The spending comes as President Xi Jinping tries to bolster the slowing economy through innovation and reducing its dependence on heavy industry. The country began a campaign to support entrepreneurship in 2014 and since has opened 1,600 high-tech incubators for startups.
At least 200 startups are working in China's virtual-reality industry, according to IQiyi.com, a unit of Baidu. Venture-capital investments in China surged about 50 per cent to $12.2 billion in the first quarter, according to London consultancy Preqin Ltd.
In that same period, about $1.1 billion was invested in the VR industry, according to California-based Digi-Capital.
"A lot of people think that this industry will mature fast with the push of capital and media," said Duan Youqiao, who oversees IQiyi's initiative. "The VR industry right now is like when we were still living in the ages when horses pulled carriages."
Baidu, Alibaba and Tencent-often referred to collectively as BAT-have a combined market capitalization larger than Israel's gross domestic product, and they serve 688 million Internet users in China alone. China's VR market is expected to reach 55 billion yuan in value by 2020 from 1.5 billion yuan last year, according to Guangzhou-based researcher iiMedia.
The segment with the most initial promise is online video, since about 504 million Chinese regularly use streaming sites, according to government figures. Immersive video and game applications could be the first VR industry to mature, according to China's Ministry of Industry and Information Technology.
About 6.3 million VR headsets will be shipped worldwide this year, with 40 per cent of them going to China, Canalys said May 12. Sony's PlayStation VR, Facebook's Oculus Rift and HTC's Vive will range from about $400 to $800.
The VR industry right now is like when we were still living in the ages when horses pulled carriages.
"There isn't a clear leader for VR content in China," said Jason Low, a Shanghai-based analyst with Canalys. "Local content providers, game publishers and service providers are racing to exercise their influence on the development of VR beyond hardware."
Beijing-based IQiyi.com is working with more than 300 partners, including listed Beijing Baofeng Technology Co., on content and hardware. Its streaming app offers VR videos of a woman dancing to hip-hop, military jets streaming overhead, whitewater rafting and a wingsuit flyer jumping off a cliff.
IQiyi plans to build the world's largest Chinese-language VR service, and a key element is a new app suite that makes its movie and game offerings compatible with any head-mounted devices, it announced May 5. "VR will become iQiyi's main business-not a sideline business," Duan said.
IQiyi also is experimenting with streaming live concerts and producing VR films such as "Iron Fists of the Despicable," Duan said. Films and TV shows could become more like games in the future, with storylines changing based on user preferences, he said.
The owner of China's largest search engine also started an artificial-intelligence project in April called the "Baidu Verne Plan" after writer Jules Verne. It is led by Baidu's chief scientist, Andrew Ng, and Chinese science-fiction novelist Liu Cixin, author of "The Three-Body Problem," a Hugo Award-winning book featuring virtual reality.
I think about how I can help women and girls shop easier on my site, so they can buy things quicker, easier and nicer. And how can we use VR technology to help sellers to sell their products.
Alibaba, China's biggest e-commerce company, is developing VR-related shopping experiences for its 400 million users. The Hangzhou-based online emporium created 3-D renderings for hundreds of products and will issue standards for merchants to create their own VR-enabled shopping options.
While discussing VR technology at a Beijing forum in March with Mark Zuckerberg, Jack Ma said: "I think about how I can help women and girls shop easier on my site, so they can buy things quicker, easier and nicer. And how can we use VR technology to help sellers to sell their products."
Virtual reality will comprise about 40 per cent of all entertainment content when the industry matures, Alibaba said in a research report without giving a timeframe.
China's largest e-commerce platform set up GnomeMagic Lab to create content with its movie and TV unit. The business, named after characters from "World of Warcraft," will work with video-streaming unit Youku Tudou Inc. and Alibaba Pictures Group, which is investing in Hollywood movies, including "Mission: Impossible-Ghost Protocol."
Hangzhou-based Alibaba in February invested in Magic Leap Inc, which promises to create a headset that superimposes images on the real world.
VR and AR devices are going to be the next big thing after the computer and mobile phone, and Alibaba is committed to making VR the premium shopping experience of the future.
Tencent, whose WeChat and QQ instant-messaging services have more than 1.3 billion active users, is boosting spending on videos, games and anime comics to keep users in those services longer.
The Shenzhen-based company helped stream VR concerts for South Korea boy band Big Bang and bought the rights to more than 300 Japanese anime franchises as it adds more smartphone games.
China had 391 million users who played online games last year, according to CNNIC. Online game revenue is expected to grow to 251 billion yuan by 2018 from 143.6 billion yuan last year, according to Shanghai-based IResearch.
Original Force, a Tencent-backed company that specializes in computer-generated content, is working on VR movies for Tencent Pictures. It also is an investor and Chinese partner for Florida-based Pulse Evolution Corp., which created holograms of Michael Jackson and rapper Tupac Shakur for concerts.
Original Force is creating content catered to Oculus Rift. It's building VR promotions for the movie "L.O.R.D: Legend of Ravaging Dynasties," which features Chinese movie star Fan Bingbing, said Harley Zhao, chief executive officer of Original Force.
"A lot of companies focus on hardware in China, not that many focus on content," Zhao said. "We want to create entertainment content, and VR will be one of the many forms for presentation."
