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7 March 2019
Chief Investment Office GWM
Investment Research
Smart cities
Shifting Asia
Tianjin Binhai Library, Tianjin, China
Editorial
Dear reader
The greatest case of human migration has been going on in surge in connectivity also brings with it a downside – an in-
Asia over the past decades. People have been moving from crease vulnerability to cyberattacks. Accordingly, cybersecurity
countryside to city by the hundreds of millions, hoping to take will have to be incorporated as a key building block of each
part in the rapid economic progress that has turned the region nation’s approach, and form an integral part of the region’s
from agricultural backwater to industrial powerhouse. And smart city journey.
this trend will continue for the foreseeable future – the UN ex-
pects the percentage of people living in Asia’s urban areas to This is an exciting topic because, among other reasons, it
rise from 50% today to 75% by 2050. touches all of our lives. In Singapore, for instance, we’ve be-
come accustomed to filing taxes online, monitoring subway
Now accounting for over half of the world’s megacities, schedules on mobile apps and connecting to personalized
Asian cities are grappling with the challenge of having to bal- government sites through soft tokens. These are just a few
ance sustained population growth with strained infrastruc- examples of how cities are becoming smarter. Others include
ture, depleting resources and finite space. But with the fourth the rollout of a nationwide 5G network in China, integrated
industrial revolution powering ahead, “smart cities” – the in- area developments and traffic management systems in India,
tegration of cutting-edge information and communication and an autonomous bus network in Tokyo.
technologies with urban planning – offer a compelling an-
swer to this dilemma. Indeed, the potential benefits of smart Each country has their own set of challenges, including over-
cities to urban livelihoods are significant, as is the investment bearing bureaucracy and logistical and resource constraints,
opportunity. and achieving their grand visions for the future will require an
unwavering commitment that spans different administrations.
Welcome to the latest edition in our Shifting Asia thought But with the current momentum, we estimate Asia’s smart
leadership series. This issue dives into the booming world of city market, led by China, could reach USD 800bn in 2025,
smart cities in Asia, where public and private investment is creating sizeable growth opportunities for local economies
mixing to spark waves of innovation and ambitious plans are along the way.
transforming the relationship between governments and citi-
zens. In this report, we feature interviews from local authori- Such rapid growth should yield attractive investment oppor-
ties and business leaders on the topic and bring the story tunities. Investors keen to participate in this area should tar-
closer to home through individual country analyses. get companies exposed to faster-growth segments like fin-
tech, 5G, smart mobility and healthcare. Conversely, those
The interpretation of smart cities varies, but generally consists engaged in antiquated urban operating systems are at risk of
of six major pillars - connectivity, governance, services, auto- becoming outdated.
mation, health and mobility – and employs key technologies
like artificial intelligence, big data, cloud computing and ro- We hope you enjoy reading about this special topic on Asia’s
botics. As the urgency to ensure sustainability mounts, Asia’s future. As always, please don’t hesitate to reach out with any
governments have launched ambitious initiatives to make feedback or questions.
their cities and nations more intelligent. Yet the resultant
Min Lan Tan
Head of APAC Investment Office
Shifting Asia: Smart cities – March 2019 3
Content
Chapter 1
6 What is a smart city?
Chapter 2
11 The need for smart cities in Asia
Chapter 3
15 How big is the smart city opportunity in Asia?
Chapter 4
16 Regional deep dive
18 China – tech titans lead the smart city drive
23 India – smart leapfrogging
29 ASEAN smart cities – a solution for sustainable urbanization
34 Singapore – ahead of the curve in digital transformation
39 Hong Kong – catching up
47 Australia – steady and smart progress
49 Japan – showcasing for Tokyo Olympics
UBS Shifting Asia Cover photo
This report has been prepared Tianjin Binhai Library, Tianjin, China
by Ossip van Duivenbode
by UBS AG. Please see the
important disclaimer at the end Languages
of the document. English, Chinese simplified and traditional
Editor in Chief Contact
Carl Berrisford wmrfeedback@ubs.com
Project manager
Sita Chavali
Editor
Aaron Kreuscher
Design
Margrit Oppliger, Rodrigo Jiménez Learn more at:
www.ubs.com/cio
4 Shifting Asia: Smart cities – March 2019
Executive summary
–– Asia is home to 16 of the world’s 28 megacities (popula- 28 megacities in the world
tions above 10m), and the United Nations forecasts their
cumulative population will double by 2030 from their 2010
total. This mass migration from rural to urban areas is occur-
ring as the “fourth industrial revolution,” a period of rapid
technological innovation, transforms the way we live.
16 are located in Asia
–– To balance the costs of depleting resources with rapid urban- Asia is home to 16 of the world’s 28 megacities
Smart cities major building blocks
(populations above 10m), and the United Nations
ization and sustainable growth, many Asian cities are laying forecasts their cumulative population will double
by 2025 from their 2015 total. This mass
the groundwork to become “smart cities” over the next migration from rural to urban areas is occurring
decade. This entails integrating the six major building blocks as the “fourth industrial revolution,” a period of
rapid technological innovation, transforms the
– smart connectivity, smart governance, smart services, smart way we live.
automation, smart health and smart mobility – with cyberse-
curity forming the foundation of each smart city.
To balance the costs of depleting resources with
–– Promising smart technologies that can facilitate this transi- Promising
rapid urbanizationsmart technologies
and sustainable growth, many
Asian cities are laying the groundwork to become
tion include 5G and the Internet of Things in connectivity, “smart cities” over the next decade. This entails
integrating the six major building blocks – smart
digital repositories and sandboxes in governance, fintech connectivity, smart governance, smart services,
and smart utilities in services, artificial intelligence and smart automation, smart health and smart
mobility – with varying levels of digitalization.
facial recognition in automation, big data and remote mon-
itoring in healthcare and autonomous driving, and ride
hailing in mobility.
Promising smart technologies that can facilitate
this transition include 5G and the Internet of
–– In Asia, Singapore is arguably the furthest along the smart Things in connectivity, digital repositories and
Singapore
city journey. As the host, Tokyo will likely showcase interest- sandboxes in governance, fintech and smart
utilities in services, artificial intelligence and facial
ing smart solutions during the 2020 Olympic Games. And Tokyo and
recognition in automation, big data and remote
Hong Kong
monitoring in healthcare and autonomous
with strong government initiatives and vibrant technology Chinaand
driving, and rideIndia
hailing in mobility.
ecosystems, China and India show significant promise for
the future.
