Infrastructure investment is a stimulus measure commonly used by the Chinese government for economic recovery, and this year is no exception. However, a salient characteristic of this year’s measures is that the Chinese government has formulated a new investment direction called “new infrastructure.”

New infrastructure mainly consists of three aspects: information-based infrastructure such as 5G and IoT; converged infrastructure supported by the application of the internet, big data and AI, such as smart transportation and smart energy infrastructure; and innovative infrastructure that supports scientific research, technology development and product development. In other words, new infrastructure projects serve as a signal that China will promote technologies related to 5G networks, IoT, AI, satellite internet, cloud computing, blockchain, data centers and smart computing centers to lead innovative growth.

New infrastructure investment closely linked to new industries and new growth factors can be expected to generate large profits, meaning it does not have to rely solely on government finances and can induce active investment by the private sector. The Chinese government’s plan is to push for much of its investment in new infrastructure through private sector investment. China’s three leading Internet companies announced a series of large-scale investment plans for building digital infrastructure such as data center construction, cloud computing, AI, blockchain, 5G networks, and IoT operating systems. And the issuance of local government bonds, a major source of infrastructure investment, has increased 22.9% YoY to 3.5 trillion yuan (about $500 billion) in the first half of 2020, and local governments are actively pursuing their new infrastructure action plans.

However, it is hard to expect the new infrastructure investment to play a key role in China’s economic recovery in the short term, because a significant portion of infrastructure investment in 2020 will be used to build transportation infrastructure, and new infrastructure projects are expected to account for less than 10 percent of the total infrastructure investment. But the marginal efficiency of the new infrastructure investment is expected to be higher, so the growth rate of investment driven by new infrastructure projects will be much higher than for traditional infrastructure. In other words, new infrastructure investment is not likely to lead economic recovery in the short term, but it will contribute to China’s competitiveness by promoting the digital transformation of the Chinese economy and the development of new industries in the medium-to-long term. These are the positive impacts of new infrastructure investment that the Chinese government hopes to see.

These hopes on the part of the Chinese government will be realized only when the following problems are resolved: duplicate overinvestment in new infrastructure, bias in infrastructure benefits, and monopoly on supply. These problems will exacerbate China’s economic inefficiency and costs. Will the Chinese government be able to properly predict, manage and coordinate these potential concerns? Also, more importantly, both overlapping investments in new infrastructure and the growth of winner-take-all companies in China could have a significant impact on the global digital economy.