context: The concept of ‘new infrastructure’ was coined at the Central Economic Work Conference 2018. It spans the three broad categories of information infrastructure (internet of things, 5G, gigabit optical networks and data centres), integration infrastructure (integrating 5G and AI technologies in traditional systems like logistics, energy, emergency response and environmental protection), and innovation infrastructure (large scientific research equipment and National Industrial Innovation Centres).
Investment in new infrastructure plays two fundamental roles, argues Liu Jinhe 刘金贺 Dagong International analyst, including
- directly stimulating domestic demand, thus stabilising the economy, promoting employment and achieving macroeconomic goals
- just like traditional infrastructure investment was used as economic stimulus in previous economic downturns
- indirectly laying the foundation for long term innovation, industrial upgrading and international competitiveness
Liu identifies several challenges facing new infrastructure investment, including
- the combination of large up-front investments and the public goods nature
- the true value of the investments lies in social benefit spillovers, which means investors cannot exclusively enjoy the benefits of their investments
- this makes it hard to attract social capital
- but local government budgets are also strained due to the COVID pandemic and a downturn in the real estate industry
- lack of cross-departmental, cross-domain and cross-regional coordination, not just in the construction phase, but also in maintenance and operation
SOEs (state-owned enterprises) should lead investment in new infrastructure, Liu argues, highlighting that SOEs have natural advantages across
- capital
- technology
- policy access
- coordination capacity
- experience in traditional infrastructure
Compared to traditional infrastructure investment, which was almost exclusively dominated by SOEs, Liu says that new infrastructure investment requires an integrated and coordinated development of private and state-owned capital. Given tight local government budgets, he claims that social capital participation is inevitable. He further stresses that key technology is held by non-state-owned enterprises like Alibaba, Tencent and Huawei.