Outlook Special Edition – Leading New Economy with the New Supplies of Smart Economy

2016-03-16 Posted by:admin Categor:Project cooperation
We should introduce policy to develop strategic emerging industries, increase the proportion of the smart economy, replace the outdated old supplies with medium and high-end new supplies, and lead the new economy in the new normal. 
Given economic slowdown and resource restraints, environmental conditions and income distribution relationships, China is unlikely to release “Version 2.0 of the Four-Trillion Investment”, so it is imperative to effectively implement a high-level rational supply management strategy. The 5th Plenary Session of the 18th CPC Central Committee proposed to “release new demand and generate new supply”, and decision-makers laid explicit emphasis on promoting the “supply-side structural reforms” and improving the “quality and efficiency of the supply system”.
Smart Economy Is an Important Attribute of Smart Investment
In the context of “Internet+”, the new economy, and with the implementation of smart manufacturing, Industry 4.0 and other major national strategies, smart cities, smart industrial parks, smart communities, smart housing and other smart economic forms will become important growth points in the future. In the new urbanization process, due to the constraints of resource conditions at the current stage, China has no choice but to generate new supply. Smart city construction is undoubtedly a particularly important part of the process as well as the basis of other smart economic forms.
In a broad sense, smart city means achieving the smart management of urban infrastructure by making full use of information and internet technology in the grid of various above ground and underground municipal facilities such as roads, water supply and drainage networks, gas pipeline networks, cables, optical fibers and street lamps. In a narrow sense, smart cities means building information infrastructure facilities in the city to be ubiquitous, including the optical network city, wireless city, tri-network integration, smart grid, and the IoT, so that the city’s information infrastructure facilities can be accessed by the public as needed like water and electricity.
It is clear that the smart economy, featuring the smart city, represents the future direction of overcoming resource constraints due to the fact that “the majority of Chinese people live in half of its land”, as shown by Hu Huanyong line, and shifting from an intensive development model to a sustainable development model. The development of smart cities and the smart economy should become an important area of China’s “smart investment” in the “13th Five-Year Plan” period.
Promoting the PPP Model to Support the Development of Smart Economy
Take the development of smart cities as an example. In recent years, China gave priority to developing the new generation of information networks, and considerable progress has been made in smart city infrastructure construction. However, while constantly achieving good results, some problems have revealed themselves.
Firstly, investors are mixed and uncoordinated. Smart city infrastructure investors include all levels of government, three major telecom operators, radio and television authorities, electric power companies, and other related businesses. Due to mixed investors and the lack of overall planning, the resultant force is limited.
Secondly, incentives for diversified investment and financing are not in place. In the early stages, smart city infrastructure construction projects mainly rely on fiscal capital from governments, but are of inadequate availability for private capital, and there is a lack of appropriate investment and financing incentives. Thus, such projects cannot effectively attract and drive private capital and social resources, and the multiplier effect of fiscal resources is not yet brought into full play.
Thirdly, operation and management efficiency is limited. This is mainly reflected in the fact that smart city infrastructure facilities are not fully shared or integrated. Different departments often build their own proprietary facilities that are not coordinated, making it difficult to achieve an efficient operation and management model.
To implement the smart economy through smart city construction, more favorable fiscal policies are required. However, in order to address the above issues, we need to establish an innovative mechanism, focus on priorities and take action in investment and financing management. Currently, as China continues to implement proactive fiscal policy and increase efficiency, the government deficit ratio and debt size will expand to a certain extent. As we establish an innovative mechanism, we should promote the PPP model as an institutional supply, and increase investment in the smart economy, including education, healthcare and other projects related to people’s livelihood. This is in line with the requirements of expanding investment support in a targeted and selective manner and increasing the supply of public services.
The PPP model is a collaboration and management model that allows the resources of the non-public sector to participate in the provision of public goods and services in the collaboration of the public sector with the private sector, so as to fulfill the functions of the public sector while bringing benefits to the private sector. Through such collaboration and management, we can provide more efficient public goods and services for the community and make better use of limited resources while appropriately meeting the private sector’s demand for profiting from investments. Therefore, this model is significantly innovative for addressing the above mentioned issues of attracting and offering incentives for diversified investment and financing as well as improving management efficiency and overall performance.
In the future promotion and collaboration of the PPP model represented by smart cities, there are at least three possible operating models.
