China’s government is planning to spend US$1.4 trillion over the next six years to improve its infrastructure.
The planned investment will be dedicated to things such as high-speed rail, ultra-high voltage lines, building out 5G wireless networks, and developing AI software that could make autonomous driving and automated factories possible.
The infrastructure plan could also help China develop the industrial internet. Due to the coronavirus outbreak, China’s economy shrank in the first quarter for the first time in decades. The country also withdrew its annual growth target for 2020.
By increasing fiscal spending, China’s economy could recover faster and potentially improve its productivity. The planned spending will benefit many private sector companies too.
According to Morgan Stanley, China’s future new infrastructure spending could be around double the average spending on new infrastructure over the last three years.
The increased spending could help growth for many Chinese companies, some of which are listed in Hong Kong. Among the Chinese companies that could benefit, I think these three stand out.
If China’s new infrastructure plan shortens the timeline to mass autonomous driving, cloud providers such as Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) will indirectly benefit.
Many experts expect autonomous vehicles to use cloud processing to process some data for HD maps. Many also expect the cloud to store a lot of the data generated by autonomous driving.
Currently, Alibaba is the clear leader in China’s cloud infrastructure services market, with 46.4% market share as of the fourth quarter of 2019 according to Canalys.
Lately, Alibaba has also announced plans to spend US$28 billion on its cloud division over the next three years to solidify its position.
In addition to owning a leading cloud business, Alibaba is an AI leader in China as well. Alibaba has spent billions of dollars and many years developing various AI technology that improves ad-display efficiency and the company’s overall productivity.
The company has also spent a lot of money developing AI to sell to other companies. With the new infrastructure plan, Alibaba could sell more AI solutions to the government and companies.
Like Alibaba, Tencent Holdings Ltd (SEHK: 0700) a is a cloud leader in China that will likely benefit from the planned infrastructure spend.
As of the fourth quarter of 2019, Tencent was second place in terms of market share in China’s cloud infrastructure services market at 18%, according to Canalys.
Recently Tencent announced plans to spend US$70 billion (RMB 500 billion) over the next five years to also build out digital infrastructure.
Tencent will invest the money in areas such as AI, the Internet of Things (IoT), and the cloud. Tencent plans to invest in helping build infrastructure such as data centres, advanced servers, and 5G mobile networks as well.
3. China Tower
Finally, as China’s largest operator of mobile cell towers, China Tower Corporation Limited (SEHK: 788) benefits from 5G spending.
If China’s government plans to spend more money on 5G, China Tower will have more revenue opportunities. With more revenue opportunities comes more growth opportunities and better sentiment for the stock.
China’s planned increase in infrastructure spending will help boost sentiment for cloud companies like Alibaba and Tencent as well as 5G developers such as China Tower.