Why China needs to accelerate industrial internet efforts amid economic slowdown, trade tensions

This article was co-authored by Minghe Hu.

China’s transformation into a services-driven economy is likely to accelerate as industrial internet developments gather steam across the country, according to a senior executive at venture capital firm Gobi Partners.

An aerial view of Guangzhou, China. / Photo credit: Pexels

Michael Zhu Lin, a managing partner at the firm, predicted that about 85% of Chinese companies will establish cloud computing-based activities over time and that the enterprise data generated would expand on par with the amount of information gathered from consumer-based applications. He made those projections on Wednesday during his keynote speech at a company event in Beijing attended mostly by startups.

As the next driving force in the world’s second largest economy, the industrial internet involves the broader adoption across industries of advanced applications that take advantage of next generation wireless networks, big data, artificial intelligence, and the so-called internet of things.

It links together three key elements – intelligent machines, advanced analytics, and people at work – where data is gathered by connected IoT devices. The processed information would help companies pursue higher levels of efficiency, productivity, and performance.

Data generated by connected devices is now starting to help companies run more efficiently and gain insight into business processes. Consumers’ access to data, on the other hand, is changing how they are informed about the status of households, vehicles, and family members, as well as their own health and fitness.

China, which has been the world’s manufacturing powerhouse for the past few decades, is determined to use the industrial internet to upgrade all its industries.

The government’s “Made in China 2025” strategic plan was drawn up in 2015 and aims to push forward the country’s high-tech leadership goals, including robotics, aerospace, new materials, and new energy vehicles. It also aims to replace high-tech imports with competitive local products that will help the nation foster new global champions.

Another important national strategy called Internet Plus, which was announced in the same year, was set up to help combine the mobile internet, cloud computing, big data, and IoT with modern manufacturing. In 2016, Chinese Premier Li Keqiang announced the integration of those two national strategies to strengthen the move toward the industrial internet.

At the Gobi Partners event on Wednesday, Zhu suggested that the country’s edge in manufacturing is being diminished as lower-cost markets attract more companies from this sector.
“China’s dividends in population [referring to its large consumer base] and costs are waning after the past two decades,” Zhu said. “Labor costs have surged three times over the past 10 years and are projected to rise further.”

Those developments mean changes must be made in China at both the business and investment levels, taking advantage of high-tech advances to become globally competitive.

“Emerging business models, such as unstaffed shops, require companies to adopt the latest technologies,” Zhu said.

With the latest infrastructure in place in China, he said virtual reality (VR) and augmented reality (AR) technologies would have wider applications in manufacturing, which would help move domestic companies up the value chain and be more globally competitive.