Virtual Reality & Shenzhen

VR Box headset from Shenzhen Ginotech Technology Co, Ltd.

Muscling into the rapidly growing VR market is China, a voracious consumer of the latest-and-greatest technologies — especially when it comes to fields related to entertainment. While the United States still produces the overwhelming majority of VR innovation — around 66% — China’s VR presence is growing at an aggressive rate. Through 2016, China’s market was estimated at just around US$300 million, with HTC the top vendor moving 300,000 units and achieving an 18% market share. However, through the end of 2017 the market is expected to increase 441% from 2016.

“The new round of scientific and industrial revolution, with the Internet at its core, is gathering momentum, and new technologies such as artificial intelligence and virtual reality are developing by leaps and bounds.”

-Xi Jinping

Chinese consumers have definitely shown a willingness to adopt VR products where their American counterparts are lagging behind. Though as of now this market reflects Chinese consumption of more affordable and lower-quality devices for mobile phones — as opposed to higher-end devices from HTC, Microsoft, and Sony, the market in China is expected to reach $8.5 billion (USD) by 2020. This would make it just under 1/3 of the global market, if current estimates are assumed, and represent a massive opportunity for VR developers and enterprises worldwide. Many American firms transitioning to VR are now seeking ways they can exploit this rapidly growing market by shifting their strategy towards business in China.

Shenzhen is already home to 1/3 of all VR companies in China, and this includes the giants like Huawei, Xiaomi, ZTE, and Tencent, some of which have released their own headsets already and are continually looking for ways to integrate VR content into their business models. Because Shenzhen makes it easy and encouraging for small, entrepreneurial ventures to build their product and brand, countless start-ups are also popping up in niches across the ecosystem.

It’s often easier for these companies to experiment and quickly test for adoption in the market in China than it would be in the US. Why is this? Let’s look at some of the key reasons.

China’s appetite for VR continues to grow (via Marco Verch)

A Business Ecosystem Directly Suited to VR Enterprises

When you couple the open, entrepreneurial environment with access to 30+ years of electronics manufacturing excellence — and sprinkle in young innovators with a passion for both new tech and storytelling — you get an platform ripe for experimentation and testing of new tech in the VR field. That platform already exists in Shenzhen.

Whether in hardware or software, Shenzhen is a beacon for technology in China, due to the availability of advanced manufacturing, the abundant available talent, and the ease of establishing a business. As we often say: if you want to produce, it can be done in Shenzhen in 20% of the time and for 30% of the cost it would take to do it, on average, somewhere else in the world. The famous point in this ecosystem is Shenzhen’s Huaqiangbei marketplace for electronics, where hundreds of independent VR headsets and auxiliary equipment can be found. This is reflective of the overall market trend in China as a whole, which we will cover in a moment.

Currently, an issue that many Western firms looking take on China’s VR sector encounter is this: if it’s currently being dreamed up in the States it probably already exists in Shenzhen in some form. However it’s important to note that, by anecdotal experiences we’ve heard, most of the Chinese market is currently still working on adoption and utilization of VR technology. There is still a large gap for foreign companies to leave their mark in China and work with the local ecosystem to create innovation.

Government Policies and Support

Shenzhen has set its sights on leading China in its shift towards an innovative economy. A key part of this is opening its doors to talent and enterprises in all technology and creative sectors, both to serve the massive domestic demand and to establish China as a future leader in these sectors worldwide. The Shenzhen Government is also heavily involved in building infrastructure and making arrangements to support the development of new technologies, and VR takes a spot near the top of its list.

In October of last year, the Shenzhen City Government partnered with Taiwan-based HTC, creators of the Vive, to establish a 10 billion RMB (~ $1.4 billion USD) venture capital fund for VR-centered projects. This fund joins various other funds created in private-private partnerships focused on VR innovation and commercialization in Shenzhen. HTC will also be developing the China VR Research Institute in Shenzhen in conjunction with this new Shenzhen VR Investment Fund, in the hopes of continuing to develop new, homegrown talent in the industry for years to come.

Shenzhen also offers a range of tax exemptions and funding policies for firms in the technology and creative industries. This means more talent available in Shenzhen and more opportunities for foreign firms to collaborate.

Capital, Capital, Capital

While the government is hard at work creating an ideal infrastructure for virtual reality projects, many of Shenzhen’s 50,000+ VC and PE organizations are now also shifting their focus to VR enterprises as part of their strategy.

Shenzhen-based funds are also looking outward to foreign-founded firms in places like Silicon Valley. They hope to ultimately bring the expertise of these firms back to Shenzhen to power new technologies and methods of content generation in China.


“Surreal VR Paradise” experience in Shenzhen

With the VR industry, we see Shenzhen’s robust industrial environment at work, from government to capital to industry. Now let’s look at some of the ways VR is manifesting in China and Shenzhen.

More Mobile, Cost-Effective Offerings

Virtual Reality in China has trended towards mobile technology users, and this means headsets and content produced for use with mobile devices. China’s huge smartphone-wielding population, estimated to reach 663 million in 2017, is where most of the major players and startups see a market.

The devices to be used with mobile phones tend to be far cheaper than their self-contained counterparts, like the Vive. In truth, Chinese consumers are and will likely continue to trend towards more cost-effective choices instead of high-end VR hardware because most consumers simply can’t afford it.

VR Experience Centers

The higher-end hardware and full standalone equipment has a home in China, however, in VR “experience” centers. These are incredibly common in the form of stores or cafes, often in malls. And they are not just limited to first tier cities like Beijing, Shanghai, and Shenzhen — second and third tier cities are seeing them spring up as well. The abundance and public exposure of these centers also means that it’s not just VR and tech enthusiasts seeking out virtual experiences, but a much larger segment of the population, including families.

This has foreshadowed another new segment of the VR industry in China that is quietly and rapidly gaining steam: VR theme parks. Theme parks as a sector have been on-the-rise in China for over the past decade, and now many of China’s leading entertainment companies are seeking to attract customers by integrating VR into currently existing parks as well as building entirely new parks around the existing technology.

The hardware in these places can range from headsets to motion-chairs to human-controlled robots and mechs, reflective of China’s electronics manufacturing prowess. With these new experiences, however, is a growing demand for content from Western companies, which brings us to our next point.

Content is Key

Though VR is still a novelty in China (like it is to most Western consumers), Chinese consumers care about content. Western content boasts a high demand in the Chinese market and many creative firms comprised of filmmakers, programmers, game designers, and marketing geniuses from the United States are already taking advantage of this.

These developers are leading the way in forging deals to produce for what they see as a new form of entertainment for hungry Chinese consumers. User experience design, from more experienced, Western companies, is another area in which Western experience can be a huge help to Chinese VR products, many of which tend to focus on rapid hardware production and relax a bit when it comes to software and user interfaces.

Shopping

Alibaba is the pioneer in this segment of VR, but with China’s growing appetite for foreign brands, virtual reality shopping is a promising industry for those who want to visit the head branches of popular foreign brands in Europe, Japan, and more. Consumers can use VR to try on outfits, browse the new season’s fashion, and — when they find what they want — to order directly via the software.


With the most rapidly growing market in the world, China is on the radar of many US-based companies. Shenzhen, with it’s well-developed infrastructure and government support for emerging technologies like VR, represents an excellent place to get started.

The City of Shenzhen

Written by

The North American Representative Office of Shenzhen (NAROS) represents the city of Shenzhen, China in economic matters in the North American region.

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