Smart City Technologies in Beijing

Smart Cities in Beijing
The emergence of a new cluster …
Laetitia Odini, Cécile Xu, Malin Teeling
MIB Beijing 2013 – 2014
Microeconomics of Competitiveness
30.06.2014

Table of Contents
Executive Summary ..................................................................................................................................................... 2
I. The Overall Business Environment for Smart City Development in China and Beijing ............................................... 3
1.1 General Overview of China .......................................................................................................................... 3
1.2 Cultural environment ................................................................................................................................... 4
1.3 Legal environment ...................................................................................................................................... 5
1.4 Financial environment ................................................................................................................................. 5
1.5 Political environment .................................................................................................................................. 6
1.6 Technological environment ......................................................................................................................... 6
1.7 Demographic environment .......................................................................................................................... 7
1.8 Factors and challenges that favor Beijing going smart ................................................................................. 7
II. Smart City Development in China ............................................................................................................................ 9
2.1 Challenges in China ..................................................................................................................................... 9
2.2 Smart City Solutions and Cluster development ............................................................................................ 9
III. Beijing: A pilot City in Chinese smart city developments ....................................................................................... 11
3.1 Developing a new cluster around smart city technology ............................................................................ 11
3.2 Smart City Technology Initiatives in Beijing ............................................................................................... 12
Some Examples of Major Private Actors in Beijing’s Smart City Projects ............................................................ 13
3.2.1 Huawei partners with governments in China and Europe ....................................................................... 13
3.2.2 The ATOS Worldgrid ............................................................................................................................. 13
3.2.3 Schneider and Telvent: Smart Transportation Systems ......................................................................... 13
3.3 The Smart Haidian Project ......................................................................................................................... 14
3.3.1 Strategy and progress ........................................................................................................................... 14
IV. Policy Recommendations ..................................................................................................................................... 16
4.1 Measures on organization, policy, funding and business models of Smart City development .................... 16
4.1.1 Financing ............................................................................................................................................... 16
4.2.2 Policies .................................................................................................................................................. 16
4.3.3 Business Model ...................................................................................................................................... 18
4.4.4 Recommendations ................................................................................................................................ 18
Bibliography .............................................................................................................................................................. 20

Executive Summary
China has seen and felt the effects of being a world exporter and is today facing huge challenges to turn itself around. The government has, through a series of policies, changed the focus from production to one that is more acceptable to future sustainability and growth. Incentives shown in the China’s 12th Five-Year Plan (2011-2015) indicated a strong shift towards increasing FDI investment and increased services focus.
To meet the challenges of China’s rapid urbanization, the China’s central government is pushing towards the creation of sustainable urban environments and implementation of Smart City Technologies at national level.
Smart Cities are based on the implementation of Information and Communication technologies as an enabler to deliver services more efficiently throughout the city and improve the quality of life of residents, focusing mainly on smart transport, energy, living, health, and ways to reduce pollution.
These cities that are willing to engage in smart city modernization are now receiving support form the central government though enticements such as MIIT, NDRC, MOST and MOHURD whose main role is guiding and facilitating the development and implications of smart city projects. As Smart Cities are believed to improve the quality and intelligence of citizens’ lives and societies, enhance environmental protection, public safety, urban services, and business attractiveness, many companies in China such as Huawei, China’s largest actor within telecommunications, are increasingly seeing the benefits of participating. (Huawei, 2013)1
In our report, we will focus on China and more specifically the development of a smart city cluster in Beijing. The capital is facing major dilemmas such as a fast urbanization, high traffic congestion and pollution levels. As a result, the Beijing Municipal Government has been accelerating in the past few years the development of smart technologies and smart solutions to create a sustainable city.
How are smart city technologies becoming the key enabler for China’s capital to sustain economic development, overcome its current dilemmas and stimulate innovation to improve the quality of life of its residents? Who are the main stakeholders? What is the role of the technology cluster in Beijing based on smart technologies? Why are smart grids so important in China?
1 Huawei, 2013. Huawei Smart City Solution. [Online] Available at: http://enterprise.huawei.com/ilink/cnenterprise/download/HW_315743.

