Adjusted for purchasing power parity, China’s economy is now the world’s largest. One way it plans to stay ahead is with the Industrial Internet.

In 2011, China created a special fund to invest some $800m in the sector. It also established the Chengdu Internet of Things (IoT) Technology Institute, a $160m state-owned enterprise aimed at large-scale IoT projects such as “health capsule” kiosks where patients can get diagnoses and prescriptions from doctors in remote hospitals.

The motivations are not just technological. The Industrial Internet (II) could add $1.8trn to China’s cumulative GDP by 2030, according to Accenture.

Key applications for II in China include cutting emissions and energy consumption. In 2013, for example, the country overtook the US as the world’s largest investor in smart grids — at $4.3bn, China accounted for almost one-third of the world’s total investments that year. And with China building an equivalent of 2.5 Chicagos annually, II will help with rapid urbanisation as well. Smart streetlights, for example, can track vehicles and help fight gridlock, preventing the kind of traffic jams that are notorious in cities such as Shanghai.

A key portal to the II in China is likely to be the smartphone. Earlier this year, Xiaomi, the world’s third largest smartphone distributor, announced a $3.60 module that can smarten any appliance when linked to it, for example. And just last month, Ayla Networks announced a service that helps users control similar devices via Weixin, the leading Chinese social communication platform and one of the world’s fastest-growing social apps. Weixin, which is offered as WeChat outside of China, is a service of Tencent, China’s largest Internet service portal; a number of Chinese manufacturers are already developing Weixin-controlled products, such as residential boilers, water filters, smart plugs, smart locks and smart lights.

All in all, the IoT may create a $343bn market opportunity in China by 2020, according to the analyst firm IDC. By then, IDC has also forecast that one out of every five devices connected to the IoT will be in China. This potential and the momentum behind it are attracting foreign companies, including GE—which held an Industrial Internet Summit yesterday to explore opportunities and share Industrial Internet best practices.

Fully leveraging the Industrial Internet in China will not be without hurdles, however.

One current constraint is the limited amount of spectrum open to IoT communications. Building 2G, 3G or 4G infrastructure to wirelessly transmit data for long-distance applications, such as sensors on gas pipelines thousands of kilometres long, can be expensive, according to Henry Gong, an Internet of Things consultant. One solution would be to free up vacant television frequencies known as “white space” for use in data networking, as has been done in the US and the UK.

Another challenge might be how open the II will be to foreign companies. The partnership between the Chinese and German governments to accelerate the emergence of the II in both countries is a positive sign. Partnering with other key leaders like the US will also help.

As much as the IoT might connect people with their devices, it is up to policy to connect nations with one another.

 

This post first appeared on GE LookAhead. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Charles Choi is a contributor at GE LookAhead. 

 Image: Internet LAN cables are pictured in this photo illustration taken in Sydney June 23, 2011. REUTERS/Tim Wimborne.