It links together three key elements – intelligent machines, advanced analytics, and people at work – to achieve higher levels of efficiency, productivity, and performance through the internet-of-Things (IoT).

China broadens the boundaries of the concept from industrial companies to all trades, including retailers and service providers.

Traditional businesses and their value chains can leverage new technologies including artificial intelligence, big data and cloud computing for the whole product life cycle from financing, research and development, production, transactions, and delivery of the end result to consumers.

Why is it important?

The industrial internet is a powerful enabler of productivity. For instance, a 1 per cent improvement in fuel costs in the aviation industry could yield savings of US$30 billion over 15 years. Similarly, in the global health care sector, a 1 per cent reduction in system inefficiency could yield US$63 billion in savings, according to a research by GE.

GE estimates that the technical innovations of the industrial internet could find direct application in sectors accounting for more than US$32.3 trillion in economic activity. As the global economy grows, the potential application of the industrial internet will expand as well. By 2025 it could be applicable to US$82 trillion worth of output, or approximately half the global economy.

China, which has been the world’s manufacturing powerhouse for the past few decades, is determined to use AI – and the industrial internet – to upgrade its manufacturing base to gain leadership in what has been dubbed the Fourth Industrial Revolution.

The Chinese government announced the Made in China 2025 strategic plan in 2015, aiming to modernise the country’s industries – including robotics, aerospace, new materials and new energy vehicles – and replacing imports with local products to build global champions able to take on the Western tech giants in cutting-edge technology by 2025.

Another important national strategy was Internet Plus, announced in the same year, to integrate the mobile internet, cloud computing, big data and IoT with modern manufacturing. In 2016 Chinese Premier Li Keqiang announced the integration of the two initiatives, aiming to boost the progress of Made in China 2025 through the help of the industrial internet.

Which Chinese and global tech companies are investing in the industrial internet?

Major internet companies as well as traditional industries across the world are joining hands in the industrial internet realm.

Chinese internet giant Tencent Holdings recently announced a major strategic upgrade to embrace the industrial internet over the next two decades, seeing its role as an enabler to help the retail, medical, education and manufacturing sectors in their integration of the internet.

For example, the company recently established a 1.2 billion yuan (US$174 million) joint venture with supermarket chain operators ParknShop and Yonghui Superstores in its latest effort to enhance and digitise the retail business through its social media and mobile payment solutions.

Chinese e-commerce giant Alibaba Group co-founder and executive chairman Jack Ma Yun in September set out his vision for New Manufacturing, which involves integrating the internet, big data, AI, cloud computing and the internet of things into the manufacturing process.

In September Alibaba announced the establishment of a new semiconductor company Pingtou Ge following the acquisition of Hangzhou C-Sky Microsystems, a Chinese chip designer.

Alibaba’s e-commerce rival JD.com is also investing heavily in digitising and automating its logistics business and expanding its reach into the offline retail sector with the launch of 7 Fresh, a chain of hi-tech “new retail” supermarkets.

China’s biggest search engine operator Baidu participates in the industrial internet with its AI capabilities. Its DuerOS, an AI operating system, was activated on 141 million smart devices as of the end of September, and Apollo, the open-source autonomous driving platform, is being used by traditional carmakers and 130 partners in the automotive ecosystem.

Amazon is one of the global tech companies leading the transformation of industries. The e-commerce and cloud computing company has entered the health care space, joining hands with J.P. Morgan and Berkshire Hathaway in a partnership to cut health costs and improve services for employees, in a move seen as disruptive to the current system. The company’s cloud service, AWS, has also been operating as the digital platform for the connected machines.

Microsoft is also offering itself as a solution provider for factories wanting to connect with its cloud computing service Azure for data analytics. Microsoft and GE recently expanded their partnership in the integration of GE’s software platform for industrial machines with Microsoft’s Azure.

What are the challenges in fully realising the industrial internet?

The industrial internet starts with embedding sensors and other advanced devices in machines – from the simple to the highly complex. The number of global IoT devices, including consumer and enterprise, is expected to reach 7 billion this year and grow to 22 billion by 2025, according to IOT Analytics, a Hamburg-based research group. Companies, as they realise the benefits of the connectivity, will face a steep learning curve.

“Initially, leaders viewed the IoT as a silver bullet, a technology that can solve the myriad IT and business problems that their organisations faced. Very quickly, though, they recognised that without the proper framing of the problems, the IoT was essentially a solution looking for a problem,” Mark Hung, vice-president of Gartner Research, said in a report last year.

Security is a major concern for industries connecting their machines to the internet. In late 2016 hackers exploited the security weaknesses of thousands of IoT devices and launched major distributed denial of service (DDoS) attacks that brought down much of America’s internet including sites like Twitter, Netflix, Reddit, CNN and many others in Europe.

One third of IT companies cite security as a top barrier to IoT success, a Gartner survey revealed in 2016. By 2020, more than 25 per cent of identified attacks on enterprises will involve the IoT, although the IoT will account for less than 10 per cent of IT security budgets, according to Gartner.