I. The Overall Business Environment for Smart City Development in China and Beijing
1.1 General Overview of China
The export-led growth model (based on cheap labor and access to raw materials) has enabled China to boost its GDP per capita - China ranked 121 with $ 9,800 (CIA, 2012) 2, and to experience a very impressive pace of growth (7.7% in 2013). However, it has also led to huge inequalities, social unrest, tensions with major trading partners and questioned the environmental sustainability of such a development (Dorrucci & Pula, 2013) 3 Consequently, China’s 12th Five-Year Plan (2011-2015) aims to address the drawbacks of this fast paced development. It starts by controlling the economic growth, limiting it to 7% per year (compared to the double-digit growth of the past few years). Besides, it prioritizes the development of services (including logistics, high tech and financial services) over manufacturing. As a result, the plan focuses on attracting FDI in the service sector and expands the private sector.
Indeed, especially after the 2008 economic crisis, investments made by State-Owned companies have exceeded both domestic private enterprises (see Chart 1 below) and FDI. As a matter of fact, small and medium enterprises found it difficult to attract financing.
Moreover, creating an environment that attracts FDI in the service sector is part of the government’s strategy to put less emphasis on manufacturing. In other words, the country’s strategy is to move away from being the “the world’s workshop” to become the strongest service industry.
Chart 1. Investment by state-owned enterprises (SOEs) vs. private investment by domestic firms and foreign-owned enterprises.
2 The World Factbook, 2012.[Online] Available at: https://www.cia.gov/library/publications/the-world- factbook/rankorder/2004rank.html [Accessed: 17 June 14]
3 Dorrucci, E., Pula, G., Santabarbara, D., 2013. “China’s economic growth and rebalancing” Occasional paper series, European Central Bank.

Manufacturing will still play an important role for the economy but will focus more on the local demand which is increasingly important and more sophisticated. Indeed, China is witnessing a shift from export production towards domestic consumption. (Dorrucci & Pula, 2013) 4 The urbanization process’ acceleration (urbanization rate accounted for 52.6% in 2012) contributes to enlarge the domestic market.
Chart 2. Employment vs GDP growth
One of China’s economic imbalances is the weak employment creation compared to the fast GDP growth (1% per year vs. over 10% of GDP increase from 2001- 2010) (see Chart 2) (Dorrucci & Pula, 2013) . Besides, the labor force has very few rights. Even if there have been some improvements in labor standards with China’s entry to the WTO and with the implementation of the new Labor Contract Law in 2008 (Global Labor Strategies, 2008)5, the enforcement of these standards is still very weak. Nevertheless, thanks to its policy, China has managed to continue attracting foreign investments. (Guo, 2003) 6
1.2 Cultural environment
Despite the investing fever that has been generated by China’s entry to the WTO in 2001 and that is still present today, according to Bloomberg Rankings of the “Best Countries for Business 2014”, China is only ranked 28th (Bloomberg, 2014) 7. Indeed, doing business in China proves to be more difficult than it seems. First of all, the bureaucratic behavior one has to face while settling a foreign company makes the process long and complicated, with a genuine lack of transparency. Doing business in China is a matter
4 Dorrucci, E., Pula, G., Santabarbara, D., 2013. “China’s economic growth and rebalancing” Occasional paper series, European Central Bank.
5 Global Labor Strategies, 2008. “Why China Matters: Labor Rights in the Era of Globalization” [Online] Available at: http://laborstrategies.blogs.com/global_labor_strategies/files/why_china_matters_gls_report.pdf [Accessed: 17 June 14]
6 Guo, B., 2003. “China’s Labor Standards: Myths and Realities”, Conference on “China: Opportunities & Challenges for U.S. Companies”. [Online] Available at: http://www.academia.edu/165449/Chinas_Labor_Standards_Myths_and_Realities
7 Bloomberg, 2014. “Best Countries for Business 2014”, China is only ranked 28th [Online] Available at: http://www.bloomberg.com/slideshow/2014-01-21/best-countries-for-business-2014.html [Accessed: 17 June 14]

