Kenneth Fong: What does the metaverse mean to China’s internet sector?

China’s digital economy has grown rapidly, ranging from online games and concerts to shopping. You have forecasted that there will be 698 million online gamers in China by 2025E. Does this put Chinese companies in the driver’s seat for the development of the metaverse?

Kenneth Fong: To put it simply, the key value proposition of the metaverse is an upgrade of the user experience to be more immersive, through better technologies such as augmented reality (AR) and virtual reality (VR), plus an abundant supply of user-generated content (UGC).

While a lot of investors are focusing on the benefits that the metaverse can bring to China’s online game companies, the actual concept of enhancing user experience and monetization has also been applied in other industries related to the internet space. E-commerce is a good example. Chinese e-commerce apps have been gradually and continually upgrading their format to interact with users, moving from a picture-display format to a more immersive short-video format, and recently to a livestreaming e-commerce format which leverages technology advancements, the rapid growth of mobile internet, and the enhanced bandwidth in China. At Credit Suisse, we believe quite a lot of Chinese internet participants, not just online game companies, will benefit from the enhancing user experience and development of the metaverse.

That said, the tight regulations governing content and cryptocurrency exchanges, the cultural differences between China and the West, and certain hardware constraints are likely to make the development of the metaverse a gradual process.

Thus, Chinese internet companies tend to treat the metaverse as an extension of the existing business and industries, through opportunities that most resemble the metaverse concepts involving games (such as open world and UGC interactive games), social networking (including social gaming communities and livestreaming), and non-fungible tokens (NFTs), leveraging intellectual property (IP) assets.

The metaverse idea is centered on the concept of virtual worlds that can be used for gaming, socialising, shopping and entertainment—perhaps an unlimited range of uses.

Kenneth Fong: A good example of a metaverse user case is the recent upgrade of Tencent’s Mobile QQ app. Tencent has recently soft-launched the Super QQ Show function within the app, which provides an immersive social and gaming experience with a touch of metaverse element. The Super QQ Show bears some similarity to Roblox where players can create their own unique character (an avatar using artificial intelligence (AI) facial recognition), interact with friends, participate in events, purchase virtual items, enjoy mini games, watch videos, and more. There are going to be more opportunities going forward from the various internet platforms.

Is this vision of the future consistent with the recent regulatory actions targeting big technology companies?

Kenneth Fong: China’s regulations cover a few areas, namely fair competition, minor protection, supporting small and media enterprises (SMEs), cybersecurity and privacy protection.

The metaverse is not only confined to online games. It can also be applied to education and other activities to make the learning process more efficient and fun.

Regarding SME support, it is not just about cutting commissions. It is more important to leverage technologies to create products that enhance value and increase customer satisfaction. We believe this is a win-win situation that allows SMEs to earn more, customers to have better products, and internet platforms to reap higher returns.

Therefore, promoting the value of “technology for good” is consistent with the regulatory direction.