One reason why China and even institutions around the world are not interested in crypto is because of the lack of regulations. The government is taking too long to establish a clear regulation while the government agencies are having a turf war on which of them will regulate crypto.
But the metaverse itself is not something to regulate since this is not a token but a virtual space for all to connect.
Why do you think so? In China, even your health passport turns red (and bans you from all travel) if the government suspects you of going to a protest rally or the like. Why do you think that the Chinese version of the metaverse will be freer? With its actions in relation to cryptocurrencies, China has already shown that China and any decentralization and freedom are incompatible. Any Chinese product is censored garbage that can be used against you at any time. I will never use Chinese Metaverses or any other Web 3.0 products.
No government agency bother to look at Meta when Zuck was developing his facebook Meta. No SEC ever tried to look at it but when Zuck develop facebook coin SEC was threatened and issues about privacy were dug where he was summoned to the senate. But With Meta, he seems safe.
I guess it's the same with this Chinese metaverse.