I. The operating model of making full use of existing smart city infrastructure
The government can cooperate with private enterprises through sales, leasing, operation and maintenance contracting, transfer-operate-transfer, (TOT) and other forms. The government issues concession certificates to private enterprises, allowing private enterprises to participate in the operation and management of smart city infrastructure.
Private enterprises can buy or lease the right to use smart city infrastructure. In this form, private enterprises can charge users after obtaining concessions from the government. For example, the web hosting services can be further opened up to private capital, and telecommunications companies can commission their self-owned networks or equipment to private enterprises for third-party management and maintenance, thus promoting specialization and improving the service level. At the same time, the government should encourage private capital to invest in the internet, further open up the Internet Data Center (IDC) and Internet Services Provider (ISP) businesses to private capital, and guide private capital to participate in IDC and ISP business operations.
Private enterprises can operate and maintain the smart city infrastructure that is owned by the government. In this form, the government purchases services from private capital. By integrating the information resources of all departments, a unified government information resource management center can be established. Private enterprise partners can engage in the unified operation, maintenance and management of various departments’ e-government infrastructures. The government information resources management center can pay for the services of operation and maintenance enterprises, thus improving the utilization efficiency of resources.
II. The operating model of expanding and transforming the existing smart city infrastructure
For the smart city infrastructure in need of repair, expansion or transformation, the government can cooperate with private enterprises in the lease-build-operate (LBO), buy-build -operate (BBO), and wrap around addition forms.
In the transformation and expansion of smart city infrastructure, the government grants concession certificates to private enterprises, and the private enterprises are responsible for upgrading and transforming the existing infrastructure as well as operating and managing the upgraded infrastructure. Operators charge users and pay the concession fee to the government, accelerating the upgrading and transformation of existing smart city infrastructure while raising funds for the government’s building of new infrastructure. As a supporting measure, the government needs to lower the access threshold for transformation and expansion projects. When private enterprises apply for the design, construction, supervision and integration of smart city infrastructure transformation and expansion projects, the approval conditions and processes need to be simplified so that all private enterprises with the appropriate qualifications can equally participate in project bidding.
III. The operating model of constructing new smart city infrastructure
New smart city infrastructure can be roughly divided into two categories: the first category is the infrastructure that is built to replace the old infrastructure; the second category is infrastructure that is newly built to meet business needs and provide necessary capacity. For new smart city infrastructure, the government can cooperate with private enterprises in build-transfer-operate (BTO), build-operate-transfer (BOT), build-own-operate (BOO) forms and so on.
Build-transfer-operate (BTO) means that a private enterprise builds smart city infrastructure, transfers it to the government department upon completion, and then the private sector operates and manages it. This form helps to improve the efficiency and quality of infrastructure construction as well as operation and management efficiency. During the operation and management of smart city infrastructure, ownership belongs to the government, while private enterprises lease the right to operate from the government, and the building costs can be used as the rent.
Build-operate-transfer (BOT) means that a private enterprise builds smart city infrastructure, operates and manages it upon completion according to the term of concession, and transfers it to the government when the term of concession expires. During the operation and management, infrastructure belongs to the government, and the private enterprise does not need to pay royalties to the government, but shall return it to the government when the term of concession expires.
Build-own-operate (BOO) means that a private enterprise builds smart city infrastructure and obtains the ownership and “permanent” concession upon completion. A typical application is to encourage private capital to participate in the investment, building, operation and maintenance of base station rooms, communication towers and other infrastructure. That is to say, specialized operation, base station rooms, communication towers and other infrastructure can be outsourced to a third party private enterprise. The co-building and sharing of infrastructure facilities can also be strengthened.
Recently, China is accelerating market-oriented reform in the fields of infrastructure and public investment, and opening up market access. This is a very good opportunity for the promotion of the PPP model. We should seize the opportunity to establish and improve the relevant mechanisms and use private capital with a better effect.
To this end, we need to speed up legislation and provide the necessary demonstration and guidance, promote multi-party cooperation, capitalize on the momentum, and actively expand to other countries to connect with the “Belt and Road” Initiative. Meanwhile, in accordance with the policy to develop strategic emerging industries, we should plan with the big picture in mind, replace outdated old supplies with medium and high-end new supplies, increase the proportion of smart economy, and lead the new economy under the new normal. (Text / Reporters Jia Kang and Peng Peng)