The Chinese Digital Economy

By Ma Huateng, Meng Zhaoli, Yan Deli and Wang Hualei

This book points out that “Internet” is the means, and the digital economy is the result. Therefore, the development of digital economy will inevitably have a profound impact on traditional enterprises and Internet enterprises and become the main way and new driving force for China's innovation and growth.

The book starts with the concept of digital economy and reveals the current development of digital economy, how to improve the foundation of digital construction, and the strategies for accelerating digital transformation of various industries, the problems that need to be solved in the development of digital economy and the huge role it will play in promoting society. The book provides a clear blueprint for the government and enterprises to understand and formulate policies and development strategies in the era of digital economy. 

• Language: English
• Publisher: Palgrave Macmillan
• Release date: Jan 25, 2021
• ISBN: 9789813360051

Book preview

Part ITheories: Digital Economy, a New Form of Economy and a New Driver for Growth

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021

M. Huateng et al.The Chinese Digital Economyhttps://doi.org/10.1007/978-981-33-6005-1_1

1. Connotation and Characteristics of the Digital Economy

Ma Huateng¹  , Meng Zhaoli¹, Yan Deli¹   and Wang Hualei¹

(1)

Tencent Research Institute, Shenzhen, China

Yan Deli

Email: [e-mail]

The Report on the Work of the Government (2017) restated that we will push forward the in-depth development of Internet Plus and explicitly stated the requirement of accelerating the growth of the digital economy for the first time. The development from the Internet to Internet Plus and then to the digital economy is a continuous process that advances with the times. The Internet represents emerging technologies and advanced productive forces. Internet Plus, a burst of value as the result of the Internet upgrading, invigorating, innovating, and empowering other industries, highlights connectivity. However, the digital economy presents the outputs and benefits generated after achieving universal connection. That is, Internet Plus is the means while the digital economy is the outcome. The traditional industries and the Internet industry realize a cross-sector integration through Internet Plus, bringing about major developments in the digital economy: on the one hand, such developments smooth over the process of replacing old growth drivers with new ones and facilitate the supply-side structural reform; on the other hand, they help to give impetus to achieving the goal of building China’s strength in cyberspace.

What Is the Digital Economy

The digital economy is a new form of economic and social development after the agricultural economy and the industrial economy. People’s understanding of the digital economy is a process that has been deepened progressively. Among those numerous definitions of the digital economy, the one put forward in the G20 Digital Economy Development and Cooperation Initiative released during the 2016 G20 Hangzhou Summit is the most representative. The initiative holds that the digital economy refers to a series of economic activities with digitalized knowledge and information as key factors of production, the modern information network as their primary carrier, and the effective use of information and communications technology (ICT) as a major driving force for increasing efficiency and optimizing the economic structure.

With the in-depth development of the digital economy, both its connotation and denotation are constantly evolving. It is difficult to accurately draw a line between the digital economy and other economic forms based on the current classification of industries in the national economy and the existing statistical system. The infrastructure industries of the digital economy, including computer manufacturing, communication equipment manufacturing, electronic device manufacturing, telecommunications, radio and television, and satellite communication services, and software and information technology services, and industries, and such sectors as Internet retailing, Internet, and internet-related services are almost all completely built upon digitalization and thus could be regarded as falling into the category of digital economy. Another obstacle to accurately defining the digital economy is that a digital economy is an economy characterized by integration. The increase in output and improvement in efficiency arising from the application of information and communications technology and the transformation towards digitalization in other industries form the main part of the digital economy. With its proportion in the digital economy increasing, it is getting more and more difficult to measure such a part accurately.

In fact, the concept of digital economy is transitional. The Internet is bound to be an ecological element penetrating all industries and all segments of economic and social activities, just like water and electricity, continuously providing impetus to the national economy. By then, no one would mention the digital economy just as no one would say he or she owns a company that uses electricity today.

The History of the Digital Economy

In the 1990s, the global economy was sluggish but the United States managed to maintain its sustained rapid development. As of the end of the year 2000, the United States had registered 118 consecutive months of growth, thus recording the longest growth. That period was characterized by the coexistence of two ‘high’s and two ‘low’s, namely, a high economic growth rate, a high production growth rate, low unemployment, and low inflation. Such high-quality growth had been rarely seen in the history of capitalism, with a lot of emerging new features that differ from those of the previous development models. The most prominent feature was that the modern information and communications technology had appeared among factors driving growth for the first time—the 1990s also the era witnessed revolutions driven by the information and communications technology in full swing and the commercialization process of the Internet at the beginning. Former US Labor Secretary Robert Reich once commented that 70% of such a round of growth in the US economy should be attributed to computers and the Internet. The bitstream composed of 0’s and 1’s on the internet has changed the way information is transmitted and exchanged, and the way commodities are circulated and traded. Once the Internet was commercialized, it demonstrated its strong vitality. Under such a background, the concept of the digital economy was proposed, attracting widespread attention.

Canadian business strategy guru Don Tapscott is arguably one of the first to put forward the concept of digital economy. In his 1995 book titled The Digital Economy, he discusses the impact of the Internet on the economy and the society in detail. Following that, with the publication of a series of works, including The Information Age: Economy, Society and Culture by Manuel Castells and Being Digital by Nicholas Negroponte, the digital economy quickly became a popular idea. Governments in various countries also began to take the development of the digital economy as an important measure for promoting economic growth. The Ministry of Economy, Trade and Industry of Japan started to use the term digital economy in 1997. The US Department of Commerce released a report entitled The Emerging Digital Economy in 1998. After that, the department kept its focus on such a new economy phenomenon closely related to the Internet technology, and released multiple annual research reports centering on the theme of digital economy. Upon moving on into the twenty-first century, particularly since the outbreak of the 2008 global financial crisis, various countries in the world have started to formulate their respective strategies on the digital economy with the hope of stimulating their economic recovery through developing the digital economy.

