More Than Technology

By Zhang Shasha

An exemplar of infrastructure for its progress in engineering railways， roads and airports， China has turned its attention to a new field of developmental expertise.

New infrastructure was first proposed at the Central Economic Work Conference in 2018. The concept has gained further traction in 2020.

A meeting of senior Communist Party of China leaders on March 4 emphasized that the country is to accelerate the construction of new infrastructure such as 5G networks and data centers. New infrastructure was divided into seven categories， namely 5G networks， extra-high voltage power grids， inter-city rail transit， newenergy vehicle charging stations， big data centers， artificial intelligence （AI） and the industrial Internet.

Since its commercial deployment in 2019， 5G has been the centerpiece of Chinas new infrastructure. It now has a higher purpose： to offset the economic impact of the novel coronavirus （COVID-19） outbreak and cultivate new growth drivers.

“With the impact of the pandemic， the growth rate of Chinas troika—investment， consumption and exports—slowed in the first quarter. Despite some recovery in the domestic supply chain， there is still a long way to go to shore up consumption. With these external uncertainties， it is essential to give play to investment to stabilize growth and achieve the yearly target of social and economic development，” Xu Hongcai， Deputy Director of the Economic Policy Commission， China Association of Policy Science， told Beijing Review.

Xu said the utility and returns on traditional infrastructure have diminished. New infrastructure， based on technological innovation， can not only create employment and stimulate growth in the short term， but promote structural transformation and upgrading， and advance healthy economic development in the medium and long term.

Boom period

To implement the new mission， the central and local governments have been promoting the development of 5G， from top-level policy to plans on the ground.

A total of 25 provincial-level regions have added new infrastructure projects to their government work reports so far， with 21 intending to advance the construction of 5G networks， according to Securities Daily.

Subsidies， resources support and industrial funds are being offered by local governments to support 5G development. Tianjin， a municipality near Beijing， provides a subsidy of 20，000 yuan （$2，822） per base station. Another four regional governments have also put forward financial support for 5G enterprises， ranging from 500，000 yuan（$70，546） to 5 million yuan （$705，457）.

Operators have also beefed up their efforts to increase 5G investment. According to their financial reports， China Mobile， China Unicom and China Telecom， together with China Tower， will invest 197.3 billion yuan（$27.8 billion） in 5G facility construction， and are expected to build more than 550，000 5G base stations in 2020.

5G investment has entered a boom period. While investment in 5G construction occupied about 14 percent of these companies total investment in 2019， it will account for more than 50 percent in 2020.

“The year 2020 is a crucial year for 5G network construction，” Guan He， an engineer with the China Academy of Information and Communications Technology（CAICT）， wrote in an article published on March 26.

Guan said while the outbreak of COVID-19 has affected this construction， it has also accelerated the implementation of 5G applications， including in medical care. The country attaches greater importance to new infrastructure including 5G this year， which will improve quality and efficiency and promote industrial transformation.

However， new infrastructure investment accounts for only 16 percent of total fixed assets investment， compared to more than 70 percent for investment in traditional infrastructure， according to Zhongtai Securities， a security brokerage.

Despite its current small scale， analysts are convinced of its future value in the new economy.

“This （new infrastructure） doesnt only include infrastructure， but also new emerging industries that connect massive investments and demand in a constantly improving consumer market. It is the new engine for growth in the Chinese economy，” Ren Zeping， chief economist for the Guangzhou-based Evergrande Group， wrote in a report on March 6， adding that 5G could potentially lead to a multitrillion dollar new economy.

An eye on the future

According to Zhongtai Securities， 5G is at the core of new infrastructure and will become the direct and indirect impetus for GDP growth in the following decade. Not only will 5G drive the transformation of the industrial chain， it will also power the prosperity of the digital economy.

“5G features a long industrial chain as a representative of hi-tech. Its high capacity and high requirements will lead to a revolution of the industrial chain， such as the emergence of new 5G mobile phones and network construction. Besides， new application scenarios in the mobile Internet and radio communication industry will be generated. Fundamental parts and materials will see new growth. The economy will usher in a new phase of development，”Wang Zhiqin， deputy head of the CAICT， said on March 23.

According to the CAICT， Chinas total investment in 5G network construction will hit 1.2 trillion yuan （$169.3 billion） by 2025， which will trigger more than 3.5 trillion yuan （$493.8 billion） of investment across the industrial chain and in relevant industrial applications.

“Currently， the output of the digital economy accounts for 30 percent of GDP，”Xu said， stating that the digital economy has become a new growth driver for economic development and employment.

According to Xu， digital infrastructure， infrastructure based on 5G base stations， big data， AI and the industrial Internet， helps to tap the potential of the digital economy and contributes to the transformation and upgrading of traditional industries.

In recent years， the integration of traditional industries and digital technologies has accelerated. In 2019， industrial digitalization accounted for 80 percent of the digital economy and data-driven technologies became a new feature of and advantage for traditional industry upgrades.

“5G will play a decisive role as the fundamental layer of new infrastructure ，” Xu said.

According to the CAICT， the commercial use of 5G will generate 10.6 trillion yuan （$1.5 trillion） in economic output， create 3 million jobs and produce 24.8 trillion yuan （$3.5 trillion） of indirect output. By 2023， 6 percent of Chinas GDP will be attributable to 5G-related industries， Li Jing， Vice President for the Asia-Pacific region of JPMorgan， told Economic Information Daily.

Multiple market players

Traditional infrastructure， due to large-scale investment and a large circle of capital return， is primarily supported by the national budget and state-owned sectors.

“New infrastructure differs greatly from traditional infrastructure in that it depends mainly on local government investment，”said Li Jianjun， chief researcher with Ckkcn.com， a Shenzhen-based business think tank. “It lays particular stress on informatization and innovation， and its projects are hi-tech， indicating that market entities， especially technology companies， will take an active role.”

Li Jianjun said it is not realistic to rely solely on financial support from local governments， which may result in unnecessary debt. New infrastructure should instead find innovative ways of financing. This means that banks， trust institutions， insurance companies and direct financing channels such as the science and technology innovation board should also look to innovate their offerings. Banks， for example， may consider options such as intellectual property right mortgage products.

Li Jianjun also emphasized increasing market access for private capital， saying that governments should optimize the business environment and reduce the costs of par- ticipating in new infrastructure construction.

“It is important for local governments to identify their function in the construction of digital infrastructure，” Xu said. “While the market should play a decisive role， the government should be neither offside nor absent.”

Local governments should properly allocate resources and avoid repetitive construction， he said. China currently has several digital economy behemoths， including the Hangzhou-based Alibaba and Shenzhenbased Huawei and Tencent. They stand out in fierce market competition and have taken the lead in improving the ecosystem of the digital economy. Local governments need to promote existing output and improve digitalization standards across China.

Xu also suggested improving legislation on allowing foreign capital to invest in new infrastructure construction and encouraging domestic enterprises to participate in global competition for premium development.