In Asia, the city states of Singapore and Hong
–– We expect Asia’s smart cities to generate trillions of dollars Kong are arguably the furthest along the smart
Global smart city spending
city journey. As the host, Tokyo will likely
in economic value over the coming years as annual com- showcase interesting smart solutions during the
bined smart city spending climbs to USD 800bn by 2025, 40%
2020 Olympic Games. And with strong
government initiatives and vibrant technology
according to our estimates, about 40% of global smart city ecosystems, China and India show significant
USD 800bn
promise for the future.
spending. Contributing USD 320bn, China should lead the
Asia’s annual combined
region in smart city spending over this period. smart city spending by 2025
–– Given the huge revenue potential, we see significant invest- We expect Asia’s smart cities to generate trillions
ment opportunities for investors. In particular, we believe of dollars in economic value over the coming
years as annual combined smart city spending
companies exposed to faster growth segments like fintech, climbs to USD 800bn by 2025, according to our
$
estimates, about 40% of global smart city
5G, smart mobility (e.g. electric vehicles and autonomous spending. Contributing USD 320bn, China should
driving) and healthtech are in a sweet spot thanks to strong lead the region in smart city spending over this
period.
demand and regulatory support. Conversely, companies Smart Healthtech Fintech
mobility
exposed to traditional urban operating systems will be at a
risk of becoming redundant. Given the huge revenue potential, we see significant investment
opportunities for investors. In particular, we believe companies
exposed to faster growth segments like fintech, 5G, smart
mobility (e.g. electric vehicles and autonomous driving) and
healthtech are in a sweet spot thanks to strong demand and
regulatory support. Conversely, companies exposed to traditional
urban operating systems will be at a risk of becoming redundant.
Shifting Asia: Smart cities – March 2019 5
Chapter 1
What is a
smart city?
Sundeep Gantori, Analyst
Definitions and scopes of smart cities differ from
country to country. We believe smart cities in Asia
consist of six major building blocks – smart connectivity,
smart governance, smart services, smart automation,
smart health and smart mobility – with varying levels of
digitalization. Cybersecurity, meanwhile, forms the
foundation of each smart city. Let’s dive into these sub-
segments.
Smart city
Smart connectivity Smart governance Smart services
Smart Automation Smart health Smart mobility
Cyber security
6 Shifting Asia: Smart cities – March 2019
Chapter 1 – What is a smart city?
Hong Kong. Photos by Martin Ruetschi
Smart connectivity
Driven by a desire to stay connected all the time sis. Applications of IoT include weather and water
and the need to efficiently multitask throughout a monitoring devices as well as other sensor-based
busy day, most of us have become “digital omni- devices like public lighting and traffic lights. Such
vores” and see connectivity as a basic necessity devices can be remotely controlled, thus driving
rather than a luxury. Just as how all cities are built significant efficiency gains. While densely popu-
on strong infrastructure like high-rise buildings, lated cities with high-rise buildings often face con-
roads and public transport systems, smart cities are nectivity problems, we believe the extensive use of
founded on robust technology infrastructure – WIFI and the upcoming 5G technology, which sig-
which begins with smart connectivity. The combi- nificantly reduces latency, should further bolster
nation of key enabling technologies, like 4G/5G, smart services. Most telecom operators in Asia will
fiber broadband and WIFI/Bluetooth, with con- launch 5G services over the next few years, with
nected devices, smartphones and sensors allows those in Australia, China, Japan and Korea set to
governments, corporations and the public to fully do so in 2019. According to Ovum and Bloomberg
exploit the potential of technology for everyday Intelligence, 5G subscribers in Asia should reach
services. The Internet of Things (IoT), which con- almost 200m by 2022, with a mid-single digit pen-
nects everyday objects such as home appliances to etration rate. With 5G services expected to be
the internet, is particularly capable of empowering rolled out in developing Asia during the next de-
connectivity, as multiple smart touch points cade, we see significant growth opportunities in
throughout one’s day can not only deliver innova- the 5G era.
tive services but also collect data for further analy-
Smart governance
Smart governance is the use of information & ernment-to-business (G2B) or government-to-gov-
communication technology (ICT) by the govern- ernment (G2G) models can drive significant effi-
ment for better urban planning and decision-mak- ciency gains and improve transparency. In fact,
ing. The point of smart governance is to use vari- most progressive regulators across Asia are cur-
ous technologies to connect government agencies rently partnering with startups that leverage smart
with businesses and the public in order to improve governance models like online fast-track approvals
transparency and institutionalize trust. Examples or sandboxes to fuel innovation. A sandbox is an
include digital repositories (for land records, for in- entity endorsed by regulators that allows limited-
stance), unified services like citizen services or on- scale testing of a new product, during which the
line tenders managed through a government-is- government temporarily relaxes regulatory require-
sued identity, and agency-wide web portals or ments. The aim is to assess the potential benefits
mobile apps (e.g. for departments like police or in- and risks of a new product before its full-scale
come tax). While government-to-citizen (G2C) launch.
smart governance models get more attention, gov-
Shifting Asia: Smart cities – March 2019 7
Chapter 1 – What is a smart city?
Hong Kong. Photo by Martin Ruetschi Hong Kong. Photo by Claudio Bader
Smart services
Thanks to smart connectivity and smart gover- another area where digitalization can revolutionize
nance, smart city administrators can take advan- everyday services. With smart grids, households
tage of digital technologies and deliver everyday can be more than just consumers; they can con-
services smartly. These include both public and pri- sume electricity according to their needs, and in
vate services like digital payments, smart grids, the future even sell back the surplus stored in bat-
smart utilities including metering and many more. teries. This fundamentally disrupts the supply-de-
Cloud computing is at the center of smart services mand dynamics in the electricity market, providing
as the technology allows access to everyday ser- both parties (utility companies and customers) an
vices anywhere and on any device. Given fintech’s advantage and improves energy efficiency. For in-
ability to offer financial inclusion through mobile stance, utilities can temporarily store volatile
payments and internet finance, many regulators in power generation (such as wind, solar) in batteries
Asia are supporting fintech services by building and supply networks with the excess energy when
strong ecosystems. For example, since the recent needed. Smart metering in another such service
demonetization of large banknotes in India, cash- provided by utilities; it allows consumers to man-
less payments for goods and many public services age their utility consumption and affords providers
have become more popular. Smart grids, which re- the flexibility of dynamic pricing, which is essential
duce energy consumption and CO2 emissions, are during peak loads.
