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Illustration for SupChina by Derek Zheng

The metaverse, a concept world of virtual and augmented reality, including games and remote working environments, is the hot new thing for China’s tech investors. Here are the top 10 companies in the space.

Chinese investors are smitten by the metaverse, the immersive digital cyberworld where, they say, humans can interact and do practically anything: play games, assume virtual identities, take classes, work remotely, go to concerts, and, of course, buy stuff. The technologies that will become what is sometimes portrayed as the successor to the internet have gained much traction in the U.S. from Zuckerberg’s Meta, Google, Microsoft, Epic Games, and even Apple, but their Chinese counterparts are in hot pursuit.

Roughly 1,500 mainland Chinese companies have recently applied for trademarks related to the concept. According to PricewaterhouseCoopers, an auditing company, China’s metaverse market is set to grow 13% yearly to $1.5 trillion by 2030, and some like the bank Morgan Stanley have given astronomical valuations of $8 trillion in the coming decades.

But Chinese state-affiliated institutions have not shared the enthusiasm of the private sector. State-funded think tanks have decried the metaverse as a national security risk and the national IP regulator blocked metaverse-related trademarks. Last year’s government assault on games, social media companies, and the crypto industry showcased Beijing’s hostility to tech companies that underserve the “real economy,” and nothing could be further from “the real” than the metaverse.

So it came as a shock when the Ministry of Industry and Information Technology included the metaverse in a list of types of “innovative small and medium-sized enterprises” to support in the coming year, along with companies in blockchain and AIs. In the past few weeks, more voices in the establishment have come out in favor of the metaverse. The reason was best captured in a recent white paper by the China Institutes of Contemporary International Relations (CICIR), a state-run think tank affiliated with the Ministry of State Security:

[The content of Metaverse] requires artificial intelligence; the storage and authentication protocols require blockchain, the data processing requires AI, cloud computing, and cloud storage, the network environment requires 5G, and the virtual interactions require [virtual reality] software and hardware.

Like a star whose light gives life to the planets around it, the pursuit of the metaverse — whether China likes it or not — would bring heaps of capital and some of the best engineering minds on the planet to industries China wants so badly to dominate. To reach its goal of technological superiority, China may need the metaverse.

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Yuanchuang Metaverse, a Shenzhen-based think tank, rated all the relevant companies in China based on their technology, brand recognition, revenues, and future development potential. Here are the top 10:

1. Tencent

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Tencent (腾讯) is already China’s biggest contender for global metaverse supremacy. The media conglomerate already owns a hefty chunk of cyberspace real estate with irreplaceable apps like WeChat, Kogou Music (China’s Spotify), Tencent Meetings (China’s Zoom), and sizable stakes in other global metaverse players in their own right, including Fortnite creator Epic Games (40%), Activision Blizzard (5%), Ubisoft (5%), Roblox (joint venture), and even SnapChat (12%).

Tencent has been on a cybernetic rampage of late, hiring new developers for immersive games, investing in every game maker in its field of vision, and registering about 100 metaverse trademarks. Compared with other competitors on this list, it is the furthest ahead because it has a star-studded lineup of portfolio companies or collaborators ready to contribute to each piece of the metaverse puzzle. They include world-class games (Epic Games), user-generated content platforms (Roblox), social media platforms (Soul, WeChat), 3D simulation developers (Avakin Life), and a world-class cloud computing business (Tencent Cloud).

Tencent’s main weakness is in hardware, as the expensive VR headsets and top-of-the-line smartphones to run virtual experiences are primarily produced by other companies. But with stakes in Snap, the owner of SnapChat and augmented reality (AR) company Spectacles, along with the newest plans to acquire Xiaomi-backed smartphone gaming company Black Shark Technology, the company is picking up the slack.

(Note: Augmented reality, or AR, refers to enhanced experiences in real-world settings while virtual reality, or VR, is fully virtual, requiring headsets.)

2. Huawei

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The telecommunications giant is a leading developer of consumer electronics, smartphones, and 5G technology. After a tumultuous two years of U.S. sanctions, which left its smartphone business dangling off a cliff, Huawei (华为) is looking to electric vehicle software and the metaverse for new growth opportunities.

Last November, Huawei took a leap toward that future by unveiling the Starlight Tower 星光巨塔 app, an interactive augmented-reality game. The app runs a bit like Pokemon Go, transforming a user’s surroundings into an immersive AR experience. This January, Huawei launched a demo of the underlying 3D-mapping technology, known as Cyberverse, in Beijing’s Shougang Park (which recently became globally famous for hosting some Winter Olympics skiing events). Analysts regard the technology as the backbone of any future Huawei metaverse product.

