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Extended reality in China – big opportunities for global tech firms

Extended reality in China – big opportunities for global tech firms

Virtual and augmented reality (VR and AR) – typically grouped under the banner of extended reality (XR) – are often cited as the tech world’s ‘next big thing’. Some say XR’s impact may surpass that of the personal computer revolution over the past 30 years and the smartphone over the last 20. I can’t help but be slightly sceptical about such predictions, but China has made arguably the greatest strides to make mixed reality … reality.

Private sector investment in XR in China is pouring in, and the Chinese government has created policies to expand rapidly in the field. In fact, some of the world’s most prominent headset OEMs are Chinese. At the same time, the country faces challenges in developing software and content for XR devices, as well as creating business applications. And this presents opportunities for global firms to work in and with China to grow the XR ecosystem.

Exponential growth

CCID Consulting, China’s largest research and IT outsourcing company, says that China’s XR sector was valued at USD $6.1 billion in 2020 and is projected to more than double to $15.5 billion by the end of next year.

And KPMG’s ‘2021 China Equity Investment Trends’ report highlights that IT and ‘informatization’ received significant investment over the past year, with the VR/AR segment seeing the fastest investment growth rate of all at 544%.

These impressive figures are the results of many initiatives from both the public and private sectors in China.

Public policies

During the current fourteenth five-year plan period (2021-2025), China’s government is pushing for a new phase of informatization to build a 'Digital China’. And one of the major tasks in this is accelerating the development of audio and video transmission capabilities and XR technology.

Going beyond the more obvious uses for XR like gaming, the technology also provides the hardware, software and a platform for the content creation that’s crucial for the emerging metaverse. VR and AR headsets, for example, play a vital role in presenting the metaverse as a single, ubiquitous, immersive virtual environment. And China has the appetite to lead the charge on creating the metaverse on a global scale.

But that bold plan is not without potential issues – not least the infrastructure. Simply put, current networks struggle with the copious amounts of data needed for the metaverse. So, the plan must go hand-in-hand with better internet speeds and capacity. According to Zhao Qinping from the Chinese Academy of Engineering, the popularisation of 5G and metaverse applications will ease the data transmission bottleneck restricting the development of the XR industry, enabling it to make more progress.

In addition, several Chinese provinces – including Shanghai, Jiangxi and Nanjing – have launched ‘Metaverse Alliances’ to further the progress of the XR sector. The Jiangxi Provincial Department of Science & Technology, in fact, announced 2022 as the breakthrough year for the metaverse and XR industries. It’s bringing together powerful forces including experts, academics and major enterprises in its Metaverse Alliance to drive the development of core component technologies including XR, AI and 5G.

Commercial investment

China’s tech firms are also investing heavily in XR programmes.

Six Chinese tech giants – Tencent, Baidu, Huawei, SenseTime, OPPO and Ping An Group – made the list of the world’s top 10 filers of XR patents in the last two years. Tencent alone filed 4,085 applications in 2020 and 2021.

In August 2021, Chinese tech giant ByteDance acquired Pico, China’s largest VR hardware manufacturer, for $771 million. And Pico has gone on to form a partnership with Qualcomm to develop its XR device-making capabilities further.

In addition, Baidu, Alibaba and Tencent (collectively nicknamed ‘BAT’) have been increasing the size and reach of their XR tech portfolios by heavily investing in specialized XR startups.

Alibaba has said it wants to improve consumers’ online shopping experiences by allowing them to examine products more effectively via XR. GnomeMagic Lab – an Alibaba venture – has been established to create VR content for video, streaming and smart TVs; while Tencent is planning to allow its instant messaging users to chat in a virtual world.

Broader XR applications

More online content is not all. XR technologies have been widely applied in China in industrial training and design, medical care, and education – as well as entertainment fields such as games, theme parks, movies and travel.

In the field of industrial training and design, Lenovo’s AR-based power grid training system helps to optimise in-the-field coaching. New hires can be placed in a virtual working environment where they learn about operational procedures, equipment and production lines.

In the medical arena, Lenovo’s Morningstar AR glasses facilitate real-time, remote, live broadcasts of surgical procedures and medical data. And, while COVID-19 has accelerated developments in telemedicine systems, this is especially the case for those supported by 5G and VR.

Challenges, however, remain; and while the hardware and network infrastructure are (almost) in place in key regions, content and enabling software are needed.

Opportunities for western firms

Although China’s domestic XR sector is already massive and offers broad opportunities for growth, companies entering China should focus on addressing the core ‘gaps’ in the market.

While Chinese firms can produce the latest VR hardware, and adoption by Chinese households is the highest in the world, they lack rich, rewarding, exciting consumer content – for which there’s a clear and urgent need.

And, although China’s tech giants are investing heavily in XR, most content developers are startups with limited resources. China needs more studios, and systems to allow them to create attractive content more easily. This means design tools, advances in spatial computing and artificial intelligence – all areas where western software firms have much to offer.

The need for XR content spills over into the B2B space, too. While there are several examples of successful B2B deployments as I outlined above, there are many more ready-made solutions in the west that could be used by Chinese content creators to increase business productivity, improve manufacturing processes, train staff and aid research. Western tech firms would do well to explore these possibilities.

In this way, the promise of the metaverse is boosting the XR sector’s prospects in China, while creating space for new players to participate in its growth.

China will prefer to build its own metaverse infrastructure – allowing only limited interconnectivity with the rest of the world, in line with the country’s current internet policies. But western tech firms which can offer enabling technologies to help China build it quickly and robustly can count on significant commercial opportunities.

Examples of technologies that are attractive to Chinese firms include geospatial mapping; haptic, gesture and voice solutions; and 3D engines.

As mentioned earlier, anything that makes 5G networks faster and more reliable is sought after, as well. And while Chinese-made VR headsets and other peripherals are considered best-in-class, there’s still clear room for improvement using better sensors, lighter materials and stronger batteries.


So, China’s XR market is rapidly evolving, thanks to initiatives from both the public and private sectors. But Chinese firms are lagging in certain areas, especially the creation of high-value content for businesses and consumers alike.

Western firms doubtless face hurdles in moving into China to fill the gaps – after all, China is a notoriously tricky market to enter. But, if you can provide innovative enabling technologies and content for XR that appeals to Chinese users and cuts development time for Chinese OEMs, you’ll find a receptive market.

It’s well worth exploring. And, if you do it right, the rewards will surely outweigh the challenges.


To discuss the opportunities for your business in China, you can contact Michal at 

Michal was supported in writing this post by Research Assistant Nancy Doanh.

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