Published: 10 June 2020
Analyst(s): Venecia Liu, Milly Xiang, Roger Sheng, Peter Liu, Sandy Shen, Owen Chen
After aggressive measures to lock down cities and quarantine inbound travelers to control a surge of imported COVID-19 cases, China is pivoting efforts to spur the economy. Product leaders should review the government directives for industry development and investments.
COVID-19 not only exposed weaknesses in the healthcare system, but also exposed the fragmented health insurance system and the need to streamline processes.
Investments in AI, IoT, cloud and analytics for transportation will be prioritized as transportation is one of the “new infrastructure” projects designated to move the economy forward.
While China has made investments in an advanced telecom network infrastructure, COVID-19 exposed weaknesses. The capacity load constraints and bottlenecks, connectivity issues and limitations to access corporate applications, and network performance issues revealed the need to invest in 5G, data center infrastructure and dynamically scalable network architecture designs and cloud.
As a product leader seeking to exploit industry market dynamics, you should:
Identify the industry business processes that can be strengthened with automation by engaging with CIOs on the postanalysis on operational disruptions.
Track the recent government directives for industry investment priorities by following money flows and assessing China’s upcoming 14th Five-Year Plan for future direction. Build digital products and technologies into your roadmap strategy.
Examine distributed cloud and intelligent edge network architectures with 5G-empowered technologies, such as autonomous vehicles and IoT solutions for industry applications. Also, look to build cloud-native applications.
The COVID-19 pandemic impacted — both negatively and positively — many industries in China. When the central government imposed a lockdown on Wuhan and other cities in the Hubei province, it severely impacted manufacturing, transportation and retail. Other municipal governments followed suit and imposed lockdowns in their city and restricted resident movements to contain the disease, which expanded the industry impact. After the extended Chinese New Year holiday period when businesses enacted remote work, some industries saw a surge of positive technology demand forcloud computing resources, meeting solutions, collaboration tools and distance learning applications (see Figure 1).
Through this adversity, it has become clear that technology is essential for society and businesses to survive. China actively leveraged digital technologies such as artificial intelligence (AI), data analytics, cloud computing, drones, 5G, autonomous technologies and mobile technologies not only to monitor, track and contain COVID-19, but also to operate business amid the pandemic. Many companies pivoted to digital commerce to generate revenue. According to the National Bureau of Statistics of China, the country’s GDP declined by 6.8% in 1Q20. Product leaders have an ability to resuscitate the economy with their continued technology prowess as the government prioritizes industry directives for technology investments.
The Standing Committee of the Political Bureau of the Communist Party of China (CPC) Central Committee held a meeting in March to assess the pandemic impact and to underscore the necessary investments required to bring the economy back to positive growth. Public health and human services, 5G networks, data center, AI, Internet of Things (IoT) and intelligent connected infrastructure (ICI) in transportation were some of the key areas highlighted.
As China tries to recover from the COVID-19 pandemic, industries are looking to technology to help rebuild the nation’s economy:
Healthcare: The pandemic exposed weaknesses in the healthcare system — not only in data and analytics for an intelligent health reporting and early notification system — but also in manual data processes and siloed healthcare databases. Residents outside of their registered provinces were not able to validate healthcare coverage and thus required upfront payment for medical treatment. Technologies such as telemedicine, remote diagnostics, analytics, AI, chatbot and drone delivery were used in the pandemic fight. Cloud computing for faster genome and DNA sequencing to come up with a vaccine was also offered through joint partnerships with technology companies and life science institutions. Spending to improve healthcare business processes and data records through integration and automation such as robotic process automation (RPA) is projected. COVID-19 is a wake-up call for public healthcare providers to accelerate digitalization of public hospitals and healthcare service processes, and increase healthcare collaboration and resource sharing. Increasing investment will also be witnessed in telemedicine, remote diagnostics and medical asset management.
