China’s Vision of the Metaverse and the Players Bringing it to Life

The Great Beyond: China’s Metaverse

HomespotlightThe Great Beyond: China's Metaverse

By Hanyu Liu, project manager at Daxue Consulting; edited by Noga Feige, Senior Editor of Ticker Magazine.

This article was originally published in the German Chamber Ticker magazine, Fall 2021 edition.


The summer of 1991, when the World Wide Web was made available to the public for the first time, was the moment our definition of human interaction fundamentally and irrevocably changed. Now, more than four decades later, it seems we are at the cusp of yet another paradigm shift — the arrival of the metaverse.

While still very much in its conceptual phase and thus lacking in official definition, many interpret the metaverse as the amalgamation between the real and virtual worlds. In most parts of the globe, it is expected to function in a similar fashion to the modern internet: decentralized, powered by user-generated content. A utopia for individual expression. However, certain nations have different ideas on how digital social platforms should be legislated and used, in particular China.

As one of the most heavily-regulated social environments in the world, it would seem the core concepts of the metaverse are at direct odds with China’s one nation, one vision ideology. Yet, as a nation of progress with technological development at the heart of its 14th Five-Year Plan, China cannot afford to look away. The metaverse will inevitably take root in China, and China will inevitably become one of its biggest markets. The only question that remains is – how will such an integration take place, and what face the metaverse will don by the end of it.

China’s Main Players: A Closer Look

The metaverse is no doubt the next phase of the digital revolution. Given the current pace of technological development and innovation, what we currently perceive as science-fiction could become a reality in less than a century. Shopping at the mall from the comfort of your bedroom through virtual reality (VR) headsets, attending a virtual concert so real it’s as if you are there, and even making a living through investing in digital real estate are all within the realm of possibility. Any nation or company that falls behind this trend will ultimately face the risk of being isolated from a thriving, global, digital ecosystem – a risk China is less than willing to take. In other words, China’s relative leniency on the subject of the metaverse can in many ways be attributed to competition from major players from the West, such as the newly re-branded Meta (formerly Facebook). Taking advantage of this ‘grace period,’ China’s tech giants, namely Tencent, Baidu, and Alibaba, are among the quickest to invest in and experiment with potential applications.


Tencent and Gaming

Microsoft’s USD 68.7 billion acquisition of gaming company Activision Blizzard in early 2022 stands as a testament to the potential of gaming in the metaverse. While Blizzard’s popularity played a role in this acquisition, the company games’ potential for application in the metaverse was also a major driver behind this purchase, a fact confirmed by Microsoft’s CEO Satya Nadella.

Gaming, in essence, is the immersion of one’s self within a virtual world via the proxy of a digital avatar. This directly aligns with one of the metaverse’s key concepts: to erase the line between what is perceived as ‘real’ and ‘virtual.’ Further propelling this is the recent implementation of Non-Fungible Tokens (NFTs), which leverage blockchain technology to provide users proof of ownership over fully-digital assets. NFTs, together with the relatively lower technological requirements of metaverse integration for gaming purposes, make the gaming industry the ideal gateway – and likewise one of the biggest potential markets – for the metaverse today.

Tencent is no stranger to the gaming industry: Tencent Games account for 31% of the company’s total revenue in Q2 of 2021. It also holds a 40% stake in Epic Games, better known as the developer of the popular game Fortnite, commonly regarded as a pioneer in metaverse gaming. Fortnite allows players to dress their characters in different clothing styles, some of which the player must pay for using real currency. Moncler and Balenciaga are among the brands to take advantage of this trend, launching exclusive clothing lines within the game for players to purchase for their avatars. Virtual concerts have also been held within the game, featuring popular music artists such as Ariana Grande and Travis Scott. In both these cases, the game succeeds in realizing the integration of real-world products and experiences into a virtual system. Tencent’s stake in this digital universe, along with having filed over 4,000 patents for VR-related technology between 2020 and 2021, suggest the company is fully armed and ready to take the plunge into the gaming branch of the metaverse market.


Baidu and Lifestyle

On December 27, 2021, Baidu launched its own metaverse platform Xirang, or ‘Land of Hope.’ Above all, the purpose of Xirang was to showcase what could be accomplished through the metaverse. Registered users were able to customize their own avatars and enter a virtual city where they could engage in various activities, such as talking to other users, attending virtual meetings and seminars, viewing art exhibitions, and visiting tourist attractions rendered in 3D, such as the Shaolin Temple. Using Xirang as groundwork, Baidu is well-equipped to either optimize or create from scratch an unlimited variety of digital environments.

However, it is important to note that, unlike Western iterations of metaverse platforms such as The Sandbox, users in Xirang were not allowed to manipulate or interfere with the actual environment, nor were they able to claim ownership over any digital assets. Though this could be attributed to the fact that Xirang was, for the most part, a showcase, user autonomy and world-building are considered integral components of ‘traditional’ metaverse platforms. Players in The Sandbox, for example, are able to buy real estate, design and build their own homes, and create their own pets. The fact that Xirang did not offer any method of environment manipulation could give us a glimpse of what China’s future metaverse platforms could look like—glamorous, centralized virtual worlds, where users can traverse as guests, but not as creators.

On the more practical side, Baidu has established a digital avatar creation platform, Xiling, where users may generate unique digital avatars and adapt them to different media outlets, such as radio or short-video apps. Aside from personal avatars, the platforms also allow the creation of virtual idols and influencers for marketing purposes. While Baidu doesn’t seem to have a concrete direction of where they want to take their metaverse like Tencent, the creation of Xirang and Xiling should be taken as a sign of interest from the tech giant.


