In addition to the two AR glasses, Nreal also launched the world’s first AR adapter for Apple devices, which would enable iPhones and iPads to connect to Nreal Air as well as provide normal playback of digital copyright-protected content. Additionally, the adapter also supports the connection of screen projection to Switch and the hardware will soon be upgraded to adapt to game consoles such as PlayStation and Xbox.

The brand new Nreal Air is believed to provide the best visual display effects amongst all XR (Extended Reality) devices, with its lightweight (79g, excluding cable and nose rest) and fashionable design being the main feature. Meanwhile, the Nreal X are consumer AR glasses that only weighs 106g. It is set to create “a six-degree full-real space” experience, which is afforded by Nreal’s self-developed real-time positioning and map construction (SLAM) 6DoF (Degree of Freedom) spatial positioning intelligent algorithm, with the assistance of only two SLAM cameras.

It is worth noting that upon its China debut, Nreal developed and customised several AR content platforms to be exclusive to the home market, collaborating with China’s leading video streaming service providers including iQiyi, Migu, short video platform Kuaishou, EV car maker Nio and the digital content unit of China Mobile.

Despite having its base in Beijing, China hasn’t been the target market for Nreal until now. Since its conception in 2017 the company has been ramping up its overseas footprint to countries including Japan, the United States and Europe with its collaboration with British telecommunications company Vodafone. And earlier this May, Nreal made its debut in the UK in partnership with the country’s national mobile network operator EE.

The start-up gained further traction with the emerging buzzword of the metaverse that has taken the world by storm since 2021. As a result, Nreal has already drawn in investment interests from renowned institutions including venture company Sequoia China, Nio Capital (the investment arm of China’s EV maker Nio) and most recently nabbed $60 million funding in a Series C extension round from China’s tech giant Alibaba.  

With China beefing up efforts in industrial digitalisation and building towards the metaverse, a growing appetite for AR products at home from both investors and consumers will naturally draw in more market players to rush into the race. If Nreal can leverage its technological endeavours effectively, it would have the opportunity to ride the wave in the new territory in the home market.

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This was coupled with other national campaigns for safeguarding young Internet users, especially minors, resulting in stricter regulations on the live stream sector and video game restrictions for underage players have taken a further toll on the world’s largest video game vendor. With the country already suffering an economic downturn as a result of the COVID resurgence in China and the government’s stringent “zero COVID” policies, these regulatory hostilities further add to the business’ suffering.

The company saw domestic game revenues dip by 1% to 31.8 billion RMB ($4.66 billion), because of “a post-pandemic digestion period due to transitional issues including relatively fewer big game releases, the latest ban on issuing new gaming licenses, as well as lower user spending, and the implementation of minor protection measures.” Such restrictions have led to decreased revenue from Tencent’s hit games including Honour of Kings, Moonlight Blade Mobile, and League of Legends, and incremental revenues from recently launched games, such as League of Legends: Wild Rift, Return to Empire, and Fight of The Golden Spatula.

However, the Q2 earning results are not only being viewed as negative but has signalled a crucial transition in China’s tech industry, from the consumer market to the business-to-business (B2B) territory. Dao Insights joined a panel discussion hosted by Tech Tech China, an English website with a focus on China’s tech industry, deep diving into the market dynamics of China’s tech sector that are behind the declining figures.

Forces behind the transformation

Such transition is partly in response to Beijing’s efforts to align the technology sector with the development of “hard” or “core” technologies such as semiconductors, AI, and advanced enterprise software. As well as the Chinese government’s push for economic recovery from the global crisis and pulling up the growth of the real economy through industrial digitalisation.

This has also nudged businesses to invest in relevant directions such as agricultural technologies and smart new energies, in the hope that wider adoption of cutting-edge technologies in different industries will bring about higher productivity while also increasing China’s competitiveness in the hard tech sector race with their US counterparts.

“Many successful consumer-facing companies such as Amazon, Microsoft, and Apple have expanded their business offerings to include more B2B services, and Chinese firms are attempting similar transformations.”

