China was the first country to suffer from the coronavirus pandemic and the first to emerge from the crisis. As the world learns from the country’s experience in controlling the spread of the virus, more and more economic planners are also looking to China for its economic recovery plans.
Similar to other nations affected by the COVID-19 pandemic, China’s economy slowed significantly after lockdown orders in late January. China’s 2020 first-quarter GDP dropped 6.8% compared to the same period in 2019, while per capita disposable incomes decreased by 3.9%. This is China’s first-such contraction since it began reporting quarterly GDP in 1992.
As part of stimulus packages, the Communist Party urged the country in early March 2020 to accelerate the development of “new infrastructure” in seven areas: 5G networks, industrial internet, inter-city and inner-city rail systems, data centers, artificial intelligence, ultra-high voltage (UHV) transmission, and charging stations for electric vehicles.
The new infrastructure concept was first raised at China’s Central Economic Work Conference in 2018, but recently became a hot topic in anticipation of a major stimulus program in 2020. On April 20, 2020, China’s top economic planning agency, the National Development and Reform Commission (NDRC), further emphasized that the “new infrastructure” will focus on technology innovation and information networks to support high-quality growth.
While 25 of China’s provinces have announced investment plans worth a total of $7 trillion (49.6 trillion yuan), many of the projects are part of the existing 13th Five-Year Plan rather than additional investments, and only a small portion of the total investment is currently devoted to new infrastructure.
A study on Beijing, Shanghai, Guangdong, Jiangsu, Jiangxi and Henan indicates that new infrastructure represents only 13.7% of the total number of projects. In Zhejiang, a coastal province south of Shanghai, new infrastructure investments account for only 13% of total capital investments; the remaining are going toward conventional infrastructure like roadways.
This is a missed opportunity, as truly supporting new infrastructure has the potential to help China achieve sustainable, high-quality growth while creating more jobs and improving public health.
As China’s central and local governments further develop their stimulus plans, these four investments can help turn the COVID-19 recovery into a turning point toward a better future:
1. Electric Vehicles Charging Infrastructure
Vehicle electrification is not only critical to leapfrog China’s auto industries and create new growth engines, but to cut greenhouse gas emissions and reduce air pollution. According to the Ministry of Industry and Information Technology, by the end of 2018, China’s electric vehicle industry had attracted $282 billion (2 trillion yuan) of investments across the supply chain, spanning from cathode suppliers to battery manufacturers and even recyclers. Studies show that electrifying 50%-75% of China’s passenger cars by 2050 would avoid as much as 230 million tonnes of CO2 emissions, slightly less than France’s annual CO2 emissions (293 million tonnes).
As world’s largest electric car market with 3.8 million electric vehicles (EVs) on the road at the end of 2019, China aspires to further promote new EVs and attain a 25% target in annual sales in 2025, a significant rise from today’s meager 5%. Vastly increasing charging infrastructure will be important to serve the existing fleet as well as to convince wavering consumers to purchase EVs.
China already boasts the world’s largest public charging network, with 560,000 public chargers, half the global total. Nonetheless, gaps still exist. The ratio of EVs to chargers was 3.4:1 in 2019 (including both private and public chargers), well short of the China Energy Administration’s target of 1:1 by 2020. China will have to add 30-60 million chargers if it wants to reach 100 million EVs by 2035.
The stimulus could play an important role in helping China meet its lofty EV targets, including by increasing investments in expanding EV charging infrastructure and orienting national subsidies to help boost EV vehicle sales.
2. Renewable Energy
During the financial crisis of 2007-08, a number of countries – China included – built more coal plants to fuel growth. Repeating this tactic again would be problematic both environmentally and economically. Just following through on planned and under-construction coal plants would produce 23 billion tons of CO2 over the plants’ lifetimes — nearly 7 times the EU’s total CO2 emissions last year — and produce significant air pollutants that threaten public health. At the same time, these planned and under-construction coal-fired capacity in China has an estimated capital cost of $158 billion, with a diminishing return on investment due to the relatively low level of utilization of existing coal plants (about 48%).
Opportunities lie in accelerating investment in renewable energy and cutting-edge technologies. Renewable energy has become a pillar of low-carbon economic growth for governments all over the world, a fact reflected by the growing number of jobs created in the sector.
