Alibaba and Tencent Chase Gen Z in China's ¥169 Billion IP Market

Chinese tech giants including Alibaba Group Holding and Tencent-backed Reading Group are launching new platforms to capture a piece of the country's 168.9 billion yuan ($23.5 billion) market for IP-based merchandise, a segment seeing 41% annual growth.

"An IP merchandise dealer told Tech Planet that top-selling items from a single popular IP can easily exceed several hundred thousand units, a sales velocity that far surpasses ordinary creative products," one industry insider said.

The market, known colloquially as 'Gu-zi,' is forecast to exceed 300 billion yuan by 2029, according to iMedia Research. In the first quarter of 2025, transaction volume for domestic IP merchandise on Alibaba's second-hand platform Xianyu surpassed that of Japanese imports for the first time by a factor of 1.2, signaling a major shift in consumer preference.

For companies like Alibaba and Tencent, success in the 'Gu-zi' space offers a new revenue stream that leverages their vast portfolios of game, anime, and literature IP. This could potentially offset slowing growth in core business segments and create new ecosystems around their most valuable content properties.

From Niche Hobby to a ¥169 Billion Market

The economics of 'Gu-zi'—a transliteration of the English word "goods"—are rapidly moving from a niche subculture to a mainstream consumer force. Driven by Gen Z's demand for physical manifestations of their digital passions, the market's 40.6% growth rate dwarfs that of overall retail sales. The core value lies not in utility, but in the emotional connection and community identity tied to intellectual property from games, anime, and literature.

This explosive growth has been fueled by the rise of domestic Chinese IP. For years, the market was dominated by Japanese products. However, data from Xianyu shows that in the first quarter of 2025, domestic IP merchandise, or 'Guo Gu,' saw its transaction value grow to 1.2 times that of Japanese imports. This shift has been a boon for content giants like Reading Group, which saw its IP derivative sales surpass 1.1 billion yuan in 2025, a year-over-year increase of more than 100 percent.

Platform Wars: Tech Giants Carve Out Niches

In response to the market opportunity, China's largest tech firms are rolling out specialized platforms. Alibaba's gaming unit, Lingxi Games, is developing 'Pipi Gu,' an app that combines a news feed, community features, and a 'gacha' (random draw) mechanic for merchandise. Reading Group is expanding its 'Yue Gu Mi' mini-program into a standalone app, creating a closed loop from its popular web novels to merchandise consumption.

Other giants are tackling different angles. Pinduoduo's 'Kuai Tuan Tuan' has introduced tools specifically for 'Gu-zi' group purchases, a popular buying method in the community that relies on social trust. Baidu, meanwhile, is leveraging its AI capabilities with its 'Daogu' app, which focuses on AI-powered customization and DIY merchandise creation, aiming for a differentiated, tech-forward approach.

Execution Risks Remain Despite Market Boom

While the market is booming, it is not without its perils, and even tech giants have stumbled. Tencent previously attempted to enter the market with 'QQ Jika,' an online card-drawing platform tied to its social media IP. The initiative was shuttered in 2025 after issues with product shortages and a collapse in the secondary market for its cards, highlighting the operational complexities of the 'Gu-zi' business.

Tencent's foray into physical retail with its QQfamily stores also ended in retreat, with most stores closing by 2023 due to high operational costs and the limited appeal of its IP to core anime and game fans. These examples serve as a caution that success requires more than just traffic and a well-known brand; it demands a deep understanding of fan culture, sophisticated supply chain management, and careful community engagement.

This article is for informational purposes only and does not constitute investment advice.