Paul Triolo, SVP for China & Technology Policy Lead at Albright Stonebridge Group

“Amazon with AWS, Microsoft with Azure, and Apple with iTunes, and App store offerings have been able to grow beyond their business models in ways that made the firms less reliant on consumer tastes and economic downturns,” added Triolo.

The idea has been echoed by Guus Keder, a veteran investor and partner at Zhou & Masters Consultancy, “So far these tech companies have been mainly focused on consumer applications, which has become saturated in China…What we see happening is that there is an emerging appetite for deep tech, which is closely related to the industrial internet sector. That will be booming over the next decades. Although it may not affect consumers directly, it will impact consumers indirectly. And therefore, it is in the interests of the Chinese government to support this type of move,” said Keder.

“But to transit into deep tech companies, you need real innovations,” Keder cautioned, “I think that’s the big switch that needs to be made, not only in China but also in the rest of the world. From chucking out codes for video games and consumer software to very integrated high tech that can afford the whole economy to become fully digital and completely seamless, that’s something that still hasn’t started and a process that could go on for the following decades.”

Tencent’s latest report also shows potential in enterprise-oriented business services as the company recorded a year-on-year gross margin expansion of over 30% from services such as PaaS and TDSQL database, which represented over 5% of its cloud revenue in Q2 2022. In addition, cloud services are also one of the new drivers for business growth and have turned out to be another battleground for China’s Internet companies, with Alibaba, ByteDance, and Tencent naturally being some of the frontrunners in this aspect.

Challenges in the marathon

Although great investment interest has been shown and despite the consensus that cloud services would be a lucrative market, questions have been raised by Triolo, as to the sector’s ability to generate profit in the long run.

“I think the challenge here for some of the big tech platforms as their traditional commercial [models] – the consumer-focused businesses come under pressure from all regulatory issues, is how do they transition into arguably more difficult and competitive areas and create more stable revenues from these new avenues in the long term.”

“The success of Chinese tech companies in this transformation will depend to a large degree on their ability to appeal to customers outside of China. Western companies such as Google, Microsoft, and Amazon/AWS have made their mark in the concerned areas because they are able to operate globally, leverage their own infrastructure, and appeal to businesses who need global connectivity and advanced services in the cloud, for example. So, they [Chinese tech players] are tapping into an area where others have been successful but trying to gain a slice of the market is not easy to do,” added Triolo.

He also believes that the transformation means there will likely be less negative competition in the consumer sector which drew a significant volume of complaints and fuelled the technology regulatory rectification campaign. It is also tied to Xi’s Common Prosperity agenda which has benefitted consumers.

“As major tech players concentrate more on “core” technologies, Internet companies will continue to derive major revenue from consumer-facing operations but will now be much more focused on improving consumer services and less on competing with rivals in ways Beijing and regulators have found to be wasteful and not contributing to the “real” economy. So, this should be a net benefit for consumers,” Triolo continued.

In the meantime, it is worth noting that hard technology investments can take a much longer time to pay off and generate significant revenue, as a result, in the short term there will be less explosive revenue growth. However, one thing that is certain is that despite being caught off guard by authorities’ regulations, officials in Beijing will encourage this transformation, although it will be different for each specific sector, depending on levels of reliance on foreign technology and supply chains, and the pace of domestic innovation.  And it is in the interest of the Chinese government to keep these platforms alive and make them part of the country’s economy.

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“Douyin Zaizai” is a virtual human being recently released by Douyin and can be customised by users through not only their appearance such as face and dress but also mood. These personalised virtual avatars can then be saved as dynamic profile photos and users can also invite friends’ digital characters to take pictures together online, as well as socialise in the virtual space, imitating real life scenarios including camping.

The new feature is a further step by Douyin’s parent company ByteDance in virtual social networking and closely follows the public debut of the metaverse-like social app Party Island. These interactive digital characters soon drew in great interest amongst the tech-savvy generations, with the hashtag “Douyin Zaizai” garnering over 620 million views on the video-sharing platform as of 17 August.