of relationship, commonly known as “Guanxi”. This concept is unique to China and plays a key role while doing business in China. (Guan, 2011) 8.
1.3 Legal environment
The legal environment in China is controversial. Experts pointed out that a large interpretation of Chinese trade laws is possible because their phrasing is quite vague. Generally speaking, loopholes in the legal system will benefit local over foreign companies. Another major issue is the weak intellectual property protection system. Indeed, counterfeit is commonplace and almost tolerated in China. For instance, it only takes a small modification in a brand design for the company to make the copy tolerable. Some consider this copycat culture a result of the Confucianism and its quest of harmony that can be reached through the sharing of ideas among people. Nevertheless, an uncountable number of stolen technology anecdotes can be listed, which strongly hampers companies to settle in China.
1.4 Financial environment
Currently, companies operating in China are experiencing an increase of operating costs due to the rise of labor costs. However, what threatens the profitability of such companies the most is the future of Chinese currency. The renminbi (RMB) is undervalued by about 40% which will have huge consequences on the profitability of a company that faces currency exchange risk. To control the currency’s appreciation, China is now keeping a dirty floating rate system. Indeed, given that the country’s economy is too different from any anchor country, China must not anchor its exchange rate or it will repeat the “Japanese mistake” who tried to prevent its currency’s appreciation (Takatoshi, 2010) 9.
On the other hand, leaving market forces drive the renminbi (RMB) higher would limit China’s competitiveness, even if it would help reduce price pressures, in other words, deal with the hyperinflation. Consequently, People Bank of China (PBC) intervenes by buying any excess foreign currency on the Shanghai foreign exchange market so that it will hold down the currency’s value and keep it within a certain band.
The huge external pressure and the overall economic situation leads to the beginning of the internationalization of the RMB. Even if there is still a tight capital control, especially with the creation
8 Guan, J., 2011. “Guanxi: The Key to Achieving Success in China.” Sino-Platonic Papers. [Online] Available at: http://sino-platonic.org/complete/spp217_guanxi.pdf [Accessed: 17 June 14]
9 Takatoshi, I., 2010. “Is China repeating Japan's mistakes?”. China Daily. [Online] Available at:
http://www.chinadaily.com.cn/opinion/2010-04/20/content_9750214.htm [Accessed: 17 June 14]

of an offshore Yuan market - the Dim Sum Bond, has been created in Hong Kong to control the internationalization of the Chinese currency, the currency is increasingly exposed to fluctuation.
1.5 Political environment
Another major factor that prevents investors from settling in China is the long-lasting corruption. Xi Jinping’s new government focuses on promoting transparency when doing business. Even if it is not the first time that the government commits to take measures, it seems that experts are this time more optimistic since “There is a feeling of crisis and urgency among the leaders” said Ren, a corruption expert (Wan, 2012)10. However, according to Transparency International, further anti-corruption reform is needed. (Sanders, 2013) 11. One thing is sure: the Chinese government will take the necessary measures to encourage foreign direct investments. As a matter of fact, the pro-business government has already created numerous special economic zones and completed these zones with the Economic and Technological Development Zones. Besides, the government has created incentives to attract new technology enterprises. For instance, they cannot only benefit from a 15% preferential tax rate but also a 50% tax deduction for R&D expenses.
The Chinese government plays a major role in driving smart city projects. Indeed, government policies define the legal framework for the development of some key components of smart cities such as cloud computing or broadband networks. (Yanrong & Whyte, 2014)12
1.6 Technological environment
China has recently confirmed its will to stop being a copycat and start to innovate by investing in R&D.
Huawei, China’s biggest actor in telecommunications, is a good example of this new strategy since their R&D investments have been one of the biggest worldwide in the past few years (accounting for 13.7% of the company’s annual revenue in 2012). (Huawei, 2014) 13
10 Wan, W., 2012. “The Washington Post “China’s new leaders focus on fighting corruption” [Online] Available at: http://www.washingtonpost.com/world/asia_pacific/chinas-new-leaders-focus-on-fighting-corruption/2012/12/27/9953e00a- 4f77-11e2-950a-7863a013264b_story.html
11 Sanders, C., 2013. “China: new leaders, new opportunities to tackle corruption” Transparency International.
http://www.transparency.org/news/feature/china_new_leaders_new_opportunities_to_tackle_corruption
12 Yarong, K., Whyte, J., 2014. « Comparative study of smart cities in Europe and China ». Ministry of Industry and Information Technology (MIIT)
13 Huawei, 2014. Research & Development. [Online]
Available at: http://www.huawei.com/en/about-huawei/corporate-info/research-development/

