Central and local governments have introduced policies on investment and consumption to reduce the impact of the COVID-19 pandemic on China's economy and help it recover as soon as possible. China’s 2020 Government Work Report states that to “expand effective investment, priority will be given to new infrastructure and new urbanization initiatives and major projects, which not only boost consumption and benefit the people, but also facilitate structural adjustments and improve the sustainability of growth. We will improve market-based investment and financing mechanisms to support private enterprises in participating in projects on equal footing. We will ensure that projects are up to standard, so they do not create any undesired consequences and the investments made deliver long-term returns.” Given the current economic situation, traditional, new, and social infrastructure are key areas for such policies. In this way, new sources of economic growth will be found, and economic and social development will be ensured.

Goals of investment policies

The specific goals of the investment policies introduced to accelerate economic recovery are as follows: First, boost confidence in the economy and lead all economic entities to expect strong growth. All economic entities can thus be energized to help restore market order. Second, investment in specific sectors can generate more jobs and income, providing a stable environment for the recovery and development of the economy. Third, greater demand for intermediate products due to investment and construction projects can drive the recovery and growth of related industries. Fourth, large-scale investment in infrastructure, which is needed for industrial development, can lay a foundation for economic success.

The first targeted area of investment policies: Traditional infrastructure

Infrastructure related to transportation, energy and resources is a major priority, a point proved by both theory and experience. The first reason is that with investment in these areas, related industries will boom and more jobs will be created. The second reason is that expanded industrial capacity can remove roadblocks against the advancement of many industries and provide a better foundation for industrial development. Third, these areas are the foundation for all other industries, and thus need large-scale investment and feature long investment cycles and land acquisition difficulties. Government investment and policy support is thus more feasible.

Considering the current economic situation, infrastructure related to transportation and energy is still a priority of policies rolled out for economic recovery. Such infrastructure remains a primary factor that limits the growth of local economies, especially in underdeveloped areas. In regions where transportation, energy, and other traditional infrastructure is still the bottleneck of local industrial development and the development of such projects are within the carrying capacity of the local environment, traditional infrastructure can be regarded as a key area for investment policies. Investment in traditional basic industries should guard against excessive capacity. For example, with transportation and market demand improved, industries in underdeveloped areas may overexpand and face new problems, such as overcapacity.

The second targeted area of investment policies: New infrastructure

As industrial development is featuring digital transformation, intelligent upgrading and integration of innovative technologies, theory and practice have underlined new infrastructure,” which includes information infrastructure, converged infrastructure, and innovation infrastructure. In the new stage of development, such infrastructure will have the potential to drive industrial and economic development.

The following issues should be considered when new infrastructure is being built:

First, new infrastructure cannot be finished overnight. Blind and excessive investment should be avoided so as to prevent excessive capacity. Second, the most important goal of new infrastructure is to provide new drivers for development. Additionally, enterprises can use new infrastructure to truly transform capacity into growth momentum. Therefore, the formulation of general and construction standards is necessary, and the pace of construction must make infrastructure meet the needs of enterprises, come into operation quickly and help continuously unlock new potential for growth.

To support continued expansion of the economy, new infrastructure should achieve seamless integration with economic entities. Therefore, integration methods need to be designed for enterprises, institutions, and individual consumers. To keep providing impetus for development, new infrastructure needs to be upgraded as time goes by. Therefore, China’s new infrastructure must be in line with global technological development trends and leading technical standards. Interfaces need to be reserved for new technologies and industrial upgrades. As a new source of economic growth, new infrastructure is expected to have visible impacts in the short term. But it is necessary to avoid over-investment or blind pursuit of advanced infrastructure, and keep the foreseeable needs of industries and enterprises in mind.

The third targeted area of investment policies: Social infrastructure

The systems of public services and social welfare were underlined by the Fourth Plenary Session of the 19th Central Committee of the Communist Party of China: “The state system of basic public services, including access to childcare, education, employment, medical services, elderly care, housing, and social welfare assistance must be improved.Utmost efforts must be made, and we must assess our capabilities and act accordingly. We must focus on strengthening inclusive, fundamental, thorough construction to support people’s lives, to guarantee the basic livelihood of the masses, while mproving mechanisms conducive to promoting fuller, higher-quality employment. We must perfect a social welfare system that covers all members of society and strengthen institutions and safeguards for improving public health.” Improving these systems is an essential to ensuring the stability and sustained growth of the economy. To achieve these goals, the improvement of the systems of public services and social welfare needs the support of social infrastructure.

As with traditional infrastructure investment, targeted investment in social infrastructure to make up for shortcomings can also play a role in the recovery and growth of related industries and the economy. Improvements of traditional and new infrastructure can also lay a better foundation for social infrastructure. For example, “new infrastructure,” such as the Internet of Things, big data, and artificial intelligence can provide technical support and open the way for the high-quality development of health care, emergency management, and reserves.

Therefore, investment to improve social infrastructure should include the following areas:

First, improving infrastructure that supports social programs (research and development, general and vocational education, public cultural facilities, medical and health care, elderly care, etc.), and perfecting infrastructure that enables equitable access to public services.

Second, systematic and professional training of human capital, in particular, building teams of capable and experienced professionals. Such training should focus not only on technical personnel, but also on organization management professionals and relevant human resources.

Third, improving public service systems that feature informatization, networking and intelligence, such as emergency management systems, storage and deployment systems of important resources. The improvement of social infrastructure is not only a key source of economic growth, but also ensures the long-term stability of the national economic system and activity.

In addition, prioritizing investment in social infrastructure lays a foundation for strengthening social development, a goal proposed by the 14th Five-Year Plan.

Facilitating social programs and improving related infrastructure can help boost the economy. Social programs and better social infrastructure can provide a good and stable environment and conditions for economic entities, ensure all classes and groups in all regions share in the rewards of development as China becomes an upper-middle-income country. These social changes also make inclusive development more efficient. Meanwhile, pursuing the specific goals of developing social programs leads to a discovery of more new drivers of economic growth and innovation paths for industries and enterprises.

Source: Nankai University News Network

Article Source: People's Tribune, June 5, 2020