With Douyin continuing to distribute online traffic support to the new creation in a bid to push more participation, Burberry can leverage the ongoing sensation through this timely move. In the meantime, inspired by the theme of ‘Summer Fun Play’, the collaboration puts the spirit of adventure at its core, incorporating the brand’s iconic Thomas Burberry Monogram with emerging outdoor activities including surfing, skateboarding, and glamping.

The campaign, therefore, enables Burberry to not only tap into the digital hype of virtual humans and digital fashion but also allows the brand to capitalise on practices that have been gaining steam amongst China’s Gen Z in recent years. As a result, Burberry is able to maintain a youthful and playful brand image, which would help the brand to better resonate with its target audience and penetrate the young demographics of consumers more effectively.

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Titled “Pepsi Live House”, the online event aims to unleash the creativity of the young demographics by inviting users to co-create a theme song through an H5 page (a mobile website embedded in brands’ WeChat account for interactive marketing campaigns). This has enabled the brand who is a firm supporter of original music and believes music is at the core of its rejuvenation strategy to leverage its musical gene while resonating with its target audience more effectively.

With virtual beings acting as an entryway to the metaverse, Pepsi has also introduced four virtual idols to form a digital artist group called SHANE FU, who performed the first theme song Pepsi Cypher in the futuristic sphere on 16 July.

These digital characters are based off Pepsi’s four classic drinks including Pepsi original and its sugar-free version, 7UP and Mirinda, which are popular amongst China’s young people. Therefore, the existing popularity of its own drink products will provide an initial fan base for these debuting virtual idols, speeding up the process of developing a cemented relationship between consumers and its digital human beings. 

The virtual concert allowed the audience to not only view the event but also be part of the festival where they can customise their digital looks, explore the virtual space and even get on stage to perform with the virtual idols through the interactive mode.

Adding to the buzz were lucky draws where limited virtual devices and physical merchants provided by Tencent’s QQ Music were also available, therefore, maximising online engagement through a combination of virtual and real-world experiences. As a result, the virtual event is reported to have drawn in more than four million viewers to tune in with their virtual avatars thanks to an immersive musical experience.

It was also revealed that in August, Pepsi will partner with Tencent’s Super QQ Show, a 3D interactive space in its social app QQ, bringing the first virtual experience space to its digital concept store. The four virtual idols are expected to present the “stylish and trendy” digital outlet while interacting with visitors in the world of meta.

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The app was reportedly under internal trial earlier in January, which was invite-only through an invitation code. Given its virtual interactive concept, the move was once viewed to be a step-stone towards ByteDance’s metaverse ambition. The speculation, however, was denied, according to a representative at Douyin (TikTok’s Chinese sibling under ByteDance), who also reiterated that the app is purely a social platform, as cited by South China Morning Post.

The digital community is designed for users to meet up, hang out and even attend events such as concerts and watch movies with their virtual peers, all in the three-dimensional virtual space through their customised avatars. Adding to the app’s appeal is its access to a large media resource within the ByteDance empire, such as live streaming sessions, movies and dramas owned by Douyin and Xigua Video, therefore, allowing the app to afford a rich digital experience to entertain and engage its users.

With the interest around metaverse continuing to grow, such immersive virtual social applications which blend futuristic advancement with real-life experiences have been gaining momentum. While their likeness to the hyped technology has more or less got audience buy-in, the function that enables a unique online experience and caters to the social needs of today’s young Chinese appears to be the key to drawing in user interest. Should ByteDance’s new innovation be smooth sailing, it would bring about a revolution in China’s digital social networking landscape.  

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The advancement to come is thanks to the breakthrough in Baidu’s artificial intelligence algorithm, which will cut down the production cycle of digital humans from several months to a couple of hours. There will be a significant reduction in costs too, from a million-Yuan investment to just tens of thousands of RMB, as told by Yuan Foyu, Corporate Vice President of Baidu at the pre-communication press conference on 6 July.

