China embraces the Internet of Things – to the tune of €1.45 trillion a year

If there was ever a doubt about the Internet of Things and its capacity to spark a "fourth industrial revolution", just watch how China has embraced it in the past six months alone – anticipating huge technological change combined with remarkable economic growth.

East or west, what’s different about the IoT is it’s the latest link in an evolutionary chain that began with our ability to “connect” online, developing since then to the point where we can use that connectedness to innovate and do business more efficiently.

China-watchers at international consultants McKinsey predict new online development could fuel up to 22 per cent of the country's GDP growth between now and 2025, depending on how enthusiastically it's adopted and how prepared the infrastructure is to cope. Then, in 2025 – in that one single year – it could generate as much as 10 trillion yuan (about €1.45 trillion) in added GDP, roughly equivalent to the GDP of Australia.

For the Chinese, that prospect has been welcome but hugely problematical. Up until two or three years ago, China’s official position on the internet was that it was just a communications platform, albeit one with huge potential, particularly for administering its far-flung regions. But since the start of this year, that attitude has changed dramatically – and definitively.

The internet is now officially regarded as an economic engine of primary importance, raising all sorts of practical and diplomatic questions about the development of indigenous software and hardware, and the extent to which foreign companies mining the Chinese market “must” be controlled.

The Chinese have been watching and waiting, and just like the rest of us, they’ve been mightily impressed by the pace and breadth of online innovation.

That’s not surprising. Connectivity has gone mobile through phones, tablets, watches – even clothes. Our cars feed data back to their owners, dealers and manufacturers. Smart homes, smart buildings and smart towns are a reality.

Real value

The thing to remember is the real value of the IoT isn’t in the connected devices themselves. The value lies in turning the mass of data generated by those connected devices into “tangible, actionable, business insight”.

To extract that value, we need to be able to see the IoT in the round and not just as a function of its connectivity, and that's crucial, says Enrique Andaluz, director of strategic business development at Worldwide Discrete Manufacturing at Microsoft.

"Devices are connected through a network of things, but also through a network of people and a network of services," Andaluz told The Irish Times.

“So when we talk about IoT, I feel the concept is incomplete unless we talk about the Internet of Things, the Internet of People and the Internet of Services.”

The benefit of that more holistic view of connected devices is it allows us to see not just their “industrial” side, where they fit into the processes and systems of which they are part, but also their consumer side, how their owners interact with them.

That’s where much of the innovation occurs and value is generated, and the Chinese have realised that.

That realisation led to Internet Plus, unveiled on March 3rd by Chinese premier Li Keqiang. Internet Plus is a blueprint for integrating mobile internet, cloud computing, big data and the IoT with modern manufacturing, in a way that will pump prime e-commerce right across this enormous country.

A spin-off benefit, Li anticipated, would be to enhance the international presence and reputation of China’s internet companies and technology manufacturers, such as Alibaba, Tencent, Baidu and Jingdong.

Two months later, the state council in Beijing published a follow-up policy document aimed at dovetailing with Internet Plus and stimulating e-commerce by reducing barriers to entry, easing taxes, increasing financial support and improving the competitive environment.

By 2025, the State Council said, it envisaged a thriving modern e-commerce system, privately owned and – crucially, in terms of China’s determination to tame such an important economic asset – 100 per cent controlled by Chinese citizens.

To ensure delivery, the ministry for commerce produced an Internet Plus logistics plan focusing on the practicalities both inside and outside China. The plan is to be backed by a rapid upgrade of the country’s internet infrastructure, with investment of 700 billion yuan during 2016 and 2017.

Despite the potential economic upside, however, there are concerns. The idea that "foreign hostile forces" are scheming to "westernise" and divide China appears regularly in Communist Party documents and in the media, along with demands for "cyber sovereignty".

Cyber attacks

Claims in the West, particularly from the US, that a growing number of cyber attacks on businesses and government institutions originate not just in China but with Chinese government and military sources, have led to tensions between Beijing and

Washington

.

"The United States and presumably China are strengthening their capacity to engage in both defensive and offensive cyber actions against each other, presenting the prospect of a cyber arms race, while potentially intensifying the already high level of distrust between the two countries," says Michael Swaine, China expert at the Carnegie Endowment for International Peace.

As a result, cyber security is at the top of the bilateral agenda. In an attempt to defuse those tensions, the two governments set up a cybersecurity working group, which had its first meeting in Washington yesterday.

One of the few Chinese voices to oppose a more Sinocentric attitude has been Eric Hu, chief executive of Huawei, who said he feared the repercussions. If China became less open, so would the US and Europe.

“What’s the result?” he asked. “We all draw a line around our own territory.”