The emergence of the Metaverse has captivated the imaginations of millions and revolutionised the way we perceive and interact with digital realms. Originating from science fiction, this virtual universe concept has quickly evolved into a tangible one, blurring the lines between physical and digital realities and promising an exciting future.

The term “Metaverse” was first coined by author Neal Stephenson in his 1992 science fiction novel Snow Crash. Stephenson envisioned a vast virtual universe where users could immerse themselves in various interconnected worlds, engaging in real-time activities and interactions. Over the years, the concept has been further developed, with its definition evolving to describe a collective virtual shared space that encompasses augmented reality (AR), virtual reality (VR), and the internet.

While the Metaverse has been an intriguing concept for decades, the Covid-19 pandemic undeniably accelerated its adoption and widespread recognition. As physical distancing measures forced people to stay home, virtual environments became an escape and a means of social interaction. From virtual meetings to virtual events, the pandemic highlighted the potential of the Metaverse to bridge the gap between physical and digital spaces.

Additionally, the impact of the pandemic on industries such as retail and entertainment compelled businesses to explore new avenues for engagement and revenue generation. Many turned to the Metaverse as a platform to host virtual stores, concerts and exhibitions, creating immersive experiences that transcended physical limitations. With advancements in technology, the lines between physical and digital realities will continue to blur, offering new opportunities and challenges. Enhanced connectivity and AR and VR innovations will further enrich the immersive experience within the Metaverse.

The integration of blockchain technology and cryptocurrencies will also bring decentralisation, digital asset ownership, and a new economy to the Metaverse. Non-fungible tokens (NFTs) have already gained traction, allowing users to buy, sell, and trade virtual assets such as digital art, virtual real estate, and in-game items. This paves the way for new revenue streams and business models, empowering creators and entrepreneurs within the Metaverse ecosystem.

The Metaverse presents companies and retail businesses with a plethora of opportunities to redefine their operations and engage with customers in innovative ways. By establishing a presence in the Metaverse, businesses can transcend geographical boundaries, reaching a global audience without physical limitations.

Virtual stores within the Metaverse provide an immersive shopping experience, allowing customers to browse, try on virtual garments, and make purchases within the digital realm. Brands can also use the Metaverse for product launches, allowing consumers to experience new offerings in a dynamic and interactive manner.

The Metaverse also enables businesses to harness the power of data and analytics. By collecting user preferences and behaviour within the virtual environment, companies can gain valuable insights to personalise their offerings and improve customer experiences. This data-driven approach can drive sales, build customer loyalty, and refine marketing strategies.

Several British companies have embraced the Metaverse, using AR and VR technologies to enhance their retail experiences. In 2019, ASOS, the popular online fashion retailer, experimented with AR technology by launching the ASOS Virtual Catwalk, allowing users to explore different angles, details, and sizes of clothes with models walking in virtual outfits.

Luxury automotive brand Jaguar Land Rover incorporated VR into its retail experience by introducing the Jaguar I-PACE Concept VR Experience. Customers could virtually explore and interact with a life-sized version of the electric vehicle using VR headsets. This immersive experience allowed potential buyers to visualise the car’s design and features before its physical release.

Harrods, the renowned luxury department store in London, embraced AR technology by launching a virtual pop-up store in partnership with the British fashion brand Charlotte Tilbury. Customers could use the Harrods app to scan QR codes displayed in-store, which would bring up AR experiences showcasing Charlotte Tilbury’s products and tutorials, enhancing the physical shopping experience.

While the Metaverse is currently experiencing widespread adoption and capturing the attention of both individuals and businesses, its role in retail businesses is likely to evolve over time. Initially, it may be seen as an optional luxury, providing early adopters with a competitive edge and offering unique experiences to customers. However, as the Metaverse becomes more integrated into everyday life, it has the potential to become an essential part of retail businesses.

As consumers increasingly embrace digital experiences and seek convenience, retail businesses that fail to adapt to the Metaverse may risk falling behind their competitors, argues China business consultant Simon Boyd. By providing a seamless transition between physical and digital spaces, companies can future-proof their operations, cater to evolving consumer preferences, and tap into a rapidly growing market. However, John Gearing, an independent consultant who has had success with many companies in China, warns companies to take it slowly.