It is understood that the conference will take place in China’s first metaverse platform Xi Rang, which is also an invention of Baidu. The AI-focused tech forum which was curated in collaboration with the Chinese state media CCTV will also showcase the application of AI in industries such as manufacturing, intelligent cloud services, self-driving and astronomy.

Also, to be unveiled are the latest innovations by Baidu-Wenxin, the world’s first knowledge-enhanced 100-billion-scale pretrained language model and the largest Chinese-language monolithic model with 260 billion parameters, which is a core technology that enables Baidu’s AI revolution. Additionally, two of Baidu’s digital assistants Du Xiaoxiao and Xi Jiajia are also set to attend the conference, presenting their skills in AIGC (AI generated content) such as live paintings.

This has once again aligned with China’s metaverse ambition, where virtual human beings are one of the drivers and is expected to reach an estimated value of 12 billion RMB ($1.79 billion) by the end of 2022. It is also believed to increase the growth of relevant markets to reach approximately 187 billion RMB ($27.86 billion) as per the industry research institution iiMedia.

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With a focus on “socialising with strangers”, and a tagline of, “your real look is not important, this is an interest-oriented decentralised space”, the platform has become China’s first virtual identity-only social app, where all users communicate through a customised avatar. What also differentiates Soul from other social platforms is its 3D ecosystem and gamification operating system, which bears a huge resemblance to the current buzzword, metaverse. Therefore, the latest move is also regarded as a crucial step in Tencent’s layout in hyped technology.

Having integrated playful activities that are a common pastime amongst China’s Gen Z, including Jubensha (mystery-like, role-playing board game), party rooms similar to Clubhouse, virtual singing collaboration, and virtual pet raising, Soul has grown into a hub for the younger generations thanks to “an immersive ambiance” where users can express their feelings.

Launched in 2016 by a now 37-year-old woman, Zhang Lu, Soul saw its monthly active users (MAU) surpass 10 million in 2018, becoming one of the most popular social apps amongst post-95s. With registered users having reached 100 million as of 2020 and 75% of them spending more than 45 minutes every day on the “Soul planet”, the social app unicorn is valued at 13 billion RMB ($1.94 billion).

Whether Soul’s public listing could be a steppingstone for Tencent’s metaverse ambition remains to be seen, but the move would allow them to further leverage the synergy of its unique ecosystem and the social networking demand amongst China’s young singles, whose population is believed to have reached 92 million as of 2021.  

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Also in focus was the development of virtual human beings and the application of NFT-powered technologies, which is deemed to be “a crucial step” to the metaverse ambition, according to Zhang Hongtao, a general engineer at the Shanghai Municipal Commission of Economy and Information.

China’s virtual beings market is projected to reach 12 billion RMB ($1.79 billion) by the end of 2022, which would push the development of relevant markets up to approximately 187 billion RMB ($27.86 billion) with interactive technology and artificial intelligence being the beacon of growth, as per the industry research institution iiMedia.

The prospect of the city building up the metaverse arrives a few months after the buzzword made its way into the local authority’s five-year development plan last December, which called for the incorporation of the new technology into sectors ranging from public services and businesses to entertainment and industrial manufacturing.

The blueprint has so far given birth to several featured industrial parks in Shanghai, including two dedicated to the metaverse, two focusing on the digital economy, and three designated for intelligent terminal technology, creating a comprehensive ecosystem that would enable the facilitation of the multi-layered virtual world.

Also singled out was the market under the concept of hybrid working that emerged from the pandemic. Among these, the entity of video conference is believed to surpass 10 billion RMB ($1.49 billion) by 2024, with cloud meeting services accounting for 40% of the overall market. As a result of such expectations, smart devices including wearables, household appliances, and other virtual reality interactive products are also at the centre of this technology evolution.  