Insurance: Health insurance claims processing is still manual. An integrated health database is still in development. While Ant Financial put together a blockchain platform to help speed up claims processing to validate and authenticate the patient and payment transactions, data integration and cloud-based data records are areas poised for investments. Gartner believes the insurance sector will be hit in the coming months, given insurance payouts not only for health insurance claims but also for life insurance, as well as property and casualty insurance, which will impact cash liquidity.
Government: During the onset of the outbreak, government authorities partnered with technology providers such as Alibaba and Tencent to use app services within WeChat and Alipay to create a travel pass. The QR codes would signal and verify a passenger’s past travel records so they could be allowed to use public transportation as well as enter public facilities. Mobile apps and data analytics were also used to track where infected patients may have crossed paths with others in a “data for good” effort to ensure the safety of people. COVID-19 exposed weaknesses and gaps that the government should address to prepare the entire society and government organizations ahead of the next pandemic or disasters.Government agencies will expand their smart city efforts with open data, data exchange, health and social services and public safety at the forefront. The government will continue to invest in digital infrastructures in the urban centers and will extend this investment to the community level. The next wave of smart city investment will center on leveraging newfound data to drive decision making and create ecosystems of partners beyond government organizations to expand the ability to serve residents and visitors.
Education: Given the school closures and move to distance learning, a number of educational technology (“edutech”) companies, such as 17zuoye and VIPKid, and other private companies stepped in to promote their online capabilities. Several educational websites crashed, given the strain on server capacity. In collaboration with telecom operators and technology companies, as well as the Ministry of Industry and Information Technology (MIIT), China’s Ministry of Education launched a cloud-based national internet classroom. It can accommodate simultaneous course access for 50 million primary and middle schools students using7,000 servers and 90 terabytes of bandwidth. Educational TV programs were also broadcast to students in remote locations.Future investments in data center requirements for campus environments, e-learning applications, data security, and future distance learning applications are forecast. The push to promote lifelong education for a wider population base as well as professional training courses and online certification courses will ensure that these investments made by the ministry as well as edutech are a longer-term need and strategy.
Communications: COVID-19 impacts the communications industry in different ways across its service portfolio. Revenue from international roaming fees saw a decline, whereas, there was a significant demand on the network to support remote work and distance learning requirements. China Mobile, China Unicom and China Telecom all experienced constraints and bottlenecks on their network infrastructure. COVID-19 not only has spurred many corporate CIOs to reexamine their data center, cloud infrastructure, data security, data access and network architecture, but also has pushed 5G deployments. China Mobile has awarded contracts valued at US$5.2 billion to Huawei, ZTE and Ericsson for the buildout of 232,143 base stations to support the ongoing rollout of its 5G network. In addition, China Unicom will join China Telecom’s intent to accelerate the 250,000 5G base stations nationwide. 5G technologies played an important role amid COVID-19 in areas of live-streaming video and telemedicine. China Mobile opened 5G base stations at the Huoshenshan and Leishenshan hospitals. China Mobile also realized 5G high-definition live broadcasting of the construction of these two hospitals, providing real-time views of the construction sites on a 24-hour basis for more than 20 mainstream media platforms. More importantly, 5G went from an experimental phase of “5G+ health”to a clinical phase using remote video and remote consultations for diagnosis and treatments with medical experts in Beijing to help frontline medical staff at the Huoshenshan Hospital. Product leaders should look to applications and solutions that can leverage the power of 5G. Distributed cloud environments and intelligent edge network architectures should be examined for those building out IoT and AI solutions.
