IoT to boost economic growth China by 1.8 trillion

09 November 2015

IoT has the potential to boost China’s yearly economic output by a further $1.8 trillion by 2030, a recent report from Accenture shows. As part of ‘Made in China 2025’, China is investing heavily in IoT technology to stay competitive. A number of limitations exist however, and talent and integration issues, as well as business confidence, are inhibiting the full realisation of benefits. Just as in other countries, particularly the manufacturing and resource sectors stand to benefit from the technology.

As part of the future development of its industrial process, and as part of its High-Tech Strategy 2020 Action Plan, Germany has started to implement the ‘Industrial 4.0’ transformation. Industry 4.0 involves the widespread deployment of an ‘industrial internet’, which is broadly a digitalisation and automation of the industrial process. The basis of this revolution is “the availability of all relevant information in real time by connecting all instances involved in the value chain.”  The programme is part of Germany’s aim of sustaining the competitiveness of its sophisticated manufacturing base.

Germany is not the only country that is seeking to improve the competitiveness of its manufacturing process through the use of IoT. In a recent report, titled ‘How the Internet of Things Can Drive Growth in China’s Industries’*, Accenture explores China’s IoT programme and ways in which key investment in the technology may be able to accelerate GDP growth within the country.

IoT GDP impact current and enhanced

‘Made in China 2025’ is China’s answer to its decreasing industrial competitiveness. Much like Germany’s Industry 4.0 transformation, the Chinese plan calls for greener, more intelligent and higher-quality manufacturing through the integration of production processes with the Internet of Things (IoT). Research released by Accenture estimates that the impact of IoT in China has the potential to deliver $1.8 trillion in cumulative Gross Domestic Product (GDP) by 2030.

According to the consulting firm, to realise the full benefits of IoT, a number of challenges will need to be overcome. The firm has created two projections, one base-case following current policy and trends and one high-end projection in which the challenges are overcome. The base-case will see $500 billion added to China’s cumulative GDP by 2030, thus China’s GDP being 0.3% higher than it would otherwise be, whereas the high-end option would see the full $1.8 trillion in additional GDP come online, accounting for 1.3% of the 2030 economy.

Withholding factors
The research locates a number of areas in which shortfalls have the potential to hobble the full benefits of IoT within China. The largest risks include a shortage of specialised talent both on the technical side relating to core technology skills, but also on the business side, relating to product transformation. Further issues include poor communications and IT systems integration, as well as policy issues surrounding data exchange between companies to deliver joint intelligent solutions.

The NAC index


A further issue highlighted by the research relates to investment in IoT projects. A recent Accenture survey finds that 62% of Chinese business leaders already have IoT strategies in place, however, only a little over 40% are actively investing in them. Promoting experimentation, pilot projects and demonstrations of IoT through business leadership and policy may provide the impetus required to garner further active investment and IoT strategy development.

In terms of achieving the high-end benefits of IoT, Accenture notes that China will need to make further improvements to how the ‘Made in China 2025’ plan diffuses IoT technology throughout its economy. In terms of an international ranking for the widespread use of IoT, China comes in at number 14 out of 20 leading economies.

Difference between current conditions and enhanced scenario


The potential benefits
The majority (60%) of the possible benefits derived from introduction of IoT within twelve sectors of the Chinese economy could be realised within just three sectors, manufacturing, public services and the resources. Manufacturing for instance would see accumulative benefit of $196 billion in the next 15 years from the current projection of policy and trends supporting IoT. This could, however, jump to $736 billion – a 276% increase as a result of the enhanced measures advocated by the report. The resource sector could see an accumulative benefit of $189 billion compared to the current trajectory of $48 billion by overcoming the roadblocks.

“Chinese business leaders and policy makers cannot assume that the country will automatically enjoy strong economic growth thanks to the IoT,” says Gong Li, Chairman of Accenture Greater China. “To make such an expansion possible, they must shift their attention away from the technology itself and toward the conditions that enable the technology to be widely adopted through all parts of the economy. The government’s ‘Made in China 2025’ initiative provides a strong basis, as the IoT will be most relevant to advanced and intelligent manufacturing.”

IoT: an $11 trillion opportunity recently also featured a study by McKinsey & Company on the economic impact of IoT, finding that the total economic benefit in 2025 could hit between $3.9 trillion to $11.1 trillion.

* The authors of the report are Mark Purdy, Ladan Davarzani, Gong Li and Leo Ng.