President Xi Jinping’s plan envisions China investing $ 1.4 trillion. by 2025, calling on local governments and technology giants such as Huawei to build 5G mobile networks, cameras, sensors and develop AI software to underpin a range of activities from autonomous driving through automated plants to mass tracking.
The initiative will help mainly local giants such as Alibaba, Huawei and SenseTime Group at the expense of US companies. In the rise of technological nationalism, the investment plan should reduce China’s dependence on foreign technology. And help Chinese companies develop new technologies that give them an edge on the world stage.
“Nothing like this has happened before. This is China’s attempt to win the global technology competition,” said Maria Quoc, CEO of Digital China Holdings. The technology investment is part of a $ 563 billion fiscal package to help China emerge from the worst economic situation since the Mao era. What the result will be, however, remains to be seen.
It is not the first time that communist China has prepared massive plans at an even more massive cost, which in the end did not achieve much. However, Beijing’s vision has already supported a number of actions – the main reason 5 of the 10 best performing companies in the markets are in the technology field, such as the manufacturer of network equipment Dawning Information Industry Co. and Apple supplier GoerTek Inc.
It is unlikely that American companies will be able to benefit from the investment, and in some cases they may lose. Earlier this year, when China Mobile, China’s largest telecom, contracted 37 billion yuan for 5G base stations, the lion’s share went to Huawei and other local companies. Sweden’s Ericsson received less than 10%.
In one of its projects, Digital China will help the northeastern city of Changchun to replace the American cloud companies IBM and Oracle with local technology. It is a significant part of the funds that will be directed to the data centers.
There are concerns about whether the strategy will be successful and where the money will come from. According to Zhu Tian, a professor of economics at the China Europe International Business School in Shanghai, the Chinese economy will not recover solely through infrastructure investment. He points out that the plan will increase the levels of indebtedness, but believes that in times of crisis such moves are still necessary.
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$ 500 billion for the economy and more debt
On Friday, Beijing also promised 3.6 trillion. yuan ($ 500 billion) to help the economy this year and try to create 9 million jobs. The measures will include tax cuts, incentives, rent cuts and more.
This is likely to increase China’s budget deficit to 3.6% of GDP this year. It will exceed 3% for the first time since 1994. The government will also issue special bonds worth 1 trillion. yuan ($ 140 billion) to be used for medical equipment and anti-virus technology. Local governments will be able to issue up to 3.75 trillion. ($ 527 billion) debt for 5G networks, railways, airports and other infrastructure projects.
All this amounts to about 4% of China’s GDP, according to estimates by Capital Economics. The answer was similar during the crisis a decade ago.