Tencent Holdings, the world’s largest video game publisher, is reportedly in discussions with Meta Platforms to distribute its Meta Quest virtual reality headsets in China. According to three individuals familiar with the matter, the talks between Tencent and Meta began last year and have continued in recent months. While the talks are still in the early stages, sources have reported that the details have yet to be agreed upon.

Both Tencent and Meta have declined to comment on the reports as the talks are not yet public. However, the discussions were reported earlier by Chinese media outlet 36Kr and The Wall Street Journal.

Tencent had initially aimed to build both virtual reality software and hardware through its “extended reality” XR unit launched last year, which was in line with the increasing global interest in the concept of a virtual world. However, Reuters reported last week that Tencent has decided to quit developing its own XR hardware, citing profitability issues. As a result, most employees in the unit were told to seek opportunities elsewhere. Tencent noted that it was making adjustments to some business teams as development plans for hardware had changed.

One of Tencent’s main rivals in China’s virtual reality space is ByteDance, the parent company of the popular social media app TikTok, which owns headset manufacturer Pico. Tencent is primarily known for its software, which includes a suite of games and social media applications. It also sells the Nintendo Switch console in China through a partnership with the Japanese gaming firm, which was established four years ago.

If Tencent and Meta’s discussions are successful, it could potentially lead to a significant expansion of the virtual reality market in China, which has already been experiencing rapid growth. The partnership could also allow Tencent to gain a foothold in the market for virtual reality hardware, which it had to abandon due to profitability issues.