China might be leader in advancement of 'internet of things'

The "internet of things" is much hyped. For a decade, a world in which household appliances, packaged goods, clothes, medical devices and much more would be connected to the internet via smart chips and capable of sensing and sharing information has been just around the corner. Progress remains slow in the consumer market, despite a few hit products, such as the Fitbit, an activity tracker that connects to smartphones. An industrial form of the IoT might come to fruition much faster.

As the world's biggest manufacturing power, China is well placed to lead this transition, which is why GE opened what it calls a "digital foundry" in Shanghai. The center will help Chinese companies develop and commercialize products for the industrial internet of things, which involves factory machines and industrial goods communicating with each other and their surroundings. It will probably be a much bigger market than the one for consumers. China has millions of factories with billions of machines, and it also makes most of the world's electronics, including many of the sensors and other electronic devices that would form the backbone of such a network. Moreover, the government is keen to upgrade the country's manufacturing base.

There are already more things connected to one another in China than in any country. Research firm IDC forecasts that the overall market for IoT of various forms in China will rise from $193 billion last year to $361 billion in 2020. Accenture, a consultancy, reckons embracing IoT in manufacturing could add as much as $736 billion to China's GDP by 2030.

GE's new center, soon to be joined by one in Paris, is part of its efforts to get firms to use Predix, its proprietary software for the industrial IoT. China Eastern Airlines and China Telecom, two big state-owned enterprises, and Huawei, a Chinese telecoms-equipment giant, are already on board. Besides GE, companies such as Simens, HP, Honeywell and Cisco are rushing to capture the market. They will be competing against Chinese firms such as China Mobile.

There are some potential snags to China's IoT ambitions. Firms, squeezed by both a weak local and global economy, may not be able to afford to connect their machines to the cloud. Chinese factories also are less technologically advanced than those in America or Europe, so moving to advanced computer-controlled production and automation could be daunting for some.

Finally, a world standard for IoT technology protocol, allowing for development across regions, has not been established.

Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.