Transportation: In Gartner discusses an emerging technology called intelligent connected infrastructure (ICI). It is defined as an integrated “mesh” of AI, IoT, cloud, telecommunications and autonomous technologies to enable transport infrastructure such as ports, bridges, roads, airports and airways, and highways to exchange data with surrounding entities such as vehicles, technicians, other infrastructure assets and transport authorities. Some technology providers, such as Huawei and Alibaba Cloud, are helping to build out ICI cities or intelligent cities and smart airports.Given the decimation of the aviation sector from COVID-19, this downtime will grant airport authorities the opportunity to examine business operations and optimize airport management with IoT and 5G in order to build an ICI orchestration at the airport. Technologies such as temperature monitoring were already put in place at several airports, together with biometric technologies. Further investments in AI, such as facial recognition for other modes of transport, as well as data integration and data analytics, are expected. In the warehousing, courier and support service segment within transportation, providers saw a surge of e-commerce demand for delivery amid the COVID-19 outbreak, which further solidified the need for highly efficient logistic services across warehousing, distribution and delivery. Chinese logistics service providers are optimizing their operations by using digital technologies to accommodate the increasing number of online shoppers and change in behaviors as a result of COVID-19. They will focus on enhancing last-mile delivery efficiency and cost through smart lockers and autonomous vehicles, and improve space utilization and throughput in warehousing using IoT, robotic, machine vision and other AI techniques.
Retail: COVID-19 pushed the shift further to digital commerce activity. Many businesses were scrambling to set up digital presence through online marketplaces (such as Tmall and JD.com), and online grocery and food delivery platforms (such as Ele.me and Meituan) or via WeChat. Before COVID-19, live streaming had been used to generate traffic to commerce sites. These platforms saw huge demand spikes during the outbreak as businesses directed customer engagement through video/live streaming, and some retail stores were able to recover portions of sales in this way. Video streaming will continue to become a mainstream customer engagement technique. In addition, businesses made quick adaptations of products to cater to segments with rising demand. For example, some restaurants opened pantries to the neighborhood to address supply shortages, and some offered meal kits to online grocery platforms to help with home cooking. While China is already leading in digital commerce adoption, we expect there will be further penetration into segments such as grocery, food and beverage and B2B retail. More businesses are expected to set up their direct-to-customer commerce platforms that will give them better control of customer experience than third-party platforms.
Manufacturing: COVID-19 fully exposed the different levels of resilience between highly automated and technology-drivenmanufacturers and labor-intensive ones in the face of disastrous events like COVID-19. In China’s “new infrastructure” initiative, industrial internet is listed as one of the seven focus areas. The MIIT of China has released the list of local providers offering a total of 240 industrial apps for free downloads of three months up to one yearto help with the industrial sector’s operational and supply chain challenges. Digital technologies such as IoT, AI and augmented reality (AR) will be further utilized by Chinese manufacturers to enhance production automation, improve product quality, mitigate risks, and optimize internal and external remote services, as well as business model innovation.
Throughout the year, the CPC will continue to reveal its priorities for the 14th Five-Year Plan as the direction for China’s development from 2021 through 2025. Prior to the COVID-19 pandemic, the U.S.-China trade war led to an introspection on technology development or “techno egoism,” as outlined in Many companies in China shifted focus to the domestic market to boost demand for their products and services. Amid COVID-19, this trend will continue. China’s exports of consumer manufactured goods will be hampered by the rising unemployment filings and consumers’ ability to spend on discretionary items.
As COVID-19 continues to impact manufacturing plants and access to the supply chain across other nations, Gartner predicts China will focus on the domestic market and will reexamine the “circular economy” business model (see Note 1). The circular economy focuses on the reuse of materials to minimize waste and resource demand for external consumption in a resource-constrained environment.
The pandemic has highlighted the need for transparency, traceability, responsibility and sustainability. As such, product leaders should look at the sourcing of their products, as well as the entire product development life cycle.
A circular economy is an economic model that separates the ability to achieve economic growth from the consumption of natural resources.
Traditional linear economies are based on a cycle that extracts resources, produces goods and disposes of the product at the end of its useful life. This model is often described as “take-make-use-dispose” — a cycle that ultimately results in waste. In contrast, a circular economy encourages continuous reuse of materials to minimize both waste and the demand for additional consumption.
This model is sometimes summarized as a make-use-return-reuse cycle. For this reason, a circular economy model is described as more sustainable than models that require additional natural resource consumption to drive growth.
Guiding Principles on Independence and Objectivity.