In Depth: How the Wheels Could Fall Off China’s Road Connectivity Plan

By Liu Peilin, Qin Min and Ding Yi

China is betting big on a future where your car can talk to the road.

The central government is splashing cash on “smart roads” that would link cars, road infrastructure, and offsite control through the “cloud,” as part of a broader rollout of self-driving cars.

The plan is part of Beijing’s ongoing efforts to boost sagging investment activity. But with an estimated more than half-a-trillion yuan in funding from central and local governments this year alone, questions are swirling about how to get the private sector to buy in.

In July, the Ministry of Industry and Information Technology (MIIT) announced vehicle-road-cloud pilots in 20 cities, including Beijing, Shanghai and Guangzhou. The current goal is to build a unified and shared standard framework for vehicle-road-cloud integration by 2026.

Vehicle-road-cloud integration refers to a centralized system that connects self-driving cars with surrounding devices like cameras and traffic lights and gathers data on road conditions. Such a system is similar to what is known in the industry as “vehicle-to-everything,” or V2X, technology.

The pilot program demonstrates Beijing’s ambition to expand its previous small-scale pilots of smart transport, self-driving and internet-of-vehicles technology beyond demonstration zones, according to Lü Bin, vice president of Mogo.ai Information and Technology Co. Ltd., a Tencent-backed tech startup in Beijing that develops self-driving systems. Lü says the amount of government investment in the area has exceeded market expectations.

Driven by the policy boost, China’s central and local governments could end up investing more than 600 billion yuan ($84.3 billion) in vehicle-road-cloud integration by the end of this year, and efforts are underway to expand the pilot to 50 cities by 2026, with participation from more than 20 carmakers, according to an industry estimate.

That may be a lot of money, but smart road retrofits burn cash. Adding smart infrastructure to a single intersection can cost more than 1 million yuan, an industry source told Caixin.

Amid the mostly government-led investment spree, concerns are emerging over whether the government can fund the development of the big-ticket project all alone, whose sustainability and feasibility are still in question due to a lack of funding channels, application scenarios and technical support.

A costly endeavor

As of the end of May, China had established 17 national-level demonstration zones for self-driving car testing and seven pilot zones for the internet of vehicles, with test roads tallying more than 32,000 kilometers (19,884 miles). Meanwhile, 16 pilot cities had been selected for the coordinated development of smart city infrastructure and intelligent connected vehicles, according to data provided by Miao Changxing, a senior inspector at the MIIT, during the 11th International Congress of Intelligent and Connected Vehicles Technology in June.

But the relatively limited deployment is not in line with the government’s goal of achieving large-scale application of smart connected vehicles. That’s one reason why the MIIT launched the vehicle-road-cloud integration pilot program, offering another potential path to commercialize self-driving technology.

While the government is pushing ahead vigorously, some industry experts are worried about the sustainability of large funding, citing that many cash-strapped local governments are only able to allocate a small portion of their fiscal budgets for such digital upgrades along roads.

One semiconductor company employee told Caixin that to save costs, some projects resorted to using consumer-grade chips, which are less reliable than industrial-grade ones. These systems are then merely powered on during official inspections, turning them into merely symbolic initiatives.

But since the MIIT, the Ministry of Public Security and the Ministry of Transport issued the Management Specifications for Road Testing and Demonstration Application of Intelligent Connected Vehicles in 2021, richer cities like Beijing and Shanghai have begun pouring massive resources into autonomous driving projects.

Beijing is at the forefront. In February 2020, even as the Covid-19 pandemic had just begun, the city’s government established an office dedicated to making policies for the operation of what it called the world’s first high-level autonomous driving demonstration zone.

In July this year, Beijing’s bureau of economy and information technology issued draft rules to set aside space for smart roadside infrastructure in future road building and renovation projects, as part of efforts to develop its own vehicle-road-cloud integration pilot project.

Information from the website of China Bidding and Purchase Network showed that Beijing has invited enterprises to bid to become suppliers for its infrastructure construction projects related to vehicle-road-cloud integration, with one project worth nearly 10 billion yuan in preliminary investment.

But most Chinese cities lack Beijing’s ability to finance big-ticket projects. One corporate employee in the space told Caixin that adding smart infrastructure to a single intersection can cost as much as 500,000 yuan, once cameras, radars and computing units are factored in. The bill rises to more than 1 million yuan when maintenance and software are added, they said.

Given strained fiscal budgets, local governments have been unable to set up dedicated funds to bankroll the development of their vehicle-road-cloud integration projects, an executive at a top self-driving company said.

He said the funding problem could be addressed by encouraging companies from the transport industry to join the projects, while promising them a return from operating the projects after their completion. Operators of cloud-based transportation network control platforms could also earn money from offering car owners subscription services, the executive said.

Exploring monetization channels

Making money from vehicle-road-cloud integration projects is a top concern for revenue-starved local governments as they try to expand the pilots to the citywide level.

One option is to sell data. Some local governments are exploring providing road condition data to users of the system. For example, Beijing’s high-level autonomous driving demonstration zone has begun providing self-driving companies like Baidu Inc. with data on traffic signal sensing and blind spot detection. It has also started providing carmakers like Audi AG with data related to red light countdown and dynamic green wave speed guidance — a type of intelligence transport system that uses real-time data to help vehicles move through intersections at a certain speed without stopping. Potential buyers of such data also include ride-haling services providers like Didi Global Inc.

Chinese Academy of Engineering smart vehicle expert Li Keqiang sees public transport as a potential commercial application scenario for vehicle-road-cloud integration. During the 4th Shenyang Intelligent Connected Vehicles Conference in August in the northeastern Chinese city of Shenyang, Li talked up smart roadside infrastructure’s potential to make public transportation more efficient. In Tianjin and Suzhou, for example, the infrastructure helped enhance the operational efficiency of local buses by 30% and cut their power consumption by 10%, according to Li.

China TransInfo Technology Co. Ltd. (002373.SZ +1.73%), which mainly develops smart transportation systems, told Caixin that vehicle-road-cloud integration technology also has the potential to be used in areas such as traffic flow control and city governance.

Regulatory and technical hurdles

While there is broad consensus that smart vehicles are the future, the Chinese government seems at odds with industry over exactly where the brain should be. Car manufacturers generally favor in-car self-driving systems as they accelerate their pivots toward smart driving to stand out in China’s highly competitive auto market.

For many automakers, vehicle-road-cloud integration is a source of concern because it increases their legal liability in the case of a crash, said a person who leads a big tech firm’s automated driving department. That’s owing to the lack of regulations over who should be liable for traffic accidents involving self-driving cars that make use of smart roads.

There are also doubts among industry experts that vehicle-road-cloud integration systems will be able to provide responses speedily enough when used in real world conditions like high-traffic intersections. Vehicle-road-cloud integration systems must have a near perfect data processing ability to accurately detect the dynamic locations of moving vehicles and then give responses in a timely manner, a communication network architect said.

At the forum in June, Li pointed out that the development of vehicle-road-cloud integration technology is still at an early stage, making it hard for the technology to play a decisive role in autonomous driving.

An Limin contributed to this story.

Contact reporter Ding Yi (yiding@caixin.com) and editor Kelsey Cheng (kelseycheng@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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