To stabilize the economy, the Chinese central government's investment in infrastructure has continued to be strengthened. On the one hand, the scale of the issuance of local project income bonds has been increased to strengthen local investment in infrastructure projects, on the other hand, the National Development and Reform Commission (NDRC) has significantly strengthened its infrastructure investment. For instance, the NDRC recently approved three infrastructure projects with an investment scale of more than RMB 30 billion. The total investment amount has reached RMB 132.409 billion, making domestic fixed asset investment showing significant growth since the third quarter of this year. In the first three quarters of 2018, the NDRC approved a total of 147 fixed-asset investment projects, of which 117 were examined and 30 were approved, with a total investment of RMB 697.7 billion. The intensive launch of a large number of projects shows that China's infrastructure investment drives the overall investment growth, thereby promoting the steady growth of the overall economy.
However, strengthening and promoting the steady growth of fixed asset investment by boosting the good old infrastructure construction is becoming more and more like a temporary solution. Anbound believes that other than bolstering areas of weakness in conventional transportation infrastructure, infrastructure investment should also consider investment in the information technology field, particularly in 5G technology, so that such technology and capital-intensive investment will promote the development of the communication and information industry, as well as the improvement of the economic structure and the future economic growth momentum to bring new space for economic development.
Although historically, the increase in infrastructure investment has had an immediate effect on steady growth, this effect is gradually weakening. In recent years, especially in response to the large-scale infrastructure investment measures adopted in response to the global financial crisis of 2008, infrastructure construction investment has a driving effect on the overall fixed asset investment, and the pulling effect on economic growth is gradually weakening; this is in fact verified by the total growth of fixed asset investment and the total amount of social financing in recent months.
This is not only a problem in China but also in the whole world. A recent report of Citigroup warned that the marginal benefits of the fiscal policy are gradually weakening and will delay the economic growth of the United States. ICBC International's report also believes that the mismatch between the global economic cycle and the gap in macroeconomic policy space are strengthening each other, and emerging markets as a whole face pressures from the marginal contraction of monetary and fiscal policies; although developed economies still have fiscal stimulus in the short term, the impact will gradually fade away. Moody's also believes that the slowdown in economic growth means that space for global sovereign governments to cope with long-term challenges is shrinking when the world is facing issues like high debt levels in the public and private sectors, an aging population, and long-term trends in income inequality.
Judging from the long-term impact, a large amount of investment in main infrastructure will continue to strengthen the extensive development mode and path of the Chinese economy, resulting in a large and surplus infrastructure capacity that is difficult to clear, and will delay supply-side reform and transformation of the economic structure, and in the future China will face the deep-seated problems in economic restructuring. It should be noted that the long-term and low-income projects of infrastructure will continue to let the government play a leading role; it is still difficult to attract social capital and private enterprises to intervene, which further increases the financial burden and local government debt in the short term.
Investment is certainly an important means of stimulating the economy, but which areas should be invested in, and who should invest? Anbound's researchers stated that the increasing investment in information and communication infrastructure represented by 5G is a more effective investment than megaproject infrastructure investment. In this information age, investing in the development of 5G can promote the growth of emerging industries such as the information and high-tech industries, bringing new market space to China, and enhancing economic power. Different from megaproject investments, the 5G industry will attract capital market and private investment because of its direct and huge commercial interests; it will also cause changes in consumption patterns and drive the growth in investment and consumption with the limited fund.
The world now faces the point for 5G infrastructure investment. The international 5G standard has been established, and the next step will be large-scale infrastructure construction and application. It can be said that the current 5G for commercial use is in a ready stage; Chinese cities like Beijing, Shanghai and other places have launched relevant plans. Analysts believe that "from the current Chinese 5G R&D, building, and large-scale field testing, the target of commercial trials in 2019 and commercial use in 2020 certainly can be realized". Chinese Academy of Engineering academician He Hezhen has previously stated in the 2018 World Internet Conference that China's 5G licenses will be issued at the end of this year.
Meanwhile, the investment cycle is longer and larger; this requires the promotion of governments and markets. In the latest report, Morgan Stanley predicted that in 2019 -2030, including spectrum, base transceiver station (BTS), transmission and signal towers, the overall 5G capital expenditure will be US$ 872 billion, of which China's expenditure will be US$ 421 billion, the U.S.'s will be US$ 265 billion, Japan's will be US$ 129 billion US dollars, and South Korea's US$ 58 billion. Compared with the 6-8 year construction period for 4G, 5G's 10-12 years is long, and the corresponding capital expenditure is also higher. Morgan Stanley estimates that the U.S., Japan, and South Korea's 5G spending is 1.3-1.4 times that of 4G spending, while China's 5G spending is 2.2 times of 4G spending, while globally 1.7 times.
The changes brought by 5G technology for consumption and commercial model will also be huge and will bring greater room for the market. Just as the 4G era brought the development of new economies and new platforms like smartphones, sharing economy, and mobile internet, the changes in market space brought by the 5G era will be enormous. According to industry insiders, currently, the market share of Chinese mobile phones is between 1.4 billion and 1.5 billion. In the 5G era, the number of smart terminals is expected to reach 10 billion by 2025. At the same time, 5G applications will also cover areas such as self-driving cars, unmanned aerial vehicles, and BeiDou Navigation Satellite System. He Hezhen has also stated that 5G will be 10 times faster than the existing one, with high reliability and low latency. In the future, it can support high-speed rail with a speed of 500 kilometers per hour and telemedicine applications. Some communication companies have proposed that the "five key applications" of the 5G industry, which includes autonomous driving, major health care, industrial internet, smart city, and ultra-high definition video applications. Therefore, the development of 5G technology has great potential to promote technological innovation and new business models. This is an extremely important opportunity for the transformation and upgrading of the Chinese economy. In addition, the construction of 5G network facilities will cover not only the urban network but also a large number of the suburban and rural markets. This aspect is a huge opportunity for technical equipment and also has a leading effect and driving role for rural construction.
The global 5G information market has just begun to take shape and is expected to mature in 5 to 10 years. In the current financial market "asset shortage", the development prospects and potential of the 5G market will also attract the attention of social and international capital. This includes not only the development space for telco companies but also potential opportunities for various application models. Morgan Stanley believes that 5G provides telco companies with a return to a rare and potential pricing power. Compared to the era when 3G/4G cannot be monetized, it has less regulatory and competitive pressures, less competitive market structures, and has customized "fragments" of the network that enables the telco industry to regain pricing power in the 5G era. In addition, Morgan Stanley pointed out that MSCI world telco trade expects EV/EBITDA to be 6.5 times in 2019 (average 6.7 times since 2013), and this does not take into account the upside potential of potential pricing power. Under this circumstance, for the investment of 5G infrastructure, the government does not have to do everything alone. As long as the policy planning and market rules are well done, it can guide telco enterprises to increase investment, and attract social capital and private investment. In terms of promoting investment growth and capital market development, it will have a better effect.
Final analysis conclusion:
In terms of the effects of economic growth and macroeconomic policies, other than the short-term conventional way, there is the need to consider expanding market space and enhancing economic growth from long-term market perspectives, especially through the means to promote the development of the technology industry and the new economy by bolstering technology and capital-intensive 5G infrastructure investment, which is more meaningful to China's current economy.