Despite well-known piracy issues in China, there are still huge players in the high-tech sector such as the leader Microsoft, who contribute to a fast shift towards the development of the high-tech industry.
1.7 Demographic environment
China’s one child policy, applied in 1979 and still implemented today (even if there are some modifications) combined with the “later, longer, fewer” campaign (that encourages late marriage and fewer births) has led to an ageing Chinese population. By 2050, the over 60 will account for one-third of the population (see Graph 3 and 4 below). Consequently, the silver economy is likely to boom in the following years (KPMG, 2013).14
Graph 3. China’s demographic evolution Graph 4. China’s population shift
1.8 Factors and challenges that favor Beijing going smart
Adding to the different trends analyzed before, Beijing also has its own factors and challenges to face, which could explain the need for going smart.
First of all, Beijing is one of China’s major transportation hubs. With its 5 ring roads, the city’s urban system is one of the most developed of the country. Besides, the Haidian District (in the northwest of Beijing) is well-known for its science and technology expertise, especially the Zhongguancun Scientific Park, known as China's Silicon Valley. Moreover, some of the most prestigious universities are located
14 KPMG, 2013. “China’s labor force: What happens when China’s workers retire?” [Online] Available at:
http://www.kpmg.com/DE/de/Documents/China-360-Issue10-201307-labor-force.pdf

in the Haidian district such as Peking University or Beihang University) (Ministry of Commerce of the People's Republic of China, 2014) 15.
On the other hand, Beijing suffers from sand, dust, water scarcity since water demand is always larger than water resource (see Graph 5. below), and above all from pollution. When the city welcomed the Olympic Games in 2008, the government took measures to reduce CO2 emissions and created additional green areas. However, pollution remains one of the city’s main challenges since it prevents people from settling in the city (Xuan, 2011) 16.
Graph 5. Water resource and supply in Beijing
The increase in traffic congestion is the other main issue in Beijing. In 2013, despite tough anti-traffic measures, the phenomenon worsened. According to Chinese authorities, this is partly due to the reduction of evening activity as part of the government’s effort to eradicate corruption. As a result, it increases the number of car drivers during the evening peak hours (Zhuo, 2014) 17.
In addition to measures already implemented such as the prohibition of cars registered outside of Beijing inside the 5th Ring Road during the peak hours (Xinhua, 2010) 18, the odd-even license plate number
15 Ministry of Commerce of the People’s Republic of China, 2014. “Doing Business in Beijing” [Online] Available at:
http://english.mofcom.gov.cn/aroundchina/Beijing.shtml
16 Xuan, J., 2011. “Macro environment study of Beijing” Levin Human Capital Consulting Group. [Online] Available at:
http://www.levin.com.hk/fileupload/knowledge/Beijing-MacroStudy-English.pdf
17 Zhuo, M., 2014. “Beijing road congestion increased last year despite tough anti-traffic measures” South China Morning Post. Available at: http://www.scmp.com/news/china/article/1427140/beijing-road-congestion-increased-last-year-despite- tough-anti-traffic
18 Xinhua, 2010. « Beijing to limit issuance of enw car plates » Available at http://www.china.org.cn/china/2010- 12/23/content_21604345.htm

system according to which one can drive his car every two days over a specific period and place (Feng, et al., 2010) 19, authorities have decided to cut the number of new license plates from 240,000 per year to 150,000 per year until 2017 (Xinhua, 2010) 17.
To conclude, the actual situation of the economic development of Beijing seems to assemble numerous ideal conditions for Beijing to become a smart city.
II. Smart City Development in China
2.1 Challenges in China
With a population of over 1.3 billion people, China has outpaced the USA in becoming the top energy consumer worldwide. A large part of its energy production comes from coal, which causes high pollution levels in some regions.
Besides this increasing population is more and more moving to cities. As a result, China is starting to face a serious urbanization challenge. As citizens become wealthier, their levels of consumption increase as well as their expectations towards living conditions and infrastructure. The government of China is pressured to find rapid solutions to efficiently manage energy, waste, resources and water.
To meet the challenges of rapid urbanization, the People’s Republic of China (PRC) is pushing towards the creation of sustainable urban environments and implementation of Smart City Technologies at national level. These technologies should also improve the quality of life of residents as well as better address the local demand.
2.2 Smart City Solutions and Cluster development
According to a study from McKinsey institute (McKinsey Global Institute, 2009)20, China should have at least 10 mega-cities with populations over 15 million by 2025. In its 12th Five-year-Plan, the government chose to focus on “sustainable transit development” as the key driver of Chinese smart cities. They identified 20 key city clusters through the Sustainable Transit Development Policy, among which
19 Feng, L., Zhang, H., Jiang, Y., 2010 “Evaluation on the Effect of Car Use Restriction Measures in Beijing” Available at
http://www.trforum.org/forum/downloads/2010_3_Car_Use_Restriction_Evaulation_Beijing.pdf
20 Mc Kinsey Global Institute, 2009. “Preparing for China’s Urban Billion” [Online] Available at: http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china