Smart automation
Smart automation greatly helps cities become truly tioning, lift management and heating. Similarly,
smart. The most commonly used applications of smart homes can automate many functions, like
smart automation include smart buildings and security, entertainment and appliances, thereby
smart homes as well as artificial intelligence (AI) improving efficiency. With AI at the center of the
applications like robots, machine learning, chat- fourth industrial revolution, we believe smart cities
bots, etc. Many Asian cities are widely adopting can significantly leverage AI through, for instance,
smart building technologies, for example, which AI-based surveillance camera systems, which use
use automated processes to manage typical day- facial recognition technology, to boost security or
to-day building operations like lighting, air condi- chatbots to improve public feedback systems.
8 Shifting Asia: Smart cities – March 2019
Chapter 1 – What is a smart city?
Photo by Claudia Link Photo by Ailine Liefeld
Smart health
Smart health, or healthtech (as addressed in our regularly track their health and other lifestyle
recent theme), refers to the evolving use of infor- data. While wearables are currently mostly used
mation technology to address inefficiency and cost for general fitness tracking, greater incorpora-
constraints in public healthcare systems. With tion of medical-grade sensors could support vari-
stress levels much higher among city dwellers, ous remote-monitoring and treatment services.
there is an increasing need for smart health ser-
vices. We see four ways in which the healthcare in- –– Applications of technology in drug development:
dustry can be redefined by smart health services: Most pharmaceutical companies have been
using technology as a means to incrementally
–– Software, artificial intelligence and big data: improve operating efficiencies, rather than using
With the healthcare industry accounting for 5% digital technologies to drive wholesale changes
of all data generated globally, new develop- in the research process. But this may change in
ments in AI and data-handling technologies as the future, as we expect healthtech to address
well as improvements in connectivity suggest the several issues in the drug development process,
industry may finally be reaching a tipping point including reducing data gathering costs, improv-
for increased adoption. ing analysis and streamlining the overall trial
management process.
–– Telemedicine and remote monitoring: With most
Asian cities still lacking an adequate system for –– Imaging, image-guided therapy and robotic sur-
primary care provision by general practitioners gery: The imaging market provides a practical
(GPs) and suffering a geographical mismatch example of how advanced software and artificial
between the demand for and supply of health- intelligence are already being used to create effi-
care (concentrated in rich coastal provinces), ciencies in healthcare delivery by combining
remote monitoring through apps or wearables image data with software. Image-guided and
should improve overall healthcare service levels. robotic surgery techniques also have the poten-
Wearables also provide opportunities for data tial to cut healthcare costs by reducing surgical
collection and analysis as they allow people to complications and shortening hospital stays.
Shifting Asia: Smart cities – March 2019 9
Chapter 1 – What is a smart city?
Singapore. Getty images Japan. Getty images
Smart mobility
We define smart mobility as a combination of smart connectivity are accelerating the demand for smart
powertrains (electrification), smart technology (au- mobility solutions in Asian cities. Autonomous tech-
tonomous driving) and smart use (car-sharing/car- nology helps reduce traffic jams and the huge losses
hailing) – which, in our view, should redefine urban in both time and energy they cause. In many areas
transport over the next few years. Tougher regula- in Asia where roads and parking spaces are stressed
tions in the region to reduce CO2 emissions and to the limit, autonomous driving initiatives and
fuel consumption will likely lead to a significant in- smart parking solutions are rapidly gaining traction
crease in the electrification of powertrains in the as a way to solve these major transport problems.
form of hybrid, plug-in hybrid and battery electric Similarly, commercial drones or unmanned aerial ve-
vehicles. Furthermore, sustainable investment as- hicles (UAVs) could make cities smarter through
pects like safety, better fuel efficiency, lower emis- smart policing, regular traffic updates, e-commerce
sions, the rise of millennials and increasing mobile delivery, city monitoring and surveying, etc.
Cybersecurity as a foundation to smart cities
While smart cities are centered around the above Despite the broad-based implications of cybersecu-
six building blocks, cybersecurity provides a key rity risks, businesses are ill-prepared for them, in
foundation for smart cities, as secure or digitally our view, as the rising number of threats clearly in-
safe cities can give confidence to citizens, corpora- dicates. What do these developments mean for
tions and governmental organizations and enable the cybersecurity industry? For one,
digital transformation. that security is no longer merely a concern of IT
managers, but a key boardroom topic, as govern-
The interconnection between the physical and vir- ments and enterprises have to recognize its strate-
tual infrastructure in a smart city adds significant gic importance.
layers of complexity and creates vulnerabilities.
Imagine a smart city network getting hacked, ex- The topic becomes even more important for smart
posing sensitive data about citizens cities, given that increased connectivity including
or organizations, or other attacks bringing the en- usage of smart and IoT devices has raised overall
tire city infrastructure to a standstill. vulnerability to cyber threats. The good news is
most Asian smart cities have realized the impor-
Cybercrime has broader consequences than merely tance of cybersecurity, with all the major countries
exposing the vulnerabilities of the affected party; it prioritizing investments in this area. Furthermore,
also damages trade, competitiveness and innova- Asia as a region can also take advantage of some
tion at the macro level. According to Ponemon and of the best global practices in the world, like the
Bloomberg Intelligence, the global average cost of a recent regulations in Europe and the US, to further
security breach is high at USD 3.6m per breach. beef up its smart city infrastructure.
10 Shifting Asia: Smart cities – March 2019Chapter 2
The need for smart
cities in Asia
Carl Berrisford, Analyst
“Urbanism works when it creates a journey
as desirable as the destination”
Paul Goldberger
Pulitzer Prize-winning architectural critic
Mumbai, India. Photo by Martin Ruetschi Singapore. Photo by Chuttersnap
Shifting Asia: Smart cities – March 2019 11Chapter 2 – The need for smart cities in Asia
Tokyo, Japan. Photo by Florian Löbermann Hong Kong. Photo by Claudia Link
The proportion of people living in cities across the conservation and concern over the environment
world will rise from 50% now to three quarters by and climate change.
