Facebook Is Making a (Virtual) Comeback in China

Wang Yue swung her arms wildly, dodging the blobs of red and blue paint hurtling at her in the virtual-reality game she was playing in a downtown arcade.

Ms. Wang, a college student visiting from nearby Jiangsu province and a first-time VR player, said the game was a welcome alternative to pastimes such as karaoke and watching movies.

"Younger consumers are quite tired of the more traditional ways of entertainment," the 20-year-old said after taking off her VR helmet. "This is something new and interesting."

Along with Ms. Wang, China's booming VR market got another new player this week. Facebook Inc. announced that it will join with Beijing-based smartphone company Xiaomi Corp. to launch a new virtual-reality headset called Mi VR Standalone, modeled after Facebook's Oculus Go.

The move is seen by some analysts as a means for the Silicon Valley tech giant to secure a perch in a country where its main social-networking business has long been blocked. But it also reflects a solid business opportunity in its own right, said Neo Zheng, research manager at International Data Corp.'s China unit.

With help from its fast-growing young consumer market, shipments of virtual-reality headsets in China likely grew 87% to 1.1 million units last year, outstripping the 11% growth in the U.S., according to IDC figures. By 2021, shipments of such headsets in China are expected to reach 12.2 million, the industry researcher said.

Facebook founder Mark Zuckerberg has been working for years to return his social-networking company to China after it was blocked in 2009. Teaming up with Xiaomi on a consumer-hardware device is unlikely to raise the same concerns with Chinese government officials over content, said Duncan Clark, founder of Beijing-based investment consultancy BDA China, while also giving Facebook a chance to tap both Chinese consumers and the country's manufacturing prowess.

Baidu Inc.'s online-streaming unit iQiyi and Lenovo Group Ltd. are among the Chinese companies that have rolled out VR headsets for consumers recently, and VR arcades similar to the one Ms. Wang visited have mushroomed in bigger cities, offering consumers access to virtual-reality games for as little as $15 an hour.

Xiaomi, a Chinese hardware firm that expanded into producing consumer electronics after starting life as a cellphone maker, already makes its own VR headset, albeit a different type from the new stand-alone device the company and Facebook are working on.

And even though China's hardware makers have brought down prices of such gear, the headsets still need technical improvements, said Toby Dai, marketing manager at MacHouse, a VR gaming center in Shanghai that has offered individual and group games since October 2016. The cheaper headsets might not have advanced features, hurting the consumer experience and limiting adoption, he said.

The content is also generally still weak despite recent improvements and needs to be updated to fuel continued growth, Mr. Zheng of IDC said.

The partnership with Facebook is also a shot in the arm for Xiaomi, which is expected to make a public offering this year. Investment banks eager to take Xiaomi public pitched the company in December, with some offering a valuation of more than $100 billion, according to people familiar with the matter. That would make Xiaomi the largest Chinese company to list since Alibaba Group Holding Ltd. was valued at $169 billion when it made its debut in 2014, according to Dealogic.

Write to Liza Lin at Liza.Lin@wsj.com

(END) Dow Jones Newswires

January 09, 2018 08:22 ET (13:22 GMT)