the Beijing-Tianjin one. As a result, new transport systems including regional railways and subways are being developed to pursue the green, low-carbon and smart urban development project. In addition to these mass transport systems, the high-speed national railway helps to connect clusters with major cities. (McGraw Hill Financial Global Institute, 2013) 21
 China’s vision of the smart grid
The government also presented an enthusiastic roadmap for 2020, which puts superior emphasize on smart grids. A Smart Grid gathers the data from networks that carry electricity between plants and consumers such as electricity usage from a consumer. This information is then computerized and allows both suppliers and users to monitor usage, adjust supply and demand and improve the overall energy efficiency. (U.S. Department of Energy, 2014) 22
Different usage of the Smart Grid
In 2013, China invested $4.3 billion on smart grids, beating for the first time in history the USA. For instance, 250 million smart meters have been installed in China to smooth the supply and demand as well as the communication between customers and utilities, who can now use all the data recovered to avoid fluctuations or set adequate prices. (Downing, 2014) 23
Considering China has become the top electricity consumer worldwide and faces important environmental issues, implementing Smart Grids in China is essential to address sustainably the growing demand. The State Grid Corporation of China (SGCC), largest utility in the world, which serves more than 1 billion domestic customers, launched a plan to optimize their distribution network and deliver clean energy by 2020 with the Smart Grid and Smart Meter solutions. (Wang, 2012) 24
21 McGraw Hill Financial, 2013. “Asia Puts Smart Cities to the Test”
22 US Department of Energy, 2014. “Smart Grid” [Online] Available at: http://energy.gov/oe/services/technology- development/smart-grid
23 Downing, L., 2014. “China Beats U.S. on Smart-Grid Spending for First Time” [Online] Available at: http://www.bloomberg.com/news/2014-02-18/china-spends-more-on-energy-efficiency-than-u-s-for-first-time.html
24 Wang, Yimin., 2012 “China’s Smart Grid Program” [Online] Available at: http://smartgrid.ieee.org/october-2012/684- china-s-smart-grid-program-one-goal-two-main-lines-three-stages-and-more

 The Alstom Grid in China
Alstom, a global industry leader in energy and transport solutions has clearly identified the stakes and opportunities in China’s ambitions towards becoming a pioneer and hub for innovations such as Smart Grid Technologies. In addition, the introduction of Ultra-high-voltage (UHV) electricity transmission in the country represents a key priority for Alstom’s strategy. As a result, the group, through its Chinese joint ventures, its 10 Chinese factories and 1800 employees will support the development of smart grid solutions based on UHV to connect “rich electrical power from the West to the populated region from the East”. (Alstom, 2014) 25
According to a White Paper on Smart Cities issued from the partnership between the EU and China, there are already 311 cities in China since 2013 which have suggested smart city development projects. (Yanrong & Whyte, 2014) 26
III. Beijing: A pilot City in Chinese smart city developments
Beijing was chosen as a pilot city during the “EU-China Partnership on Urbanization 2013 - Smart City Sub-Forum”. The rapid development of Beijing came with a series of problems, from traffic congestion to a high level of pollution or overcrowding in certain areas.
3.1 Developing a new cluster around smart city technology
The “Smart Beijing” project was launched and presented by the Beijing Municipal Commission of Economy and IT during the Beijing International High-Tech Exposition last May. It aims to develop smarter services in healthcare, payments, traffic and living for instance, which should greatly improve people’s day to day lives.
A cluster around smart technologies and solutions is developing in Beijing, mainly between universities, research centers, private companies and state institutions. For instance, Tsinghua University, Mines Paris Tech and Schneider have been collaborating to find innovative solutions for smart cities in Beijing.
25 Alstom. 2014. [Online] Available at: http://www.alstom.com/china/products-and-services/grid-business/grid-in-china/
26 Yanrong, K. & Whyte, J., 2014. “Comparative Study of Smart Cities in Europe and China” Prepared for Ministry of Industry and Information Technology (MIIT).

