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China's digital plan will help it leapfrog US as tech leader

'New infrastructure initiative' encourages spending on 5G and artificial intelligence

| China
A model of a 5G smart city technology at the China Mobile booth during the GSMA Mobile World Congress 2019 in Barcelona: the government needs to go beyond laissez-faire.   © Getty Images

Nina Xiang is the founder of China Money Network, a media platform tracking China's venture and tech sectors.

"If you want to get rich, first build a road." China's gleaming modern infrastructure is a testament to this cheeky proverb. Realizing that China now has less need to build roads and bridges, Beijing is betting instead on building the most advanced data factory running on the biggest and fastest information highway. The goal is clear: remake China into an innovation-driven technology powerhouse and surpass the U.S.

In the urgency to spur growth post-COVID-19, this "new infrastructure initiative," originally announced in December 2018 but resuscitated by Prime Minister Li Keqiang recently, calls for beefing up investments in a range of tech sectors like fifth-generation, or 5G, mobile networks, data centers, the Internet of Things, or IoT, and artificial intelligence.

Some critics say that this new infrastructure initiative is putting old wine in a new bottle. China has already emphasized areas like 5G, data centers and AI as growth fields for years. The policy's size is around 3 trillion yuan ($420 billion) in 2020, by one estimate, and accounts for 7%-12% of overall infrastructure spending, but is said to be too insignificant to affect China's growth trajectory.

But we must look at this concept in its totality, over the long term and relative to China's rival across the Pacific. It then becomes clear that this latest buzzword -- if implemented well -- could cement China's plan to overtake the U.S. as the absolute leader of the economy of the future.

China and the U.S. account for over 75% of the world public cloud computing market and half of global spending on IoT. They are also home to the world's seven biggest digital super platforms.

But China is already winning in the critical 5G arena with planning, investment and execution. While wireless spectrum was quickly reallocated for 5G in China at the end of 2018, it looks like the U.S. might take another year before it is ready to allocate its spectrum.

China is projected to spend around 1.2 trillion yuan from 2020 to 2025 to build over five million 5G base stations in the country, while there are currently no cohesive plans in the U.S. As of now, there are 15 times more 5G base stations in China than in the U.S. That gap will only grow wider under China's renewed push for new infrastructure with 5G at its core.

China Unicom's 5G network base station in Haikou, pictured in August 2019: there are 15 times more stations in China than in the U.S.   © Visual China Group/Getty Images

Moreover, the next phase of the digital economy transformation will no longer have the consumer internet at its center. Private companies were the main players in the dot-com and mobile app era. A key reason for China's mobile payment growth was the government's seemingly hands-off approach to what Alipay was doing in its early days. But when it comes to IoT and smart cities, the government needs to go beyond laissez-faire.

Sectors like the industrial internet -- you can think of this as smart factories featuring intelligent process management systems -- and smart cities will be the main battlegrounds. Installing smart traffic lights and setting up an intelligent city management system would require closer partnerships between private companies and governments.

For smart cities to materialize, 5G, smart grids, big data centers and AI are all necessary and reinforcing components, and they all fall under the umbrella of new infrastructure. This type of government coordination and strategic long-term planning plays to China's strengths, but is lacking in the U.S.

Just like traditional infrastructure-stimulated sectors such as steel, concrete production and travel, new infrastructure has a strong lever effect. The commercialization of 5G is expected to drive 1.8 trillion yuan of mobile data consumption, 2 trillion yuan of data service consumption and 4.3 trillion yuan of mobile phone and wearable upgrades from 2020 to 2025.

The lever effect is also manifested in enhanced efficiency. Part of the new infrastructure initiative is focused on upgrading existing infrastructure, such as transforming subway trains to autonomous vehicles and extending smart grids. Coordinated central platforms will benefit small and medium-sized enterprises that may otherwise be unable to afford expensive data center infrastructure. In Shanghai, over 60,000 SMEs are able to tap into the city's industrial internet platform to transform their operations.

Local governments plan to aggregate data, the raw material for the digital economy, to facilitate artificial intelligence applications. Shanghai has amassed over 34 billion data points that will be open to the private sector.

Facial recognition trash cans in Beijing, pictured on May 1: local governments plan to aggregate data to facilitate artificial intelligence applications.   © AP

All in all, the new infrastructure policy -- despite its unsexy name -- is another smart and well thought-out move by Beijing to position China to succeed in the future. Its U.S. counterpart, however, appears only to formulate strategy around thwarting China's economic and technological ascent.

No doubt, new infrastructure faces myriad risks such as execution and overheating. It may create problems just as decades of infrastructure expansion left China with a massive debt load and overcapacity. Geopolitical tensions could significantly damage China's ability to access foreign tech. The Chinese new infrastructure could become inward-looking and decoupled from the U.S.

But new infrastructure reflects Beijing's conviction in a future filled with self-driving cars, smarter robots and virtual doctor visits. Though China-U.S. tensions point to a gloomy future of cooperation, China has the historical momentum to propel itself to innovate alone.

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