In December 2018, the Central Economic Working Conference first mentioned the concept of “New Infrastructure” which refers to the infrastructure construction that focuses on the technology side, mainly including seven areas:
– 5G Base Station Construction
– Industrial Internet
– Artificial Intelligence
– Big Data Center
– New Energy Vehicle Charging Piles
– Ultra High Voltage (“UHV”)
– Intercity High-speed Railway and Urban Rail Transit
Involving industries that affect people’s daily life such as communications, power, transportation, digital etc. On March 4th, 2020, slightly more than one year after Central Economic Working Conference, the Central Politburo Standing Committee of the Communist Party of China pointed out again to increase the construction of public health services and investment in emergency materials security, and to accelerate the construction of new infrastructure such as 5G networks and data centers.
The Chinese government stated clearly again its guideline on “New Infrastructure” during the nation fights against new coronaviruses, showing Chinese government’s strategic vision on “New Infrastructure”. “New Infrastructure” will bring a lot of development opportunities to companies in related fields. ZWC Partners will utilize its geographical advantages to actively plan and deploy investments in “New Infrastructure” related industries.
The Meaning of “New Infrastructure”
The “New Infrastructure” adjusts the investment areas in order to stable the growth through reform and innovation, which refers to the significant development of 5G Base Station Construction, Industrial Internet, Artificial Intelligence, Big Data Center, New Energy Vehicle Charging Piles, UHV, Intercity High-speed Railway and Urban Rail Transit on top of the complementing railway, highway, rail transit, etc. investment to traditional infrastructure.
Source: ZWC Partners
In 2019, China officially commenced its 5G commercialization along with the Ministry of Industry and Information Technology issued 5G commercial licenses to four telco operators. The major emerging industries in China, such as Industrial Internet, Internet of Automotive, Enterprise Cloud, Artificial Intelligence and Telemedicine, all required 5G capability as industrial support. According to an estimates, the number of 5G base stations in China will reach about 600,000 in 2020, the cost of each base station will be ranged between Rmb400,000 to Rmb500,000 with a total investment size of approximately between Rmb240 billion to Rmb300 billion. The 5G upstream and downstream industry chain (such as chips, storage, network transmission, etc.) is also very broad with tremendous opportunities for start-up and investment.
The Industrial Internet is the foundation of developing smart manufacturing, it can provide common infrastructure and capability. In 2019, “Industrial Internet” was first written into the Government Report, and since then the Industrial Internet is gradually entering into a substantive landing stage. In the pilot project announced by the Ministry of Industry and Information Technology in 2019, network, platform, and security will be the three most important future directions for the industrial Internet industry. The market size of Industrial Internet is expected to reach at least about Rmb520 billon in 2020 if the growth momentum at the early development stage is maintained.
In the national plan, the overall technology and application of artificial intelligence of China shall be comparable with global advance level, and the artificial intelligence industry will become a new important economic growth driver. From the perspective of industrial development, artificial intelligence has been restructuring all aspects of economic activities such as production, distribution, exchange, consumption etc., generating new technologies, products and industries. According to government’s plan, currently there are 12 provinces that have proposed development goals for the core industry of artificial intelligence with a total investment of about Rmb429 billion.
4）Big Data Center
The future development of emerging industries will heavily rely on data resources. Therefore, from national government affairs to all industries, the establishment of data centers will help digital transformation and enable enterprises to use cloud computing. The market size of the big data industry is expected to reach about Rmb160 billion in 2020 if the growth momentum at early stage is maintained.
5）New Energy Vehicle Charging Piles
As of the end 2019, the total number of public charging piles and private charging piles nationwide was 1.219 million units, while the number of new energy vehicle was about 3.8 million units, indicating the new energy vehicle-to-pile ratio was about 3:1 which is lagged behind the planned ratio of nearly 1:1 as stated in “2015 Electric Vehicle Charging Infrastructure Development Guide”. According to the estimation of National Energy Administration, 150,000 new public charging piles, 300,000 new private charging piles and 8,000 new public charging stations will be added in 2020. The construction scale of new energy charging piles in 2020 is expected to reach about Rmb20 billion to Rmb30 billion.
