Shi Jianxun, Professor of Tongji SEM

May 15^th, 2020

Source: Shanghai Observer

【Editor’s Note】: On May 7th, Shanghai officially issued Action Plan for Shanghai to Promote New Infrastructure (2020-2022), making 35 new infrastructure terms of Shanghai version come true. In fact, many places across China have already set out on the layout of new infrastructure area one after another since the start of 2020. The new infrastructure has become a buzzword for media reports. Shi Jianxun, professor of SEM Tongji University, new infrastructure is not a strong stimulus, but a new economic growth engine for China in the future, which also serves as the most active and productive driver that is full of opportunities for productivity factor optimization and potential improvement. His speech at Tongji University is as follows.

Recently, “new infrastructure” has become a buzzword ranging from the deployment of several high-level conferences to the enthusiasm of capital market. It is now under the spotlight of public opinion. So where does this concept come from？What does the term “new” mean？What influence will it exert to enterprises and what significance does it have for China’s development? Many people want to know the answers, so today I would like to share with you about my own view and thoughts around the above questions.

What’s “New” in the New Infrastructure?

The so-called “new infrastructure” is an abbreviation for the construction of new infrastructure. The Central Economic Work Conference held in December 2018 first proposed that we need to accelerate the commercial use of 5G and strengthen the new infrastructure including artificial intelligence (AI), industrial Internet, Internet of Things (IOT), etc. This is where the “new infrastructure” comes from. In the Report on the Work of the Government of 2019, there is also a requirement of further developing the next-generation information infrastructure. And in the beginning of 2020, the executive meeting of the State Council also clearly put forward the idea of issuing supportive policies for new infrastructures such as information infrastructure. It can be said that the new infrastructure is closely connected with emerging industries like 5G, AI and IOT from the very beginning.

So what does this new infrastructure refer to? On 20th April this year, a clear definition was firstly made at the National Development and Reform Commission press conference. The “new infrastructure” mainly involves three aspects: First, information infrastructure, which refers to the infrastructures built on the basis of the evolution of new-generation information technology, such as telecommunication network infrastructure, represented by 5G, IOT, industrial Internet and IP-over-satellite, new technology infrastructure, represented by AI, cloud computing and block chain, and computing power infrastructure, represented by data center and intelligent computing center. Second, the integration of infrastructure, mainly refers to the deep application of the Internet, big data, artificial intelligence and other technologies to support the transformation and upgrading of traditional infrastructure, thus forming the integration of infrastructure, such as intelligent transportation infrastructure, smart energy infrastructure. The third is innovation infrastructure, which mainly refers to infrastructure with public benefits that supports scientific research, technology development and product development, such as major science and technology infrastructure, science and education infrastructure, and industrial technology innovation infrastructure.

In my opinion, the new infrastructure has three advantages in its new features over the traditional one.

First, the new infrastructure is new in its content. The traditional infrastructure refers to the construction of traditional municipal public engineering facilities and public life service facilities such as airports, railways, highways, post and telecommunications, water supply and power supply. These infrastructures require long-term and huge investments, with obvious short-term stimulus, but the return on investment is relatively slow. In comparison, the new infrastructure is closely connected with the development of high and new technology, which is also an important carrier for the development of informatization, intelligence and digitization, and a vital guarantee for creating and satisfying new demands.

Second, the new infrastructure is new in the form of investment. “New infrastructure” involves high-technical and professional fields that need government to mobilize social capitals to invest and guide professionals to do professional things. Compared with the traditional infrastructure, the new one tends to be more market-oriented in investment subjects. Leading enterprises like Huawei, Alibaba and Tencent are all loyal participants of the new infrastructure. So accordingly, the new infrastructure has a large proportion of investment coming from social capital. In the process of promoting the “new infrastructure construction”, more attention will be paid to exploring the innovation of investment and financing mechanism, so as to further stimulate the enthusiasm of private investment.

Third, the new infrastructure is new in the connotation of development. “New infrastructure” is not “strong stimulation”. Over years of development, the marginal utility and earnings of the traditional infrastructure decrease progressively. The “new infrastructure”, backed by technological innovation, will create jobs and increase earnings in a short period, and facilitate structural transformation and upgrading, thereby bringing along a sound economic development in the mid-and-long term.

The new infrastructure is not a replacement of the traditional one.

The concept of new infrastructure was put forward at the end of 2018, and it is in this year that the new infrastructure go viral.

Strategically, it is of great instructional value for the nation to incorporate information infrastructure that gives priority to the scientific and technological innovation into the new infrastructure. This move reflects specific plans made for building an innovative nation, and shows full trust and expectation of the nation for scientific and technological innovation. The new infrastructure is highly matched with actual demands. As the technological innovation in some certain fields gradually draws near the “deep end”, the infrastructure innovation is required to meet higher standards. All the three aspects of the new infrastructure stand closely with technological innovation, and are featured and guided by technologies. The fact that innovation infrastructure is included in the technological innovation makes more clear the special mission and important position of technological innovation in the “new infrastructure”.

