Private and public investment for Big Data in China (1/2)

Written by Nektarios Palaskas, Embassy of Switzerland in China

The IT trends in China are gaining considerable momentum and seem to be unstoppable. The amount of data created and analyzed every day in China is constantly increasing and creates a new market for data exchange and other services. In this context, the government recognized the opportunities and decided to support the movement through subsidies and special framework conditions. This is why we will publish a short series of two articles dedicated to the latest trends in big data in China. The first one is an excerpt from a report on big data written by our Science and Technology Counselor in Beijing.

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The future of big data in China

The tech scene in China is exploding in terms of dimensions and creativity. More than anything, China’s tech market is not just huge; it is also evolving rapidly. China has actually become home to more technology firms than the United States. Driving much of that creativity is a highly competitive workforce and massive financial investments in R&D that attract both domestic and international companies. It is thus estimated that Big Data will generate significant financial value across sectors. For example, major applications of personal location data have the potential to create value of RMB 627 billion (CHF 95 billion) or more for service providers alone in 10 years’ time.1 Another example is the global manufacturing industry, where the use of Big Data could lead to up to 50% decrease in product development and assembly cost and up to 7% reduction in working capital.

With a population of 1.3 billion people, a quickly expanding urban economy, and rising rates of Internet and smartphone penetration, China generates an immense amount of data annually. If streams of that data can be appropriately analyzed and stored, companies seeking to understand China’s consumers could have access to valuable insights and perhaps early warning to future consumer trends. Meng Su, associated professor at Guanghua School of Management of the Peking University, predicted in 2013 that China will become world’s most important data market. He advised job seekers in China to consider training for a new career path as data scientists. China’s government has signaled its intention to help domestic enterprises develop the infrastructure necessary to store and analyze Big Data. The current “Five Year Plan” (Zhōngguó wǔnián jìhuà 中国五年计划), which aims to stimulate “higher-quality growth,” names seven strategic “emerging industries,” including next-generation information technology.
Meanwhile, leading Chinese firms, especially Internet companies, have already begun to incorporate Big Data into their strategies. Alibaba declared in 2012 that the company should focus on three pillars of future business: e-commerce, finance and data mining. In January 2013, Alibaba underwent a restructuring that, inter alia, created a data-platform division with about 800 employees. The Alibaba Group has just begun to scratch the surface of analyzing the reams of user data generated through its business-to-business (B2B) e-commerce site and its massive consumer-to-consumer (C2C) platform Taobao.

Public and private investment

China, in comparison with other fast-moving markets of South-East Asia, will have the technological advantage of making huge investments in a robust IT architecture that can adapt to dynamic changes in an efficient manner. The Chinese government will invest more than RMB 1.2 trillion (CHF 180 billion) to boost internet speeds and coverage across the country as it looks to move towards an economy driven by services and innovation. The State Council recently announced that more than RMB 430 billion (CHF 65 billion) will be spent in 2015 and a further at least RMB 700 billion (CHF 106 billion) between 2016 and 2017 to promote network infrastructure in both urban and rural areas. The government has already announced a plan to upgrade manufacturing to the levels of industrialized nations in 10 years and move into areas such as e-commerce and new materials.

Huawei, China’s biggest network equipment maker, will invest RMB 2.1 billion (CHF 329 million) over the next three years in consulting and system integration, methodologies and tools for network and data center transformation. The company will also spend RMB 3.7 billion (CHF 564 million) on research into 5G technology, and will conduct field tests with the aim of introducing commercial 5G networks by 2020. In addition, Huawei will launch its public cloud computing services in the mainland market in July 2015.

Jack Ma, founder and CEO of Alibaba, thinks that China’s economy will have undergone a fundamental change only when China’s rural areas become wealthy. And the Internet giants have the necessary means and interests to complete these tasks. Alibaba announced in October 2014 that it plans to invest RMB 10 billion (CHF 1.51 billion) for infrastructure and logistics outside the country’s cities. It also plans on building 1’000 county-level service operation centers, create new services tailored to rural e-commerce, and to train retailers in rural areas.

