China has a new digital transformation plan to induce local businesses and to help reduce dependency on foreign technology companies

China is injecting vast sums into market-wide digitization. Source: AFP

Inside China’s new $1.4 trillion-dollar digital transformation master plan

  • China has a new digital transformation plan to induce local business and to help reduce dependency on foreign technology companies
  • The government-backed plan will stimulate local tech initiatives in AI, 5G, data centers, cloud computing, among others

China aims to take pole position in the global technology race, even as US-backed sanctions and the economic fallout from the COVID-9 pandemic continue to impact the country.

The country represents the world’s second-largest economy behind the US, with a Gross Domestic Product (GDP) estimated to be US$14.4 trillion in 2020, with massive interests in manufacturing, agriculture, and export trade.

Over the last few years, China had established itself as a technological innovator as well, with private tech companies like Huawei Technologies, Alibaba, and Tencent Holdings propelling next generational developments in a variety of fields including wireless communication technology, smart manufacturing applications, and e-commerce innovations.

Chinese companies had already been hit by US-led sanctions even before the outbreak of the coronavirus originating in Wuhan, China, but public opinion has worsened since then. Now as economic and trade sanctions look to mount following the pandemic, the Chinese government looks to double down on homegrown technology to drive innovation and growth instead of foreign technology.

To this end, the Chinese government led by President Xi Jinping himself says it will invest an estimated $1.4 trillion over six years into the local digital economy, to accelerate the development of everything from 5G wireless networks to artificial intelligence (AI).

The technology investments will be part of an economic stimulus package that still needs approval from China’s legislative body, but is expected to pass with the backing of the government and the emphasis on reducing dependence on foreign tech purveyors.

China’s new digital transformation plan

Instead, cloud computing and data analysis-driven initiatives from Alibaba Group and Tencent Holdings are expected to form a large part of the latest local-first tech push, while Huawei has already been entrusted to spearhead the development not only of 5G network infrastructure, but of 5G- and IoT-powered development projects as well.

In addition, the government-backed China Center for Information Industry Development says the digital stimulus package will also be used to fund urban transformation endeavors between now and 2025, such as the development of ultra-high voltage power lines and high-speed rail lines alongside IoT and AI projects, with more than 20 of China’s 31 mainland provinces have already signed up to be a part of, according to a local state-backed newspaper.

These provinces have all launched policies that will support the development of new data centers in the country, as well as provide incentives for local companies that leverage on cloud computing services. Morgan Stanley estimates the bulk of the new tech spending will be in AI and data centers at US$57 billion, followed by US$46 billion in high-speed rail, US$56 billion in new 5G base stations, and US$27 billion in industrial internet of things (IIoT) applications.

Foreign companies looking to get a slice of these investment opportunities will have to think again: it is expected that the infrastructure endowments will mostly go to Chinese enterprises.

This would mirror recent contract awards in the 5G telecommunications scene, where national carrier China Mobile gave the contracts to build new 5G base stations to predominantly Chinese companies such as Huawei and ZTE, while only Sweden’s Ericsson a fraction of the infrastructure contracts, and others such as Finland’s Nokia were awarded nothing at all.