Numerous events are being held in the capital, which proves the ongoing strategy of the regional government to position Beijing as a pioneer in terms of new technologies. For instance, the 1st China Smart Grid Summit was held in 2010 and “more than 150 delegates” from the industry, enabling power distributors, equipment suppliers, IT service companies, R&D institutes, Consultants, investors, industry associations and many other actors to collaborate, explore and discuss opportunities related to smart grid technology in China.
Here are some examples of dilemmas and problems in Beijing the Smart City cluster aims to address:
 Smart Building: What are the opportunities and challenges in the green building market?
 Smart Waste: What could be smarter ways to collect waste? How should these be applied?
 Smart Water: How can Information and Communication Technologies tackle water issues?
 Smart Mobility: How to reduce traffic congestion in the city?
 Pollution: How to reduce pollution in Beijing with smarter technologies?
Data plays an important role to solve these practical problems. “Big Data” the new trend of our modern world, understates the impressive amount of open data available today coming from smartphones, social networks and so forth. It could be the key driver of a sustainable development in cities of today and tomorrow. According to the “Geo City Smart City” initiative presented during Beijing Design Week, the ability to collect and understand data is the solution to Beijing’s urbanization challenges. However, their model can only work if the data is visual, meaning associated with Design. Ars Electronica Solutions, CMoDA (China Millennium Monument Museum of Digital Arts) and Design labs from the Information Art and Design Department of Tsinghua University are working together to map urban mobility and find new solutions for Beijing. In addition, by merging design and data, governments could have access to more information in order to address the problems. (Langley & Nan, 2012) 27
Oliver Senn, an MIT research engineer gave a clear example of this. He explained how difficult it can be in Beijing to find a taxi on rainy days. To solve this problem, he suggests to inform drivers of areas in the city where it is raining and demand increases spontaneously by using real-time data.
3.2 Smart City Technology Initiatives in Beijing
Beijing is gradually becoming a smart city and trying to catch up on European developments. Traffic control systems were put in place in urban areas, such as traffic signals, monitoring systems for
27 Langley, H. & Nan, C., 2012. Beijing Prepares to Get Smart. [Online]
Available at: http://www.chinadaily.com.cn/bizchina/2012-10/20/content_15935696.htm

highways or automatic traffic flow and weather conditions. These technologies were integrated in 10 control centers across the capital.
Some Examples of Major Private Actors in Beijing’s Smart City Projects
3.2.1 Huawei partners with governments in China and Europe
Huawei is a global leader of Information and Communications Technology solutions. To accentuate their positioning on smart city infrastructure development, they became sponsor of the EU-China Green Smart City Cooperation Exchange Forum in Beijing. This event gathered many governmental organizations such as the Ministry of Industry and Information Technology of the PRC (MIIT of PRC) and European Commission Directorate General for Communications Networks, Content & Technology (DG CONNECT), which shows how these actors collaborate in this strategic cluster.
For instance, Huawei launched the Lucky Cloud Project to implement a cloud data center for the offices and departments of the Beijing Government. This platform facilitated information sharing and improved the overall efficiency by integrating data from different sectors. As a result, the security threats (virus etc.) decreased by 95% and the use of computer resources increased by 40%. (Huawei, 2013) 28
3.2.2 The ATOS Worldgrid
With over 75 000 employees and a turnover of €8,5 Billion, ATOS is a major international player in IT services. The ATOS Worldgrid was created in 2010 to meet energy and environmental problems in modern cities. (Atos, 2014) 29 According to students from Grenoble Ecole de Management who visited ATOS’ offices in Beijing in 2013, the role of ATOS in China is to bring its global expertise and know- how to help the country improve its energy networks and solve problems related to urbanization. Solutions provided by ATOS include: an automated meter reading, automated meter management and automated grid management. (Placet, 2012) 30
3.2.3 Schneider and Telvent: Smart Transportation Systems
Schneider Electric is a global specialist in Energy Management systems. To address the growth trend towards an integrated management of transport networks in Chinese cities, they acquired Telvent in 2011, a global IT solutions service provider which played an important role in China since 1990 in
28 Huawei, 2013. “Huawei Smart City Solution”, Shenzhen [Online] Available at: http://enterprise.huawei.com
29 Atos, 2014. Atos Worldgrid. [Online] Available at: http://fr.atos.net/fr-fr/accueil/nos-solutions/atos-worldgrid.html
30 Placet, F., 2012. « Atos Worlgrid et le smartgrid en Chine ». [Online] Available at: http://grenobleenergie.wordpress.com/2012/03/28/1154/