2050, according to the United Nations. An esti-
mated 2.7bn people in developing economies will Asian urbanization’s “late-mover advantage”
move into cities over the next three decades, with should provide plenty of room for investment in
most of this shift taking place in emerging Asia. smart city technologies, in our view, from smart
Asian infrastructure investment needed to stay energy to smart mobility to smart healthcare. In
abreast of urban growth will result in a spending Asia, scalability for these technologies is real due
gap of USD 2.2 trillion per year until 2025, ac- to the proliferation of large sized and densely in-
cording to the UN. By 2025, emerging Asia is ex- habited urban spaces that have often grown hap-
pected to account for 50% of global infrastruc- hazardly. They face an array of basic infrastructure
ture spending. and environmental challenges that we anticipate
will be increasingly addressed through the applica-
This mass migration into cities in Asia is occurring tion of rapidly maturing smart city technologies.
against the backdrop of the so-called “fourth in-
dustrial revolution,” a period of rapid technologi- Asia’s cities are characterized by their large popu-
cal innovation driven by digitalization which im- lation and high population density. So it’s not sur-
pacts and shapes the lives of all urban inhabitants. prising that 16 of the world’s 28 megacities (cities
It is also happening at a time of rising resource with population exceeding 10m) are in Asia. The
Fig. 1
The number of people living in cities with populations over 10m will double in Asia
from 2010–2030
In millions
600
500
400
300
200
100
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Africa Asia Latin America and the Caribbean Europe North America
Source: UNPD, 2018
12 Shifting Asia: Smart cities – March 2019Chapter 2 – The need for smart cities in Asia
Mumbai, India. Photo by Martin Ruetschi Jakarta, Indonesia. Getty images
United Nations forecasts that the urban population The rise in private vehicle ownership in Asia, which
of Asia’s megacities will double by 2030 from roughly doubles every five years in Asian cities, is a
2010. Similarly, eight of the world’s largest cities major cause of CO2 emissions, deteriorating air
with highest population density are located in quality, noise pollution, and grid-locked traffic in
Asia. Rapid urban growth translates to rising in- many of Asia’s leading cities. Asia is forecast to ac-
come growth and lifestyle changes, which are count for one third of global transport-related
stretching the infrastructure and resources of cit- CO2 emissions by 2030, almost double the 17%
ies, particularly in emerging Asia. level in 1990 (source: Emissions Database for
Global Atmospheric Research). China, which has
The benefits and efficiency gains of smart city solu- relatively low per capita car penetration, is ex-
tions in Asia’s populous, chaotic and fast growing pected to see an increase of 220m cars between
cities should drive sustainable demand growth for 2010 and 2025, based on our forecasts. This is a
smart technologies. In the same way that smart- key reason the Chinese government has taken the
phones have become indispensable to Asian con- initiative with “smart mobility” and an early migra-
sumers, we believe investing in smart city technolo- tion to electric vehicles. Smart operation sensors to
gies will become an increasing necessity for Asian regulate traffic flows and traffic lights and other
governments and municipal authorities to raise pro- solutions to address traffic congestion are already
ductivity and spur economic growth. in use in many Chinese cities.
Asia’s rapid urban growth is a key reason why a big
jump is expected in the waste produced by world
cities – to 2.2bn tons a year by 2025 from 1.3bn
Fig. 2
tons a year currently. In China, 70% of the waste is
Comparative growth of per capita CO2 emissions disposed in landfills occupying 500 square meters
CAGR (1995–2015), in% of land and generating annual costs of CNY 30bn
200 (source: Deloitte, 2018). Smart waste management,
150
the application of Internet of Things (IoT) for waste
collection and for tracking garbage segregation, as
100 well as IoT-enabled transportation to manage the
50 carbon footprint can go a long way towards im-
proving efficiencies and reducing the impact on the
0
environment.
–50
Thailand
Taiwan
South Korea
UK
EU
US
Germany
China
India
Indonesia
High population density in most of Asia’s major
cities has led to high-rise living due to a shortage
of space and high land costs. According to the In-
Source: Emissions Database for Global Atmospheric Research, European Commission, 2017 ternational Energy Agency, buildings consume
Shifting Asia: Smart cities – March 2019 13Chapter 2 – The need for smart cities in Asia
Tokyo Japan. Photo by Sven Hagolani Mumbai, India. Photo by Martin Ruetschi
40% of energy in most countries, but in Asian city out of 5G networks in at least four Asia-Pacific
states like Hong Kong and Singapore, buildings countries by 2020 will become a powerful catalyst
consume up to 90% of the national electricity. In for Asian smart city development. We expect select
such cities, resource conservation can be consider- Asian cities with 5G networks to leverage sensor
ably increased by applying smart building automa- networks and big data to identify and rapidly re-
tion to lighting and thermal regulations, as well as spond to challenges in the urban environment.
changing the behavior of residents through the China’s push in robotics and AI will also establish a
use of smart electricity meters which feed back to regional base for automation and big data to
the smart grid. smart city concepts. Furthermore, China’s infra-
structure drive across emerging Asia, via the Belt
Increasingly, many of these smart technologies re- and Road Initiative (BRI), offers channels to transfer
volving around automation, sensors and big data smart city technology to less developed neighbor-
will be applied to power supply, water and waste, ing countries where it is investing in power, rail in-
healthcare services, affordable housing, rail infra- frastructure, residential real estate and data cen-
structure and public transport systems across Asia. ters.
With China and India topping the global tables
with the most cities with >1m population at 102 Several developed Asian countries, like Singapore,
and 46 respectively, the potential for scalability Hong Kong and Japan, and Australia have been
from replicating and rolling out smart city concepts significantly ahead of the curve, piloting many
is considerable in these two countries. Asian smart city concepts over the last twenty
years. They offer blueprints for emerging Asia cit-
High internet penetration across Asia and the roll- ies, particularly those with shared socio-demo-
Fig. 3 graphic features like rapidly ageing populations.
