Chinese industries to go digital or die

Chinese industries to go digital or die

Companies in traditional sectors should take the initiative in the coming decade to go digital under Beijing’s newly announced “Digital China” plan or they will be eliminated, according to some academics.

“Digitalization is now a global trend,” Zhang Jun, dean of economics at Fudan University, told in an interview. “Without it, China’s service and manufacturing sectors will fall behind.”  

The country has been pushing forward digitalization across many sectors over the past two decades but most efforts were spent on the “consumer internet,” instead of the “industrial internet,” Zhang said. 

Consumer internet applications include online shopping, food delivery and ride-hailing while industrial internet applications are found in smart factories, warehouses and ports.

“China is good at consumer internet because of its huge consumer market,” Zhang said. “But it’s not easy to replicate this success in the industrial internet, which requires a complete change in production flow and operational model.”

He said that because the US retail network and the credit card payment system are well developed, American technology firms focus less on consumer internet while they choose to advance on industrial internet. He worried that a focus on consumer internet may slow China’s industrial upgrade. 

Global competition and US curbs

Since Boston-based General Electric coined the new name “industrial internet” for its business in 2012, many developed countries have launched their industrial upgrade blueprints that aim to boost productivity with new technologies. 

Illustration of how Pitney Bowes was making use of GE’s Predix “industrial internet” platform as of 2016. Image: General Electric

Following the “Industry 4.0” “plan launched by Germany in 2013, Beijing in 2015 unveiled its strategic plan called “Made in China 2025.”

According to the plan, China will field a group of multinational firms and industrial clusters that can boast world-class competitiveness and gain higher status in the global supply chain by 2025. Its manufacturers will have higher abilities in technological innovation and some of them will lead the world by 2035, if all goes to the plan. 

In 2018, Beijing launched another strategy called “China Standards 2035,” aiming to set global standards for 5G, the internet of things, and artificial intelligence (AI) technologies by 2035. 

In recent years, Washington has tried to suppress the “Made in China 2025” plan by sanctioning Chinese technology firms and banning the export of high-end chips to China.

The added value of China’s industrial internet industry increased 8.7% year-on-year to 4.45 trillion yuan (US$640 billion) last year from 2021, according to the China Academy of Industrial Internet (CAII). The growth rate was lower than the 16.1% increase in 2021 due to the virus outbreaks in China last year.

China has already built more than 100 industrial internet platforms and connected them with 76 million machines, said the CAII. The country is now leading the world with more than 1,500 “5G + industrial internet” projects, the CAII claims.

About 10,000 Chinese businesses including 6,000 factories have already installed dedicated 5G networks that support AI applications to enhance productivity, according to industry sources involved in the rollout. Asia Times could not independently verify the claim.

New digitalization plan

While Western and Chinese media have different views on whether China will achieve its goals, the Chinese government on February 27 published the Overall Layout Plan for the Development of a Digital China, which calls for the integration of the nation’s digital and real economies. 

On March 7, it proposed to set up a new body called the National Data Bureau to implement the plan.

The plan said China will upgrade its industries with 5G, the internet of things, supercomputing and satellite technologies to be among the world’s top countries in digitalization level by 2035.

A robot capable of simulating human movements using a 5G network is displayed at the opening of the Jiangxi International Mobile Internet of Things Expo in Yingtan, Jiangxi province, on July 18, 2019. Photo : Xinhua

“Due to the slowing foreign investments in China’s internet sectors and the world’s growing isolationism and protectionism, China will have to rely more on domestic funds to push forward its digitalization this year,” Pan Helin, co-director of the Digital Economy and Financial Innovation Research Center at Zhejiang University, writes in a recent article.

He says under the “Digital China” plan, Chinese internet companies will have to change their focus from business-to-consumer (B2C) applications to business-to-business (B2B) and business-to-government (B2G) ones.

He says the digitalization of government services will stimulate demand for cloud and Big Data services, as well as local high-end chips. He also says AI and virtual reality technologies will help Chinese manufacturers react more swiftly to market demands.

From crackdown to promotion

Beijing tightened its rules against Chinese internet giants between late 2020 and mid-2022 and criticized many of them for not contributing enough to China’s industrial upgrade.

Many Chinese technology firms scrapped their US listing plans after they were asked by the US Securities and Exchange Commission (SEC) to meet US accounting standards last year.

Some commentators say China’s industrial internet development was still in an exploration phase in the past five years and will continue to face challenges in the years ahead.

Lu Chuncong, head of the CAII, said it is not easy for manufacturers to go digital if their machines do not provide and share digital data. He said technology companies will also have to create more tailor-made applications for different industries.

Chen Zhilie, founder of Evoc Intelligent Technology Co Ltd, said in an interview last year that China’s major industrial internet platforms are mainly using foreign systems and do not own many core technologies. Chen said the country’s development in the area has so far remained in an early stage due to the lack of an ecosystem.

A Chinese columnist wrote in an article last December that an industrial internet ecosystem will be formed only if all parties in the supply chain can agree to a profitable and sustainable commercial model.

He said that once more successful cases are seen more Chinese companies in traditional sectors will recognize the value and take the initiative to go digital.

There are examples of that success. In October 2021, Huawei Technologies, a Shenzhen-based telecommunication equipment maker, and Tianjin Port Group jointly transformed the Section C Terminal in the Beijiang Port Area of the Port of Tianjin into what they called the world’s first “zero-carbon port terminal.”

The port guides robots to unlock containers with China’s BeiDou navigation system and lifts loaded containers from cargo ships with remotely-controlled quay cranes. ABB Ltd, a Swedish-Swiss robotics firm, supplied the main remote control system.

Read: China’s grand plan for a world-beating digital future

Read: Huawei seeks ‘China solution’ for global green ports

Follow Jeff Pao on Twitter at @jeffpao3