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The VR Market in China: Moving Toward the Metaverse


Virtual reality is quickly becoming the technology of the future. China has highlighted the VR industry as an important sector within its innovation strategy, and it is looking to position itself as a global leader in the technology's innovation, adoption, and production.

Virtual reality (VR) is a new, immersive medium with under-tapped potential. Though most commonly thought of in the context of personal entertainment, the rising applications of virtual reality stretch across industries that include automotives, education, aerospace and defense, and healthcare. The global VR industry has been estimated at US$18 billion with a compound annual growth rate forecasted at 33% until 2026. Much of this growth is based on the belief that VR technologies will become integral to not only the entertainment sector, but also within the manufacturing, services, healthcare, and education industries as well. China has emerged as a key global player in the VR market, in part due to the enthusiasm of Chinese consumers for emerging technologies, but also because of increased government support for technological self-reliance.

China’s global share of the virtual reality market is currently on an upward trajectory. In 2020, the Chinese VR market accounted for approximately 44% of the global market with an estimated value of US$8 billion. Despite being somewhat limited by its dependency on foreign microchips, the country has still been successful in surpassing competitors to become a global leader in VR through the nation’s supply chain capacity, emphasis on R&D, and early adoption of 5G technology. Moreover, the Ministry of Industry and Information Technology (MIIT) has been positioning China to become a global leader in VR technology by 2025.  

What Is Virtual Reality and Why Is it Important?

VR can be seen as a new medium of human experiences. These experiences, however, are wholly computer-generated and can be identical to, or totally different from, reality. Using imagery, sounds, and sensations, VR simulates to its users that their physical presence is now within another reality. VR is typically experienced through the use of equipment, such as a headset with built-in speakers and display screens that serve as the VR monitors. These devices can often be used for video games, such as Oculus VR, but are also increasingly used for commercial purposes or even training simulations, including for the US military.  

VR is an umbrella term for computer-simulated interaction. Augmented reality, or “AR,” is another such example. AR can be defined as the digitalization, or augmentation, of the real world. It allows for viewing real life environments with digitally enhanced objects. It differs from VR in that it does not create an artificial virtual environment, rather alters the user’s present reality. 

This leads to the question, ‘why are VR and AR important?’ Firstly, on a sensory level, VR/AR allows users to totally immerse themselves in situations or experiences that may not be readily available. Additionally, supporters of the technology expect that VR will become a precursor to the metaverse, an environment in which artificial intelligence, AR/VR, and the internet converge into an enhanced physical reality. This metaverse will be a conceived shared space in that people can create and interact with, bringing the internet to a new level. 

The Rising Applications of VR

What Are the Applications of VR?

The uses of VR are multifaceted. According to Grandview Research, commercial use of the technology collectively makes up 53% of global VR revenues, followed by consumer use. Use of VR headsets in retail stores, real estate viewings, and car showrooms are among the current primary commercial uses of virtual reality. In this context, cars and real estate properties are viewable by a 360 degree camera feed, and could ostensibly bypass the need for a real estate or automotive agent in the future. According to Goldman Sachs, VR use in real estate is projected to be utilized by 1.4 million realtors globally by 2025 which, along with car showrooms, points to a blurring line between consumer and business application of the technology.

Growing VR adoption by consumers can largely be boiled down to gaming advancements in VR technology. Gaming applications of VR are estimated to total US$90 billion globally by 2026. This includes all components within the gaming market, such as software, content, and hardware. With increasing internet penetration, technological innovations and advances in both gaming software and hardware are forecasted to drive the continued growth of VR technology in gaming.

Which Companies Are Behind VR Growth?