The efficiency of city-state governments like Singa-
Asia’s 5G penetration expected to reach mid-single
pore and Hong Kong often facilitates the rapid
digits by 2022
19.0% adoption and execution of smart city technologies.
Indeed, rapid progress with smart city solutions in
11.8% the cities of Asia’s two most populous countries,
China and India, can be attributed to the fact that
6.3%
smart city frameworks, guidelines and funding are
0.1% 0.2% 0.5% 0.9% 1.2% often made at the national government level and
implemented locally.
Africa Central, Middel Eastern Latin Oceania, Western North
Southern East Europe America South Europe America
Asia Eastern
Asia
Source: Ovum, Bloomberg intelligence, UBS, as of Feb 2019
14 Shifting Asia: Smart cities – March 2019Chapter 3
How big is
the smart city
opportunity
in Asia?
Sundeep Gantori, Analyst
CCTV Tower Beijing China. Photo by Martin Ruetschi
In this section, we cover the addressable market for Asian
smart cities and the investment implications.
Addressable market
We believe smart cities will be at the center of Asia’s fourth Fig. 4
industrial revolution, adding trillions of dollars of economic Smart city addressable market in 2025*
value over the next decade through the revenue generated In USD bn.
from the six building blocks. According to Frost & Sullivan 2,500
and Bloomberg Intelligence, the global addressable market
2,000
for smart city projects should grow from USD 900bn in
2016 to USD 2trn in 2025 and the addressable market for 1,500
China’s smart city projects should reach USD 320bn by
1,000
2025. We estimate Asia accounts for 40% of the address-
able market, so based on these forecasts, the region’s 500
smart city market could reach USD 800bn in 2025. 0
By segment, we expect smart services to lead Asia’s ad- Global Asia China
dressable market by 2025, followed by smart governance, Source: Frost & Sullivan, Bloomberg Intelligence, UBS estimates,
as of February 2019. *Forecast
smart healthcare, smart connectivity, smart automation and
smart mobility in that order (see Fig. 5).
Fig. 5
Investment implications
Given the huge revenue potential for Asia by 2025 (USD Smart city addressable market by segment
800bn), investors can participate in this growth trend in 2025*
through various avenues. In particular, we believe compa- Smart mobility
nies exposed to faster-growth segments like fintech, 5G, 9%
Smart automation
smart mobility (which includes electric vehicles and autono- 10% Smart services
30%
mous driving) and healthtech are in a sweet spot given the
confluence of strong demand and regulatory support. We Smart connectivity 13%
believe a combination of both Asian corporations with
strong exposure to the above trends and global leaders
with strong technology leadership should benefit from the 15% 23%
Smart healthcare Smart governance
robust growth opportunities to come in Asia’s smart cities.
Conversely, those engaged in antiquated urban operating Source: Frost & Sullivan, Bloomberg Intelligence, UBS estimates, as of
systems are at risk of becoming outdated. February 2019. *Forecast
Shifting Asia: Smart cities – March 2019 15Chapter 4
Regional deep dive
In this section, we cover key countries
in the region that are leading Asia’s
smart city journey.
China
India
ASEAN
Sydney, Australia. Photo by Jayden So
Singapore
Beijing, China. Photo by Martin Ruetschi
Hong Kong
Australia
Japan
Hong Kong Singapore. Photo by Chuttersnap
Mumbai, India. Photo by Martin Ruetschi
16 Shifting Asia: Smart cities – March 2019Hong Kong. Photo by Claudia Link
Singapore. Photo by C. J. Wadhwa Tokyo, Japan/ Photo by Tanaphong Toochinda
Khwaeng Suriya Wong, Thailand.
Photo by Flowdzine Creativity Guangzhou Shi, China. Photo by Holger link
Shifting Asia: Smart cities – March 2019 17Beijing, China. Photo by Martin Ruetschi
China – tech China aspires to become a global leader in strategic industries
titans lead the like 5G, autonomous vehicles and IoT, so the government
strongly incentivizes the development of smart cities through
homegrown technology. China exemplifies the Asian govern-
smart city drive ment-driven smart city model, which lays down frameworks,
guidelines and funding. China invested CNY 500bn in its na-
tional smart city program during the 12th Five-Year Plan pe-
riod (2011–2015), leading to the launch of over 90 pilot
Elaine Zhou, Analyst smart cities. By 2017, there were 500 smart cities at various
stages of development with an estimated market size of CNY
650bn.
The key technologies being employed in China’s smart cities
include the IoT, Big Data, cloud computing and other smart
systems. The unique part of China’s smart city model is its
“Ultimately everything in cities will drive to leverage and encourage domestic innovation by
working closely with Chinese technological leaders Alibaba,
depend on computing power, in the Tencent and Baidu. The technologies developed by these
same way they depend on electricity” companies are primarily being applied to e-government,
smart transportation and smart living, all of which cover a
Wang Jian, Former Chief Technology Officer of Alibaba
broad array of smart concepts.
18 Shifting Asia: Smart cities – March 2019China – tech titans lead the smart city drive
Photo by Claudio Bader
China’s technology leaders drive smart city China advances in autonomous driving
innovation Autonomous driving has already taken off in China,
According to Alibaba, building a smart city has to with companies leveraging online mapping capabil-
look beyond technology hardware. For example, ities and cloud technology integrated with artificial
electric vehicles cannot operate effectively in a city intelligence (AI). The first step towards mobile au-
without the necessary charging infrastructure. As a tonomy has been the development of intelligent
result, the company is using real time and large- screen monitors on car windscreens to aid naviga-
scale video analysis and artificial intelligence (AI) to tion. A major initiative is also underway in Xiongan
integrate industries and enhance government and New Area of Hebei province to employ Big Data,
service models. This method is being rolled out to video monitors and AI to free up traffic congestion
first-tier cities across China. through an intelligent traffic management system.
