In the post-pandemic period, will ‘‘new infrastructure’’ investment inject vitality to China’s economy? Prof. Wang Jian, Assistant Dean (Academic) of the School of Management and Economics, The Chinese University of Hong Kong, Shenzhen and Director of Center for Macro-Financial Stability and Innovation of Shenzhen Finance Institute, expressed in an interview with Sina Finance that the ‘‘new infrastructure’’ investment will pave a way for economic development in the future. However, it is necessary to be wary of whether it may lead to a consequence of advances in state sectors and retreats in private sectors.
As the Two Sessions (the National People’s Congress and the Chinese People’s Political Consultative Conference) have kicked off in May, “new infrastructure” projects become the main talking point recently. According to the official definition made by the National Development and Reform Commission, “new infrastructure” is an infrastructure system, which is led by new development concepts, driven by technology and innovation and based on information technology. It provides services of digital transformation, intelligent upgrade, and integrated innovation. It includes information infrastructure, integrated infrastructure, and innovative infrastructure. Prof. Wang Jian expressed that “4-Trillion-Yuan Stimulus Package” released after the financial crisis in 2008 shored up the economy of traditional infrastructure significantly in a short term, but its lower investment efficiency hampered long-term economic growth. By contrast, the “new infrastructure”, with a focus on 5G networks, artificial intelligence and other key areas, drew a lesson from the previous stimulus package. It is expected to invest in industries that are beneficial for the future and the improvement of social productivity.
Some people suggest that rather than resorting to investments majorly involved with local governments and state-owned enterprises, China should seek more room for private enterprises regarding “new infrastructure” investment. Prof. Wang Jian believed that it is reasonable that the government invests in projects of public goods, such as high-speed railway infrastructure. If private enterprises are allowed to invest in this area, the progress may be very slow. The construction of the large-scale infrastructure indeed facilitates people’s travelling and brings the profitability of many routes. “However, I also understand the concerns that the ‘new infrastructure’ may only lead to advances in state sectors but cause retreats in private sectors. In the past years, investments in private enterprises were strictly reduced especially after the launch of ‘4-Trillion-Yuan Stimulus Package’. People worry about whether the same situation will be repeated in the ‘new infrastructure’ investment. Besides, ‘new infrastructure’ is not a brand new concept, and it has been proposed for several years. However, there are limited large-scale application scenarios for these projects. Furthermore, a great deal of money is needed to maintain the projects without access to markets in a short term. If there are projects with useful and effective application scenarios, private enterprises may have already snapped them up. Quite a few scholars were concerned that the push from government may drag down the efficiency. ”
Prof. Wang Jian said it is difficult for private enterprises to involve in this round of “new infrastructure” investment. PPP (public-private partnership) was early launched in the “4-Trillion-Yuan Stimulus Package” period, but it did not work well. The private enterprises that made investments found that the industry was suffering from overcapacity. Consequently, these private enterprises had difficulties in financing and lost money. In addition, the private sector has encountered many bottlenecks in recent years, so they may not be as active as they were in 2009. Moreover, as “new infrastructure” investment is highly policy-oriented, legal protection may be also one of the concerns of private enterprises. According to the market response, the risk of “new infrastructure” investment may be higher than that of the traditional one, such as real estate investment. Historical statistics show that the return on investment of real estate before 2009 is so high that private enterprises flocked to this area and exhibited high enthusiasm for the “4-Trillion-Yuan Stimulus Package”. It is necessary for the government to invest in public sectors, since public goods have the attributes which cannot be led by markets completely. Those products are used to provide public services but their return on investment may not be high. “For example, the construction of 5G networks is similar to the construction of highways. After the highway is ready, automobiles can be put into use. In other words, auto companies will not develop without the development of highways. But if the gate toll charges extremely high, there will be limited incentive to drive cars and there will be no auto companies. If the fees of 5G are expensive, there will be limited incentive to develop applications based on 5G technology. Most of time, people are not willing to invest in public goods, and it is time for the government to step up. With more and more 5G-based applications, people may tend to regard 5G as a necessity. However, because the charges and return on investment may be not high, the possibility of cooperation with private enterprises may be limited.
Statistics show that “new infrastructure” only makes up for 10%-15% of the total infrastructure investment in China. Prof. Wang Jian pointed out that in any country, the percentage of investment in high-tech is not very high, because there are not many high-techs used in daily life. The Chinese government should pay attention to “new infrastructure” investment, but whether it will boost the overall economy needs to be deliberated. First, with high risks, many investments in high-tech end up with failures. For instance, in the U.S., only a few dozen out of 100 high-tech projects may succeed. The return on investment of projects led by the government cannot be highly expected and its role in lifting economy is limited as well. Traditional infrastructure plays a bigger role in the improvement of the economy, but its negative effect is also obvious. Prof. Wang Jian emphasized that, “when the economy is hit by a huge shock, you cannot expect the economy will soon return to normal by various kinds of stimulus. When people get sick, medicine will help them avoid getting worse, but they still need more treatments to recover. One cannot expect a sick patient to recover immediately. When the economy is negatively affected, it is necessary to make investments to pave a way for the future. However, I don’t think it is necessary and possible that the negative influence of the shock on the economy will be completely offset by a large-scale stimulus package. Even if it works in the short term, it will produce a much more negative effect in the long term.”