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Potential Legal Issues that Metaverse Projects in China Must be Aware of

The Metaverse is an area of emerging technology that is generating a lot of interest in China. Although it is still in its nascent stages, leading tech companies are already making significant ventures in the industry. The government of China isn’t left out in activities around the Metaverse. On multiple occasions, moves to enhance the development of the industry and the initiation of proper regulation have been made by the government.

A national probe into the development of the Metaverse was first undertaken by the Chinese government during the “Two Sessions” of March 2022. “Two Sessions” is the term used to describe the back-to-back annual meetings of two of China’s major political bodies (the National People’s Congress (“NPC”) and the Chinese People’s Political Consultative Conference (“CPPCC”). Considering the perceived relationship between the Metaverse and blockchain/cryptocurrencies, and China’s crackdown on the latter in 2021, the government thought to begin early enough in finding ways to control, or at the least moderate this emerging ecosystem.

The government’s intention while keeping a close eye on the unfolding industry of the Metaverse does not in any way suggest a stifling process for its development. On the contrary, based on China’s national strategy to maintain the competitiveness of its digital economy, the recommendation of the delegates at “Two Sessions” is that more resources should be dedicated to nurturing talent and supporting technological developments in the metaverse. Also, perhaps to avoid the kind of experience with cryptocurrencies, prompt actions were advised to put in place proper regulations that will steer such technological developments in China’s best interests.

Several technology companies and institutional investors are already entering the Metaverse industry in China. Many of them have registered multiple patents, and some have gone as far as instituting developments. However, none of these entities would rather want to be involved in any kind of regulation quagmire. There is a need for awareness, especially among such stakeholders of the constraints within which the metaverse in China is allowed to occur. Such issues around cybersecurity and privacy, antitrust, intellectual property, and financial regulation must be of concern for any entity venturing into the Metaverse space in China.

One of such concerns for intending Metaverse developers is the existing Algorithm Law which was implemented on March 1, 2022. This law is aimed at regulating providers of algorithm recommendation services and sets out the framework within which they operate.

Some of the mandatory requirements under this law for algorithm providers include the following:

  • They shall not set up any algorithm model that encourages excessively indulgent behaviors or induces users to violate laws, regulations, or ethics;
  • They shall establish and reinforce the databases used to identify illegal and undesirable information;
  • They shall not use an algorithm to falsely register accounts, manipulate user accounts, create false “likes,” comments or re-sharing, manipulate popular search results or implement any methods which may influence online public opinion; and
  • They shall not use an algorithm to unreasonably restrict other internet information service providers, hinder the normal operations of internet information services, or engage in anti-competitive practices.

In addition, these providers are required to conspicuously notify users if the content recommended to them is powered by an algorithm. The needs of susceptible groups, such as children or the aged are also prioritized. Providers are required to ensure that content transmitted to these categories does not endanger them in any way.

Other aspects that Metaverse projects in China must ensure extensive scrutiny to avoid falling short of the government’s yardstick include Deep Synthesis, China’s Ban on Cryptocurrencies, and Issues of Anti-Money Laundering and Illegal Financing.

China aims to regulate the Metervese early enough, to avoid unnecessary bottlenecks in the future. The struggle in cleaning up the cryptocurrency space has left a mark on both the country and the industry at large. Achieving an early framework will be good to all parties involved. It will save resources and promote sustainable innovation.

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