The next step will be to introduce self-driving pri-
In Hangzhou, for example, the management of vate vehicles in the city. In the longer term, plans
utilities like transportation, power supply and water are afoot to operate 100 self-driving buses in Bei-
supply has been digitized since 2016. The results jing and Shenzhen.
are telling: the digital operation of 128 traffic lights
reduced road crossing times by 15% and saved
highway driving time by an average 4.6 minutes
per trip. In the Xiaoshan area, the time taken by
ambulances to reach accident sites has halved
(Source: Citi Research, 2019). Fig. 6
Number of smart cities in China
500
386
255 286
99 154
2011 2012 2013 2014 2015 2016
Source: Zhihuichengshi, Deloitte, Citi Research, as of November 2018
Shifting Asia: Smart cities – March 2019 19China – tech titans lead the smart city drive
Fig. 7
China‘s smartest cities and their strengths
City Theme Details
Big data and Widespread broadband facilities and smart IT-based
Beijing
smart economy applications promote development of IT and IoT
Tianjin Smart living E-government, accessible IT and hardware construction
IT and smart Information infrastructure and cybersecurity, real-time
Shanghai
infrastructure collection of public transport data
Cloud computing, Big Data industry, IoT, internet finance, smart logis-
Hangzhou IoT and big data
tics and digital content industries
IoT is applicable in a range of municipal projects to
Nanjing IoT platform
promote government datacenter and resident cards
Wuhan Smart living Efficient transmission of and intelligent response to city info
IT and smart Citywide sensor infrastructure, public info platform and strong net-
Chongqing
infrastructure work coverage
Smart
Chengdu Partnerships with Didi and Microsoft for cloud and IoT technology
transportation
Link up different sectors including transportation, logistics and com-
Shenzhen IoT platform
munity life
The smart transportation sensor platform covers core districts, primary
Smart
Guangzhou and secondary trunk roads, and city entrances and exits to achieve
transportation
real-time monitoring and control of passenger traffic volume and flow
Source: Zhihuichengshi, Deloitte, Citi Research, 2018
Smart governance: digitalizing governmental Smart payments: cashless society
services and networking China is the world’s biggest cashless marketplace.
The prevalence of mobile messaging in China estab- Citizens can pay for almost anything, anywhere,
lishes a ready platform to offer governments, enter- from convenience stores and shopping malls to fine
prises and citizens payment and location services. dining, by scanning QR codes. Mobile payments are
Again, AI will be central to managing the connec- even the norm to pay for items from small vendors
tion between devices and different services. Smart like vegetable stalls and street food. The mobile pay-
city networks currently cover over 150 cities in ment market is dominated by two apps – Tencent’s
China and are used for policing and road traffic WeChat Pay and Alibaba’s AliPay – with hundreds
management as well as in retail, healthcare and ed- of millions of active monthly users. Two years ago,
ucation services. In southern China, particularly bank cards ranked as the most preferred payment
Shenzhen, the telecom sector has been especially system in China, according to the Hurun Report. But
active with digital service providers to support the last year Alipay, followed by WeChat Pay, topped
creation of digital governments, e-government basic the list, reflecting the rise of mobile payments in
infrastructure and various data solutions including China. (For a more detailed discussion of the rise of
data integration and security systems. cashless payments in Asia, please refer to the “Shift-
ing Asia: The Road to Cashless Societies”). China is
seen as the first nation to move towards a com-
pletely cashless, or cardless society, significantly low-
ering risks from robbery and counterfeit money.
20 Shifting Asia: Smart cities – March 2019China – tech titans lead the smart city drive
Huangpu Qu, China. Photo by Jing Xiu Beijing, China. Photo by Martin Ruetschi
Smart retail: the rise of e-commerce and ior and logistics, positioning for better penetra-
smart logistics tion and future growth. While competition has
While China’s e-commerce sector has experi- intensified among leading players, we expect the
enced unprecedented growth over the last de- rivalry to help advance e-commerce and smart
cade, the penetration of e-commerce within Chi- retailing in China.
na’s retail industry is only around 20%, leaving
huge room for on-line players to expand. The in- Alongside the fast expansion of e-commerce,
tegration of e-commerce and offline retail re- China’s logistics industry is growing rapidly – daily
mains an ongoing trend for online players; for package volume surged from 38m in 2014 to
example, by creating platforms for offline mer- 110m in 2017. Accordingly, a logistics leader has
chants and brands to operate online. Doing so seen its volumes triple in the past three years to
could help merchants better anticipate future de- 70m packages a day, versus 36–37m for the US
mand, manage logistics and build up supply. The leader. Logistics costs are currently 14.6% of Chi-
wealth of retail and customer data captured by na’s GDP, with the industry targeting to reduce
e-commerce players through increased transac- this to 5% through the use of smart solutions.
tions allows better control over consumer behav-
Shifting Asia: Smart cities – March 2019 21China – tech titans lead the smart city drive
Smart Internet: 5G network roll-out
China is racing ahead of the world with its 5G roll out. The
next generation of wireless technology promises much faster
speeds while using less power, making it a top priority for
Beijing. Unlike previous generations of mobile technology,
which tended to introduce a single novel feature for users –
i.e. 1G allowing users to walk and talk, 2G to text, 3G to surf
the internet, and 4G to stream and watch videos – 5G will
simply deliver more comprehensive and dramatic improve-
ments to existing features. By employing new wireless infra-
structure, which promises speeds up to 100 times faster than
4G, it should virtually eliminate processing delays. It will also
help to fire up the IoT industry, facilitating the connectivity
between billions of machines, appliances and sensors, taking
smart cities and smart living to the next level.
5G’s central role for development of smart cities is a key rea-
son the Chinese government has been so relentless in its pur-
suit. In its 13th Five-Year Plan, the government describes 5G
as a “strategic emerging industry” and “new area of
growth,” while Made in China 2025 outlines China’s goal to
become a global leader in 5G as a major step forward in the
development of smart cities. China Mobile and China Tele-
com have already established 5G test networks in several cit-
ies. Local authorities have encouraged developers to create Photo by Tadej Pibernik
5G-based applications for telemedicine and urban infrastruc-
ture. Leading players, such as Huawei, have achieved ad-
vanced 5G technologies and innovation that are at least 12
months ahead of global competitors.
Smart cloud computing
China’s smart cloud computing market is characterized by a
duopoly that controls just over half of the total market. Con-
solidation continues in this market with small players gradu-
ally being squeezed. Market leaders will continue to lead
technology improvement in the coming years through the
upgrade of cloud services, which will fully integrate machine
learning, algorithms, database and technical infrastructure
platform. These new cloud services will largely target medical,
transport, education, energy and manufacturing, to raise effi-
ciencies via digitalization, enhancing both corporate produc-
tivity and profitability.