“There are always a lot of ‘shiny new objects’ for consumer brands and retailers to spend money on,” he says. “Remember holographic windows and smart mirrors? Certainly, the Metaverse could be huge but are we already seeing something bigger and better coming along with Apple’s virtual headset? Or will all of this come together somehow?

“In China, when technology sticks, it proliferates,” he says, using cashless payments as an example. “But not everything sticks, especially in its early incarnation. It’s wiser to be an early adopter than a trailblazer. The former allows a business to get on the bus quickly but lacks the inherent risk of the latter.”

China has a strong Metaverse ecosystem, and China has been a significant player in the development and adoption of VR and AR technologies, which are integral to the Metaverse experience.

Tencent, Alibaba and Baidu have been at the forefront of Metaverse development. Tencent, in particular, has made significant investments in the Metaverse space, with its social media and gaming platforms serving as key components of the ecosystem. Alibaba has also ventured into the Metaverse with its virtual shopping platform, Buy+, allowing users to browse and purchase products in a virtual store environment. The company has been exploring the integration of VR and AR technologies into various aspects of e-commerce, enhancing the customer experience.

In addition to these tech giants, a growing number of start-ups in China are focused on Metaverse development. These companies are creating virtual worlds, social platforms, and immersive experiences tailored to Chinese consumers. Many of them leverage advanced technologies like artificial intelligence, blockchain, and 5G to enhance the Metaverse experience.

China’s gaming industry is also closely intertwined with the Metaverse. The country is the largest gaming market globally, and Chinese game developers and publishers have been actively exploring the potential of the Metaverse within the gaming space. This includes the creation of virtual worlds, multiplayer experiences, and in-game economies.

Furthermore, the Chinese government has shown support for the Metaverse industry. It has included Metaverse development as a part of its national policy framework, highlighting its significance in driving innovation and economic growth. This support, combined with China’s robust tech infrastructure and a large user base, has contributed to the growth and success of the Metaverse ecosystem in the country.

Overall, China has a thriving Metaverse ecosystem, with strong participation from tech giants, startups, and the gaming industry. The country’s technological advancements, government support, and the enthusiasm of Chinese consumers have created a fertile environment for Metaverse innovation and adoption.

The Metaverse has evolved from a fictional concept to a tangible reality, reshaping the way we interact, work, and engage with businesses. The Covid-19 pandemic expedited its adoption, highlighting its potential as a virtual escape and a platform for immersive experiences. As we look to the future, the Metaverse promises to bring forth new opportunities for companies and retail businesses, revolutionising commerce and redefining customer engagement. While currently seen as an optional luxury, the Metaverse may soon become an essential component of retail businesses, enabling them to thrive in an increasingly digital world.China Consumer 2023

This article was produced as part of a series for China Consumer 2023.

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As non-fungible tokens (NFTs) continue to expand their global foothold, even China could not resist embracing these digital assets, with the recent launch of the country’s first state-backed marketplace for NFT trading. The surprising announcement on 27 December 2022 was followed by a ceremony on the first day of the new year, commemorating the opening of the secondary market.

The platform has a hybrid state-owned/private ownership structure, including China Technology Exchange (a platform that also oversees intellectual property exchange), Art Exhibitions China and Beijing-based Huaban Digital Copyrights. Existing on the blockchain known as China Cultural Protection Chain, the initiative was designed to facilitate the trading of copyrights related to digital assets.

“Because the platform and blockchain are run by the state rather than a private company, the nature of the new initiative is centralised, rather than decentralised,” Dr Christina Yan Zhang, CEO of The Metaverse Institute told Dao Insights. “All NFTs powered by the chain will belong to the entity in control of the chain, not users, as is the case with Ethereum or a number of other blockchains.”

While echoing the centralised nature of this new initiative, Shirley Wong, CEO of Shix.io, a Web3 consulting service platform, also viewed this mechanism as being able to help “control the quality of the NFT products and make sure traders are verified”.

