Digitalization in China: Why and how?
According to the Cyberspace Administration of China, the country’s digital economy reached 31.3 trillion yuan in 2018, which represented 34.8% of China’s total gross domestic product (GDP). The e-commerce transaction volume grew to 31.63 trillion yuan, online retail sales to over 9 trillion yuan and online payment users to more than 600 million.
As for China’s AI and IoT markets, their value has reached 33.9 billion yuan and 1.2 trillion yuan respectively in 2018.
Zhejiang is the leading province in China in terms of digital economic growth. According to Zheijang’s vice governor Gao Xingfu, the province has a digital economy worth 2.33 trillion yuan in 2018, representing more than 40% of the region’s total GDP.
First of all, China’s digitalization has not only affected traditional sectors by digitally transforming and upgrading them, but it has also led to the development of new digital industries.
E-commerce and fin-tech are two of the new sectors in which China is performing particularly well. China’s digital boom has also impacted the manufacturing industry through the development of intelligent factories and industrial internet platforms.
More specifically, many state-owned enterprises (SEOs) have followed the digital transformation. According to Weng Jieming, vice-chairman of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), 89 SEOs have implemented digital systems for the management of daily activities, and 69 have set up digital systems for HR and finance management.
The Chinese market
The rapid digitalization of China’s economy is partly due to the country’s huge market and its enthusiastic consumers when it comes to digital tools. With 854 million internet users in June 2019, China has enabled digital market players to benefit from economies of scale very quickly.
Moreover, the digital consumer market also contributed to the emergence of China’s three internet giants Baidu, Alibaba and Tencent. These companies have developed and invested in a wide digital ecosystem that has now spread to the whole economy.
On the other hand, the government has introduced additional local and national policies to support digital economic development in the country. China announced, for example, the acceleration of 5G, AI and IoT development to provide key infrastructure for the economy’s digitalization.
The government aims to integrate the Internet and AI in promoting the digitalization of major sectors. According to Wang Zhiqin, deputy director of the China Academy of Information and Communications Technology (CAICT), the 5G technology will contribute to a growth of 15.2 trillion yuan in the country’s digital economy between 2020 and 2025.
International cooperation: the digital silk road
The Chinese government also supports digital integration through international cooperation. One of the most recent examples is the construction of the digital silk road. China and 16 other countries have signed a memorandum of understanding to participate in this project. It is meant to strengthen internet infrastructure, introduce common technology standards and support e-commerce and mobile payment systems.
Recent governmental initiatives for further digital integration
6 Pilot zones for digital economic development
In October 2019, China started the construction of 6 national pilot zones for innovation and development of the digital economy in Hebei, Zhejiang, Guangdong, Fujian, Chongqing, and Sichuan. These zones will focus on exploring new production relations, supply mechanisms and serve as an example for other regions in the development of the digital economy.
Financial digitalization: Introduction of blockchain & launch of domestic digital currency
The Chinese government also announced in October that it is exploring the possibility of using blockchain technology and AI for financial regulation purposes. This announcement came just a few days after China’s President Xi Jinping called for greater blockchain adoption:
“We must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main directions, increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.”
Moreover, China is currently preparing to launch its national digital currency called Digital Currency Electronic Payment (DCEP). The central bank’s Digital Currency Research Institute (DCRI) already started to develop this currency system in 2018. However, according to the chief of the Chinese central bank Yi Gang, there is no timetable yet for the official launch of the DCEP.
To learn more about China’s new digital currency, read this article: New Digital Currency to be Launched in China
Announcement of China’s national AI Plan & AI pilot zones
China started to implement a new national AI-development plan in October 2019. The aim is to develop an AI industry worth 1 trillion yuan by 2030, which will boost China’s economic development. As laid out in the plan, AI technologies will be commercialized in the industries of blockchain, robotics, IoT, virtual reality and network security.
The AI initiative goes hand in hand with the previously mentioned acceleration of the 5G technology development, as 5G enables much faster data transfer, thus improving AI efficiency.
In addition, according to the guideline published in August 2019 by the Ministry of Science and Technology, China plans to launch 20 AI innovation pilot zones by 2023. These zones are expected to provide more policy support, technology infrastructures and to facilitate AI innovation and application.