Wednesday, 23 November, 2022
HomeOpinionEye On ChinaMetaverse — the reason Xi's crackdown on China's tech industry isn't working

Metaverse — the reason Xi’s crackdown on China’s tech industry isn’t working

Xi Jinping might be in for a rude awakening as tech industries hit by the policies under the ‘common prosperity campaign’ are now resisting suppression.

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China’s crackdown on technology companies made global headlines last year, but it’s still too soon to consider it a final nail in the coffin. President Xi Jinping might be in for a rude awakening as industries hit hard by the policy adopted under the ‘common prosperity campaign’ are now resisting their suppression and working around the regulatory storm.

Is there a twist in the tale for the Chinese president? Perhaps, and it could come bearing the face of United States tech magnate Mark Zuckerberg and his crypto-infused Metaverse.

Last July, Beijing sent a shockwave across a multi-billion industry by announcing a ban on off-campus tutoring firms. After months of policing the firms, the result contributed to a 92 per cent decline in off-hours tutoring services.

US-listed New Oriental, one of the biggest tutoring firms in China, has suffered the most. The company had to lay off 60,000 staff last year and has so far seen losses to the tune of $907 million since last November. However, New Oriental’s founder and president Yu Minhong isn’t giving up yet.

Also read: China’s tech decoupling with the US is trouble. It’s one of their ‘top 10 risks in 2022’

Pushback from the industry

Yu has recently debuted on a live-stream e-commerce show, which achieved sales of $785,000 in a short period. The former ed-tech giant now sells farm products such as rice, beef, oranges, and apples — the same products you can buy at any Chinese grocery store — with a markup.

Even the tutoring companies are trying to bounce back by finding ways to offer their services through surrogate advertising or switching to a one-on-one model.

In January, the authorities sought to further crackdown on “disguised tutoring” services, which have tried to bounce back during the winter break. These companies are now parading their services with names such as “thinking training” or “home economics services”.

Following the crackdown, videos of mothers teaching young children have gone viral on Weibo, the Chinese equivalent of Twitter. The videos show parents struggling to teach their children, and sobbing alongside the kids. “It turns out that it’s too difficult for mothers to help children with homework,” a Weibo user wrote, implying that the tutoring ban wasn’t going well for parents either.

Xi’s crackdown on Internet-related technologies has sought to set the new compliance and regulation rules. Chinese companies feel they can navigate the complex regulatory environment while betting on bold ideas. One such idea is Metaverse.

Also read: To make babies or not? That’s the dilemma in China as cost of raising kids soars & soars

Option Metaverse

The buzz around Metaverse in China — virtual and augmented digital realities — emerged after Zuckerberg’s marketing pivot to the world. Metaverse could emerge as an $8 trillion industry but technology companies are using the recent crackdown as a roadmap to target this trend.

They are betting big on using the government’s compliance regime to create a “metaverse with Chinese characteristics”. The metaverse technologies in the US and elsewhere are tied to cryptocurrencies, which are completely absent from China’s metaverse currently in development.

Metaverse-related investment opportunities are the new talk of the town in China. Everything from a coaching session and courses is being offered on Metaverse. But the buzz has already generated fraudulent investments and scams trying to rope in people with the promise of virtual reality (VR). “Risk warning on preventing illegal fundraising in the name of Metaverse,” China Banking and Insurance Regulatory Commission said in its warning on the new scams.

There is even an entity to regulate the development of Metaverse — the Metaverse Industry Committee — which has been set up by the State-owned China Mobile to regulate the burgeoning metaverse-related technologies.

“Illegal financial activities, such as fabricating false Metaverse investment projects and issuing Metaverse virtual currency, should be resisted,” China Mobile said.

But the warnings of fraud aren’t stopping the entrepreneurs.

Jelly, a metaverse app, became the most downloaded free app on the iOS store in February, just three weeks after its launch. The app even beat Tencent Holding’s WeChat in the number of downloads on the iOS store.

Jelly allows people to create a virtual reality persona of themselves — down to the choice of fashion — which can interact with up to 50 close friends in the app. But the app ran into trouble after people who signed up started receiving unsolicited marketing calls. There are speculations that Jelly’s user data may have been leaked. The app has now been removed from the iOS store.

China still lags in developing VR-based headsets such as Meta’s Oculus available in the US. But companies such as Alibaba and Tencent are pooling their resources to develop a gamut of technologies around the Metaverse buzz. Over 1,000 companies have applied for 16,000 metaverse-related trademarks in just the last year. But only a handful of these have been approved.

Things might be turning around with Beijing’s crackdown.

Also read: Chinese are talking about inequality again just a year after Xi said poverty ended

Beijing’s assurance might not work

The ‘common prosperity campaign’ is seen as the driving force behind the crackdown. China watchers have observed that Xi’s campaign wasn’t prominently discussed during the latest National People’s Congress (NPC) session in Beijing. The dilution of the common prosperity may signal that Xi has set the rules of the road for now. Technology companies are simply expected to follow those.

Beijing is also simultaneously trying to reassure the investors who have turned weary after the season of crackdowns in 2021. “We will promote the development of venture capital,” Li Keqiang, premier of the State Council, said at the opening session of NPC.

The gilded age of technology entrepreneurship in China isn’t ready to come to a halt. The entrepreneurs are trying to resist. And more is still to come.

The author is a columnist and a freelance journalist, currently pursuing an MSc in international politics with focus on China from School of Oriental and African Studies (SOAS), University of London. He was previously a China media journalist at the BBC World Service. He tweets @aadilbrar. Views are personal.

(Edited by Srinjoy Dey)

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