IBM Bets On Beijing

Technology

Andy Greenberg, 11.30.09, 12:00 AM ET

The cameras that watch over hundreds of street intersections in the northeastern Chinese city of Shenyang (pop. 7.2 million) aren't the sort of technology that pleases privacy advocates or taxi drivers. As in many Chinese metropolises, those robotic eyes--often hidden in small black orbs suspended from lampposts--capture license plate numbers of red-light runners and pass the data to transit cops who mail tickets to offenders.

But Min Wanli, a researcher in IBM's Beijing research lab, wants to exploit those traffic watchdogs for a friendlier purpose. Pulling together automobile movements aggregated from Shenyang's nearly 1,000 cameras as well as sensors beneath its roads, Min says he can predict the time and location of a traffic jam with 85% certainty up to an hour in the future. A few prescient changes of a red light to green or the opening of an extra lane, he says, could evaporate rush-hour congestion before it appears.

"The government has already spent billions around the country collecting this data," says Min. "We just need to make sense of it."

Over the last decade IBM has mutated from a seller of servers and mainframes to a company that pulled in 57% of its $103 billion in 2008 revenue from advising businesses and running their information technology operations. Its latest offering involves making infrastructure "smart." That means supplying the expertise to run the technology behind power utilities, rail, health and traffic systems. The bigger the problem, the more IBM says it stands to profit as a consultant and integrator across hardware, software and services.

Corralling an urban car population--a trick IBM is currently testing in Singapore--is just one piece of the company's ambitions for Shenyang. In September IBM signed a deal with the city government to make it more ecologically benign by reducing carbon emissions, as well as monitoring the city's water quality and food-supply chain.

Shenyang isn't an IBM customer so much as a guinea pig. The city is pitching in $44 million for a joint research project with IBM, which says it's investing at least as much in man-hours and intellectual property. In return IBM gets a large-scale test bed for its urban infrastructure technologies. The market for this kind of work could be worth several billion dollars a year: China has 118 cities with populations over 1 million.

But there's a danger to collaborating with China's authoritarian government. One project IBM is negotiating to handle in the southern city of Kunshan could include a police system for mining criminal data and triangulating suspect locations from surveillance cameras and cell phone emergency calls. Connecting the dots to human rights abuses wouldn't be hard. "This is a government that will use IBM's tools to track down people engaged in the legitimate exercise of their rights: lawyers, writers and activists," says Sharon Hom, director of the advocacy group Human Rights in China.

IBM execs argue the company sticks to a set of guidelines that it applies globally. "We only do work that will improve the way the world works," says Franklin Kern, head of IBM's consulting arm.

Most of China's problems, to be sure, are far less controversial--and far larger. The country has doubled its energy consumption since the year 2000, according to energy tracker Carbon Monitoring for Action. To meet increasing demand, a new coal-fired power plant big enough to power Kansas City comes online in China every eight or nine days. China's carbon dioxide emissions have doubled this decade, surpassing those of the U.S. The number of cars in China, now 25 million, is growing 25% a year, creating traffic crises. To counteract the trend the government plans over the next five years to add 12,000 miles of high-speed rail, more than will be added in all the rest of the world.

The rewards for those who can grab a piece of this buildout are China-size, too. Last year the central government announced a $656 billion stimulus package, including $400 billion aimed at expanding infrastructure. Some $2.3 billion of that will go to information technology aimed at the power grid and $2 billion to data systems for rail, all to be spent in 2010, according to the China Center for Information Industry Development, a government-run think tank. After that initial infusion info technology spending will continue to grow, the CCID predicts, at a clip of 10% a year for power systems and 30% a year for rail.

"Every level of government in China is talking about this," says IBM's head of research in China, Thomas Li. "They have the need. We have the ability."

Since January IBM has been parachuting senior executives into Beijing to launch new divisions aimed at getting rail and power grid projects. Bradley Gammons, IBM's head of energy and utilities sales, moved to Beijing in September to start an energy-and-utilities solution center aimed at building so-called smart grids. These add sensors to power grids to predict outages and integrate unpredictable power sources like wind and solar. Gammons is overseeing several as yet undisclosed smart grid research projects with China's State Grid, the government-run utility that controls most of the country's electricity. It plans to implement nine projects next year.

Keith Dierkx, IBM's most senior rail-focused exec, moved to Beijing over the summer to start a rail innovation center. The center is working on methods of monitoring rail tracks with pressure and acoustic sensors built into train cars, a system that would pinpoint defective tracks before they cause a derailment.

Competitors are also eyeing the tech opportunities in China's infrastructure explosion. Accenture, for instance, says it has launched ten smart-grid pilot projects in the country. Hewlett-Packard and Oracle will vie for hardware and software contracts. But IBM remains the only company that sells hardware, software and the consulting services to integrate them into complex infrastructure projects.

IBM's history in China also goes back further than most competitors. The company first sold a punch card tabulator to a Beijing hospital in 1934. After fleeing the country in the 1949 revolution, IBM ventured back in 1979 following Mao Zedong's death, selling through Chinese partners in the early days of the country's reform and opening period. Even after 1989's Tiananmen massacre and the crackdown on dissidents that followed, IBM held fast, creating a Chinese subsidiary in 1992 and tightening its ties to China and its government.

Are those ties to China's dictatorship too tight? Claudia Fan Munce, the Taiwan-born head of IBM's venture capital group, answers diplomatically. "The government has a strong arm," she says. "But right now they're focused on innovation. And so are we."

By The Numbers: Ultra-Infrastructure
China's backbone buildout offers huge opportunities--and dwarfs what's happening in the U.S.

Coal-fired power plants in use in 20201

U.S.: 420
China: 1250

Investment in renewable energy through 20202

U.S.: $36 billion
China: $208 billion

Government stimulus for high-speed rail

U.S.: $8 billion
China: $100 billion

1Assuming carbon limits; 600 megawatt plants. 2Assuming carbon limits. Sources: International Energy Agency; China Center for Information Industry Development; U.S. Congress.