5G more deserving of investment than transportation

Source:Global Times Published: 2018/12/5 23:13:40

Illustration: Luo Xuan/GT

With the aim of stabilizing the economy, China seems to have been stepping up spending on infrastructure recently. The central government has not only increased the issuance of special local government bonds used to fund infrastructure projects, but has also greatly strengthened its infrastructure investment.

For instance, the National Development and Reform Commission (NDRC) has recently given the green light to three infrastructure projects. With each costing at least 30 billion yuan ($4.4 billion), the three projects totaled 132.41 billion yuan, leading to an obvious rise in fixed-asset investment since the third quarter of this year. During the first three quarters of 2018, the NDRC approved a total of 147 fixed-asset investment projects worth 697.7 billion yuan. This shows that the central government wants to drive up the overall investment growth by boosting infrastructure investment, thereby promoting the steady growth of the entire economy.

However, it seems like an expedient measure that harkens back to the old habits of driving growth in fixed-asset investment by strengthening infrastructure construction. While improving traditional transportation infrastructure like railways, roads and airports, the central government should also be considering infrastructure investment in the information technology field, such as 5G technology. Investment in tech- and capital-intensive sectors will promote the development of the communication and information industry, improving the country's economic structure and enhancing momentum for future economic growth.

Although increased infrastructure investment used to have an immediate effect on stabilizing growth, its impact has been gradually weakening. Especially after the large-scale stimulus package aimed at dealing with the 2008 global financial crisis, investment in railways, roads and airports has had a diminishing impact on overall economic growth.

From the perspective of long-term effects, massive investment in railways, roads and airports will only reinforce the extensive growth model of the Chinese economy and postpone supply-side reform and economic restructuring. It should be noted that the government will still play a leading role in infrastructure projects due to their long investment cycle and low revenue generation, which make it hard to attract private investment - as well as increasing the fiscal burden and local government debt in the short term.

Investment is an important tool for stimulating the economy, but it is crucial that it should be efficient and effective. Increasing infrastructure investment in 5G and other information sectors will yield more effective results than investing in railways, roads and airports. In the information era, investing in 5G development can promote the growth of emerging industries, developing new market space and thus enhancing the momentum of the economy. Unlike the traditional transportation infrastructure, the 5G sector will attract capital market and private investment because of its direct and huge commercial interests. It will also lead to changes in consumption patterns, so supporting it could drive up both investment and consumption growth.

At present, the world is facing questions over the investment timing for 5G infrastructure. With the establishment of the global 5G standards, the next step will be the massive construction and application of the 5G infrastructure.

Considering the longer investment cycle and larger investment scale, efforts from various governments and markets are needed to push forward 5G development. Morgan Stanley predicted in a recent report that during the decade between 2019 and 2030, the overall capital spending in 5G, including spectrum, base transceiver stations and signal towers, will be $872 billion, with $421 billion being spent by China, $265 billion by the US, $129 billion by Japan and $58 billion by South Korea.

5G technology will bring disruptive changes to consumption and business patterns, pointing to huge market space. Just as 4G technology led to development of new areas of the economy such as smartphones, the sharing economy and mobile internet services, the 5G era will also bring about huge changes for the market. Thus, 5G represents an important opportunity for the transformation and upgrading of the Chinese economy. The construction of the 5G network facilities will not only cover the urban network, but will also involve massive coverage in the suburban and rural markets, which will play a leading and driving role in rural development.

The global 5G information market is just beginning to take shape, but it is expected to become mature within five to 10 years. The development prospects and potential of the 5G market will also attract the attention of private capital. As a result, the government doesn't need to be responsible for all the 5G infrastructure investment. As long as the policy planning and market rules are set, the authorities can guide telecom companies to invest in 5G infrastructure, which can also be open to private investment.

In short, rather than seeking short-term quick fixes, the central government needs to consider how to explore market space and enhance growth momentum through macroeconomic policies for the long run. The "new path" of driving forward development of the technology and new economy sectors by boosting 5G infrastructure investment makes more sense for the current Chinese economy.

The article was compiled based on a report by Beijing-based private strategic think tank Anbound. bizopinion@globaltimes.com.cn

Posted in: INSIDER'S EYE

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