It’s a common pattern throughout history: a new frontier is opened, ushering in a wave of settlement from profit-hungry pioneers. Today, a massive frontier is beginning to open, and trailblazers are beginning to stake their claims; but this one isn’t physical, it’s virtual. Welcome to the race into the metaverse.

Entering the metaverse has been all the rage lately. Luxury fashion brands, sneaker companies, fast food chains, bars, virtually anyone with a something to sell seems intent on putting down roots in the burgeoning virtual universe. (It’s easy to understand why, when you look at how much money there is to be made.) But it isn’t just companies who are competing in the metaverse race — governments have been joining in, too. 

In November, the government of Seoul, South Korea announced a plan to begin hosting a variety of events and moving some public services into the metaverse. The announcement stated that the city’s government plans to establish “a high-performance platform, by the end of next year [2022], and create a metaverse ecosystem for all areas of its municipal administration, such as economic, cultural, tourism, educational and civic service, in three stages from next year.” Shortly thereafter, the small Caribbean island nation of Barbados announced that it would soon be opening “the world’s first metaverse embassy” hosted in Decentraland, according to Reuters.  

These plans could spark a trend, inspiring other municipal and national governments to tap into the metaverse. But for the time being, they’re outliers — drops in the bucket that are unlikely to make much of a geopolitical splash. Then there’s what’s happening in China.

China out in front

In recent months, a handful of major municipal and provincial governments across China have unveiled plans to begin intensive development in the metaverse. In the final week of December, Shanghai, China’s most populous city, announced that metaverse R&D would be an integral component of the city’s five-year development plan. The city’s government will aim to leverage the metaverse “in areas such as public services, business offices, social entertainment, industrial manufacturing, production safety and electronic games,” per CNBC.

The governments of the cities of Beijing, Wuhan, and Anhui, as well as the provinces of Zhejiang and Hefei, have since followed Shanghai’s example. Meanwhile, major Chinese tech companies like Tencent, Baidu, and Alibaba have also recently announced plans to begin developing the technologies that will potentially make them key players in the metaverse. 

The scope, timeline, and specific goals of each government’s and company’s plans vary, but a clear pattern has emerged: China appears to be gunning for a technological edge in the burgeoning metaverse. 

“When they see new technologies coming up, they want to jump on it, put the resources into it, and drive the R&D of it," said Winston Ma, managing partner of CloudTree Ventures.

What’s in it for China?

One of the likely reasons behind this push, experts say, is a desire to broadcast, both within its own borders and to the rest of the world,  that China is operating at the cutting edge of technology. 

“It's quite clear it’s viewed as a frontier technology from China’s perspective,” says Winston Ma, managing partner of CloudTree Ventures and author of The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace.

“When they see new technologies coming up, they want to jump on it, put the resources into it, and drive the R&D of it…several years ago it was AI, more recently it was blockchain,” Ma said. “And now they feel, driven by Facebook changing its name to Meta, the fear that metaverse technologies, this immersive digital environment, is another vertical of frontier technology.”

Despite the fact that the “metaverse” has become an uber-trendy international tech buzzword over the past couple of years, it’s widely acknowledged that no one can say with absolute certainty what the technology in its fully developed form will look like, how it will be used, when it will arrive, or how it will impact both people’s day-to-day lives. There’s a sense that it’s going to usher in a major technological revolution, similar to the launch of the internet, but that it could also end up being nothing more than a short-term fad. 

By choosing to invest so heavily in the development of the metaverse, says Karman Lucero, a Fellow at the Paul Tsai China Center China at Yale Law School, China has essentially decided to wager that this new technology will, in fact, produce long-term profit — while simultaneously risking little if it turns out to be a dud. 

“The metaverse, depending on who you talk to, is either going to be the most transformative thing since the invention of the wheel, or it's a nothingburger slash Ponzi scheme,” Lucero said. “If I'm a government official, and I get rewards and praise if the local economy does well and stability is maintained in my jurisdiction, and I get punished if there's social problems or something makes the news that makes the party look bad, then it would be in my interest to try and stay ahead of this, to have people who are familiar with what the metaverse is and what the myriad people who talk about the metaverse are actually doing.”

“To the extent that the metaverse involves new infrastructures and new networks, the CCP wants to maintain its existing hierarchy, it wants to make sure that it is still in control at the appropriate nodes of the network, that it can still gatekeep when necessary,” Karman Lucero of Yale Law School said.

Where it’s all heading

There’s also something of a contradiction at play for China here. The Web3 revolution – at least as it’s articulated by some of its more bright-eyed proponents – is fundamentally going to be based on transparency and accessibility. Those two principles are, for obvious reasons, anathema to the primary political aims of the Chinese Communist Party.

“To the extent that the metaverse involves new infrastructures and new networks, the CCP wants to maintain its existing hierarchy, it wants to make sure that it is still in control at the appropriate nodes of the network, that it can still gatekeep when necessary,” Lucero said. “I wouldn't be surprised if, as the metaverse develops, they're going to want to make sure that they have as much control as possible over the different nodes of how the metaverse works. And, of course, in order to have that kind of control, you have to understand how it works.”

The example of how China has approached cryptocurrencies may prove illustrative. After an initial push in crypto’s favor, China officially banned crypto trading and mining in 2021, fearing that it could disrupt the party’s top-down control of the Chinese economy, open the door to financial crime and hinder the country’s environmental goals. But blockchain technology itself has not been banned, and the CCP still appears intent on its development, even launching a government-backed Blockchain-based Service Network, which, according to the South China Morning Post, has plans to introduce a national NFT market. NFTs are reportedly legal in China, “as long as they distance themselves from cryptocurrencies like bitcoin.”

For all of China’s ostensible enthusiasm about the metaverse, then, it’s possible it could still later decide to crack down – investing in the technological infrastructure only to the extent that it supports the party line, and then banning any uses that are perceived as threats to the national interest. 

“As they say, ‘we promoted the digital technology of blockchain, but crypto trading is illegal,’ I think they will make a distinction in the metaverse,” Ma said. “[It’s] likely you will see a bifurcation, as we have already seen in the bifurcation of blockchain technology and crypto trading.”

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