China's 'Two Sessions' 2024: 'Blind Investments' in Digital Economy Harmful, Rep Says

As China aims to find new growth points to counter US pressure, local governments should focus on finding competitiveness in specific sectors of the digital economy instead of jumping in „blindly,” according to the Economic Adviser's proposal.

„There are medium-sized cities that have listed everything as their main focus on economic development: artificial intelligence, cloud computing, big data, hi-tech software, IT services, 5G, Internet of Things and integrated circuits,” Lu said. Deputies to the Chinese People's Political Consultative Conference (CPPCC) — Beijing's top consultative body — began its annual meetings on Monday.

„This broad and cover-it-all approach reflects that many local governments do not consider their competitiveness when doing their economic planning and lack the awareness to create a digital economic environment,” he told Shanghai-based The Paper. Before the start of the „Two Sessions”.

Such a trend would harm the economy as there would be „blind investments, wastage of resources and overlapping of projects”, he said, adding that the central and provincial governments should come up with coordination and oversight mechanisms.

Lu's comments came as local governments released their budgets and development plans ahead of two sessions marking the annual meetings of the CPPCC and China's legislature, the National People's Congress.

Many local governments plan to issue „computer vouchers” to subsidize companies related to artificial intelligence (AI) and data processing.

China faces challenges in developing domestically-grown cutting-edge technology under expanding U.S. sanctions that affect access to advanced chip-making equipment and AI processors.

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Guizhou, China's cloud computing capital, includes a budget of 100 million yuan (US$13.9 million) in vouchers for companies to purchase AI and data processing services.

Local governments have announced plans to build AI computing centers, including last month when officials proposed a 460 million yuan facility in Pingfang in the northern city of Harbin.

As of March last year, more than 30 cities were building or proposing to build AI computing centers, according to a report by the state-backed Xinhua news agency in December.

Lu suggested that local governments should find their competitiveness in developing the digital economy by leveraging existing industrial foundations and local resources.

Governments should also distinguish between areas that need an experimental and innovative approach from areas that aim to serve the public, Lu added.

„Let the market move the areas that need innovation and let growth be less corporate and city-centric. The government should play a role in providing the infrastructure and policy support to transform the digital economy for public services,” he said.

„More developed cities have the capacity to innovate in the digital economy, while less developed ones need to focus on economic transformation and growing the digital economy for the public good.”