The company’s leading position in 5G, along with thousands of other patents in VR, chips, and operating systems, will be especially useful for its metaverse ambitions.

3. Alibaba

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The ecommerce giant showcased its metaverse ambitions early when it invested $790 million in the augmented-reality unicorn Magic Leap in 2016. Since then, the company has invested more than $1 billion into AR- and VR-related startups.

In May 2021, Alibaba (阿里巴巴) unveiled its first digitally generated celebrity idol, Ayayi, an AI-powered character that bears an eerie resemblance to humans, from her facial expressions to body movement. In December, Alibaba established its own “XR lab” — XR meaning “extended reality,” an industry term for products related to virtual and augmented reality — and its Zoom-like workplace app, DingTalk, which just launched new AR glasses to allow users to conduct virtual meetings.

Beyond a big push into virtual shopping, marketing, and other offerings, Alibaba has also tried to bulk up its advantage in cloud computing infrastructure. It is already the world’s third-largest cloud provider after Amazon and Microsoft, and it recently set up another cloud computing service platform called Cloud Mirror. Alibaba has also applied for a number of trademarks recently, including “Ali Metaverse” and “Taobao Metaverse.”

The metaverse presents a chance for Alibaba to reinvent itself, moving away from the highly saturated ecommerce industry — which has gone out of favor with Beijing.

4. Baidu

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China’s search giant Baidu (百度) launched “the first Chinese-made metaverse product” in December 2021. Known as Xirang 希壤 (“Land of Hope”), the metaverse tech was revealed by CEO Robin Li (李彦宏 Lǐ Yànhóng) at an AI developers conference held virtually through the app.

Ordinary Chinese, as well as journalists, could join the conference by downloading the Baidu metaverse app through smartphones and PCs along with headsets from ByteDance-backed VR hardware maker Pico. At the conference, Li spoke of a “golden decade” of artificial intelligence and “man-to-computer symbiosis.”

The event flopped. CGTN, China’s state-run broadcaster, panned the software as a “terrible experience.” Unlike Tencent, Baidu is not a gaming outfit and graphics are not its forte; its core competence is artificial intelligence, at which it has excelled through major breakthroughs in driverless-car tech, translation, speech and image recognition, conversational AI, and more. But its early metaverse release is a statement rather than a sales pitch, a declaration that the tech giant is ready to slug it out in this emerging field. Baidu has made its fair share of hardware investments — through subsidiaries such as iQiyi and its latest line of VR headsets called QIYU.

While the search giant has never been strong in gaming, its specialty in AI makes anything possible.

5. NetEase

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NetEase (网易) is China’s other major gaming giant after Tencent. The company has a range of metaverse-related competencies in fields such as VR/AR, AI, cloud gaming, and blockchain.

In August 2021, NetEase’s AI arm released an immersive virtual meeting system called Yaotai 瑶台, akin to a Chinese, VR-powered Zoom. This year, the gaming giant plans to make a big step into the metaverse by rolling out its own user-generating content platform (a competitor with Tencent and Roblox). User-generated games, by fostering a constant social engagement in a stable digitally immersive environment, are seen by some big-name developers as the gateway to the metaverse.

NetEase has been incorporating VR/AR elements into its games since 2016, when one of its VR games was offered on the Google Daydream platform, an early iteration of VR gaming that was discontinued in 2019 due to low adoption. In 2017, NetEase made a big investment in Niantic, the developer of the AR blockbuster Pokemon Go. The company has showcased some AR hardware, including an exhibition of its cardboard AR glasses HoloKit, though it remains a major weakness in its business.

NetEase has a powerful technology stack to execute a metaverse concept. With the right execution, it has the potential to beat out bigger competitors.

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6. ByteDance

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TikTok’s parent company, ByteDance (字节跳动), is currently beta-testing its own metaverse app called Party Island 派对岛, a competitor to Baidu’s XiRang and Huawei’s Starlight Tower. The tech giant denied the “metaverse” label, but the social network isn’t conceptually far off, allowing users to create personal avatars, chat in a virtual world, and schedule real-world events.

In August, in a move widely seen as a directional pivot, ByteDance spent $1.4 billion on VR headset maker Pico, a company similar to Meta’s Oculus. The purchase solidified an investment portfolio that runs up and down the metaverse supply chain, including chip designers (Steam Computing), user-generated content platform (Code Qiankun), VR tech (Vital Visions), gaming platforms (Ohayoo, Pixmain, NVSGames), and traditional film and television production (Wuli Culture).