developing smarter transportation systems. Nowadays, they are implementing their “SmartMobility Technology” in many cities including Beijing. This system of bundled services enables local authorities to control traffic in real time, centralize urban mobility and respond to road accidents more rapidly, among other possibilities. (ITS America, 2012) 31 In Beijing, the contract with the Beijing Traffic Police signed in 2011 makes them responsible for expanding the capital’s urban traffic management system. Their SmartMobility traffic technology has been implemented on more than 200 traffic junctions. This enabled Beijing to reduce traffic congestion, increase the safety of drivers and reduce air pollution. To be more specific, there are now red-light violation control systems or speed measurement systems across the city, which help reduce accidents. (Schneider Electric, 2014) 32 Today, the quality of life of residents in Beijing has been highly improved compared to a few years ago. By launching smart city projects in collaboration with private actors, the local authorities and government have managed to reduce CO2 air pollution, noise, as well as facilitate the overall traffic. But the quality of life in China is still far behind European levels.
3.3 The Smart Haidian Project
The Haidian district is at the heart of Beijing’s smart city strategy.
3.3.1 Strategy and progress
Located in the Northwest of the capital, the district is well known for its science and technology cluster, as well as its tourist attractions, cultural activities and education institutions. It groups 22 sub-districts in an area of 426 km2 with more than 1,5 Million habitants.
Chart: Beijing Pilot City Haidian District Source: EU-China smart cities
The project “Smart Haidian” aims to build and focus on Smart Administration, Smart Parks, Smart Urban areas, Smart Homes
31 ITS America, 2012. “China selects Telvent SmartMobility technology to enhance mobility management in the country’s cities.”
32 Schneider Electric, 2014. Smart Mobility. [Online] Available at: http://www.schneider-electric.com/solutions/ww/en/seg/27947930-smart-cities/27958436-smart-mobility

and IT Industry highland.
As of today, the progress is clearly visible and many actions are being implemented:
1. Smart Government Affairs
They are building an information system to enable districts, neighborhoods and communities to connect to one single website which lists all government affairs and offer a 24h self-service, improving overall service quality and resource sharing of administrative information.
2. Smart Parks
They built a service platform for all private and public actors of the Zhongguancun Industrial Park. It includes financial, information, management and marketing services as well as monitoring for small and medium-sized enterprises to promote their development.
3. Smart Education
They built a cloud resource center and computerized the education management system in order to maintain the district as a leader in China of IT and innovative solutions for teaching and education.
4. Smart Sanitation
They created a platform to share regional information on sanitation, collect data such as from health files and provide district hospitals with online medical history and statistics.
Overall, since the launch of this project, the Haidian district has achieved many goals and clearly improved the range of services offered to its residents as well as urban management systems. China Mobile has launched 4G services, showing how advanced their infrastructure is compared to other areas in Beijing. (Yanrong & Whyte, 2014) 33
33 Yanrong, K. & Whyte, J., 2014. “Comparative Study of Smart Cities in Europe and China” Prepared for Ministry of Industry and Information Technology (MIIT).

IV. Policy Recommendations
4.1 Measures on organization, policy, funding and business models of Smart City development
4.1.1 Financing
One of the major challenges to the development of smart cities is the substantial financial investment needed for every project. The Chinese government, either through state-owned banks or by direct public sector financing, sometimes provides the financing of smart city projects, which benefit the society. Yet, the most common method of financing in China for smart city projects is through private sector investments.
4.2.2 Policies
Government policies create a huge difference in the ease of smart city development. According to the IDC Government Insights, the Chinese central government has historically had little interest in centrally led guiding policies relating to a unification and standardization of the development of smart cities with cross-industrial and cross-functional domains. Instead, local governments have played an active role in the smart city development with many initiatives for continuous development. However, in 2014, the Chinese central government showed increasing interest indicating support for smart city development, and even more so after Chinese Premier Keqiang Li voiced his strong support for smart city development. Keqiang Li explained the importance of smart city development for rapid urbanization and socio-economic growth. A clear emerging trend is that there cannot be an isolated smart city solution, and instead industries and policies have to work together in order to achieve meaningful economic, social and environmental results. In the case of Europe, the challenges arising as a result of rapid urbanization have put tremendous pressure on city infrastructure. 70% of EU’s energy resources are utilized in cities and release the majority of the carbon that is harmful to the environment. The same effects have been identified in China and the quick urbanization has led to the scarcity of water and energy and the increase of traffic congestion, pollution, and waste disposal complications. (Yanrong & Whyte, 2014) 34 These factors have caused the Chinese government to engage in several projects to support policies to enhance the smart city incentives.
34 Yanrong, K. & Whyte, J., 2014. Comparative Study of Smart Cities in Europe and China. [Online]
Available at: http://eu-chinasmartcities.eu/?q=node/101

