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China's Development of Internet of Things: Present State and Policy Options


Lu Wei

I. China's Internet of Things Industry Is In Initial Stage and Has Good Basis for Development

Currently, China is one of the few countries in the world that promote the application of the Internet of things technology. China's Internet of things industry, which is now in the initial stage of development, has certain industrial, technological and application bases. While an industrial system is shaping, certain scale has been formed in some fields. The Internet of things technology has been preliminarily applied in many fields, such as transport, city management, power grid, oil and natural gas production and transport, medical service, and education. Since the outbreak of the international financial crisis, China has entered a new stage to actively develop Internet of things applications in order to foster new sectors of economic growth.

1. Internet of things industry is in initial stage with certain basis but not solid enough

In China, most industries related to Internet of things applications are still in the stage of experiment and demonstration. Compared with leading Internet of things countries and regions such as Europe, the United States, Japan and South Korea, China lags behind in the following fields in terms of research, development and application. First, it has no core technologies and suitable standards. It still depends on foreign countries for core technologies and high-end products and its own research, development and production are mostly at the low end. Second, it is "strong in the middle and weak at both ends". This means the gap is fairly small in network and application and China is even a frontrunner in a few fields. The gap is fairly wide in sensors, sensing chips, other sensing technologies and industries, high-end software products, and integration services.

2. Internet of things industry is mainly developed by enterprises and regional governments and lacks high-level and overall planning

There are no clear frameworks, paths and priorities for the application of the Internet of things technology in various industries. While some regional governments and enterprises are enthusiastic about the industry, they all do so on their own, without having national planning and arrangements. Regional actions are faster than those taken by central ministries and commissions. For example, some regional governments have formulated plans for the development of the Internet of things, trying to build regional Internet of things industrial chains. Many cities want to become intelligent cities and have signed framework agreements with the IBM. Many regional governments have invested heavily in building all types of computing and supercomputing centers. The State Grid Corporation of China and the Southern Power Grid Corporation have drawn up plans for the development of smart power grids and carried out demonstrations. But they were mostly done by power grid companies, without the participation of stakeholders.

3. Institutional mechanisms and policies are main factors impacting development of Internet of things industry

Institutional mechanisms lead to industrial barriers and make resource sharing difficult. First, the infrastructure facilities are segmented by departments. Progress has been slow in integrating the three networks, namely the telecom network, the radio and television network and the Internet, due to many network bottlenecks. This has led to unsmooth information transmission. Second, the information contents are segmented by departments. This has made information sharing impossible. In smart transport, the information systems are segmented by the traffic departments and the public security departments. In e-government, information islands are formed among various departments. Third, insufficient supportive policies undercut efficiency. Without the support of power price reforms, users are not enthusiastic about cutting power consumption and smart power grids are unable to boost efficiency. Fourth, the industry is segmented by investors. In China, the national trunk grids are invested by the State Grid Corporation of China, but regional grids have three investors: grid companies, regional governments and major power users. The grid companies are only responsible for operating and managing regional grids. For other investors, investments are separated from earnings, and this dampens their enthusiasm to invest in smart grids.

4. The lack of real cost efficiency analysis to evaluate investment efficiency

International experience indicates that the application of the Internet of things technology is guided by demand, based on cost efficiency analysis and oriented toward energy conservation, emission reduction and efficiency enhancement. In China, however, the feasibility studies for the application of the Internet of things technology are made by builders and users themselves. They do not have cost efficiency analysis backed by real data, and many projects emphasize infrastructure construction and fixed-asset investment, instead of efficiency enhancement through smart technologies. Some regional governments have invested in the building of computing centers. But there is no demand, with their equipment lying idle. In China, the cost efficiency analyses for the Internet of things projects generally comprise the costs and efficiencies arising from all infrastructure investments, with few of them focusing on the incremental costs and efficiencies arising from smart technologies.

5. Isolated development leads to uncoordinated development between industrial chain's links

The Internet of things industry comprises the links of the design of application plans, the construction of projects, the manufacturing of supportive equipment, and the provision of operational services. These links are inter-related. In China, the Internet of things is mainly used in a few industries and cities for pilot practice, where networking is highly important. Some ultra-large enterprises have an absolute control over the application and development of the Internet of things. In general, they emphasize internal integration, involving few other stakeholders and having little impacts on other industries.

6. Infrastructure facilities and supportive industries are weak

The widening application of the Internet of things technology has created higher demands for network infrastructure facilities and supportive industries. Currently, the industries such as the Internet, sensor making and cloud-computing service still cannot meet the demand of the development of the Internet of things industry. Their scales are small, their distribution is scattered, and their industrial chains are incomplete. They have no leading or backbone enterprises, and their general service capacities are weak in software, hardware, networking, platform, and operational integration. Network transmission speed is slow, interfaces are insufficient, and charges are high. Network information security, personal privacy protection and frequency distribution are problems that must be solved as soon as possible.

In short, China's Internet of things industry is still in the initial stage of development. It has certain industrial, technological and application bases, is forming a whole system, and has certain scale in some fields. But the level of application is low, the scope is narrow, the scale is small, the support is weak, the core technologies have to be imported, the standards have not been established, the transmission frequency resources are insufficient, the network information security and personal privacy protection are yet to be solved, there are no overall planning and rational distribution, and low-level repeated construction and blind investment are rampant.

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