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China tech

China's frenzied metaverse poised to balloon into $50bn business

Regulators react to growing pains of fast-moving and overheating market

Chinese tech giant Baidu released XiRang in December as China's first fully-accessible metaverse. (Photo by Takashi Kawakami)

GUANGZHUO -- China's fledgling metaverse sector is on track to grow into a market exceeding $50 billion by the middle of the decade, with signs of an overheating industry drawing the attention of regulators.

The metaverse social app called Jelly made headlines in mid-February when it replaced WeChat as the top-ranked free iOS app. WeChat, the social media platform that boasts over 1.2 billion users, had held the crown since 2019.

Inside Jelly, people can create 3-D avatars and interact with friends. First released in January, it became an overnight sensation.

But the buzz also brought attention to a host of glitches, such as system latencies. Just a few days after Jelly took the top spot on the Apple Store, the startup behind the app, Beijing Yidian Shuyu Technology, announced it would remove the app for large-scale upgrades. To date, official downloads of Jelly remain suspended.

Honnverse, another metaverse app, has also been at the center of controversy. Services launched on a pilot basis in October, and users were allowed to purchase "real estate" in the virtual space.

The feature opened up a frenzy of asset flipping. At the end of last year, some properties were being traded at prices well above $15,000, according to Chinese media.

After a firestorm of criticism, Honnverse operators implemented restrictions on property transfers. At present, the app is not accepting new user registrations.

The setbacks surrounding Jelly and Honnverse illustrate the frantic environment surrounding the metaverse. The two apps were swamped by users during their early stages, resulting in developers being forced to address highly publicized issues.

The metaverse became a focal point in China starting around the summer of 2021. There have been over 16,000 applications for metaverse-related trademarks through February of this year, according to local media.

More than 1,500 companies are believed to be behind the trademark applications, spanning a wide range of sectors from tech to automaking, even to banking.

Chinese brokerage Everbright Securities estimates the metaverse market will grow to at least 340 billion yuan ($53 billion) by 2025.

But Chinese authorities are growing increasingly vigilant of the overheated sector. Almost all metaverse trademark applications have yet to be processed.

In February, the China Banking and Insurance Regulatory Commission issued a warning that some actors are illegally raising funds under fake projects using the word "metaverse." The agency also noted that the metaverse is linked to speculative real estate investments -- which was seen as a veiled reference to Honnverse.

There are some metaverses that are gaining support without issues. One of the biggest names is Reworld, where users create and share games. The service and its teenage demographic are similar to those of U.S.-based Roblox, which has been described as a YouTube for games.

An app called Soul, which matches avatars based on common interests and other attributes, boasts a user base that has surpassed 30 million accounts. On the hardware side, Pico Technology has grown deliveries of virtual reality headsets.

Big tech companies are moving to corner the up-and-coming metaverse startups. TikTok developer ByteDance invested in Reworld operator Beijing Code Qiankun Technology last April, then bought out Pico the following August.

Soul's operator is backed by Tencent Holdings, the tech conglomerate behind WeChat.

Tech giants are expanding into their own metaverses. In December, search provider Baidu released XiRang, which it calls China's first metaverse platform. In that space, users can take part in events or go sightseeing. Up to 100,000 people can connect to XiRang at any one time, says Baidu.

ByteDance is reportedly testing a social media metaverse that has not been made public yet.

Both ByteDance and Tencent will likely become the first movers in China's metaverse scene, according to brokerage Essence Securities. Not only does Tencent control a high share of China's social media market, but it also invests in several metaverse and metaverse-adjacent outfits.

Included in Tencent's portfolio is U.S.-based Fortnite publisher Epic Games. Fortnite Battle Royale has recently played host to live concerts that can be attended by the game's avatars. ByteDance anticipates that integrating technology from Pico and Reworld will fuel future growth.

But concerns have been raised about the risk of a further crackdown by Chinese authorities. China's tech industry has faced a tightening regulatory net, including a ban on transactions involving cryptocurrencies, which are expected to become a popular metaverse payment method.

China could end up cultivating its own ecosystem separate from U.S.-centric metaverses, in much the same way it has developed a parallel internet universe, further decoupling the two superpowers technologically. Some observers also predict a future where even virtual avatars are scrutinized by the government.

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