“I think [the Chinese government] started to realise that NFTs are different to cryptocurrencies and that these digital assets can be used in multiple ways, benefiting businesses, especially smaller enterprises looking to engage consumers [by] fundraising and to help the government enter new markets as well,” Wong continued. “But if they stick to a centralised approach, that will limit the growth of the NFT market.”

Cryptographic assets, which can be anything digital such as paintings or a piece of music, have long occupied a legal grey area in China given the government’s dislike of cryptocurrency, and have been rebranded as “digital collectibles”, indicating collectability but not tradeability, and therefore sidestepping the country’s strict regulations on decentralised digital money.

The birth of the first national-level NFT market space is, therefore, regarded as a sign of the crypto-less country finally giving the green light to NFT-related secondary trading activities and setting standards for the market to follow. At present, the platform has a strong focus on digital replicas of traditional culture, with historical relics being the centrepieces. But Wong believes that the new marketplace could have more to offer. “If the Chinese government only uses it to make cultural projects, that would be a bit disappointing,” Wong said. “It could be a good start, but they should realise there’s more potential with NFTs in the wider B2B and B2C sectors, which would be more sustainable.”

On top of that, analysts view the platform as a way for the country to spur domestic demand, especially with a global recession believed to be looming in 2023. “Digital assets are an important part of the digital economy, which the government strives to further drive growth out of in a bid to get out of the economic downturn and achieve the 5.5% growth target,” said Dr Zhang. “But to date, the Chinese government has imposed restrictive rules on [NFT] trading.”

While global NFT marketplaces such as OpenSea are blocked in China, alternatives have been created by the country’s tech giants, including Alibaba, JD.com and Tencent, who gave birth to the primary digital collectible platforms Topnod (or Jingtan in Chinese), Lingxi and Huanhe, respectively. Users can buy and collect NFTs on those platforms, but trading or reselling are banned.

In March 2022, Tencent’s super messaging app WeChat shut down over a dozen public accounts – all of which were small and medium-sized platforms promoting digital collectibles – on the grounds of “unlicensed business activities” and “suspected fraud”. Adding to the gloom was Huanhe’s announcement last August that it was halting future sales, citing a “focus on the company’s core strategic considerations.” The news cooled China’s NFT landscape even more, with some even viewing it as a “burst of the NFT bubble.”

The troubles encountered by the NFT sector at home coincided with a global NFT market slump in the aftermath of the collapse of FTX, one of the world’s largest cryptocurrency exchanges, resulting in a general loss in confidence in digital assets. Although this situation might have reinforced China’s dislike of cryptocurrency, it is still taking strides to build its own digital infrastructure and steering clear of crypto coins while not missing out on the NFT craze.

It has been reported that BSN Spartan Network, a new international network for public blockchains that excludes cryptocurrency, has been launched by China’s Blockchain-based Service Network (BSN), a state-backed digital infrastructure company. The latest move by the Chinese government “could lead to people rethinking the future of NFTs and changing the negative perception around the wider digital assets and Web3,” Dr Zhang observes.

Although she believes that there is still little chance of China fully embracing NFTs, Dr Zhang sees a brighter climate for China’s NFT market in the years to come. According to iiMedia, the sector is set to hit a value of RMB 28 billion (£3.39 billion) by 2026 after the opening of the secondary market, 100 times that recorded in 2021. Speaking about currencies for NFT transactions, Dr Zhang said, “It is possible that in addition to the digital currency issued by China’s central bank, there could be state-backed stable coins issued on a private chain, with the participation of private companies – a form of public-private partnership.”

China may be waking up to the global NFT sensation, but a market space that can be integrated into the global NFT landscape is still a long way off. Nevertheless, this latest state-backed initiative opens up new avenues for market players in China to leverage the country’s technical advances to stimulate growth while also introducing new solutions for global counterparts to reconsider their approach to these new technologies.

