This is the second in a two-part series on China’s growing involvement in the metaverse. Part one can be found here.

Since late last year, the tech world has been abuzz about the “metaverse.” Over the past six months alone, all kinds of metaverse research reports, organizations, and applications have crawled out of the woodwork to take advantage of the latest trend: In China alone, you can listen to metaverse music, drink metaverse alcohol, and even buy metaverse sausages.

If there were ever any rationality underlying the craze, it has being washed away in a wave of speculation by companies with hardly any tangible connection to tech. There are at least 20 alcoholic beverage trademarks linked to the metaverse, and the Henan Shuanghui Investment Development Company has applied for a trademark on “Original Universe” sausages, a play on the Chinese word for metaverse, or yuan yuzhou.

Even when a company is delivering on the promises in its name, there are signs that markets are not thinking rationally. On Decentraland, a virtual reality platform running on the ethernet blockchain, a digital investment company purchased a piece of virtual land for $2.43 million. China’s real property market is in the midst of a prolonged downturn as the government tries to deflate the real estate bubble; meanwhile, the country’s budding tech tycoons are engaged in the absurd practice of speculating on virtual land.

The metaverse is not a new concept. Some have traced its origins back to Neal Stephenson’s 1992 science fiction novel “Snow Crash,” but similar ideas appear in Vernor Vinge’s “True Names” from 1981 or the 1984 William Gibson classic “Neuromancer.” If life wants to imitate art, however, it’s doing a poor job. Despite decades of advances in artificial intelligence, virtual reality, and other technological concepts fundamental to the creation of a metaverse, the current metaverse craze has less in common with classic science fiction than with hackneyed recent works like “Ready Player One” — another instance in which the “future” is less about innovation than the endless repurposing of existing intellectual property for cheap thrills.

To wit, we have Facebook’s marketing team to thank for much of this latest speculative wave, rather than any pioneering hardware or software breakthrough. According to data from commercial search platform Tianyancha, 1,582 Chinese companies filed for 11,404 metaverse-related trademarks in 2021. But just 130 of these companies had filed for their trademarks before September 22 — roughly a month before Facebook announced it would change its name to Meta. In other words, the number of Chinese companies working on the “metaverse” — no matter how tangentially — increased tenfold in the last three months of the year.

For some, their bets are already paying off. The market value of the metaverse concept company ZQGame soared five times in the span of a month after it claimed it was building a new gaming platform. It has since received multiple inquiries from regulators requesting to see evidence of its plans and pointedly asking whether it was intentionally trying to profit off a stock craze. The stock price of home improvement firm Shenzhen Zhongzhuang also jumped by the maximum daily limit after it announced in December that it was developing new metaverse and blockchain applications.

But what exactly is the metaverse? Technically speaking, it is a confluence of the mobile internet and the “internet of things,” a world in which cloud computing and artificial intelligence make human-computer interactions through virtual reality and augmented reality practically seamless. It is, in short, the merger of our digital and “real” lives.

So far, so vague, but the basic definition of the metaverse has always been ambiguous, in part because it has always been less about technological advancement than the story of technological advancement. We’ve been through this before — remember self-driving cars and Oculus Rift? — but it bears repeating: Although the technologies at the heart of the metaverse are very real, we are years away, if not longer, from the kind of commercial and civil applications companies are currently promising investors.

In a sense, it’s fitting that Facebook helped inflate the current bubble. Long before the pandemic, the company was faced with declining growth and mounting regulatory scrutiny. Struggling to sell investors on its future, the firm diversified by acquiring a number of companies involved in virtual reality, augmented reality, and cloud gaming. That boosted valuations and assuaged capital markets, but over time it became clear that the promise of these firms was over-exaggerated, if not completely hollow. Meanwhile, Facebook’s forays into politically dangerous waters like digital currency brought new pressure from regulators in the United States and elsewhere. Viewed through this lens, it’s clear that the company’s name change doesn’t signal some bright new future, but a narrowing of its vision. Beset on all sides, it needs a new story to sell investors: a myth capable of sustaining it through the rough waters ahead.

Chinese firms have their own reasons for getting in on the craze. At a time when regulators are cracking down on longstanding monopolistic practices, companies see the metaverse as an escape hatch: A way to rebrand themselves from the increasingly toxic “platform” label while getting in on the ground floor of the next big bubble.

The bizarre frenzies surrounding the metaverse today are essentially the product of companies that have run out of their own ideas and have started cribbing from science fiction and movies. Increasingly, there are no real advances being made, just newer and newer stories we tell ourselves to justify unprecedentedly high stock prices. At some point, the house of cards will come tumbling down, potentially triggering not just another crisis like the dot-com bubble of the early 2000s, but also setting back the tech and internet industry for decades.

Within China, the potential harm of all the financial speculation around the metaverse could prove even more far-reaching. Such nebulous speculation risks disrupting both the rational allocation of production resources — a challenge even in the best of times — while also distorting talent allocation, shifting our brightest minds away from tech innovation and into the far more lucrative field of tech fabulism.

The story of the metaverse is the story of late capitalism — of exhausted markets both at home and abroad. But it also presents an opportunity. For years, Chinese firms have glommed onto the development models and paths of their North American and European counterparts. The more those seem headed for a dead end, the more obvious it becomes we need a contingency plan of our own for when the bubble finally pops. If we prepare now, we can avoid the worst of the fallout and even take advantage of the opportunities provided by a countercyclical boom. The future of the digital economy won’t be science fiction, but hard work, good governance, and incremental advances. The sooner we recognize this, the better it will be for all involved.

This article is co-authored with Zhang Taiqi, a Ph.D. candidate in the Department of Chinese at East China Normal University.

Translator: Matt Turner; editors: Wu Haiyun and Kilian O’Donnell; portrait artist: Wang Zhenhao.

(Header image: DKosig/E+/People Visual)