Central government involvement is now flourishing through MIIT, NDRC; MOST and MOHURD with the main role of guiding and facilitating the development and implications of smart city projects for cities that are willing to engage in smart city modernization. MIIT (Ministry of Industry and Information Technology) was created in 2008 in order to develop certain ICT industries. Vice Minister Yang Xueshan is keen to highlight the importance of broadband, mobile Internet, Internet of things, cloud computing and big data in order to generate smart cities (United States Information Technology Office, 2014)35. ICT is a key factor to smart city development, which makes the policies for increased connectivity and open data an important backbone for smart cities (Yanrong & Whyte, 2014). NDRC (National Development and Reform Commission) enhances and examines policies for social and economic development. NDRC aims to support and facilitate China’s rapid urbanization (National Development and Reform Commission, 2014) 36 MOST (Ministry of Science and Technology) leads the development and implementation of Science and Technology in China by developing plans and policies, drafting related laws, regulations and department rules (Ministry of Science and Technology of China, 2014)37. MOHURD (Ministry of Housing and Urban-Rural Development) regulates the state construction industry established in 2008. MOHURD guides the planning and construction of rural and urban areas, develops standards within the construction industry as well as managing the administration of the housing and real estate industries (Weixin, 2013)38. These organizations are all important in driving the smart city development forward as they all have an influence on the ease of becoming smart.
An example of a positive pilot project is in Japan where the Ministry of Economy, Trade and Industry has, together with Panasonic, Hitachi, Toshiba and a few others developed smart city services which are to be tested in four domestic pilot cities. The policies encouraging smart city development have triggered more Japanese companies to participate in projects internationally e.g. The United States, France, Spain, India and China. The Chinese government has recognized the importance of broadband networks and cloud computing as key factors for economic growth.
35 United States Information Technology Office, 2014. China faces challenges in smart city development. [Online]
Available at: http://www.usito.org/news/china-faces-challenges-smart-city-development
36 National Development and Reform Commission 2014. [Online] Available at : http://en.ndrc.gov.cn/
37 Ministry of Science and Technology of China, 2014. Missions of the Ministry of Science and Technology. [Online]
Available at: http://www.most.gov.cn/eng/organization/mission/index.htm
38 Weixin, Jiang, 2013. Ministry of Housing and Urban-Rural Development. [Online] Available at: http://www.globaltimes.cn/db/government/17.shtml

4.3.3 Business Model
The business model of a smart city is a challenge in itself. In the traditional Chinese model, neither data nor information is free for everyone and is under tight control from the government. Smart city implementation means that the city will not be under the traditional top down approach and instead adapt a more open model. The smart city model should allow for open and inclusive networks, open data infrastructure, visualization, simulation and gaming, citizen engagement and integrated management structures. Also in the funding stage of a smart city project, there are four main business models that have been successful in innovative projects: cloud bases, pay as you go models, creating revenue from data models, pilot projects as well as smarter procurement models. However, a huge challenge for the investors of a smart city is the absence of a definitive end state. This makes such a project difficult to understand for private investors who are looking to make a return. (Yanrong & Whyte, 2014)
4.4.4 Recommendations
As clearly demonstrated in the Comparative Study of Smart Cities in Europe and China by Yanrong K. et al. (2014), the smart city staircase roadmap towards maturity is the recommended view of looking at smart city development.
4.5.1 Smart city staircase roadmap towards maturity
The illustration 4.5.1 explains that cities cannot jump from basic to a more mature level without going through all the necessary stages of the maturing process. One cannot simply implement a new ICT structure and expect the city to become smart overnight. There has to be extensive training and some adjustment time to the new high tech infrastructure. The implementation and testing phases will be timely as they need to be approved by various stakeholders involved. Also the city does not become smart as a result of one successful implementation. Various industries need to integrate and work

together in order to enhance the overall intelligence of the city. Also, it’s important that the city does not isolate itself to the rest of the world. The best way to ensure sustainable development is to establish a knowledge exchange platform with the smart cities and organizations. In the initial phases it is also important to look beyond the horizon and understand that the cheapest solution might not be the most sustainable. The choice of technology standard can have a huge impact on the city a few years down the line. A network infrastructure of inferior quality could be completely worn out and needs to be completely exchanged for a newer system. However a network infrastructure of superior quality will still function and may only need software update to continue.

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