I keep an eye out for digital phenomena where China / Asia is on the frontier. We’ve seen this sort of digital leadership in mobile apps, mobile payments and e-commerce. And after meeting with head of smart cities at Huawei, I am convinced we are seeing the same phenomenon in smart cities. Below is my prediction for how this will play out.

 

The China consumer network is the big engine to watch

That China has a lot consumers is old news. And yes, you see more laptops, cars, chicken dinners and movie tickets sold in China than in any other country. China’s 1.4B consumers are 3x America’s 330M consumers and regularly outspend them in lots of consumer facing categories.

But that is not what is really important in digital China. The big engine of digital China is the “China consumer network” (my term). It is the fact that +1B billion Chinese are now connected to each other through their smartphones. It is the network and its connections that is really powerful. A billion consumers can now interact easily by virtue of a common language, common regulations, common payment mechanisms, common infrastructure and many other enablers of interactions. So yes, at a KFC, Chinese consumers are much like American consumers, just 3x larger. But in the digital world, the China consumer network is dramatically more powerful.

The power of a network is because connections increase much faster than the number of nodes (in this case people). Each new member (or node) in the network enables new interactions with every other member. China’s consumer network is not just 3x larger than the US consumer network. It is more like 36x larger (in terms of connections). Think Metcalfe’s law for a billion consumers all using the same language, regulations, payment and infrastructure. Although, for the record, I think Metcalfe’s law is mostly wrong.

My point is that most of the stunning digital China stories happen when an activity taps into the China consumer network. It is not lots of rising middle class consumers going to KFC or buying lattes at Starbucks. It is when they create and share news and media, when they exchange c2c payments, and when they communicate. For example:

• WeChat. Obviously. Person to person messaging and group chats. It’s all about the network. In many ways, it is the network.
• Mobile payments. The rapid adoption in China (and other parts of Asia) got the world’s attention and mobile payments really took off with c2c gifting (i.e., payments between people for Chinese New Year).
• Tencent’s online gaming. Multiplayer gaming integrates social aspects and interactions.
• Pinduouo, which rose rapidly based on group buying within WeChat.
• Tiktok and other short video, which effectively let everyone make and share videos.

The speed with which each of these took off had a lot to do with how much they engaged the China consumer network. By how much they enabled connections between consumers using their smartphones.

Which brings me to my point…

The next big thing to come out of digital China is going to be smart cities, with Huawei and Alibaba leading. Because smart cities are basically a type of local network. It is about creating connections between people, businesses and infrastructure.

It also helps that smart cities leverage another big China strength, the ability to rapidly build and rebuild infrastructure at huge scale.

China is just really, really good at infrastructure

We wrote a book (One Hour China book) about 6 mega-trends shaping China. These include rising Chinese consumers, manufacturing scale, lots of capital, brainpower and urbanization. And three of these trends (urbanization, rising consumers and lots of capital) really fuel the construction sector. It’s pretty crazy. About half of China’s wealthiest individuals made their money in real estate and infrastructure. The country builds the equivalent of two Chicagos every year. And poured more cement in 3 years (2011-2013) than the US did in the 20^th century (1902-2000).

So which country do you think is going to the be fastest at building smart city infrastructure? At embedding sensors, cameras and other digital tools into roadways, street lights, electrical grids, water systems and telco networks?

And it’s not just about digitizing existing infrastructure. It’s also about building new infrastructure that is designed to be digital-first.

Think about how urban areas developed. Most downtown streets evolved over centuries. And they slowly progressed from transportation by horse to buggy to train and then cars. Similarly, most sewers and electrical grids were also built out over time to serve city centers and suburbs that evolved over 40-50 years ago.

Now think about how you would design a city for autonomous vehicles, robotaxis, dynamically controlled streets and traffic lights, smart power grids and so on? Would it look anything like our existing cities?

You can see China moving fast in both ways. Existing infrastructure is being made smart. And some news cities and CBDs are being designed as digital-first environments.

Smart cities combine the China consumer network with digital-first infrastructure at scale

Building a smart city is really about deploying three tools. You need:

• Smart infrastructure – from both private and public sectors. Such as sensors, IoT, cameras, smart roads, pollution monitoring, etc.
• Data – both public and private
  • Real-time and comprehensive
  • Sensors and smartphones are very important
  • Software / apps and various digital tools on the infrastructure
  • Enables govt to plan for future, respond in real-time, allocate resources, and other.
• Companies and individuals that can respond in real-time, improve city situations, save time and energy, etc.

It’s not just about the infrastructure. The other big source of data and activity is a large urban population with smartphones, which brings us back to the China consumer network. Smart cities in China are about gathering data and enabling lots of actions in both the population and the infrastructure.

For example:

• Smart street lights (i.e., infrastructure) can change in real-time based on traffic patterns. But drivers can also re-route based on traffic information they are being sent.
• Sensors (i.e., infrastructure) can monitor streets and manhole covers for damage and maintenance. But people can also take pictures of damaged sidewalks and send them in.
• Buses and robotaxis can become more autonomous. But city workers (sanitation workers, police, garbage men, toll booth operators) can also use their smartphones to record encounters, activity and maintenance issues.

Once you combine the smart infrastructure with the China consumer network, lots of things become possible. Plus, anything that has to do with pouring concrete just happens really fast in China.

How smart city digital tools create an operating system

And that brings me to my main point.

I spoke with Huawei’s head of smart cities a few months ago and what really jumped out was that they are basically building an operating system.

Let’s say Phase 1 of smart cities is about combining the China consumer network with increasingly digitized infrastructure. Huawei is doing this by supporting the Shenzhen government. Alibaba is doing the same thing with the Hangzhou city government. So you see lots of cameras and sensors going in everywhere (we’ll talk about the security vs. privacy aspects in Part 2). Government kiosks are being placed around town that provide government services. Digital initiatives are happening the train stations and airports that focus on efficiency and safety. You just see lots of use cases happening.

But Huawei is in the infrastructure business. They don’t want to build lots of aps or run things against all the millions of use cases that could happen in cities. They want to create infrastructure that other businesses and government can build upon.

Phase II (my term) is about opening up the system to everyone and creating an operating system that others can build upon. The idea is to make the data, interfaces and platform available to businesses and developers, the same way Apple makes their smartphone operating system open to app developers.

When this happens, businesses and developers should start building hundreds of thousands of apps that run on the smart city operating system. Think about an app store on your smartphone just for your city. And (per McKinsey & Co), there are 8 types of apps everyone is talking about right now:

• Public safety and security
• Transportation and mobility
• Energy
• Healthcare
• Waste
• Water
• Economic development and housing
• Engagement and community

That’s enough for today.

In Part 2, I’ll go into my discussion with Huawei and some of the specific tools being developed.

Thanks for reading, – jeff

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

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