation of internet users, which is critical as their business models on smartphones and mobile internet have come of age,” Winston said. Ma, managing partner at CloudTree Ventures, told CNBC.

Chinese tech giants in the metaverse

During an earnings call in November, Tencent CEO Pony Ma said the metaverse would be an opportunity to add growth to existing industries such as games. Tencent is the world’s largest gaming company with a strong portfolio of PC and mobile games.

Tencent also owns WeChat, a messaging service with over a billion users that has social media aspects.

Ma said the company has “much of the basic technology and know-how” to explore and develop the metaverse.

Meanwhile, ByteDance has been aggressively expanding into gaming over the past year. In August, the company acquired virtual reality headset maker Pico. ByteDance also owns TikTok, the shorthand video app, and its Chinese equivalent Douyin. The Beijing-based company laid the groundwork for virtual reality, social media and games.

Alibaba announced plans this year to launch augmented reality glasses for virtual meetings. Augmented reality refers to virtual images superimposed on the real world. Again, this could be a game about the metaverse. The e-commerce giant has launched a “virtual influencer” named Dong Dong for the Beijing Winter Olympics. The digital avatar is on Alibaba’s Taobao shopping app and provides information about the Olympics and also promotes Games-related items.

NetEase, another Chinese gaming giant, has established a base in the southern province of Hainan focused on developing metaverse apps, local media reported last year.

Search giant Baidu last year launched a metaverse app called XiRang, a sort of virtual world that can hold up to 100,000 people at a time. Baidu executives, however, downplayed expectations of the app when it launched and said many aspects were still not up to par. Ma Jie, vice president of Baidu, said it could be another six years before a full launch.

Still, there are signs that China’s biggest tech names are beginning to experiment and lay the groundwork for future applications.

“Similar to the pitch we’ve seen from Meta, the Metaverse concept may first involve games and interactive social environments supported by VR/AR,” Charles Mok, founder of Tech For Good Asia, told CNBC. .

“These will obviously be the areas that the big Chinese tech players follow first, with advanced features in China – such as payment and WeChat-like integrated online services – that can be extended and integrated into the metaverse.”

China’s Regulated Metaverse

The metaverse push by Chinese tech companies comes after an intense year of regulatory scrutiny of the country’s tech sector.

New anti-monopoly laws for internet platforms have been proposed, while a landmark personal data protection law has been passed. Beijing has also reduced the time children under 18 are allowed to play online games.

Analysts said these existing laws will likely be used to regulate metaverse apps as well, even if new ones are developed.

“The sheer diversity of metaverse applications means that developing a ‘one-size-fits-all’ set of policies will not be feasible for Beijing,” Hanyu Liu, China market analyst at Daxue Consulting, told CNBC.

“Each specific application would receive its own unique set of regulations that builds on the existing legislature.”

[China] knows exactly when and where to keep his hand; close enough for him to exercise careful surveillance, but not close enough to cause irreversible harm to the industry.

Hanyu Liu

Chinese Market Analyst, Daxue Consulting

China also continues to censor content on its tightly controlled internet.

“We should also expect to see strict censorship, which means there will most likely be an isolated Chinese metaverse, separate from the international,” Liu said.

According to analysts, there are more specific pieces of regulation that could be used to manage the metaverse.

In January, authorities passed a set of regulations that govern how internet companies can use recommendation algorithms. This was followed by draft rules regarding so-called “deep synthesis” technology. This concerns software that could be used to generate or edit voices, videos or images or virtual settings. The two rules overlap.

“This overlap with the recent Algorithm Rule, as specifically required by the new rule, would have a significant impact on Metaverse companies in China,” Ma said.

Learn more about China from CNBC Pro

Even Chinese cities and regions are looking for opportunities for the metaverse. Last year, the major city of Shanghai mentioned the metaverse in its five-year information technology industry development plan.

“China is extremely smart about this. They know exactly when and where to keep their hands on it; close enough to be able to watch carefully, but not so close as to cause irreversible harm to the industry,” Liu said.

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