At present, the COVID-19 epidemic has adversely affected our economy. To tackle this problem, more proactive fiscal measures must be adopted and much effort should be centered on increasing infrastructure investment to drive economic growth. Traditional infrastructures that dominated by railways, highway and airports should be developed in full force, while new infrastructures concentrated on information infrastructure should bear new missions. With the combination of the new and the old, there will be new engines for economic growth formed.

The “new infrastructure” is not only the economic growth point for China in the future, but the most active and productive engine that is full of opportunities for productivity factor optimization and potential improvement. The “new infrastructure” will create vast market demands and new jobs. In terms of the investment, the “new infrastructure” has more opportunities and rooms for growing than the traditional one. Taking 5G industry as example, according to the 2020 China 5G Economic Report issued by China Center for International Economic Exchanges (CCIEE) and China Academy of Information and Communications Technology (CAICT) in December 2019, every unit of input in 5G industry will deliver 6 units of economic output. As one of the most important components of the new infrastructure, 5G is gradually becoming the key to digital transformation of every field, and is regarded as the start point of the “new infrastructure” investment. With its role of supporting the transformation driven by Internet, digital and smart technologies for economic and social development, 5G performs noticeably well in COVID-19 prevention and control and in boosting the resumption of work and production. Also，it has huge potential in stabilizing investment, promoting consumption, promoting upgrading and fostering new drivers of growth.

More critically, “new infrastructure” is a forward-looking and future-oriented layout which lays a solid foundation for China’s development, and will certainly accelerate the building of digital China. At present, the digital economy is entering into a new stage when AI is valued as the core driving force for smart economy. The government thus needs to take the lead to invest, construct and coordinate corresponding new infrastructures for this evolution. The digital economy is the key to high-quality economic development, and the “new infrastructure” is the foundation of a sound digital economy. The new infrastructure will play a significant role in propelling national economy. In the short term, it will help to ensure stability in employment, financial operations, foreign trade, foreign investment, domestic investment and expectations, and safeguard security in job, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of grassroots governments. In the long run, the “new infrastructure” will become an important supporter for achieving high-quality economic development through increasing total factor productivity (TFP).

It should be noted that there are still some misunderstandings on the “new infrastructure”. Some people believe that the “new infrastructure” will gradually replace the old one. Actually, instead of being a replacement or rejecting one another, the “new infrastructure” and the traditional one complement and support each other. Given the big picture of national infrastructure, it is of great necessity to recover the traditional infrastructures that are concerned with the country’s stability and people’s wellbeing, and to mainly develop “new infrastructures” to inject impetus into economic growth. Considering the demands of specific project construction, the “traditional infrastructure” needs the new one to provide fresh content, energy and application scene, while the “new infrastructure” requires the traditional one’s support and help in infrastructures and engineering teams.

What does the new infrastructure mean to different enterprises?

Previously, I have mainly analyzed the meaning and the role of the “new infrastructure” from a macro level. Some people may ask, what does this “new infrastructure” mean to enterprises?

Like I mentioned previously that the reason why the “new infrastructure” suddenly go viral this year is mainly because of the COVID-19 outbreak. We have all witnessed the impact of this epidemic on social functioning and enterprise development, and we also should not neglect the opportunities. What spring up during COVID-19 outbreak are online working, online teaching, video-chatting, online product selling, online games, and even online fitting. These innovations allow the concept of cloud service to take root in people’s mind. There is gradually much New Normal in Internet industry, through which people witness the strong vitality of terminals given by cloud computing, AR,VR and other technologies.

In the short term, demands for the New Normal produced in the period of COVID-19 outbreak have extraordinarily increased the number of Internet users and infiltration rate of the Internet. As a habit is often characteristically irreversible, this change will further promote the development of Internet industry. In the long run, these innovations and applications, though exploded in a short time, are not likely to fade away as the epidemic eases and people resume their work. Instead, there will be more energies and possibilities for development, with the advancement of new infrastructures represented by Cloud, AI and 5G. The whole industry is moving toward a technology-driven era from flow-driven era. For different enterprises, it certainly has different meanings.

Obviously, as the key builders for the “new infrastructure”, leading technology companies like Baidu, Alibaba and Tencent are also the biggest beneficiaries, who also lead the new economy. On one hand, these cutting-edge companies hold the key technologies, products and platforms of new infrastructures; on the other hand, they are the main users of new infrastructures, knowing better the demands of new infrastructures, so they can closely combine the demands with corresponding application scenes, and improve the capacity of new infrastructures in an iterative manner. This will further expand application scenes and coverage, thus enabling them to lead the new economy. It is predictable that we are about to embrace a life featured by digitalization, as in the future, smart manufacturing, IOT, autonomous vehicles, AI and smart health will surely generate demands for cloud consumption, cloud working and meeting, and online entertainment. By taking advantages of the new drivers brought by the “new infrastructure”, these leading technology companies will usher in a new round of development opportunities for meeting people’s needs in digital life.