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“Metaverse” has become a new buzzword in China, bringing about a host of new and exciting business opportunities. Chinese technology companies have begun testing the water by developing metaverse-type apps, trademarking metaverse-related phrases, and investing in the VR/AR segment.

The official attitude toward the metaverse has been mixed so far, but it is clear that the Chinese government increasingly sees the metaverse as a powerful technology of great potential and intends to promote the metaverse as a major innovation and revenue source.

On 1 November 2022, the Ministry of Industry and Information Technology (MIIT) jointly released a four-year action plan with five other regulators to integrate virtual reality tech with industrial applications. This action plan is regarded as China’s first national-level policy that supports metaverse development. While the policy does not explicitly mention the metaverse, it urges authorities to create the fundamental technologies that support immersive AR, VR and mixed-reality experiences. The plan’s top objective is to achieve significant technological advances in virtual reality by 2026. This calls for innovation in fields like full-body motion capture, gesture, eye, and expression tracking, and technologies for rendering graphics.

Which Chinese tech giants are investing in the metaverse?

Whether it is about creating a parallel, computerised version of reality, or enhancing the sensorial perception of human experience in the real world, both VR and AR technology represent the premises upon which China is strengthening its version of the metaverse – which is the natural next step for businesses and startups especially in (but not limited to) the tech world.

According to a recently published report by Morgan Stanley, Chinese netizens seem to be particularly intrigued by the metaverse (in Chinese: 元宇宙 yuányǔzhòu), and leading Chinese tech firms have already begun to invest in a market that may be worth up to US$8 trillion in the future.

Baidu

Baidu was the first company to launch a metaverse app in December 2021, under the name “Land of Hope” (in Chinese: 希壤 xīrǎng), which signalled the entry of the Chinese tech giant into the global metaverse rivalry. Through the creation of avatars, the software allows users to engage in a virtual environment. The app debuted in January 2022, introducing users to several virtual scenarios that combine Chinese history and futuristic designs – a sci-fi-inspired version of the ancient Shaolin Temple is a brilliant example of this.

Tencent

Tencent, the Chinese world-leading internet and technology company behind WeChat, has done several things to make its social offerings more virtual – for example, with the launch on the QQ platform of a new feature called Super QQ Show, which introduced a 3D interactive space where users can interact and play games together. Sounds familiar? The idea was earlier launched by the company and restored with the necessity to resist upcoming competitors in the field.

In 2022, an app called Jelly (in Chinese: 啫喱 zhě lí), which is developed and owned by Beijing Yidian Entertainment Technology Co., Ltd., allows users to create online avatars of themselves and engage with up to 50 friends. It surpassed WeChat to become the most downloaded app in China’s iOS store on 8 February 2022, becoming the first social media app to beat WeChat in several years. Even though the programme encountered delays and crashed due to the large number of users connecting at the same time, leading to the temporary suspension of new account requests, it still represents a valuable lesson for the tech giant on the direction where it is wiser to invest.

ByteDance

The parent firm of TikTok, ByteDance has designed two metaverse apps: Party Island (in Chinese: 派对岛 pàiduì dǎo), for the Chinese market, and Pixsoul for the Southeast Asian one. The two programmes allow users to create virtual avatars with which they can communicate with their friends. The company clarified its vision for these projects, which are intended to represent an alternative to the metaverse since they are undergoing modifications and are only available with a unique invitation code.

Are Chinese consumers interested in the metaverse?

The metaverse continues to pique the imagination of Chinese consumers. According to Newzoo, 78% of them are interested in interacting within gaming worlds — in contrast to 57% in the United States and 47% in the United Kingdom. Moreover, data indicate that 82% of those who are interested in the sector also feel very optimistic about the metaverse’s potential benefits (again, the numbers sharply surpass those in Western countries).

