The actors: Top-level design drives a highly coordinated industrial internet development program
The main player orchestrating digital industrial platform development is the Ministry of Industry and Information Technology (MIIT). In 2018, MIIT published its first ever list of 93 industrial internet projects in a comprehensive effort to build, scale up, regulate and standardize China’s platforms. The Ministry of Finance (MOF) funded the first batch of projects with CNY 4.9 billion (EUR 679 million).
MIIT presides over the Alliance of the Industrial Internet (AII), the major forum for interaction between policy makers and industry. The AII was created in 2016 and has more than 1,300 members. The AII’s few foreign members include SAP, Siemens, Schneider Electric and GE. The body is active in setting technical standards for China’s industrial internet platforms.
State-owned enterprises (SOEs) are tasked with generating sector-specific platforms. For instance, a unit of oil giant Sinopec has set up a platform for the petrochemical industry.
The result: A state-led industrial platform landscape is emerging fast
Three push factors are combining to shape the industrial digital platform landscape: government strategy is driving work by giant SOEs in key sectors; private sector firms have joined in; and ICT giants are venturing into B2B to counteract stagnating user growth in their B2C strongholds.
The Industrial Internet Convergence Platform for Centrally Administered State-owned Enterprises was founded in June 2019 with 289 SOEs, including giants like China State Shipbuilding Corporation, Baosteel (partnered with Siemens since 2015) and oil major Sinopec’s unit Petrochemical Yingke. Several set up cloud platforms intended to optimize collaborative R&D and manufacturing.
Among the most successful private sector players, Haier’s COSMOPlat combines 12 industries from textiles to electronics and ceramics and claims to serve 35,000 companies with 320 million end-users. ICT companies like Alibaba, Tencent, Huawei and Baidu seek to leverage data from a massive pool of internet users: using consumer behavior data to optimize industrial design and production is a core feature of Industry 4.0.
Some Chinese ICT players will benefit from their strength in cutting-edge applications. Baidu’s Apollo, the world’s first open-source autonomous vehicle technology platform, has over 130 corporate partners, including major German carmakers.
The caveat: China lacks core capabilities for platform development
Nonetheless, China’s own analysts openly debate weaknesses in this mass of activity. Their views are consistent with MERICS own research. China’s structural dependence on key foreign components like industrial software is a fundamental deficiency that provides opportunities for foreign companies.
China lacks indigenous solutions in key layers of the industrial internet platform architecture, e.g.:
- Sensors: the PRC has to import almost 80 percent of high-end sensors and up to 90 percent of chips to meet domestic demand.
- Device connection: in 2019, 95 percent of high-end programmable logic controllers (PLC) and common industrial protocols were imported. Lack of interoperability with devices from different foreign companies is also an issue.
- Software as a service (SaaS): over 90 percent of high-end industrial software used in China is of foreign origin. Companies like SAP, Microsoft and Salesforce dominate the market.
China’s solutions: Setting standards and strategies to resolve domestic weaknesses
China’s government has begun to tackle shortcomings with centrally devised implementation blueprints. Key implementation mechanisms are:
- Devising region-specific, sub-national pilot projects involving local governments, state-owned companies and private firms (such as Alibaba’s SupET in Zhejiang, CASICloud in Guizhou or XCMG’s XREA in selected BRI countries)
- Experimentating with more market-driven funding mechanisms, including private equity investment, to reduce the dominance of state subsidies
- Devising a comprehensive industrial internet standardization system by 2020.
Obstacles to Chinese companies engaging in the IIoT include the lack of interoperability standards and insufficient rules on data ownership and security. China’s regulators therefore want more robust technical standards and a basic industrial internet standardization system by 2020.
Most of China’s 324 industrial internet standards are still awaiting formulation. The AII has judged platform standardization work in China as “early stage”. Standardization is an area in which foreign actors could and should engage with China.