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Global Market Scan: COVID-19 an opportunity for Chinese high-tech infrastructure

Dmytro Konovalov
Global Market Scan: COVID-19 an opportunity for Chinese high-tech infrastructure

The global spread of the coronavirus and the lockdown of economies around the world has resulted in historic unemployment and negative economic growth. China, which introduced lockdowns to fight the coronavirus before other countries, saw GDP contraction of 6.8 per cent year over year in the March quarter — one of its worst results historically.

Since its recent reopening, the Chinese economy has been demonstrating signs of recovery. The central government has been supporting the economy with monetary stimulus and has also allowed regional governments to issue special projects-related infrastructure bonds. A significant share of the funds raised through these bonds will be allocated towards different kinds of projects, than those that boosted the country’s economic growth during the 1998 Asian and 2008 Global financial crises. In addition to building roads, railways, new houses and airports, a large percentage of the investment this time will be channeled towards the development of high-tech infrastructure and the introduction of new technologies in various sectors.

On March 2, 2020, at a conference in Hangzhou devoted to economic development issues, Zhang Yong, the chairman and CEO of the Alibaba Group, said: “After the epidemic in 2020 is gone, there will certainly be a new round of infrastructure investment in China, but the focus will shift from traditional infrastructure to a new generation of digital infrastructure.”

His words have been strengthened by the fact that development of 5G networks has become one of the most popular infrastructure investments planned by regional Chinese governments, with 21 out of 25 regional authorities indicating interest in investing in such technology. It is also worth mentioning that the country has already started research on 6G technology.

According to the People’s Daily Online, China’s three major telecom operators recently announced plans featuring construction of 5G networks. China Mobile is planning to put up 300,000 5G base stations this year. At the same time, China Telecom and China Unicom announced that by the middle of 2020, they will jointly install 100,000 5G base stations in 47 cities across the country.

New data centers are also in the pipeline. According to the Data Center Dynamics portal, Shanghai’s Municipal Economic Information Commission is soliciting proposals to build new data centers in 2020. The amount this year is limited to 30,000 racks and will consume electric energy equivalent to about 70MW, based on uninterrupted operations.

The China Academy of Information and Communications Technology forecasts that China’s 5G network construction investment will reach 1.2 trillion yuan and that this will result in an additional 3.5 trillion yuan of related new investment in the industry.

Construction of the infrastructure for a faster Internet will result in the development of new technologies in various sectors such as medical services, biotechnology, information and communications, consumer and retail sales, transportation and electric utilities. Industrial applications tied to the Internet of Things will include increased use of ‘wearables’.

Health care and biotechnology are logical areas for new high-tech infrastructure and applications development coincident with the global coronavirus pandemic. The undertakings will include technologies that support the tracing of contacts between individuals, in order to identify the spread of the virus, plus reliable and secure electronic storage of data giving better access to medical records. Telemedicine is another area that will receive attention from infrastructure investment, due to concerns related to the fast spread of COVID-19, the potential to avoid crowded waiting rooms and the elimination of the need for patients to visit doctors in person.

All these developments have not only immediate importance, but also provide grounds for limiting the spread of new viruses or other biological threats that become more likely due to growing urbanization and an aging population.

In addition to the tactical initiatives, the Chinese government will announce this year a new long-term strategic initiative based on increased investment in high-tech ‒ “China Standards 2035”. The purpose of this initiative is to design technological standards for the global interoperability of new technologies in communications, artificial intelligence and biotechnology.

Chinese leadership in the development of 5G and 6G networks provides strong grounds for the global adoption of the technical specifications used by Chinese firms. Such an active approach will allow China to improve 5G technological standardization used in the country, boost domestic economic growth and take a leadership position in the development and implementation of the new technologies globally. Chinese leadership in other high-tech areas will result in the development of new technologies and standards for worldwide implementation.

The Chinese economy is likely to see relatively fast recovery from the short-term negative impact of the coronavirus as a result of the massive monetary stimulus provided by the government. Increased government investment in infrastructure and especially high-tech projects will result in robust economic growth and advance the country on its way towards what the Chinese government hopes will be global technological leadership.

Dmytro Konovalov has over 10 years of experience in equity research and analysis for global markets at leading international financial institutions.

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