In addition, virtual reality and virtual idols are already booming in China, comprising an industry that is worth RMB 51 billion (£6 billion) and RMB 3.5 billion (£413.6 million), respectively. Their success lies in the fact that Gen-Z consumers relate more easily to these intermediaries, who resemble familiar anime characters. Moreover, they are also a safer alternative for traditional influencers as they eliminate human errors and are easier to deal with. This is the case for Ayayi, China’s first meta-human, who was launched in May 2021 by Ranmai Technology and who has already joined Alibaba, recently taking on the role of digital manager of Tmall Super Brand. Another example is Luo Tianyi, a 15-year-old virtual performer whose Weibo account (@Vsinger_洛天依) has more than 5 million followers. In view of this, more companies and content-sharing platforms are employing this medium to attract younger generations of users.

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A version of this article was first published as ‘China’s debut in the Metaverse: Trends to Watch’ by Dezan Shira & Associates’ China Briefing 

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The introduction of the Beijing Action Plan for Promoting the Innovation and Development of the Digital Human Industry back in August means China now has its first action plan setting out special policies designed to support the development of digital humans (also known as meta humans). It lays out Beijing’s ambition to become a national vanguard in a burgeoning new field, which is set to hit a market scale of RMB 50 billion (£6.21 billion) by 2025.

The domestic Web3 race is already on, with Shanghai revealing its own blueprint for the metaverse and development of relevant technologies in January, envisioning revenue of RMB 350 billion (£43.48 billion) from the sector by 2025. Beijing’s acknowledgement of this sector and its impact on the development of the wider digital economy has furthered its significance, and more importantly, signalled China’s intention to set standards in the emerging sector.

As a front-end application in the commercialisation of Web3, which is a new iteration of the Internet – think buzzwords such as decentralisation, metaverse and blockchain technologies – digital humans are viewed as a “certainty amongst Web3’s uncertainties”. As a result, the segment has naturally become the focal point at this preliminary stage of China’s wider building of a Web3 economy.

Although an outright definition of digital humans is not provided in the plan, the Beijing Municipal Bureau of Economy and Information Technology (the authority that issued the plan) describes the technology as “a digital anthropomorphic application,” which is a “core technology” in the Web3 ecosystem. To date, applications of this concept in China includes virtual influencers such as Ayayi, Liu Yixi, and Ling, covering practices ranging from brand marketing campaigns to live streaming and AI sign language presenting.

The employment of digital humans in the entertainment industry has also seen significant growth, with the local Beijing authorities seeking to accelerate the innovation of performative virtual beings, speeding up their review process for recreational activities such as TV shows, concerts, movies and live streams. This is well aligned with the city’s other aspiring project that aims to turn two to three local districts into “high quality” bases for live streaming e-commerce by 2025. These efforts are coupled with support for new “boutique” digital human IPs, as well as facilitating brands in adopting virtual humans in their marketing practices.

In addition to the entertainment side, in the foreseeable future, Beijing residents can also expect the presence of digital humans in online smart banking and offline customer services, as well as places of interest and other cultural attractions, as Beijing looks to push the wider application of digital human beings in various scenarios including finance, business and hospitality.

However, as much as there is a determination to drive the growth of the sector, some think the government is intending to further rein in the tech industry by leveraging the domestic hype for digital humans, according to analysts quoted by Rest of World. These intentions have been signposted in the plan, with an emphasis on personal information security and “positive energy” – a universal term for politically correct, feel-good content – which were also cornerstones in China’s crackdowns in the tech and entertainment industries.

Like almost all user-facing applications in China, users of any new Web3 technologies are likely to be required to tie their digital personas to their real identity via the so-called real-name verification process. The rationale behind this, on one hand, is to deter scams, misinformation and other harmful actions that users could perpetrate against on another.

However, as Hanyu Liu, an analyst of China’s metaverse and gaming industries at Daxue Consulting explains: “On the other hand, it means any data the platform collects by anyone playing or interacting with a digital human are all tied to a user’s real-life identity.” This allows the authorities to scrutinise users’ activities in the new online space, centralising what is believed to be a “decentralised” ecosystem.

This approach will then aid the government in maintaining its overall control amid the transition into the digital economy considering the broader installations of virtual beings in some of the country’s core sectors. Additionally, it would pave the way for China to build another digital landscape that is different from the rest of the world in the ongoing global metaverse race.

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