Alibaba and Retail & Marketing

While most other Chinese tech firms are still testing and figuring out what the metaverse can do, Alibaba has already begun to use it as a means of generating revenue through virtual key opinion leaders (KOLs) and virtual shopping.

Alibaba’s Tmall introduced its futuristic Buy+ in 2016 — a virtual shopping platform where the shopper is placed in a 3D recreation of a real shopping location and can make purchases through the app. The platform was never popularized due to the hardware required to access the app — a VR headset — which was not a household commodity at the time. It did, however, lay the foundation for Tmall’s more recent metaverse shopping projects.

In 2020, Tmall announced the release of a 3D mapping technology that allowed businesses, in particular home-furnishing brands, to map out the interior of physical stores and present them as virtual showrooms, without the need for VR headsets. Many Tmall partner brands were quick to apply for the use of this technology, with IKEA being the first to have it realized. IKEA now provides a virtual shopping experience with over 3,800 products on display.

Alibaba has also been able to leverage China’s virtual idol boom through its Tmall platform. According to iiMedia, a China-based data-mining organization, the virtual idol industry in China was worth roughly USD 540 million in 2020. Among the most popular of these virtual influencers is Ayayi, who curated a virtual luxury art gallery during Tmall’s 2021 Double-Eleven sales event, featuring prominent brands such as Coach, Burberry, and Emporio Armani. Given China’s current crackdown on celebrities and idol culture, the virtual influencer and metaverse marketing industry have nowhere to go but up. In addition, major celebrity scandals, such as Kris Wu’s arrest over sexual assault, have burned the fingers of many partner brands. With virtual influencers, companies do not have to worry about any PR-related incidents, with the added bonus of their AI partners not having to rest, and being present at multiple locations at once. While Alibaba may have been one of the first to take advantage of metaverse marketing, it will certainly not be the last.

Metaverse in China and the 3 Big ‘C’s

Despite China’s relative openness toward the development of the metaverse, we should not expect to see a metaverse environment identical to that abroad. Taking into consideration recent legislation and the country’s internet regulations, the metaverse in China will most likely be defined by three ‘C’s: Controlled, Crypto-less, and Censored.



Metaverse platforms can generally be categorized into developer-led, like Xirang, and user-led, like The Sandbox. In the case of China, it is highly unlikely that we will see any major user-led metaverse hubs. The first reason for this is China’s overall wariness of the metaverse: with the total number of metaverse-related trademark applications exceeding 16,000, China is at risk of losing control over the industry, should it let a bubble form unattended. Compared to a scattered array of small, user-driven metaverse ecosystems, China would much prefer to have a few large, closely-watched platforms led by trusted domestic big-tech firms.

Delegating the development of China’s metaverse to a few select firms is also a way for the government to account for user spontaneity (think scams, indecent content, and discussion of restricted topics). It will also be much easier for the government to roll out blanket policies, such as restricting access to certain metaverse platforms for those below the age of 18, which experts believe will be one of the first regulations to be implemented.

It is no wonder, then, that almost all of the 16,000 aforementioned trademark applications were outright rejected.



In September 2021, China announced a sweeping ban on all cryptocurrency-related activities, including mining. While the main driver of this ban is most likely China’s perceived volatility of the crypto market, a less-discussed contributing factor could be capital flight. While China caps annual exchange of foreign currencies at USD 50,000, individuals could potentially enter a policy gray area and bypass this restriction by purchasing decentralized crypto. Independent research organization Chinalysis estimates that between 2019 and 2020, capital flight from foreign crypto exchange could have reached upwards of USD 50 billion. China’s act of isolating its crypto market should also be taken as a hint that China may be planning to construct a domestic-only metaverse ecosystem, cut off from its counterparts abroad.

While many are under the impression that such bans spell the end of China’s metaverse dream, this is not the case. The Blockchain Service Network (BSN), a state-monitored blockchain firm, is the answer to this dilemma. China is not so much worried about crypto itself, but more so about not being able to oversee the market. While decentralized crypto may be banned, controlled operations will continue to thrive. Just this January, Beijing announced blockchain trial zones in 164 entities across major Chinese cities, including Beijing and Shanghai. The BSN is also developing an infrastructural platform that will allow businesses and individuals alike to make, purchase, and sell NFTs. The ban of decentralized crypto in China is far from the deal-breaker it is made out to be. The Chinese government is sure to implement relevant compensatory measures, such as propagating the digital Yuan as a substitute.



Lastly, it must be mentioned that China’s metaverse will be a heavily censored environment. Whether it’s through keyword detection, use of hired moderators, or user-level reporting mechanics, there will be plenty of ways for what should not be seen to remain unseen.

On the one hand, this does hold potential benefits — something rarely discussed when it comes to censorship. A close watch by the government is a powerful deterrent for illegal activity and other means of abusing the platform, including cyber-bullying. An ID restriction will help keep minors away from harmful content, and the level of accountability generated by legitimate, centralized platforms will make users feel safer when making transactions.

On the other hand, strict censorship in some ways defeats the purpose of the metaverse itself. Much like the internet, the growth of the metaverse ecosystem will depend on the users’ dedication. Excessive censorship could result in the stagnation of this growth, with users being disillusioned with a social platform that limits creativity and their freedom of expression as individuals.

Regardless, the approach of the metaverse cannot be stopped, and whether in China or out, will without a doubt change the world as we know it, both virtual and real.


Hanyu Liu is a project manager at Daxue Consulting. As a China market analyst, he specializes in tech sectors and was featured in BBC, CNA, and CNBC.

Daxue Consulting is a China-focused market research and management consulting firm, with a mission to answer complex China market questions through traditional methodologies and tech tools. With offices in Beijing, Shanghai, and Hong Kong, the firm has over 400 clients and 600 completed projects.


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