US-Asia Business

China’s Smart Cities Connected by the ‘Internet of Things’

China's burgeoning IoT revolution powers an increasingly connected society.

Imagine a city without traffic lights, where lanes of cars merge seamlessly from one to the next with inches to spare. Imagine a city so intelligent it can guide you to a parking spot, tell you when a bus is coming, switch on street lights according to the weather and automatically collect trash. Imagine a house where appliances know how to activate themselves, which warms or cools automatically when you're just about to arrive or are walking out the door.

Only a few years ago, the concept of a "smart city" – or one that uses a complex network of wireless devices to facilitate communication between buildings and infrastructure, residents, service providers and administrators – seemed like science fiction. Today, with China increasingly leading the way, fiction is rapidly becoming reality.

Such smart communication is underpinned by developments in Internet of Things (IoT) technology, and its rollout across society. According to the Groupe Spéciale Mobile Association, a global association for mobile network operators, China had 74 million machine-to-machine (M2M) connections in place last year (compared with under 50 million in the United States). This figure is predicted to jump to more than 300 million by 2020.

"China will be a leader in IoT adoption, and, in many cases, innovation," says Edward Holroyd Pearce, co-founder and director of CRCC Asia, a China-focused consultancy specializing many sectors, including high tech. "The word's second-largest economy is now poised to take Internet development to a new level."

Top-down transformation

Many Western governments have only just begun to understand IoT technology and its advantages. But in China, the tech sector and the government are already building a vast IoT system. As early as 2010, Beijing had set up a national IoT center and has set itself the goal of creating an IoT market worth more than US$160 billion by 2020. Some analysts see Beijing's desire to control information flow and aspects of social behavior as incompatible with an open, free and IoT-based society. But in an increasingly urbanized Chinese society, others point to more practical considerations.

"The ability of the IoT to conserve resources and make things more efficient is far more important," says CRCC Asia's Pearce. "The IoT can solve a lot of problems in China's legion of heavily populated cities, making life easier and reducing waste and pollution. This makes Beijing more likely to approve of it and invest in it heavily."

More than 500 Chinese cities have now embarked on smart city programs. According to the Chinese government's 2014-2015 Smart City Industry Policy & Environment Program, total smart city investment over the next 10 years will be RMB 2 trillion (approximately US$300 billion).

Take the city of Zhenjiang in southeast China's Jiangsu province, for example. Thanks to smart technology from IBM, residents of this time-honoured city beside the Yangtze River can now use their phone to view public transport schedules in real time, book hospital appointments, and see the status of local bicycle sharing systems.

(Photo credit:) Gettyimages.com/Blackstation

"China will be a leader in IoT adoption, and, in many cases, innovation. "

According to the local government, a "smart dispatch" control center for the city's buses has helped to reduce carbon dioxide emissions and has led to annual fuel savings of US$2.7 million.

In addition to relieving social and environmental pressures, Beijing also sees IoT as a way of sustaining economic development. This is critical at a time when Chinese productivity growth has stalled and many manufacturing industries are finding it difficult to move up the value chain.

The Chinese government's "Made in China 2025" initiative, unveiled in mid-2015, targets greener, smarter, higher-value manufacturing by integrating production with the Internet. It will work alongside China's "Internet Plus" strategy, also announced last year, which aims to integrate the country's mobile Internet, cloud computing, big data and IoT initiatives with manufacturing.

Digital drivers

China's massive Internet and smartphone user base and its strength in both hardware and software development give it a big advantage when it comes to pushing IoT boundaries. Factors such as high rates of replacement purchasing by consumers and frequent home and office redecoration underpin the rapid adoption of IoT technology.

"Chinese society is still preoccupied with 'mianzi' (the ability to gain or save face)," says Pearce. "The ability to show off new gadgets or modern things is important, both in business and at home."

Urban Chinese are typically open-minded about new technology. Millions now own multiple connected devices and are already benefiting from IoT in their daily lives. The wearables market, in particular, is seeing a lot of innovation, with a multitude of products available at knockdown prices. The Mi Band from electronics company Xiaomi, a smart fitness tracker costing a little more than US$10, sold well over 10 million units in China last year.

Driven by increasing 4G network coverage, China's connected car market is also taking off; according to China Mobile Ltd., there will be 68 million "smart" cars on the country's roads by 2018. In addition, search engine Baidu Inc. has partnered with BMW to develop a driverless car, while Volvo Car Corp. is working with China Unicom on in-car services, such as Voice over IP and rapid assistance.

Corporate push

So far, most M2M connections in China have been provided on a business-to- business basis. Yet China's tech giants are increasingly collaborating with other businesses to push their IoT offerings to consumers.

China's three mobile operators – China Mobile, China Telecom Corp. and China Unicom – are all looking to move up the value chain by providing connectivity management and systems integration services. China Unicom, for example, has teamed up with telecommunications company Huawei Technologies Co. Ltd. to develop smart home offerings.

Xiaomi also wants to leverage its massive smartphone user base to move into the smart home arena. It recently acquired a number of tech startups and then launched a number of smart home products. It also released a "smart module" that hardware partners can install on their products to make them connected devices.

China's e-commerce heavyweights are also moving into the IoT space with platforms to help smart home appliance manufacturers. In 2014, for example, JD.com Inc. launched JD Smart, a smart "ecosystem" to support entrepreneurs focusing on smart technologies.

"JD Smart has already helped to bring to market hundreds of next-generation smart hardware across product categories," says Josh Gartner, JD.com's senior director of international communications. “The DingDong Smart Speaker, for example, enables users to control their various smart home devices using only their voice."

JD.com has also developed a proprietary technology platform, JD Weilian, that allows products from different manufacturers to communicate with each other via a seamless smart platform. Brands that use JD Weilian include Panasonic Corp., Philips and Haier.

"We're now seeing a huge number of innovative new products powered by smart technology coming onto the market in China," says Gartner. "As of the end of September last year, we had more than 1,000 products using JD Weilian alone."

Challenges and opportunities

Research by mangement consultant Accenture estimates that IoT technology could add as much as US$1.8 trillion in cumulative gross domestic product to the Chinese economy by 2030. Although there are still a raft of challenges to overcome – not the least of which is a highly fragmented market – opportunities for tech firms of all sizes are big and getting bigger.

"Western firms can and should take advantage of China's IoT revolution," says Phillip Chang, co-founder and general manager of Greater China for Ayla Networks, a Santa Clara, Calif.-headquartered IoT platform provider. "China is now an open market. It is important to get involved while the IoT structure is still developing."

In 2014, Ayla became the first U.S.-based IoT platform company to obtain a licence to serve as an Internet Content Provider in China. In June last year the company launched an IoT portal for WeChat, China's ubiquitous messaging service.

Much of the innovation in China's IoT industry will undoubtedly come from small and medium sized enterprises with a growing number of Western startups attracted to both Hong Kong and to the mainland markets.

German startup Soundbrenner Ltd., which has developed a smart wearable metronome for musicians, was invited to Hong Kong for four months by Brinc IoT Hub, a newly established IoT accelerator.

"Once we were in Hong Kong, we decided to permanently base ourselves here," says Soundbrenner CEO Florian Simmendinger. "We soon realized that the booming Chinese IoT market makes this the best place in the world to grow a company like ours.