INSIGHTS | China’s ‘new infrastructure’ projects, explained

Beijing is promising big spending on “new infrastructure” amid post-virus stimulus. The government says it will focus on electric vehicle (EV) charging infrastructure, an upgraded electrical grid, artificial intelligence, 5G networks, improved transportation systems, and data centers to drive the economy towards recovery. 

While China has not announced official figures, analysts from China Sinolink Securities, which has produced the most comprehensive and widely cited estimates, expect the total to reach RMB 1 trillion (around $141.3 billion) in 2020. 

Bottom line: Don’t count on high-tech infrastructure to overcome a recession—it’s outweighed by traditional projects. But this investment gusher is accelerating deployment of technologies like connected roads, improved telecommunications networks, and electric vehicle charging stations. 

A familiar remedy: China has typically turned to infrastructure spending in the face of economic troubles. During the 1998 Asian Financial Crisis, the government issued billions of yuan in treasury bonds to increase investment in roads, utilities, railways, and telecommunications. 

• Ten years later, during the 2008 financial crisis, authorities took a similar approach, this time spending trillions of yuan as economies around the world faltered in the aftermath of the crash. 
• “How best to balance the epidemic’s negative impact on the economic downturn? The simplest and most effective way is to develop infrastructure,” Ren Zeping, chief economist of Evergrande Research Institute, wrote in a March 3 article.
• Local governments jump on buzzword policies like “new infrastructure,” with strange results. Some provinces have made implausible claims that they are spending upwards of RMB 3.6 trillion on “new infrastructure” in a single province, Southern Weekly (in Chinese) reports.

Connected roads

Expected investment: RMB 450 billion

Apart from traditional road infrastructure projects, China is looking to build intelligent transport systems that incorporate technologies such as 5G, artificial intelligence, and the Internet of Things. While Beijing has not outlined a budget for connected roads, Sinolink expects (in Chinese) the government to spend nearly RMB 450 billion on supporting technologies.

• Sinolink expects sales in the connected vehicle market to exceed RMB 100 billion this year, up by 70% from last year, given Beijing’s support for its new infrastructure project. 
• The boost in spending comes as the world realizes that commercial-scale fully autonomous vehicles may not be arriving anytime soon, driving the focus from smart cars to smart roads. 
• China is implementing “vehicle to everything” (V2X) systems, intended to allow vehicles, roads, and pedestrians to “talk” to one another, around the country.
• China’s approach relies on cellular networks, dovetailing with the country’s focus on 5G.
• For self-driving cars, the V2X could outsource vision and detection of other road users to the roads themselves, allowing for far greater visibility than if sensors were only put on cars. 
• Using fast 5G connections in the age of 5G, the framework could potentially allow for decision- making to be done centrally, instead of by autonomous vehicles themselves.

Read more: China’s AV edge? It’s the infrastructure

Baidu does well: China’s search giant Baidu has become a major beneficiary of China’s recent drive to increase spending on new infrastructure projects that incorporate these sorts of technologies.

• The company has this year won contracts to build V2X pilot zones in the southwestern Chinese city of Chongqing, central China’s Yanquan, and Hefei, a city in eastern China. 
• As part of these projects, Baidu will install road sensors, edge computing servers, and cloud-based control platforms for V2X and autonomous vehicles. 

A head start in a race to set standards: Early mass implementation of China’s standards for C-V2X could lead to wider adoption around the world, and more money for Chinese companies, as deliberation over opposing systems grows. 

• While China is adopting a cellular approach to smart road infrastructure, places like the EU have developed V2X standards based on Wi-Fi. 
• The debate over which standards to adopt has the telecoms and auto industry divided.  The outcome could decide which continent ends up leading in autonomous driving. 
• EU regulators are backing the WiFi standard, gaining support from automakers such as VW, Toyota, and Renault, as well as chipmaker NXP. 
• Broader adoption of the China-backed cellular standard is of strategic importance for the country, as the world’s biggest 5G equipment makers, including Huawei, are Chinese. If the world goes with wifi, they’ll miss out on lucrative projects.

5G networks

Expected investment: RMB 300 billion

The official cliché is that 5G is the “highway of the information age.” The next-generation wireless network is also seen by state media (in Chinese) as the “bellwether” for the seven key areas of the new infrastructure projects. 

