China’s Smart City Transformation: Data Commercialization is Key

Technologies that are available to us determine how we consume digital goods and services. Digital consumption, such as driving intelligent vehicles and using smart government platforms, is made possible by technologies such as cloud computing and artificial intelligence (AI). Digital consumption in turn propels the production of such technologies. For example, growing interest in e-sports, health trackers and teleconferencing leads to the consumption of products such as virtual reality technology and wearable devices, thus stimulating the production of such digital goods and services. In developing the digital economy, all economies should prioritize the production of technologies over promoting digital consumption.

Second, digital intermediaries bridge the gap between consumers and the producers of technology. Consumers from different sectors and backgrounds often have specific expectations of digital products and services, and producers sometimes fail to address these specific demands. Digital intermediaries promote digital consumption through processing data, confirming data rights, evaluating and pricing data, and assisting the rightful owners of the data or the technology producers to access the profits. Deals could be between small and medium-sized enterprises (SMEs) and tech giants or among SMEs.

Governmental data in China is housed mainly in city-level big data centers, which in general are under the Economy and Information Technology Bureau, while social data owned by individuals and groups is stored on privately run platforms. Both state-owned digital investment companies and private platform economies rely on big data exchange platforms in major cities such as Beijing, Shanghai and Shenzhen to complete data transactions. Due to high operating costs, however, these state-owned digital investment companies and private platform enterprises often fail to meet the demands of highly personalized, diversified and fragmented digital consumption. Having a sophisticated digital intermediary ecosystem that can provide customized products and services could be the solution.

Building platforms that balance governance and market efficiency

State-owned smart city investment companies promote the centralized construction and sharing of infrastructure and the decentralized collection of data to contribute to a shared pool of resources, all of which are conducive to good governance. We should be cautious, however, about the inertia of state-owned investment platforms in traditional infrastructure investment, construction and operations. For example, an investment platform may monopolize the downstream data market, which could discourage MSMEs (micro, small and medium enterprises) from innovating in various fields, including law, finance, consulting and technology, thus weakening market efficiency. To prevent this, the government should proactively coordinate planning, allowing intermediaries to focus on other opportunities and their businesses in the data market. It is also necessary to establish a cross-regional intellectual property protection and dispute resolution mechanism, as well as a regulatory anti-monopoly mechanism to keep competition in check and protect digital intermediaries.

On the other hand, we should be cautious about the risk of information infrastructure turning into real estate investment trusts (REITs). Most infrastructure such as urban wireless networks, data centers or urban big data platforms are public facilities that tend to have low profitability and lose their values within three to 10 years, which is much shorter than the depreciation of traditional infrastructure. State-owned investment platforms may therefore accumulate many low-profit assets, which will increase debt risk.

Adjusting administrative structures to facilitate data governance

In general, China enjoys a wealth of experience with data governance systems applied in cities, districts, streets, communities and buildings, as well as popularizing the use of mobile terminals at different levels and decision-making systems. The next important task would be to make the governing structures and rapidly changing technology adapt to each other.

The Chinese government acts according to three considerations: responsibilities, organization and staffing. “Data” should also be included to allow the execution of pilot projects in certain cities. The Economy and Information Technology Bureau and its big data centers can provide regular and standardized guidance and supervision during the whole life cycle of the data.

Second, the state should establish interdepartmental and cross-regional virtual organizations to promote collaboration. At the municipal level, for example, cross-departmental virtual platforms can improve the efficiency of governance without burdening individual government departments. In addition, towns and communities can also build cross-regional virtual platforms to address the challenges of cross-regional governance.

Third, a supervisory mechanism should be put in place to ensure fair competition and strict oversight. Regulatory bodies such as the Market Supervision Administration should establish an integrated and comprehensive credit supervision mechanism for enterprises and the government. In addition, regulatory sandboxes can be enforced annually or on a departmental basis. The items on the regulation list could be adjusted based on effectiveness.

Equality – the bottom line of development

Smart cities are evolving into AI-powered societies, which may aggravate social injustice and add new challenges to the equalization and balanced development of public services.

Supported by policies, publicity and education, China should seek to bridge digital divides, particularly among vulnerable, elderly and rural populations. To ensure that more people reap the benefits of smart cities, the income distribution mechanism of digital assets can be explored. Because urban areas and digital giants possess more resources such as talent, capital, technology and data, the social income gaps will widen. But with advancements in technology and the verification, evaluation, pricing and transaction of digital assets, wealth can be redistributed and more people would benefit from data markets.

Promoting the integration of cross-regional data markets

The integration of cross-regional data markets will build new development drivers. Beijing, Tianjin, Chengdu, Chongqing, Wuhan and other northern Chinese cities are rich in land, talent, capital and technology. To promote the integration of the cross-border data exchange platforms among the northern cities, the Guangdong-Hong Kong-Macau Greater Bay Area (GBA), Hainan and ASEAN, terms to achieve the openness and expansibility of data should be published that are similar or stricter than those contained in the Digital Economic Partnership Agreement (DEPA, the digital trade framework promoting interoperability that includes Chile, New Zealand and Singapore and China has applied to join). Such connections drive the proliferation of digital consumption and intermediary ecosystems and give birth to more technologically advanced MSMEs.

The data market and connections in the physical world are interdependent. The connectivity of traditional infrastructure such as road, energy and water are thus very important. For example, the Hong Kong-Zhuhai-Macau Bridge, which connects both sides of the Pearl River Delta, accelerates the flow of resources. Such connections will facilitate the cross-regional exchange of data and in turn improve the business ecosystems of the Shenzhen “Pilot Demonstration Zone”, the Northern Metropolis of Hong Kong and the Guangdong-Macau In-Depth Cooperation Zone in Hengqin Island in Zhuhai. With these measures, China will be able to achieve quality development, open up to the world, undergo high-level reforms and, eventually, lead the development of smart cities in Asia.