China's virtual reality market is expected to be worth $8.5 billion by 2020, and three tech giants are attempting to take advantage of the fast-growing market, according to Bloomberg.

While foreign companies such as Sony Corp., Facebook Inc., and HTC Corp. are creating cutting-edge headsets, Chinese firms including Alibaba Group Holding Ltd., Tencent Holdings Ltd., and Baidu Inc. "want to focus on creating platform and content," Ricky Lin, an analyst from IResearch, said.

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"The issue facing China's VR industry at this point is that it lacks core technology, so they need to hedge their bets," he added. This means that these tech firms need to finance China's local VR market, which is anticipated to increase 36 times in four years time to 55 billion yuan ($8.5 billion) from only 1.5 billion yuan in 2015.

The three tech giants, which serve nearly 690 million Internet users, will collectively amass a market capitalization larger than Israel's gross domestic product.

According to a report by Baidu's iQiyi.com, around 200 startup companies are currently working in China's VR industry. In the first quarter, venture capital investments nearly doubled to $12.2 billion, Preqin Ltd. reported. And about $1.1 billion was allocated to the VR market, Digi-Capital said.

"A lot of people think that this industry will mature fast with the push of capital and media," Duan Youqiao, who looks into iQiyi's initiative, said.

Jason Low, an analyst at Canalys, said, "there isn't a clear leader for VR content in China." He further added that companies are still competing on VR development beyond hardware.

Meanwhile, if virtual reality is fully blown, it will take over nearly 40 percent of all entertainment content, according to Alibaba.

Harley Zhao, CEO of Original Force, said that while a handful of tech companies are targeting to develop China's hardware, only a few are aimed at creating content. "We want to create entertainment content, and VR will be one of the many forms for presentation," he added.

TagsVirtual Reality, Alibaba Group Holding Ltd., Tencent Holdings Ltd, Baidu Inc., iQiyi.com