As global hype wanes, can China pull ahead in the metaverse race?

This article is part of our Vogue Business Membership package. To enjoy unlimited access to Member-only reporting and insights, our NFT Tracker and TikTok Trend Tracker, weekly Technology and Sustainability Edits and exclusive event invitations, sign up for Membership here. The hype around the metaverse has dwindled since last year’s high. But, in China – where there is significant government support for big tech, an advanced 6G network and a big gaming community — the metaverse still offers rising potential as a revenue stream for fashion. There’s been no “significant cooling off period” for the metaverse in China, which is still new and growing, says Laura Chen, CEO of digital transformation company IMS China, which powered Shanghai Fashion Week Autumn/Winter 2023’s Web3 activation in March (she also fronts the metaverse platform OMGLand, which has worked with Chinese-born, London-based designer Feng Chen Wang, and in April 2023 hosted an immersive universe for Pepsi in China). In particular, e-commerce in the metaverse still holds significant potential for fashion, she says. “Companies [in China] are exploring ways to integrate e-commerce seamlessly into the metaverse, allowing consumers to purchase products with virtual currency or real money.” From virtual reality to digital avatars, Beijing has made big tech a core priority. At least six provincial governments, along with local authorities across 10 cities, have issued metaverse development plans, and Web3 investment from tech companies have laid strong foundations for the industry’s development. At the beginning of this year, Chinese tech firm Baidu released Metastack, the technology behind its metaverse platform Xirang, which allows labels to build their own metaverse space from scratch in 40 days. Chinese tech and entertainment conglomerate Tencent has invested in gaming companies such as Epic Games and PUBG Studios, alongside virtual-concert maker Wave. TikTok owner Bytedance acquired VR headset brand Pico in 2021 and virtual social platform PoliQ in 2022. Tech firm Netease launched Yaotai, an app for immersive virtual meetings, in 2020. On the retail side, Alibaba Group has pioneered metaverse consumption with 3D shopping, augmented reality, VR try-on and digital collectibles. In 2022, it contributed $60 million to AR company Nreal’s Series C funding round. And, last year, JD.com launched 3D visualisation features on its website. The metaverse industry in China is expected to grow by 39.5 per cent year-on-year to reach $106 billion in value in 2023, according to new research by consulting firm Tech Insight 360. The country’s metaverse spend will increase by 500 per cent from $76 billion in 2022 to reach $457 billion by 2030. However, while the foundations of a metaverse economy are now a part of China’s tech infrastructure, this has not ensured its safety from the global downturn, and tech regulation in China must be navigated. Following Meta and Microsoft’s retraction and layoffs late last year, Tencent reportedly cancelled plans to develop VR hardware and software in February 2023. Tencent did not respond to a request for comment. Bytedance’s metaverse social app Party Island was short-lived, closing in October 2022 after less than a year in operation. The shuttering of Douyin’s (China’s TikTok) digital fashion community Pheagee last month is another indicator of the complexity of the market. Weathering the metaverse winter Waning interest in the metaverse might not be a bad thing, says Elizabeth von Guttman, co-founder of fashion technology company Altava Group, who says the landscape is now “less noisy” and will “allow companies with good business plans to build proper business and not just ride on the previous hype”. New phygital platform in the making Lunique.io, helmed by CEO Annie Siara, is banking on accepting real money as well as crypto currencies as an inroad into the mainstream. Earmarked to launch in China and globally in late 2023, it is currently onboarding brands. Siara is optimistic that China will “surpass the west” in metaverse developments given its infrastructure. She admits there has been a decline in sentiment towards the metaverse due to the increased popularity of AI, but adds that “in a few years, the metaverse, along with AI and blockchain technology, will seamlessly integrate into our daily lives — similar to the internet”. Smart brands are picking their investments carefully. “Right now, we are at a roadblock; a lot of companies are going forward into the metaverse with billions of RMB… The ones doing well are focusing on tangible things like avatars,” says Yanie Yanson Durocher, founder of digital agency Pompom, which is exploring how to improve digital fitting, environments and product experiences through AR. Durocher points to the difficulties of operating within China’s heavily regulated internet tech sector. Pompom works in a hybrid fashion, using AR tech from outside of China alongside closed platforms that can be used for Wechat and shopping platform Taobao. “When it comes to privacy and legal terms, we are still a bit in the Wild West. For companies who enter and want to grow it’s tricky,” says Durocher. Independent designer Leaf Xia has been active in digital fashion and the metaverse since 2019 and took part in Shanghai Fashion Week’s digital fashion week in June 2022. She says the metaverse allows her to convey the emotion behind her designs, as well as to use virtual models. However, while VR games are very popular in China and gamers are paying to play in their metaworlds, she thinks fashion will face more of an uphill battle. “For customers, it’s still very early days for buying virtual fashion as the whole virtual experience is often missing. Maybe it’s still a step too far..?” Nicky Yu (Yu Xiao), founder of tech firm RM Group, which created one of China’s first metahumans Ayayi, agrees that consumers are not yet fully buying into the concept. “Many are in the trial stage. Brands are trying, the government is trying and marketing activities are increasing.” A trial and learn approach is necessary, Yu says, given the “pace of change in China” and the rollout of AI-generated and other content. RM Group has recently upgraded Ayayi to allow fans the “best integration of virtual and reality”. Yu sees future fashion investment going into virtual product production and upgrades. Although interest in the metaverse is being diverted by AI, China’s Cyberspace Administration has been swift to regulate that, too, as Baidu, Alibaba and AI firm SenseTime enter the race with advanced chatbots and image generators. “Some of the metaverse hype is definitely being drowned out by AI,” Durocher says. “Fundamentally, I think everything is connected. You can’t go into the metaverse now without proper resources.” To receive the Vogue Business newsletter, sign up here. Comments, questions or feedback? Email us at feedback@voguebusiness.com. More from this author: Retailers have struggled to crack China. Can Machine-A buck the trend? Chinese buyers up spend on European brands amid economic rebound Shanghai Fashion Week: Emerging designers to watch

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