22 Shifting Asia: Smart cities – March 2019Hyderabad, India. Photo by Arihant Daga
India – smart In 2011, according to census data, cities accounted for 31%
leapfrogging of India’s population and contributed 63% to its GDP. By
2030, the government expects cities to account for 40% of
the population and 75% of GDP. Such a huge transition will
require an enormous expansion of physical, institutional, so-
Sundeep Gantori, Analyst cial and economic infrastructure, making the development of
smart cities an integral part of the country’s future. While
most emerging markets are investing in smart cities, India’s
diverse cultural and geographical background is making its
smart city journey a unique one. On the positive side, India
has the benefit of a healthy demographic dividend (i.e. it has
a youthful population) when compared to advanced econo-
mies. And such favorable demographics should ultimately
yield vast opportunities for the country through increases in
productivity and GDP per capita over the long term. But this
also means increased pressure on current urban centers as to
“Digital India is an enterprise for India’s how they can accommodate a rapidly growing population in
terms of employment, housing and other basic infrastructure.
transformation on a scale that is, per-
haps, unmatched in human history” The push for smart cities also means sizeable investment
sums to rejuvenate existing cities or to develop new projects
Narendra Modi
– a costly but much-needed makeover. Due to poor urban
Prime Minister of India
planning and decades-old infrastructure, India’s big cities lack
basic amenities like sanitation, clean water, proper public
transportation networks, etc. For example, cities like Bengal-
uru and Hyderabad, which are dubbed the Silicon Valley of
India, have evolved into megacities because of technological
advances and digitalization, but they remain far behind the
developing world’s standards for living and infrastructure.
Shifting Asia: Smart cities – March 2019 23India – smart leapfrogging
Mumbai, India. Photo by Martin Ruetschi
extensively engaged with their citizens and tried to
To be part of the new-age class of cities, India has get real-time feedback through surveys. They have
no other option but to leapfrog ahead to invest in involved their citizens from the beginning so that
smart cities and to make them future proof. This they can maintain bilateral communication, which
means incorporating smart technologies on par will be needed for support during the later stages
with some of the most developed cites in the when the tasks are nearing completion.
world. To solve its urban challenges, the Indian
government (under the Ministry of Urban Develop- As part of the Mission, 100 cities were nominated
ment) announced a grand project called “Smart to take part in the initiative. The cities had to first
Cities Mission” in 2015. This initiative seeks to compete with other cities in their states, which do
identify, assist and develop 100 Indian smart cities the nominating, to be selected. The shortlisted cities
through retrofitting, redevelopment and greenfield receive capital injections of INR 2bn per year, split
development. The core structure of the Smart Cit- 50:50 by the central and state governments. The
ies Mission mainly revolves around e-governance
and citizen services, efficient urban mobility and Fig. 8
transportation, sustainable living and affordable
housing, smart water and utility management, IT
Snapshot of India‘s Smart Cities Mission
connectivity and digitalization, sanitation and solid Round 1 Round 2 Round 3 Round 4 Round 5
waste management, smart classrooms, video crime Number of
20 40 30 10 10
monitoring, and more. selected cities
Period of May to
selection Jan 16 Jun 17 Jan 18
The list is expansive, so every city identifies one or Sep 16
two pan-city issues that it would like to address as Total number
829 1,959 1,891 472 5,151
a priority. For example, in 2016, during the first of projects
phase where 20 cities were selected and labelled Investment
48,064 83,698 57,393 15,863 205,018
(INR crores)
as “lighthouse cities,” the top three core issues
Average SCP
identified were centralized command and control size 2,403 2,092 1,931 1,586 2,050
centers by 13 cities, smart parking systems by 11 (INR crores)
cities, and traffic operations and management sys- Note : Shillong selected as 100th smart city in June 2018; 1 crore = 10 million
tems by 10 cities. The cities that got selected had Source: Ministry of Housing and Urban Affairs, India, UBS, as of December 2018
24 Shifting Asia: Smart cities – March 2019India – smart leapfrogging
Bhopal, India. Photo by Rohit Tandon Old Delhi, New Delhi, India. Photo by Annie Spratt
initial capital grant is given to a Special Purpose Ve- idea is also to think about development holistically.
hicle (SPV), which is headed by full-time smart city Each city, under the expert guidance of the SPV
CEO. To raise additional capital, the SPV can source CEO, comes up with projects that aim to improve
funds through public-private partnerships, joint ven- living conditions or address core issues like sanita-
tures, issuance of municipal bonds, land monetiza- tion, congested traffic conditions, recreational ar-
tion and other areas like user charges. eas and solid waste management. For example,
Bhopal, a city in central India, sought to retrofit its
The main motto of the Smart Cities Mission is “in- city through integrated area developments, inte-
fusing technology” to build smart cities, but the grated traffic management systems, smart road
Fig. 9
India’s smart city projects by key sectors
INR crores
Solid waste management
Social sectors
Strom water drainage
Environment
Complete streets
Waste water / Sewerage
Water supply
Affordable housing
Energy
IT connectivity / ICT solutions
Economic development
Urban mobility
Area development
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Note: 1 crore = 10 million
Source: Ministry of Housing and Urban Affairs, India, UBS, as of December 2018
Shifting Asia: Smart cities – March 2019 25India – smart leapfrogging
Chennai, India. Photo by Prashanth Pinha Surat, India. Photo by M Nagarajan
lanes with spaces for cycles and pedestrians, a bio- date the urban poor with proper alternatives and
methanization power plant, and apps for citizen to evict them without any coercion. Financing
services and e-governance. smart cities is another challenge – governments
traditionally provide aid grants for such huge infra-
While it’s early days, India’s unique smart city plan structure projects, but for the Smart Cities Mission,
has made decent traction so far. The initiative, be- it’s the SPV’s responsibility to raise funds. While big
ing the first of kind in India, initially failed to attract cities with strong income sources can more easily
private players, but more cities are forging public- implement these projects, small cities and green-
private partnerships to accelerate the pace of proj- field projects may find it more difficult to secure in-
ect implementation. The government has also vestment. Finally, like in any country, coordination
started to rank the smart cities under an Ease of among various government departments and citi-
Living Index, using certain minimum standards for zen participation remains a challenge in India.
cities to compare and evaluate their progress. Un-
der the program, India’s Ministry of Housing and Nevertheless, we believe smart cities can transform
Urban Affairs has developed a set of Ease of Living India and its urbanization journey. The recent
Standards. A total of 78 indicators – 56 core indica- progress India has made in the digital space, such
tors and 22 supporting indicators – are covered. as increasing internet and smartphone penetration
These have been grouped under 15 thematic cate- and fintech adoption, following the 2016 demon-
gories, which in turn form the four pillars of urban etization program sets the stage for India to trans-
development: institutional, social, economic and form into a smart nation.
physical.
