New Infrastructure Construction Promotes the Stable Growth of the Chinese Economy

By Ada Wang

After the State Council issued a package of detailed policy measures to further stabilize the economy in May， the governments of many regions have also issued policy measures to promote investment and stabilize the economy.

Official data shows that from January to May， the investment in infrastructure constructions rose by 6.7% from last year， with a growth rate 0.2 percentage points higher than that of January to April， and 0.5 percentage points higher than the total investment growth. Moreover， data from Guotai Junan Securities shows that in May， the business activity index and new order index of the civil engineering and construction industry were 62.7% and 59.1% respectively， up by 1.7% and 6.8% compared with last month. The activity expectation index of the construction industry is 57.9%， 0.9% higher than last month， showing that infrastructure constructions are making further progress.

Therefore， industry insiders say that the successive commencement of infrastructure projects will be an important driving force for the rebound in investment in the second half of the year.

Unleash a strong momentum for industrial development

Recently， the Ministry of Industry and Information Technology of China announced that by the end of May this year， China had built the worlds largest and technologically leading network infrastructure， and all prefecture-level cities had built optical network systems， with more than 50 million users getting access to Gigabit networks， 1.7 million 5G base stations， and more than 420 million users of 5G mobile phones. By the end of June this year， the industrial internet has been applied in 45 major sectors of the national economy， and the high-quality external network of the industrial internet covers more than 300 cities across the country.

Russias Free Media reported that China has built the worlds largest broadband network infrastructure， as well as the largest independent 5G group network， covering all prefecture-level cities. The New York Times also reported that China has launched a plan for largescale infrastructure constructions. China will also increase investments in cloud computing， big data， AI， 5G， industrial networks and other information technology infrastructure constructions. Many Chinese provinces have also launched new infrastructure construction plans worth investments of several trillion yuan.

It is said that the Chinese government approved a big data infrastructure project this year. The project will become a new type of infrastructure similar to the “Southto-North Water Diversion” or “West to East Gas Transmission”. Data from the technologically advanced eastern region will be crisscrossed across China and then transmitted to servers in the western region， where the cost of using hydropower and wind power is low. The high-speed data transmission system built by the Chinese government will not only increase the demand for optical fiber technology， computer servers， software， engineers and other infrastructure constructions， but will also expand Chinas data processor market.

Some foreign media outlets have also noticed that big data， cloud computing and AI have been integrated into industry， energy， medical health， transportation， education， agriculture and other sectors， unleashing a strong momentum for industrial development.

Singapores Zaobao used data from the Ministry of Industry and Information Technology of China， and claimed that in recent years， Chinas digital economy has been developing robustly， the industry scale continuing to grow quickly enough to become the worlds No. 2. According to estimates， the Chinese digital economy grew from RMB 11 trillion to more than RMB 45 trillion from 2012 to 2021. The proportion of the digital economy to the whole GDP also increased from 21.6% to 39.8%. In 2021， the added value of the electronic information manufacturing industry above the national scale increased by 15.7% over the previous year， reaching a new high for the past 10 years. The business income of the software and information technology service industry， the internet and related service enterprises maintained a high growth rate of 17.7% and 16.9%， reaching RMB 9.4994 trillion and RMB 1.55 trillion respectively.

According to the report Decarbonizing Industries With Connectivity and 5G issued by MIT Technology Review Insights and Ericsson， the broadband cellular connection through the 5G network infrastructure is a powerful and direct driving factor for carbon emission reduction. According to a report by RIA Novosti， the digital economy has changed the lives of people around the world. In China， it is not only urban residents who benefit from the convenience of e-commerce. The development of e-commerce in rural areas will help stimulate both urban and rural consumption and inject new impetus into the development of the local economy.

Support key areas

“This year， the national government has increased investment in infrastructure and accelerated the issuance and use of special bonds. These are important fiscal policy measures for coping with the impact from the pandemic and the complex international situation， and will stabilize economic growth，” said Zhang Yiqun， Vice Chairman of the Performance Committee of the Society of Public Finance of China， in his analysis of the recent constructions of major projects in many places.

Zhang Yiqun also reflected on the fact that this round of infrastructure investment has four features： first， the scale of this round of infrastructure investment and the number of projects are larger than before； second， the project coverage is wide， and the field of infrastructure investment is further expanded. More major projects such as new infrastructure， new energy， transportation and water conservancy， and municipal projects related to sustainable economic development， the improvement of peoples livelihoods and well-being， and continuous improvement of infrastructure service functions are included in investment in succession； third， the project progress is fast. The Ministry of Finance requires that local special bonds should complete issuance before the end of June and should use all the issued bonds before the end of August. The progress of infrastructure investment financing is beyond expectation； fourth， the role of investment is obvious. This round of large-scale infrastructure investment has played an important role in stabilizing economic growth， improving the investment environment and enhancing urban functions.

Liang Jing， senior researcher at the Research Institute of the Bank of China， said， “with the effective control of the pandemic， governments of all regions have been accelerating the construction of key projects. On the one hand， this is to catch up on the project progress which was pushed back by the early days of the pandemic； on the other hand， this can be used to implement the requirements of the ‘package of policies and measures to stabilize the economyissued by the State Council， and better stabilize the demand， economy and employment through increasing investment.”

A representative from the Ministry of Finance said at a news conference held in early June that the Ministry of Finance has accelerated the issuance and use of local government special bonds and expanded the scope of support. It can be ensured that the issuance of the new special bonds will be complete by the end of June and bond use will be finished by the end of August. The new infrastructure and new energy projects are incorporated into the scope of special bond support， so as to better stabilize the economy and investment.

Zhang Yiqun believes that incorporating the new infrastructure into the key support scope of special bonds is not only an enrichment of the field of special bond investment， but also a positive response to the current special environment. The new infrastructure is a quasi-public welfare project， which is important to improving peoples livelihood and also promoting the economic development. It has dual functions for the society and economy， and has strong vitality and sustainability. It will improve the quality of the economy.

Liang Jing also stated that：“compared with traditional infrastructure， the new infrastructure construction adopts a totally different operation model. Now the business model， application scenario and investment profit-making model of new infrastructure projects are not clear， and the enthusiasm of private enterprises and social capital to participate in new infrastructure projects is low. In addition， it is difficult for new infrastructure projects to meet the conditions for traditional mortgage loans. As such， project financing normally faces great challenges. Incorporating new infrastructure projects into the key support scope of special bonds will expand the sources of funds and better attract social fund investment through the guidance by the government.”

The international community is very optimistic about the development prospects of Chinas new infrastructure. According to a report on the website of the Economist， China is about to usher in an industrial upgrading， as dozens of cities will make breakthroughs in robotics， cloud computing and automation. This local technological adjustment is changing the geographical layout of Chinas manufacturing industry. New investment and populations are shifting from coastal centers to inland cities such as Zhuzhou， Hunan. These efforts may also redraw Chinas economic landscape： the number of companies mastering new technologies has increased unprecedentedly， and the government is cultivating thousands of companies， both large and small， in the fields of data science， network security and robotics. These companies are working hard to upgrade Chinas industrial infrastructure to prepare for a new round of industrial upgrading.

PBOC Governor Yi Gang said in a recent press interview that since early this year， due to the pandemic and external forces， Chinas economy has been facing downturn pressure. The PBOC has been adjusting its monetary policies to encourage the economic recovery， and is also using structural monetary policy tools to support medium-sized and small companies and green economic development.