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How local governments in China can utilise new policy to promote development

Chan Kung and Wei Hongxu / Khmer Times Share:
(Xinhua/Liu Xu)

In an effort to promote economic recovery, the central government, local governments and enterprises have placed high expectations on the investment of new infrastructure, hoping it would promote the development of the digital economy to enhance the internal driving force of economic development.

Especially when the scale of local special bonds is expected to be increased and again issued ahead of schedule, many local governments hope to seize the opportunity of digital economy development and increase investment in new infrastructure areas to drive regional economic development.

The new infrastructure is not a simple way to boost investment, but rather to help the conventional industries realise digital and intelligent transformation as soon as possible and to create new consumption, new manufacturing, and new services.

While the new infrastructure investment brings a new economic model, it is different from the past in terms of content, mode, and financing channels. It requires local governments to make corresponding changes with market-oriented thinking.

New infrastructure investment is not only the demand side of local users but also the supply side of technology investment. New infrastructure projects include 5G base stations, ultra-high voltage (UHV) electricity, industrial Internet, intercity high-speed railway, intercity rail transit, new energy vehicle charging piles, artificial intelligence and big data centres. At present, rail transit and new energy infrastructure are not much different from conventional infrastructure investment.

The degree of local participation of UHV electricity is limited, while the investment in other aspects, such as 5G base stations and big data centres, is relatively mature in technology and has good market supply capacity.

In other aspects, it is more necessary to start from the aspects of technology research and industrial cultivation and to invest in projects that encourage innovation and industrial park construction.

Therefore, this requires not only clear investment objectives on the demand side, but also needs to expand the supply side such as technology research and application at the same time, which undoubtedly increases the complexity of new infrastructure investment.

At the same time, the sources and financing channels of new infrastructure investment still need to be explored. Recently, local governments in China have begun planning to finance new infrastructure projects through issuing special bonds and many local governments have put new infrastructure projects on their agenda.

Some market analysts believe that, at present, 5G is still mainly invested in base stations. Generally, telecommunications companies such as

China Unicom and Mobile Communications can invest on their own without issuing special bonds, thereby the special bonds can be invested in projects related to data centres.

However, such projects are only available in first-tier cities, and there are not many such projects in second-tier, third-tier, fourth-tier, and fifth-tier cities.

New infrastructure projects should be more market-driven and local governments should avoid excessive involvement via direct investment in industrial projects.

Local governments also need to promote the public-private partnership (PPP) model and introduce more social capital to improve efficiency and broaden financing sources.

Unlike the past, local governments need to play their roles in market construction and maintenance, investment entities and end-users in promoting new infrastructure investment and the development of the digital economy. In the cultivation of the digital market, market demand and the maintenance of the market order, local governments should play the role as a supervisor, take the development of the market as the guide and develop the local digital market.

In terms of investment, it is necessary to start with basic research and development and personnel training, promote market-oriented investment and technological innovation to enhance the competitiveness of the digital industry.

In terms of end-users, it is necessary to integrate their own digital resources, establish a public digital space, and expand digital demand with the digital transformation of public services and government affairs as the direction. These three new roles are the basic problems to be solved in the process of promoting new infrastructure.

Promoting economic recovery and the development of the digital economy with new infrastructure are the keys to current macro policies.

In this regard, local governments need to pay attention to the differences between the new infrastructure and the conventional infrastructure model – and they need to make corresponding adjustments in the investment model and development thinking so as to give full play to the efficiency of the digital economy.

Chan Kung is now Beijingi-based Anbound chief researcher. Wei Hongxu, graduated from the School of Mathematics of Peking University with a PhD in Economics from the University of Birmingham, UK, in 2010 and is a researcher at Anbound Consulting

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