China’s tech spending won’t buy dominance

Big spending numbers are being thrown around in China, once again. This time, it’s trillions of yuan of fiscal stimulus on all things tech. The plans are bold and vague: China wants to bring technology into its mainstream infrastructure buildout and, in the process, heave the economy out of a gloom due only partly to the coronavirus.
But will this move the needle for China to achieve some kind of technological dominance? Or increase jobs, or boost favored companies? Not as much as the numbers would suggest, and possibly very little. A country covered in 5G networks makes for a tech-savvy society; it’s less clear that this money will boost industrial innovation or even productivity.
Over the next few years, national-level plans include injecting more than 2.5 trillion yuan ($352 billion) into over 550,000 base stations, a key building block of 5G infrastructure, and 500 billion yuan into
ultra-high-voltage power. Local governments have ideas, too. They want data centers and cloud computing projects, among other things. Jiangsu is looking for faster connectivity for smart medical care, smart transportation and, well, all things smart. Shanghai’s City Action Plan alone is supposed to total 270 billon yuan.
By 2025, China will have invested an estimated $1.4 trillion. According to a work report released in conjunction with the start of the National People’s Congress, the government plans to prioritise “new infrastructure and new urbanisation initiatives” to boost consumption and growth. Goldman Sachs Group Inc analysts have said that new infrastructure sectors could total 2 trillion yuan ($281 billion) this year, and twice that in 2021.
Funding is being secured through special bonds and big banks. The Shanghai provincial administration, for instance, plans to get more than 40% of its needs from capital markets, and the rest from central government funds and special loans. Thousands of funds have been set up in various industries since 2018, and some goals were set forth in previous plans.
Policymakers are aggressively driving the fiscal stimulus narrative through this new infrastructure lens. Building big things is a tried and true fallback in China, from the nation’s own road-and-rail networks to its most important soft-power foreign policy, the belt-and-road initiative to connect the globe in a physical network for trade.
It’s less obvious that this will work for technology. The reality is that the central-government approved projects add up to only around 10% of infrastructure spending and 3% of total fixed asset investment. The plans lack the focus or evidence of expertise to show quite how China would achieve technological dominance. Thousands more charging stations for electric cars won’t change the fact that the country has been unable to produce a top-of-the-line electric vehicle, and demand for what’s on offer has tanked without subsidies.
With their revenues barely growing, China’s telecom giants seem reluctant to allocate capital expenditures towards the bold
5G vision.
—Bloomberg