Finance and banking industry

Thanks to the digitalization of the financial industry and the banking system, Big Data allows to the gathering, sorting and analysis of customer requirements, demands or preferences. Banks have never had better access to their customers’ personal data and create a customer-centered business model. Parameters like spending behavior, budget or investment performances can be tracked and improved, recommendations or alternatives offered. Development associated with Big Data is considered the future direction of the Chinese financial industry. According to a survey of trends published by the China Computer Federation, use of Big Data in the financial industry is in second place, after e-commerce. The sheer size of the Chinese economy and population enables more channels and greater possibilities to develop and use Big Data. The Chinese government has shown great interest in and support for the development and innovative use of Big Data in the financial industry.

Large banks in China are transforming into Big Data companies, using data mining technology to explore the business value of the data and develop a data value chain. The highly regulated Chinese financial industry, with assets worth more than RMB 150 trillion (CHF 28 trillion), has more than 100 terabytes of both structured and, increasingly, unstructured data. The Bank of Communications (BOCOM), for example, handles about 600 gigabytes of data daily with a storage capacity of more than 70 TB. The Chinese securities market was among the earliest to adopt electronic trading, and more than 200 million investors now generate more than 60’000 orders per minute on average. The online system of the China Securities and Regulatory Commission and stock exchanges performs semantic analysis to detect more than 100 million social media data daily. Some brokers have begun to study the relationship between Internet information, social media (e.g. Sina Weibo) activity, and stock market performance to identify stock market trends through public opinion analysis.

Online banking and mobile payment services like WeChat are replacing human resources where they bring no significant added value. “Banking is essential, banks are not.” (Bill Gates). Young, innovative start-ups are looking for ways to standardize digital solutions. While traditional institutions try to optimize their own structures and systems, the customers are increasingly looking for a digital ecosystem which harmoniously combines hard- and software solutions. The value of mixed data for business intelligence analysis depends on their unification and standardization. Standardization can promote communication, exchange and comparison of data, facilitating data applications and technology extension. Financial data standards can also guide the creation of Big Data platforms to help connect data islands in various areas.

Supported by improved standards and platforms, financial institutions will be able to offer the threefold capacity of online payment, Big Data and e-commerce to respond to the tide and challenges of Internet finance. China CITIC Bank, for example, has formed an Internet platform supported by Big Data, with an online “mall” for e-commerce, mobile banking and online payments. Its total trading volume was more than RMB 33 trillion (CHF 5 trillion), with annual growth of 33.87% in 2013. Some banks have built their own Big Data platforms (e.g., E-mall of BOCOM, Cloud Shopping of Bank of China, Rong e-Shopping of ICBC), while others are seeking cooperation with e-commerce companies to support the construction of Big Data platforms.

Smart cities

The Industrial Internet of Things will soon wire up cities too. The “smart city” will constantly draw in data from countless sensors and cameras to intelligently reroute traffic on a citywide scale to save time and fuel, and it will make sure no product ever goes out of stock on a supermarket shelf. Traffic congestion and associated air pollution are major challenges that many Chinese cities are facing. Some of the major shortcomings of Chinese transport databases include the lack of comprehensive urban transport databases and the lack of data uploading and downloading mechanisms. The uniqueness of China’s urban transportation challenge, the size and scale of the market potential, along with the commercial aggressiveness of China’s internet industry make it the right time and place to create a sustainable smart city transportation model.

China’s cities have been the engines powering its rapacious economic growth. Since 1978, China’s urban population has risen from about 18% to over 53% in 2013. Rapid, large-scale urbanization and the accompanying rise of the urban middle class population are among the major forces that have propelled the economy forward. The 35 largest cities in China contributed just under half of China’s overall GDP in 2013. However, the wealth accumulated in China’s cities has come at the price of health and livability. Many cities are struggling with traffic congestions and dangerous air quality. China is hence an excellent platform for incubating the innovative technologies that will make the cities “smarter”. For example, the vision for a smart city urban transportation model may require a migration away from individual ownership (ca. 5% utilization rate) toward on-demand mobility services (more than 60% utilization rate).