While India is heading in the right direction in its
smart cities vision, there are many hurdles to be
overcome. India is known for being home to some
of the biggest slums in the world, and it will be a
mammoth task for the government to accommo-
26 Shifting Asia: Smart cities – March 2019This interview contains views which originate from units outside CIO Global Wealth Management. India – smart leapfrogging
Interview
M Nagarajan
District Collector, Arvalli
M Nagarajan is an Indian Administrative Services officer and cur-
rently the District Collector of Arvalli, Gujarat, India. Until recently
he was leading the Surat Smart City Mission as CEO of the Surat
Smart City Development SPV. Under his leadership, Surat was
recognized by the Indian government for having the highest
momentum in smart city implementation. Smart transportation,
ICT, renewable energy and open data are some of his key priori-
ties. He has a Masters in Public Policy and a Masters in Econom-
ics. M Nagarajan has received an award for Innovative Use of
Technology in Elections by the Election Commission of India.
1. How unique is India’s Smart Cities Mission set the minimum standards for being a smart city.
project compared to the rest of the world? On the other hand, information and communica-
tions technology (ICT) projects with a focus on city
The core mission of smart cities is to optimize the command and control centers, transportation sys-
efficiency of city operations and services and to tems, enterprise resource planning (ERP), geo-
connect to citizens. The approach world over is to graphic information systems (GIS), fiber optic and fi-
use different types of electronic data collection ber-to-home connections are topline smart features
sensors to collect information, which is used to that are now being implemented in India’s smart
manage assets and resources efficiently. cities. In Surat, out of the total smart city plan of
INR 2,597 crores (USD 365m), 700 crores (USD
The data is collected from citizens, devices and as- 98m) were earmarked for ICT.
sets and is processed and analyzed to monitor and
manage traffic and transportation systems, power Another standout feature of India’s Smart Cities
plants, water supply networks, waste manage- Mission is the clear focus on public-private partner-
ment facilities, law enforcement, information sys- ships (PPP) and improving governance by using
tems, schools, libraries, hospitals and other com- technology. The choice is given to the city to choose
munity services. priority themes and projects as per the city’s future
vision and citizen feedback. The unique feature is
Urban India is faced with the task of building basic this bottom-up approach to planning.
infrastructure and services and becoming a smart
city at the same time. The former is the bottom 2. How is India leveraging various digital
line for urban governance, and smart cities are the technologies for its smart city projects?
topline part of it. India’s smart cities mission tries
to balance both requirements. The first step of digitalization under India’s smart
cities is the creation of an integrated command
Projects like retrofitting existing areas to improve and control center to streamline operations, which
roads and signage, create cycle tracks, utility duct- oversees integrated transport management sys-
ing and developing roads up to national and inter- tems (ITMS), integrated traffic control systems
national standards with an emphasis on walkability (ITCS), ERP and GIS systems.
Shifting Asia: Smart cities – March 2019 27India – smart leapfrogging This interview contains views which originate from units outside CIO Global Wealth Management.
Smart streetlights with centralized control and 4. Where do you think are the biggest
monitoring systems (CCMS) have led to efficient challenges?
energy use and maintenance. Smart parking and
intelligent parking systems and management are The biggest challenge is meeting the vision of the
also helping cities to manage traffic better and Smart Cities Mission within the proposed tight
plug leakage of revenue. Use of GPS tracking for deadlines. Also, the modeling of PPP projects to en-
emergency and non-emergency vehicles and the sure market interest and sustainability is a major
integration with the command and control center challenge for cities. For most cities, a PPP project of
provide valuable tools and information for city this scale would be a first experience.
managers to respond and coordinate day-to-day
activities and to manage incidents effectively. The long gestation and the tenure of the projects,
typically 15 to 20 years, make the market players
Various operational points like water heads, pump- jittery about predictions. For example, the citywide
ing stations for water and sewage, and distribution fiber optic and fiber-to-home projects have not
networks are also monitored, while smart water elicited market responses due to risks in data us-
meters for water supply are also being imple- age in a city-based network. Also, the rollout of
mented. Laying out citywide fiber-optic networks 4G and 5G increases the risk of market obsoles-
for city operations and public wifi using smart poles cence. Hence, the bids are too high or none at all.
are other examples.
Building cyber-security thinking and standards in
All such systems are seamlessly integrated into the the entire approach to smart cities is important;
command and control center, which provides a neglecting to do so could create an inherent risk in
convergence of emergency, non-emergency ser- India’s Smart Cities Mission.
vices, transport and civic operations in one nerve
center for the city. Surat is building one such cen- 5. Financing smart city projects has always
ter, which will be inaugurated shortly. been a point of contention globally. How are
you able to address those challenges?
3. What have been some low-hanging fruit in
terms of smart city implementation, and what Recently Pune, Ahmedabad and others have gone
are the key focus areas for the next few the route of issuing bonds and have had an enthu-
years. siastic response from the market. This is only going
to improve. Other cities are working on increasing
The integrated command and control center and compliance and ratings to get ready to go to mar-
retrofitting projects in area-based developments ket.
offer quick wins in terms of value and citizen satis-
faction. Smart parking and intelligent traffic man- PPP models come in all flavors based on local re-
agement systems promise immediate gains and quirements and business potential. Highways have
impact on services. Others include the Surat city’s been a major avenue of PPP projects in India. But
live bus schedules, which are integrated with with smart cities, the market players are working
Google services, allowing citizens to plan their on creating sustainable projects. Value-capture fi-
journey with their smartphones. Further, ERP and nancing is being explored in a big way for financ-
GIS systems improve overall city operations and re- ing smart cities.
duce costs.
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