How China’s Digital economy gained momentum in 2020
Published 3 May 2021
The word ‘Qiáng’ means powerful in Chinese.
Qiáng could be used to refer to China’s Digital economy, which has continued to grow at a blistering pace in 2020. This was largely aided by businesses going digital as a result of the COVID-19 pandemic.
A recent white paper on the Chinese digital economy development said that digital economy in China kept a high expansion rate of 9.7 per cent last year, amidst the pandemic and worldwide economic downturn.
The paper pointed out that the expansion rate of the digital economy was over three times that of the GDP, therefore demonstrating its pivotal role in stimulating economic growth.
The paper was released by the China Academy of Information and Communication Technology at the fourth Digital China Summit in Fuzhou, capital of east China’s Fujian Province.
The scale of the Chinese digital economy points to some stunning numbers. The Digital economy hit 39.2 trillion yuan (around USD6 trillion) in 2020, making up for 38.6 per cent of the GDP, which successfully backed epidemic prevention and control, along with economic growth.
Digital economy & GDP
The digital economy in Beijing and Shanghai both made up for over half of its regional GDP.
The report also noted that the digital economy accounted for 51.3 per cent of GDP in developed countries in 2019, while the number was 26.8 per cent in developing countries.
What this illustrates is that even though it is slightly less when compared to other economies, it is growing fast.
Fast, affordable internet connection and abundant data availability which is being harnessed lay the ground for exponential future growth. According to official data, the number of internet users in China was 940 million by the first half of 2020 and the country had an internet penetration rate of 67 per cent, 749 million online shoppers, and 805 million online payment users.
There’s also the rise of tech giants such as Alibaba, Tencent, Baidu and a host of others who are the torch bearers of China’s march going forward.
Industry watchers view this development through the lens of self-sufficiency in tech and having the right talent, considering the clout of American firms. According to Santosh Pai, Honorary Fellow at the Institute of Chinese Studies (ICS), the recently released annual work report of Chinese government is full of technology ambition.
“I think that is the broader theme. After US-China trade war and anti-China backlash post covid they are focusing on technology self-sufficiency,” he added.
Professor Chen Yubo from the School of Economics and Management and director of the Center for Internet Development and Governance at Tsinghua University recently wrote in China Daily that China needs to nurture and attract skilled digital talent to promote its digital transformation.
“As talent is the most important resource, digital talent is the foundation underpinning the future of the digital economy. To better tap the digital talent dividend and make up for its talent shortage, China needs to drive supply-side reforms of its labour market and education with digital skills and education that is tailored to industry needs and scientific breakthroughs,” he wrote.
Defend and Attack strategy
China made arguably the most important digital strategy decision in the history of the IT industry.
It decided it would not let the giant American companies such as Facebook, Google and Amazon to set up locally and then dominate the Chinese market, a strategy which was pursued in other nations. Instead, it decided to lend its weight behind its own firms—especially Baidu, Alibaba, and Tencent to build similar technology services. Now that strategy seems to be paying off.
According to McKinsey Global, China’s digital economy is massive, with an estimated $1.5 trillion of online retail transactions in 2019, or 25 per cent of the nation’s total retail transactions—more than twice both the volume and proportion of e-commerce in the United States.
The pandemic has accelerated digitisation all over the world. China was already ahead of the curve and now finds more justification to push forward digitisation.
“Government initiatives like Digital Yuan will build on the efforts private players over last few years,” noted Pai.
Also, like in India, industry watchers are of the view that the non-urban areas will be a key focus area of digitization in China. “The (digitisation) activity in urban areas are already saturated with e-commerce, ride hailing and other digital services,” states Pai.
Further, increasing domestic consumption in support of the dual circulation economy will also be driven by digitalization using the 5G infrastructure.
Slowing exports and an increase in volume of domestic markets indicate a strategy shift of the Chinese economy towards satisfying domestic demand.
As rural and urban households have witnessed a steady growth of disposable incomes, the spending power of the Chinese population has also increased dramatically and the Chinese market has matured into one of the largest and still growing consumer markets worldwide.