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"New Infrastructure”: the Chinese innovation-driven program

China has launched a new 5-year plan called “New Infrastructure” which is projected to offset the economic impact of the coronavirus pandemic and boost sustainable growth.

This post was originally posted on Medium, and can be found here.

By the end of May 2020, the Chinese government introduced the 14th five-year plan to structure developments and set goals to reach by 2025. Unlike the previous 5-year plan "Made in China 2025", which aimed to increase domestic production while exporting products worldwide, the current plan focuses on domestic restructuring. China aims to move away from being the "world's factory" (producing cheap, low-quality goods due to lower labour costs and supply chain advantages) and move to producing higher-value products and services, like aerospace and semiconductors, and to achieve independence from foreign suppliers of such products and services.

The newly introduced plan runs under the topic of “new infrastructure”. Hence, the central committee of the party and the Council of State have named key development aspects. These key sectors are: 5G, artificial intelligence, big data centers, industrial internet, intercity high-speed rail and NEV charging infrastructure. 

One particular key sector, the extension of 5G, is primarily intended to create the necessary infrastructure to enable the development of own 5G-capable computer chips and large computer farms. Main advantages of the 5G network are a better speed in the transmission of data, a lower latency and therefore greater capacity of remote execution. The deployment of 5G will drive the rapid growth of multi-type applications of AI, virtual reality, HD video and others. Key areas where these applications are used in particular are hospitals, factories, urban development and education. In the latter case, the application of 5G, AI as well as big data are facilitating the enablement of remote education, smart classrooms and strengthening the country’s learning process. Therefore China is building 600,000 5G stations by the end of 2020 and an additional 5 million until 2025. 

The key sector of big data centers emphasises the creation of a high but undisclosed number of super data and edge compounding centers that are to be built by 2025 to meet the rising domestic demand of data storage. Key companies in that context were named as Huawei, Tencent, Alibaba, Lenovo, Amazon Web Services (AWS) and Intel. The industrial Internet sector also names some of these players. Within this sector, the goal is to build three to five world class industrial internet platforms by 2025 to support the digital transformation of millions of companies.  

A further key sector of the Chinese government as part of the infrastructure extension were concepts for new charging station networks, aiming to promote the industry of new energy vehicles (NEV). In this context, German car manufacturer BMW announced a strategic partnership together with Chinese company State Grid. Both parties will contribute about 270 thousand of the approximately 500 thousand stations planned for this year. 

It is of great importance for the Chinese state to boost the economic and social development through sustainable economic growth for the launch of the 14th five year plan. For this purpose, the government agreed to allocate a total of RMB1,848 trillion ($260.47 billion) to local governments. An initial investment sum of RMB22-26 trillion is expected to be granted throughout this year. 

The plan mainly envisages the use of government funds to manage and fill job vacancies, as well as the avoidance of large government investments in single projects. This should lead to enthusiasm for investment in the social capital market and maximum promotion of investment. In this context, Tencent announced that it plans to spend $70 billion on the development of "new technological infrastructure" over the next 5 years. This will include cloud computing, artificial intelligence and cyber security. Other companies, such as Huawei, also announced measures to promote these areas under the act of “new infrastructure”.

It remains to be seen what the dimensions of implementation follow this plan. The mostly qualitative defined goals by the government are very ambitious. With their achievement, they can uplift China's industry to accelerate the state's global development. 

Due to its size in population and relatively few judicial regulations, China has a distinct advantage in collecting and processing data. These points are key elements in the development of 5G, AI and further applications in the field of technology. As these industries gain support, not least through state subsidies, developments materialize increasingly fast. Using this strategy, China could soon be able to gain lead in driving innovations in those areas. The Chinese Government also attracts foreign investors and innovators as the regulations in foreign ownership are loosened.