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The “rare” protest ensued after the bank accounts of those investors were frozen by four local banks and online money withdrawal services were suspended without warning, prompting public panic. It is reported that deposit products were offered by these institutions in collaboration with several online third-party finance platforms including Du Xiaoman Financial, a fintech arm under the Chinese Internet firm Baidu that provides short-term loans and investments, Tianxing Finance backed by the electronic manufacturer Xiaomi and a financial institution controlled by the state-owned China Life Insurance Company.

Hundreds of investors took to the offices of the local China Banking and Insurance Regulatory Commission (CBIRC) in Henan’s capital city of Zhengzhou and demanded the return of their money in May. Whilst those who turned up on site were dispersed by police, several savers who had attempted to negotiate money withdrawals with relevant departments reported on 13 June that their COVID health codes were changed to red despite their negative COVID test results. Under the traffic light coloured system, a red code indicates a confirmed COVID case and requires quarantine, therefore, restricting the code holder’s travelling abilities and visits to public places.

Adding to the mystery were several others who didn’t have any recent travel history or plans to visit Zhengzhou but also discovered the same change to their health codes, and they are also investors at the local banks. One of the depositors surnamed Zhang told the Chinese media outlet 21^st Century Business Herald that his red codes “magically” turned back to green when he agreed to return home following persuasion by staff members of the local CBIRC on 14 June.

While the cloud has yet to be lifted, several property buyers in Zhengzhou reported having encountered the same issue a few days after having initial conversations with developers regarding delayed delivery. As the episode continues to ferment, the local government hotline 12345 responded to the media on 15 June, attributing the incident to “a glitch in its data library, which the authority has been actively seeking to improve”.

However, the explanation has not appeased the public with many accusing this coloured-system as having become a bureaucratic tool for authorities to manipulate the public, whilst others are calling for a “unified” health code supervised by the central government, which would also help address the issue of inconsistency in the health code rules. Under the current COVID health code system, test and quarantine rules vary in different regions, which has resulted in confusion and inconvenience for those travelling across cities and provinces.

The problem has been raised by Cai Weiping, a member of the National People’s Congress, who suggested cancelling the local health code system and calling for the introduction and standardisation of a “well-designed” COVID code mechanism that would better safeguard personal information. Cai also acknowledged that “the weight of the health code on COVID regulations should be reduced in the short term and shouldn’t be used as the only ticket for the public to have their freedom or could even open up opportunities to abuse power, otherwise, the whole system will go sour.”

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Known as the “Magnetic Engine Pavilion”, the virtual residence was curated by Kuaishou’s digital marketing platform and houses six digital collectibles representing six featured influencers on the platform. With a total of 270 units available for each personality, they are accessible through the developer’s official account on Kuaishou as well as Mints, a platform dedicated to digital collectibles.

The release is part of Kuaishou’s experiment in digitalisation under the platform’s “New Market” strategies to level up commercialisation. The goal has been reflected by the selection of featured influencers who have also taken a foothold in Kuaishou’s live streaming and e-commerce space.  

From the live streamer who pulled off sales worth hundreds of millions of RMB on several occasions to Yan Xuejing, a Chinese actress from the Northeastern province Jilin. Yan’s image is deemed to be compatible with the platform’s “Laotie” vibe with her authentic local dialect, allowing her to garner more than 20 million followers shortly after her arrival on Kuaishou.

By adapting these influential figures into digital collectibles, Kuaishou is able to exhibit the special commercial value of its owned KOLs while strengthening its authentic network, not only between the platform and its users but also between KOLs and their followers, therefore, creating a more “magnetic” environment that would benefit the platform’s future growth.

While tapping into the digital hype, Kuaishou also transferred the online sensation to the real world with a physical equivalent available to anyone who has purchased a digital collectible. Meanwhile, it is understood that there will be lucky draws in future live streaming events hosted by the six KOLs to give away their cartoonised characters, further leveraging the synergy between the NFT enthusiasm and its “Laotie” ecosystem.

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