China is eyeing the metaverse as the next internet battleground

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China’s first metaverse business body, the Metaverse Industry Committee, was established last week under the auspices of the state-run China Mobile Communications Association (CMCA).

Former vice-minister of the ministry of science and technology Wu Zhongze spelled out the high stakes of the incipient metaverse at the launch event (link in Chinese), which took place in a conference room draped with the Chinese Communist Party’s hammer-and-sickle flag. He made it clear that it was not a transitory fad or a meaningless slogan, but rather a crucial trend to capitalize on as China attempts to solidify its worldwide technology dominance.

According to a CMCA synopsis of the event, “the metaverse will undoubtedly become a wind vane of global technological growth in the coming decade, as well as a new high ground of rivalry in the digital economy of all countries.”

Despite the fact that virtually every other digital business is talking about the metaverse—Facebook, for example, has gone all-in and renamed itself as Meta—there is no one comprehensive and commonly acknowledged explanation of what the metaverse is. This is primarily due to the fact that it does not yet exist. However, it is often assumed that it entails a three-dimensional online experience that combines (and blurs) the real and the virtual.

Why China sees the metaverse as a global rivalry

A new book on the metaverse, published by state-owned CITIC Publishing and co-authored by Yu Jianing, the executive director of the Metaverse Industry Committee and former head of China’s industry ministry’s industrial economics research center, outlines six significant metaverse themes (link in Chinese). Deep integration of the digital and real economies; data as a primary asset; and globalization of digital and decentralized finance, or DeFi, are just a few of them.

These developments correspond to China’s declared strategic aims for the internet business, and the digital economy in general. The government sees data as a component of production and has built a new legislative framework to ensure that internet companies’ data is under strict control. While the internet economy is vital, Xi Jinping has emphasized (pdf) that the “real economy is the basis,” and he extolled the necessity of combining the digital and real economies in a different address (link in Chinese) last month.

Professor Shen Yang of Tsinghua University’s School of Journalism sees the metaverse as having the potential to help Xi achieve his goal of combining real and virtual economies. Shen claimed in a recent interview (link in Chinese) with the Chinese financial news site Jiemian that revenue created in the metaverse may be “[fed]… back to the actual world” and thus establish a “healthy economic system.”

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

The metaverse may develop as a space where China’s cautious, strategic policy actions might position the government to gain power and supremacy over other actors. Beijing is accustomed to this strategy, having used it to gain a foothold in key areas such as electric cars and rare earth.

In a September paper, Zuo Pengfei, a researcher at the state-affiliated Chinese Academy of Social Sciences, stated that the metaverse offers China “huge prospects and revolutionary implications” (link in Chinese). He went on to say that the government should “seize the potential in future global rivalry” over the metaverse by ensuring that both private and state-owned IT enterprises proactively stake out key positions in the market so they can “overtake [competitors] on the bend.”

Will Beijing’s cyber-repression reach the metaverse?

China’s metaverse-related equities, such as game maker ZQGame and IT solutions provider Hubei Century Network Technology, witnessed a significant jump in the days after Mark Zuckerberg revealed late last month that Facebook is now Meta, showing the market’s bullishness on the notion.

Chinese IT firms are also joining the fray. Tencent, the world’s largest social media company, has stated that it has the skills to construct the metaverse and that Beijing will assist its efforts. NetEase, a video game company, and Baidu, a search powerhouse, have both registered metaverse-related trademarks, with NetEase’s CEO boasting (in Chinese) that his company will “run faster than anybody else” in the metaverse race.

The Chinese official media, on the other hand, was ready to scoff at this metaverse-fueled rally. Last week, the Communist Party-backed Economic Daily issued an editorial (link in Chinese) warning about the “undesirability” of “hot speculation” in metaverse stocks. And the item was promptly reproduced by the People’s Daily (link in Chinese) and the state-run tabloid Global Times (link in Chinese). As a result, Chinese metaverse stocks fell.

Zuo, the researcher, warned in a recent interview (link in Chinese) with China News Network that the metaverse has an “inherent monopoly gene,”. And that care must be made to “prevent the metaverse becoming monopolized by a few forces.”

Of course, the comment is made in the context of China’s regulatory assault on internet companies, which is based on the assumption that they have monopolized the market through anti-competitive activity.

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