• While Beijing has broad ambitions to be a global 5G leader, the current priority on its agenda is to build more 5G towers. 
• Sinolink expects total investment by local governments and telecoms companies into 5G base stations to reach RMB 300 billion this year.
• China Mobile, the world’s biggest telecoms operator by subscribers, has announced  a plan to install 300,000 5G cell towers this year. 
• The other two, China Unicom and China Telecom, have teamed up to build one 5G network expected to have 250,000 new base stations by the end of September.
• The three carriers’ combined budget for 5G buildout in 2020 is RMB 180.3 billion, according to state-run China News Service.

Some are more equal: While Beijing has repeatedly said that foreign companies have “equal opportunities” to participate in the rollout of its 5G networks, most of the budget will probably go to domestic vendors such as Huawei and ZTE.

• In China Mobile’s latest tender for the buildout of the majority of its targeted 5G base stations this year, Huawei and ZTE were awarded a combined share of 85.9% of the contract, by the number of base stations. 
• Swedish telecoms gear maker Ericsson, the only foreign company granted a tender, took only an 11.4% share. 
• Finnish company Nokia, another major Huawei rival, got none.

EV charging stations

Expected investment: RMB 10 billion

At the heart of the national policies for global leadership in technology, electric vehicles were not left out of the big funding boost. Beijing has announced plans to spend RMB 10 billion on the country’s scattered charging network in a bid to increase EV uptake.

• The National Development and Reform Commission, China’s top economic planner earlier this month revealed an RMB 10 billion initiative to build a combined 600,000 public and private charging piles across the country this year, a 50% increase from the current network. 
• State-owned power utility monopoly State Grid responded immediately with the announcement of an RMB 2.7 billion construction plan of charging facilities in more than 24 provinces and cities this year. So was China Southern Power Grid which pledged to spend RMB 25.1 billion to build 380,000 charging piles over the next four years.
• This marks the first time the central government directly supports a countrywide expansion in charging networks. 
• China poured a staggering more than RMB 400 billion in electric vehicles over the ten years to 2018, according to estimates from think tank Center for Strategic and International Studies and official statistics. However, much of the spending was to subsidize EV purchases, while localities were left to plan on their own for charging buildout.

Much needed: A charging station buildout could help the struggling EV industry draw in customers.

• Inadequate access has been among the top barriers to EV purchase by customers for years, according to McKinsey & Company, which echoes “range anxiety,” a common fear among EV owners of their cars running out of power before finishing the duty.
• China published an ambitious plan in 2015 to build 4.8 million charging piles across the country by 2020, but later downgraded it after falling short. 
• Only 25% of that number are so far built, according to figures from China Electric Vehicle Charging Infrastructure Promotion Alliance (CEVCIPA).
• Now the buildout seems to be back in earnest. Charging and swapping infrastructure are the “key foundation” (our translation) for new energy vehicle development, Xin Guobin, a deputy head of China’s IT Ministry earlier this week.

A tough business: Charging infrastructure could use the help—experts warn that it’s hard for companies to succeed with it in market terms.

• Chinese charging operators have mostly been lossmaking due to single-digit utilization rates, and it was until 2018 that TGood, China’s top charging service platform broke even, wrote Ren Zeping, chief economist at the Evergrande Group in a report (in Chinese) earlier this month.
• It normally takes investors six to ten years to recover costs for charging infrastructure, and therefore investment without careful planning is “not recommended,” Chinese media Caixin reported citing Zhang Fan, director at CEVCIPA.

A big boost to the economy?

Unprecedented support from Beijing could drive a surge of capital flow into technology sectors, however, the impact to shore up the entire economy might be limited.

• Investments on new infrastructure only account for 10% at most in some local government funding plans this year, “not a pillar” to sustain a new round of economic growth, said Liu Shijin, former deputy director at the Development Research Center of the State Council at a conference last month (in Chinese).
• The impact from the renewed focus on new infrastructure should not be overestimated, wrote analysts at investment bank Guotai Junan. Local government spending plans will focus on airports, railways, roads, and urban utilities, they predicted.
• Also, China has long been criticized for significant waste and fraud in government spending, in light of years’ scandal in the country’s electric vehicle industry where local enterprises defrauded government money with various means to cook up figures. “We must choose investment projects well…. and also try to stimulate enthusiasm for private investment,” said Xi Jinping in a Politburo meeting early last month.