Air pollution has been blanketing Beijing and other major Chinese cities for an extended period of time. It is estimated that 350’000 to 1.2 million premature deaths linked to air pollution each year in China. In fact, the most recent estimates made by the World Health Organization (WHO) show that air pollution might now be the world’s largest environmental health risk. Beijing officials use data about the city’s air quality to decide when to close down nearby factories and schools, and when to limit the number of cars on the road. These measures help clear the smog on the one hand, but they can be extremely disruptive to people’s lives on the other hand. To tackle air pollution more efficiently, Big Data could be used to identify the pollution hotspots, which allow citizens to plan less-polluted routes while travelling within the cities. Sensory devices that measure air quality can be used to create a real-time pollution map.

Beijing’s government is focusing on air quality monitoring and has invited tech vendors like Baidu, IZP Technologies, and Yonyou to develop solutions. The city wants to show the source of pollutants and how they will disperse across Beijing a couple of days in advance. Big Data analytics could be further used to optimize factories’ energy consumption (Industrial Internet of Things) or predict the amount of available renewable energy based on real-time analysis of data like cloud movements, wind speed, wind direction, and temperature. The Beijing city government plans to invest more than RMB 186 billion (CHF 28 billion) in air quality control in the next years and has promised to reduce particulate matter to less than 60 mg/m3 by 2017, which represents a 33% reduction from average 2013 levels. If Beijing succeeds, it could be appealing to other cities struggling with air pollution.

Privacy

Security and privacy concerns have become more and more prominent. The collection, storage, management, and use of data still lack adequate technologies, software, and programming as well as regulatory supervision. One of the biggest challenges and the most sensitive issue for Big Data application is the issue of privacy. It has conceptual, legal, and technological implications. It also has tremendous instrumental values as a modern society needs privacy to flourish and without privacy, safety, diversity, pluralism, innovation, and basic freedoms are at risk. Privacy is a major reason why firms are reluctant to share the data of their clients, users and their own operations. Well-specified national data disclosure policies and a proper regulatory environment that ensures data privacy will be essential. In particular, pressing issues include limiting the amount of data collected and stored to the level that is necessary for the intended lawful purpose; obtaining valid consents from data subjects in connection with use of personal data for analysis and profiling purposes; transparency about which data is collected, how the data is processed, for what purposes, and whether or not the data will be distributed to third parties; and giving individual appropriate access to the data collected about them, as well as access to information and decisions made about them.

Many people are concerned that the government can control everything that we know and what people do. But more importantly is participatory surveillance, which means that each individual participates in producing data about him- or herself. If you’re using a free online service, the adage goes, you are the product. Big Data seems to place immense power, not to mention responsibility, into the hands of the system architects: the coders, designers, advertisers, professional media manipulators and social media frontrunners devoted to profitable clicking. This could, for example, have unwanted consequences for operators critical of the government in authoritarian countries like China, and is a potential risk factor for companies or institutions which gather and safe personal information on a large scale (e.g. BAT).

Researchers at the Massachusetts Institute of Technology (MIT) and the Danish University of Aarhus found out that individuals can be singled out from large, anonymous records with little effort. They examined a set of credit card data of 1.1 million people. The data contained neither names nor bank account numbers, but only the date, place and amount of payments that had been made by a particular account. Other private information could be derived, for example, from a public tweet or a vote on the Internet. If the researchers knew the buying records of a few days in a row, and additionally derived private information from social media platforms, then they could retrieve that person in 90% of the cases. The results show that even large data sets often do not provide complete anonymity. This applies not only for credit card information. In an article published in Science magazine (2015), researchers stated: “Just because a record does not contain any names, addresses, telephone numbers or other obvious features […], it is not anonymous.” This opens up new debates about privacy; simply because personal information is protected, anonymous records are not. The results show that data processing algorithms and privacy policies beyond personally identifiable information need to be discussed and reformed not only in China, but on a worldwide scale in order to ensure a sustainable development of Big Data.

Big Data are also playing a role in many different fields – such as in culture or education, where they could significantly improve teaching experiences and revolutionize knowledge acquisition in the long term. In social media and entertainment too, big data is used to identify people’s behaviour, thereby calling for a closer study to understand the changes in the structure of society. Big data definitely open new opportunities but also many new fields of enquiry. If you want more informations or wish to go into more detail please read the complete report: Big Data in China

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