Investment in clean energy was a key factor in the U.S. economic recovery after the Great Recession, contributing to a 2-3% GDP increase between late 2009 and mid-2011. The renewable energy sector employs 777,000 people across the U.S., nearly 5 times the number of people employed in the coal industry. Solar panels manufactured in China are 20% cheaper than U.S. panels, and the sector already creates 9 times as many solar jobs as the U.S.
With oil prices plummeting below $0 for the first time in history, governments must not go back to business as usual and miss the opportunities provided by a green economy.
Further investing in cutting-edge technological innovation in the energy sector should help Chinese producers realize productivity gains and deliver savings to consumers. Research showed that technology improvements in efficiency, renewables and extraction could yield $900 billion to $1.6 trillion in savings throughout the global economy in 2035. At least two-thirds of this total value is derived from reduced demand for energy as a result of greater energy productivity, and the remaining one-third from productivity savings by resource producers. Additionally, improved energy efficiency and emissions reductions can avoid exacerbating other health risks, such as air pollution.
3. Smart Cities Powered by 5G Connectivity and Smart Grids
Billions of people stuck at home for more than two months significantly increased internet use for telework, virtual meetings, online education, and movie and TV streaming, stretching the existing network infrastructure to its limits. The leading telecom operator announced in February that it would work with China Telecom to finish the construction of 250,000 5G base stations across the country by the end of the third quarter, earlier than previously planned. 5G is not only 100 times faster than 4G, it will also stimulate growth in the country’s information technology industry by $479 billion (3.3 trillion yuan) over the next five years.
Stimulus plans could complement this expanded 5G technology with other new technologies – such as big data, artificial intelligence (AI) and cloud computing — to accelerate the development of the digital economy and make “smart cities” a reality.
According to Accenture, smart city solutions in the United States – such as next-generation wireless technology, smart parking and metering, and smart grids – could produce $160 billion in benefits and savings through reductions in energy usage, traffic congestion and fuel costs. Research shows that a $275 billion investment in 5G-related infrastructure across the United States could create up to 3 million jobs and boost GDP by $500 billion. These technologies will enable cities to reduce commute times, improve public safety and generate significant smart grid efficiencies.
4. Healthier Cities
The coronavirus epidemic underscores the importance of building a healthy China. The key to success lies in creating healthy cities.
In addition to establishing more medical and health resources, such as permanent epidemic control centers, decision-makers need to take a more holistic approach and design cities in ways that improve human health.
In 2016, China laid out a national Healthy China 2030 Blueprint and a corresponding action plan, which “puts health as the priority of development” and “focuses on the health of all people in all of China.” In the ambitious plan, China aims to reduce air, water and soil pollution; implement strict emissions standards for industries; improve walking, biking, exercise and public health facilities; and promote road safety.
The plan marks a significant mindset shift: Prevention is better than the cure, and health is not only about building hospitals, but keeping the population in good physical and mental condition. Prioritizing investments that adhere to the Healthy China 2030 goal will not only benefit the health and safety of the Chinese public, but also yield significant economic and environmental benefits.
Green infrastructure investments such as planting trees and urban forests are good examples. Trees and natural areas within cities clean the air, cool temperatures, lower energy bills, support mental health, provide habitat for wildlife and build resilience to climate change.
For example, the economic benefits of trees in New York City parks are estimated to be $120 million a year, 5 times the annual expenditure for park maintenance. These benefits include $28 million worth of reduced heating energy use, $5 million worth of air quality improvements and $36 million in flood mitigation.
Other key opportunities include building safe biking lanes, pedestrian walkways and public spaces that encourage more physical activities; increasing shared transportation and micromobility options; installing better water and waste management systems to improve sanitation and reduce waste; and more.
The World Will Learn from China’s Economic Response to COVID-19
All eyes are on China to set an example to follow. As the $7 trillion (49.6 trillion-yuan) investments move ahead, it is important for local authorities to ensure that concrete low-carbon development plans are plugged into the stimulus package. China has everything to gain by rebuilding its economy through smart, sustainable new infrastructure – and lots to lose if it relies on fossil fuel-driven growth.