Global tech titans have produced massively popular VR headsets, which has resulted in strong market competition. Facebook touts the famous Oculus, Microsoft launched the Hololens, and HTC has the HTC Vive. While there is some interplay between hardware, such as being able to play HTC Vive games on an Oculus, the vibrant competition will lead to cheaper prices, more diverse gaming experiences, and an overall more fruitful environment for VR adoption. For software, both small and large developers have come to the forefront. Companies such as Owlchemy Labs, a company that focuses on the use of hands in VR, the French gaming company Ubisoft with its first VR title, Eagle Flight, and the Russian company, with VR titles such as Rewire and InCell VR, are just a few names driving gaming innovation.

Which Will Be the Largest Industry for VR? 

Source: Program-Ace, The China Guys

China’s Virtual Reality Market

What Does VR Innovation Look Like in China?

Baidu Inc, the Chinese search engine provider, Alibaba Group Holding Ltd, China’s leading e-commerce company, and Tencent Holdings Ltd, China’s leading internet service provider, collectively known as BAT, are among the front-runners in China’s VR/AR community. While China is in the midst of a regulatory crackdown on the tech industry that has largely had free reign, this has not yet directly affected the domestic VR industry. According to a report from iiMedia Research, the VR market in China was expected to exceed CN¥55 billion, or US$8.5 billion, by 2020. COVID-19 notwithstanding, this estimate appears to have been accurate, and is expected to steadily increase.

In contrast with companies like Sony or HTC that have focused more on hardware development, BAT has acted primarily as a market facilitator. Because these companies lack the core technology specialties needed to build VR hardware capable of providing consumers with a three-dimensional experience, they instead focus on acquiring stakes in VR startups. By opening their platforms to content creators, the strategy is to wait for the dominant headset to emerge. Still, this is not to say that there has been no headset development in China. iQiyi, a Baidu-funded firm, launched the Qiyu 3 this year, which runs on Qualcomm’s Snapdragon XR2, a 5G-enabled VR platform.  

Virtual Reality Product Consumption in China

Source: Daxue Consulting, The China Guys

However, headsets are not the only lens through which VR innovation is created. Mobile VR, or VR that is accessible through smartphones, more than makes sense in a country with an estimated 971 million smartphone users in 2021. With smartphone innovation leading to longer battery life and more powerful processors, making use of mobile VR technology is critical from a commercial point of view. 

What Is the Future of China’s VR/AR Industry?

The Chinese government has taken a leading role in both defining the scope and providing resources for the domestic VR industry. In 2018. China’s Ministry of Industry and Information Technology issued an outline for the VR industry named “Guiding Opinions on Accelerating the Development of the Virtual Reality Industry.” The document highlights the necessity of R&D and content service supply as a baseline for VR development. Its first developmental goal – constructing a robust VR supply chain – was reached in 2020 after building the Beidouwan VR Town in Guizhou province. Beidouwan VR Town is anticipated to reach a yearly production capacity of 1.5 million VR hardware pieces and total revenues of US$145 million. 

The second developmental goal is to see product supply, platform construction, and content production technology implemented in healthcare, education, manufacturing, and commerce. To help meet this goal, Microsoft launched the Nanchang City AI+VR Innovation Center, a cloud and mobile technology incubator, in Jiangxi province in 2019. Jiangxi’s provincial government is optimistic of the potential to lure VR tech companies into this incubator in the hope of supporting and providing training for local companies. Both developmental goals are to be aided by professional training, the building of an industrial development base, and subsequent brand building once a dominant headset/hardware is identified. 

Looking Ahead

The COVID-19 pandemic has accentuated the volatility and unpredictability of China’s economy. The VR industry, however, has been on a steady upward trajectory and shows little signs of slowing. China’s unique method of having its tech companies act as venture capital firms stimulates a startup culture and ecosystem within the VR market. While it may result in many of these startups going bankrupt due to their inability to scale, the increased competition will provide long-term benefits to the industry as a whole. If anything, it should be seen as a motivational force towards innovation. China wants to compete in the VR/AR arena, and in doing so, it will demand a high cost for success. However, the payoff could well land China a leading role in VR technological innovation and the ability to export Chinese expertise and VR products globally.

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