ByteDance lags behind the more established tech giants in direct metaverse tech, but its metaverse technology stack is second only to Tencent’s.

7. MiHoYo

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Founded in 2012, MiHoYo (米哈游) is a Shanghai-based game developer known for its recent global blockbuster Genshin Impact, an open-world role-playing game (RPG) that became the top-grossing game globally last year.

MiHoYo is a major backer of “social metaverse” company Soul, the social networking app aimed at China’s Gen Z. The proto-metaverse app has filed an IPO in the United States with MiHoYo as a private backer. MiHoYo also has research centers dedicated to metaverse-related projects. In 2018, MiHoYo established a center dedicated to brain-to-computer interface research. CEO and founder Cài Hàoyǔ 蔡浩宇 has also said that Genshin Impact was born out of his interest in open-world concepts, a prototype to the metaverse available in games today.

Though MiHoYo is small relative to other tech companies on this list, it is laser-focused on the metaverse vision in ways the other tech conglomerates are not — and cannot. Cai, who boasts a Steve Jobs–like confidence in reading consumer predilections, aims to create a virtual space that 1 billion people around the world are drawn to inhabit by 2030, and his company aims to make virtual worlds as realistic as those depicted in The Matrix.

MiHoYo is in the midst of a global expansion, hiring new workers and opening new offices such as in Montreal. With a group of world-class game developers, MiHoYo will likely be a formidable competitor in the Chinese metaverse space.

8. Lilith Games

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Founded in 2013, Shanghai-based Lilith Games (莉莉丝) is one of China’s top five game publishers by revenue, known for award-winning mobile titles such as AFK Arena and Rise of Kingdoms. With 1,900 employees spread across 180 counties and regions in China, Lilith, like its competitor MiHoYo, is gearing up for a global expansion.

Part of the expansion plan involves more metaverse products. Lilith has devoted a 200-person team to developing its own user-generated content (UGC) platform, similar to Roblox, known as the Da Vinci Project. Last summer, the project launched its first UGC app, known as the “BOOM!PARTY,” available in Google Stores in Southeast Asia.

Lilith has also begun to develop its own metaverse technology stack. In August, Lilith Games participated in a $47 million Series A for Qiyuan World, a leading general artificial intelligence company founded by former Alibaba executives. In May, it also led an $8 million financing round in the cloud gaming technology platform Telekinesis Technology.

As a gaming company, Lilith Games is already close to the metaverse by virtue of its market. It now needs a full AI and cloud gaming technology stack to bring its games to life.

9. Xiaomi

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Xiaomi (小米) is a consumer electronics giant, sometimes compared with Apple for its consumer-obsessed designs. The tech giant is the world’s third-largest smartphone maker behind Samsung and Huawei with a presence in more than 80 countries and regions worldwide.

Last year, the smart appliance maker made a splashy entrance into electric vehicles, but the company is also vying for metaverse real estate. It boasts 129 metaverse-related patents, according to Yuanchuang Metaverse, but it has so far employed an odd strategy: Chinese media reports suggest Xiaomi is entering the market via mobile payment systems directly designed for the metaverse. In December, Xiaomi invested in VR company Sky Limit Entertainment founded by the fabled director Zhāng Yìmóu 张艺谋.

A spokesperson recently confirmed the plan: Xiaomi will lean into its own competencies rather than bid for the whole metaverse pie like Tencent. It aims to develop metaverse-related tech in payment systems, smartphone tech, video displays, and more, in order to become essential to any metaverse future.

10. ZTE

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Founded in 1985 in Shenzhen, ZTE Corporation (中兴通讯) is a multinational telecommunications company that is classified as a state-owned enterprise (SOE) yet run privately.

ZTE grew out of Huawei in the 1980s and lags behind its big brother in output and human capital. But ZTE’s AI infrastructure is highly advanced: In November, its AI technology won third place in a global neural network competition. In addition to being an industry leader in 5G networks and computing technologies, both central to the metaverse, ZTE has hired serious talent in the Internet of Things (IoT), AR, and blockchain infrastructure projects. Recently, ZTE hired a dedicated team to work on VR and other metaverse-related projects through its subsidiary Nubia. ZTE appears to be focusing primarily on developing technologies in extended reality.

Unlike other companies on this list, ZTE has practical experience — its technologies have been deployed by the state in a number of real-world applications such as smart factories, smart transportation, and smart cities. Those practical experiences, along with state collaborations, may make a difference in the metaverse race.

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