China is eyeing the metaverse as the next internet battleground

Sneak peek.
Sneak peek.
Image: Reuters/Stefanie Loos
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China last week launched its first metaverse industry group: the Metaverse Industry Committee, under the state-supervised China Mobile Communications Association (CMCA).

Speaking at the launch ceremony (link in Chinese), which took place in a conference room decorated with the hammer-and-sickle flag of the Chinese Communist Party, the former vice minister of the ministry of science and technology Wu Zhongze laid out the high stakes of the incipient metaverse. He made clear that it was no passing fad nor empty buzzword, but rather an important trend to seize on as China seeks to cement its global technological prowess.

“The metaverse will definitely become a wind vane of global technology development in the next decade, and will also become a new high ground of competition in the digital economy of all countries,” said Wu, according to a summary of the event by CMCA.

Even as seemingly every other tech company is talking about the metaverse—Facebook, going all in, even rebranded itself Meta—there is no single comprehensive and widely accepted definition of what the metaverse actually is. That’s largely because it doesn’t exist yet. But there is a general understanding that it involves a three-dimensional experience of the internet while combining (and blurring) the real and the virtual.

Why China sees the metaverse as a global competition

A new book on the metaverse, published by state-owned CITIC Publishing and co-authored by the executive director of the Metaverse Industry Committee, Yu Jianing—a blockchain expert and the former director of the industrial economics research institute of China’s industry ministry—sketches out six major trends of the metaverse (link in Chinese). Among them: the deep integration of the digital and real economy; data becoming a core asset; and the globalization of digital and decentralized finance, or DeFi.

Those trends map neatly onto China’s stated strategic goals for its internet industry and more broadly, the digital economy. The government regards data as a factor of production, and has erected a new legal infrastructure to ensure sweeping control over tech firms’ data. Chinese leader Xi Jinping has said (pdf) that while the digital economy is important, the “real economy is the foundation,” and in a separate speech (link in Chinese) last month he exhorted the importance of integrating the digital and the real economies.

Shen Yang, a professor at Tsinghua University’s School of Journalism, sees the potential of the metaverse serving Xi’s objective of integrating the real and virtual economies. Revenue generated in the metaverse, Shen said in a recent interview (link in Chinese) with the Chinese financial news site Jiemian, can be“[fed]… back to the real world” and thereby develop a “good economic system.”

And that’s not to mention the national security implications of the metaverse, as laid out in a recent report (link in Chinese) by an influential think-tank affiliated with the Chinese ministry of state security, including issues of “political security” stemming from some countries enjoying first-mover advantage in the shift to the metaverse, while nations with less digital prowess “may face the risk of being eliminated.”

For China, the metaverse may emerge as an arena where prudent, strategic policy decisions could position the country in a way that gives it leverage and dominance over other players. It’s a playbook that Beijing is familiar with, having used it to establish dominance in critical industries like electric vehicles and rare earths.

The metaverse presents China with “great opportunities and revolutionary effects,” Zuo Pengfei, a researcher at the state-affiliated Chinese Academy of Social Sciences, argued in a September article (link in Chinese). The country should “seize the opportunity in the future global competition” over the metaverse, he added, including by ensuring that both private and state tech firms proactively stake out strategic positions in the metaverse industry so they can “overtake [competitors] on the bend.”

Will Beijing’s tech crackdown extend to the metaverse?

In the days after Mark Zuckerberg announced late last month that Facebook is now Meta, China’s metaverse-related stocks, such as game developer ZQGame and IT solutions firm Hubei Century Network Technology, staged a dramatic rally, reflecting the market’s bullishness on the concept.

Chinese tech companies are piling in, too.  Social media giant Tencent said it has the capabilities to develop the metaverse, and believes Beijing will support its efforts. The video gaming firm NetEase and search giant Baidu have jumped onto the bandwagon of registering metaverse-related trademarks, and NetEase’s CEO has even bragged (link in Chinese) that his firm will “run faster than anyone else” in the metaverse race.

But Chinese state media was quick to pour a little cold water on this metaverse-fueled rally. Last week, the party-backed Economic Daily published a commentary (link in Chinese) warning against the “undesirability” of “hot speculation” in metaverse stocks, and the article was quickly republished by party mouthpiece People’s Daily (link in Chinese) and the state-run tabloid Global Times (link in Chinese). Chinese metaverse stocks slid in response.

In an interview (link in Chinese) last week with China News Network, Zuo, the researcher, cautioned that the metaverse has “an inherent monopoly gene,” and that care must be taken to “avoid the metaverse being monopolized by a few forces.”

That remark, of course, comes in the context of China’s regulatory crackdown on tech firms on the premise that they had monopolized the market by engaging in anti-competitive behavior.