Four days after signing an unprecedented $2 trillion relief bill to blunt the economic damage from the coronavirus pandemic, president trump called for the U.S. to spend another couple trillion bucks on a massive infrastructure package, to "be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4,” the president tweeted.
While spending massively on infrastructure investments to pop up economy sounds like what China usually would do in a crisis, and while China did roll out out a new infrastructure construction bill that is in effect a "stimulus plan" to counter the COVID-19 slow down, this time, China's infrastructure spending bill is called "NEW INFRASTRUCTURE" construction because the stimulus is going towards IT infrastructure rather than physical infrastructure.
In a way, US and China are at different times and have different options for stimulus. After decades of infrastructure investments, China's airports, roads and railways are relatively new, and return-on-investment on more roads and airports is decreasing. Anyone who has been to the new third airport in Beijing can marvel at how modern, how massive, how new that is. Furthermore, with public debt level already high, the government also has little leeway to inject massive capital that physical infrastructure build-out requires. Instead, targeted investment in IT infrastructure will generate higher return-on-capital and help China's ambition of becoming leader in the new industrial areas such as IOT, 5G, AI, cloud computing etc.
We think the new Infrastructure construction plan is the right kind of stimulus needs, and is certainly good for Venture Capital investors investing in the hardware space. The five areas in the plan includes 5G, ultra-high-voltage, Industrial internet, cloud computing, EV charging infrastructure. For CM Venture Capital, we are excited by the opportunities immediately from the infrastructure investments, including for example our investments in Crowntech Photonics and in Nanotop, both supplying materials and components to the 5G industry, but we are also looking at applications that the new IT infrastructure will enable, such as CM portfolio company Skysys' new applications in drone operation under 5G, industrial internet B2B services that will benefit from more robust cloud infrastructure in the country, and the emerging "connected car" space.
We have made a summary of China's New Infrastructure Construction, you can read it here.