“New infrastructure” will bring in endless opportunities. It will greatly lower the bar and difficulties for innovation and business startup with new technologies and new models. Just in a short time, there will be vast opportunities for innovation and employment stimulated. The “new infrastructure” involves the development of application scenes of a very important soft platform. The new commercial activities such as e-commerce platform, mobile payment, online product selling and express logistics that benefited from the Internet infrastructure have formed a soft platform that inseparably goes together with hard facilities to underpin the development of the new economy, turning into an indispensable part of the new infrastructure. For medium-and-small technology companies, they can provide ancillary facilities when the new infrastructure needs basic components or basic infrastructures, and they can even be members of the “new infrastructure”. In addition, hard facilities and soft platforms can help to reduce business costs, and expand application scenes and market space. They will create a broad space for SMEs to innovate and start businesses.

For the traditional manufacturing, the “new infrastructure” appears both as a challenge and precious opportunity for development. It will help to speed up digital transformation. Big data, AI, industrial Internet are key driving forces for upgrading manufacturing technology and developing new business. Their applications and development have provided more room for the revolution of application scene in traditional manufacturing. With the help of the new infrastructure, manufacturing enterprises can draw on the power of technology bestowed by digital era, and fully release the value of connecting, combining and sharing of industry Internet, promoting the transformation of industries to conform to the pace of development in the new era while promoting the transformation of enterprises. By connecting, decoupling and reconstructing all industrial factors, the whole value chains and industrial chains, manufacturing companies can realize an optimization of enterprise costs, quality and benefits and the cultivation of new technologies, new products and new business models to improve refined operation and management. In this way, they are able to set a long-term layout to be incorporated in the digital economy and the real economy, making technological innovation and industrial upgrading reinforce each other.

The “new infrastructure” should avoid the road of “traditional infrastructure”

The “new infrastructure” is generally a new thing, so there are still lots of weaknesses and difficulties facing us in the process of developing it.

Regarding the international comparison in the field of “new infrastructure”, China ranks top in the Internet construction, including broadband infrastructure and 5G. But we are still dwarfed by developed countries and have a long way to go in data center construction, AI talent pool and open source community. For example, with the initial establishment of AI industry chain, weakness is manifested in the base of basic algorithms and open-source framework; as a paving stone for the transformation of traditional manufacturing industry, intelligent equipment and high-end industrial software required in the construction of industrial Internet platform, however, are imported from foreign countries. Besides, bottlenecks in technological innovation are gradually begin to reveal themselves, such as lack of originality in major technology, and R & D being isolated from the market. At present, China hardly possesses any major original mobile Internet technology, and most core components and operating procedures of mobile phones and computer terminals rely on foreign countries. In the field of mobile Internet, there has always been a tendency of emphasizing application technology and ignoring basic science, which leads to the lack of momentum for technological innovation.

For the investment in the “new infrastructures”, strength must be concentrated and gathered nationwide to break through the bottlenecks of key technology. Only by laying a solid foundation can the new infrastructure better unleash its innovative dividend to beef up the new commercial activities, new industry and new service; only when breakthroughs are made in cutting-edge technology fields, such as core chip and core basic software, can the new infrastructure maintain sustainable and steady development. This is the only way to retain the first mover advantage of digital economy and move toward the high end of industrial chain.

While planning, building and applying the “new infrastructure”, we should not loosen our efforts in tackling key problems of the research on core technologies, such as software and hardware, underlying platform. We should encourage enterprises and research institutes to intensify their efforts in basic research with our policies, putting emphasis on fostering high growth potential enterprises with abilities of creating and changing the world scene. By means of joint innovation and building synergy with external resources, we should help enterprises expedite their technological and model innovation, so they can accelerate speed to break through the underlying basic technology and core technology of the new infrastructures. It is important to take value reconstruction as a principle, and stick to advancing technological support and business implementation in parallel, trying to realize a two-way iteration between technology and business. We should persevere in the cause of pooling and cultivating talents for the new infrastructure, helping to gather the world’s innovative talents, in an attempt to deliver a Depressions Effect of talent aggregation. With interactions established between talents and industries, China will eventually lift its international competitiveness of high-end manufacturing.

Developing the “new infrastructures” calls for an emphasis on innovation of investment and financing mechanism to further motivate private investment. To plan for the “new infrastructure”, we must respect economic laws, and abide by the principle of market-oriented and government-guidance development, encouraging different players to use the market mechanism to flexibly carry out various forms of cooperation, to explore the integration of teams, products and cultures, and to make innovative explorations in operating mechanisms, so as to create a favorable environment for the development of “new infrastructure”. In the process of development, “new infrastructure” should not follow the path of “old infrastructure”. We should avoid rushing ahead in a rush and take into account market demand and local development realities. At the same time, we should proceed step by step in light of our financial resources and debt bearing conditions to avoid the formation of new risks of local government debt.

The popularity of the internet leads us to an E-commerce era dominated by Taobao and JD, the mobile internet brings in an era of social and sharing economy led by Wechat and Didi, and 4G introduces us to a time of wireless broadband application. As the “new infrastructure” is gradually coming into reality, its network effect will increase exponentially and produce immeasurable new commercial activities with high growth potential. An all-round Internet economy is coming to us in full speed.