The value of UHV is that the voltage levels above ± 800 kV for DC and voltage levels above 1,000 kV for AC can greatly improve the transmission capacity of China’s power grid. China is the only country in the world that has put UHV transmission project into commercialization. The State Grid Corporation of China plans to start construction of 12 UHV lines in 2020 with a total investment of Rmb150 billion.
7）Intercity High-speed Railways and Urban Rail Transit
China’s urbanization rate in 2019 is 60.6%, still lagging behind developed countries with an average rate of about 80%. The evolution process of urbanization in China will change to city integrations (such as Guangzhou-Foshan integration, Beijing-Tianjin-Hebei integration, etc.). Many cities vigorously promote the construction of urban and intercity rail transit. There is still very large gap even if in relatively developed cities such as Beijing, Guangzhou, and Shenzhen. According to statistics from the National Development and Reform Commission and the China Railway Group, the number of kilometers of intercity expressways started and continued in 2020 is about 1134 kilometers, and the unit cost is about Rmb87 million to Rmb129 million per km with total investment scale of about Rmb140 billion.
The significance of “New Infrastructure”: Technological advancement allows China to smoothly overcome the middle income trap
China adopted a large-scale expansion of infrastructure construction measure in response to the Asian financial crisis in 1998 and the international financial crisis in 2008. In particular, investments in railways, highways, airports and water conservancies, which significantly reduced freight costs and laid the foundation for the subsequent e-commerce explosive rapid growth in consumption sector.
The environment in 2020 has changed over years. At present, China’s GDP has exceeded Rmb100 trillion, and GDP per capita already exceeded USD10,000. This size of economy is easily to fall into middle income trap which is hard to compete against low-income countries on labor cost and hard to compete against developed countries on cutting-edge technologies.
Referring to the Solow economic growth model, the three most important variables are population, investment and technology. China’s population is ageing and China’s demographic dividend is disappearing. Besides, China has used its large-scale investment in capital expenditure maximizing the capital dividend in the past 20 years. The only way to maintain high-speed growth and overcome the middle income trap is technological advancement.
In fact, Chinese government has been increasing the importance of “New Infrastructure”. The current proportion of “New Infrastructure” accounted for approximately 13% of total infrastructure investment. Most of the new infrastructure projects will promote the progress of China’s science and technology in the short, medium and long term, leading the development of China’s high-end manufacturing and service industries.
ZWC portfolio companies in “New Infrastructure”
ZWC Partners has invested in Industrial Internet, Artificial Intelligence and New Energy sectors. Investments in leading companies including RootCloud, 4Paradigm, Yitu Technology, Leyan Technologies, EV Power, etc.
In the future, ZWC Partners will continue to take advantage of its geographical advantages, perform in-depth research and invest in Industrial Internet, Artificial Intelligence and New Energy sectors. ZWC Partners will also explore sectors including big data, 5G technologies, chips and other New Infrastructure related areas.
RootCloud is an industrial internet platform incubated by Sany Group. In February 2020, RootCloud platform has already connected to over 580,000 industrial equipment, built 20 industrial internet platforms, empowered 81 sub-sectors and connected to assets over Rmb470 billion. RootCloud has accumulated over 400 clients and business partners.
4Paradigm is one of the world’s leading providers of artificial intelligence technologies and services. 4Paradigm possesses world’s leading machine learning technology which is able to accurately predict, perform datamining, help enterprises improving efficiency, reducing risks and generating greater business value.
Yitu technology possesses full stack of self-developed artificial intelligence technologies. It has reached the leading level in computer vision, speech recognition, semantic understanding, intelligent decision-making, AI chip and other fields in China. Yitu technology focuses on the deep development of artificial intelligence technologies and enabling industry. Yitu has launched the leading innovative technologies and products in Intelligent City, science and technology finance, intelligent medical, new retail, intelligent chip, intelligent pharmaceutical and other fields.
The intelligent communication system developed by Leyan Technologies has been widely used in the field of e-commerce, assisting human customer service in daily customer service operation. The artificial intelligence robot greatly improves customer service efficiency and sales conversion rate. Leyan robot is currently serving more than 10 million users per day.
EV Power is one of the earliest companies to develop electric vehicle charging business in China. EV Power is currently one of the China’s largest community new energy vehicle charging operator with a business scope covering more than 50 cities across the country. The number of charging piles ranks number one in residential community.