China also attaches great importance to the role of information and communications technology in promoting economic and social development; but in specific progress of efforts, it mainly used such expressions as Golden Projects, information industry, informatization, and integration of informatization and industrialization, among others. The Report on the Work of the Government (2015) proposed the Internet Plus for the first time to accelerate the pace of economic transformation and upgrading by giving full play to the role of the Internet in integrated innovation. At present, China is vigorously developing the new economy and fostering new drivers of growth while starting to consider the issue of digitalization more from economic perspectives. The digital economy has been the highlight at such major events as the 2016 World Internet Conference, the G20 Hangzhou Summit, the group study session of the Political Bureau of the CPC Central Committee on the strategy of building China’s strength in cyberspace, and the Symposium on Cybersecurity and IT Application. In 2017, the expression digital economy made its first appearance in the Report on the Work of the Government, which opened a new chapter for its development.

Characteristics of the Digital Economy

As a new economic form, the digital economy presents its unique characteristics setting it apart from the traditional industrial economy, which are mainly manifested in the few aspects below.

Data Has Become a Key Factor of Production Driving the Economic Growth

With the booming mobile Internet and Internet of Things (IoT), the interconnection between people and people, that between people and things, as well as that between things and things have come true; thus, data see an explosive growth in amount. The growth rate of global data accords with the Moore’s Law of Big Data, which means that the data tend to get roughly doubled every two years. The sheer amount of data, coupled with the demands for processing and applying the data, has bred the concept of big data. Data has increasingly become an asset of strategic importance. Data resources will be the core strength of an enterprise—whoever has data in hand will win an advantage. The same goes for a country. The US government believes that big data is the new oil of the future, the currency in the digital economy, and another core national asset other than land, sea, and air.

Just like land and labor in the agricultural era or technology and capital in the industrial era, data has become not only a factor of production but also the most important one in the era of the digital economy. Innovation driven by data is expanding to various fields, such as technological research and development, economy, and society, and has become a key form of and the important direction for the innovation and development of a country.

Digital Infrastructure Has Become a New Type of Infrastructure

In the era of industrial economy, economic activities were based on physical infrastructure represented by railways, highways, and airports. After the emergence of digital technologies, the Internet and cloud computing have become vital information infrastructure. With the development of the digital economy, the concept of digital infrastructure has been expanded to cover both information infrastructure, such as broadband connection and wireless networks, and the digital transformation of traditional physical infrastructures, such as water mains installed with sensors, digital parking systems, and digital transportation systems. The infrastructure of those two types has provided a necessary basic condition for the development of the digital economy and boosted the transformation of infrastructure from being represented by brick and mortar in the industrial era towards being represented by optical fiber and chips in the digital era.

Digital Literacy Has Become a New Requirement for Workers and Consumers

In the eras of the agricultural economy and the industrial economy, there was basically no requirement on the literacy of most consumers; though there were some requirements on the literacy of workers, such requirements were often limited to certain occupations and positions. However, digital literacy has become an important capability that both workers and consumers must possess in the context of the digital economy.

As digital technologies penetrate various fields, it is increasingly necessary for workers to get provided with dual skills—digital skills and professional skills. However, there is a general shortage of talents adept at digital technologies in various countries and 40% of companies find it difficult for them to get data talents they need.¹ Therefore, whether a worker has relatively high digital literacy has become an important factor for a worker to excel out in the job market. If a consumer does not have basic digital literacy, he or she would be an illiterate in the digital era incapable of using digital products and services correctly.

Therefore, digital literacy is one of the basic human rights in the digital era and a basic competency equally important as listening, speaking, reading, and writing. As improving digital literacy is conducive to both digital consumption and digital production, it has become a key factor for the development of the digital economy that will play its important role in laying the foundation.

The Boundary Between Supply and Demand Has Become Less and Less Clear

In traditional economic activities, the supply side was strictly divided from the demand side with a very clear boundary between the supply side and the demand side of an economic activity. However, the boundary between the supply side and the demand side will become less and less clear as the digital economy develops and suppliers and the demand side are gradually integrating into prosumers.

On the supply side, new technologies have emerged in many industries. The users’ needs are fully taken into consideration in the process of providing products and services, thus not only having created new ways to meet existing needs but also having changed the value chain in the industries. For example, many companies are using the big data technology to find out the users’ needs and have the products designed and works of film, television, and literature developed accordingly. Some even make use of the 3D printing technology to achieve fully personalized design and production. The same goes for the provision of public services. The governments are collecting opinions from the people to gain knowledge of economic and social data in a timely manner, so as to make sound decisions and implement them precisely. Correspondingly, there have also occurred major changes in demands. With increased transparency, consumer participation, and the emergence of new consumption models, companies have no choice but to change the original means of design, promotion, and delivery.

Increasing Fusion of the Human Society, the Cyberspace, and the Physical World

With the development of digital technologies, cyberspace is no longer just a virtual image of the physical world. It has truly evolved into a new world for human society, becoming a new space for human beings to live in. At the same time, the fusion of digital technologies and the physical world has also enabled the real physical world to develop at a speed comparable to that of cyberspace, bringing an exponential increase in the growth rate of human society. The fusion of the cyberspace and the physical world is mainly achieved based on the cyber physical system (CPS) as a unity of the information system and the physical system. The CPS, which is made up of ubiquitous systems engineering, such as environmental perception, embedded systems, network communication, and network control, is an integrated control system that combines computing with sensors and actuators. It enables various objects around us to get provided with such functions as computing, communication, precise control, telecollaboration, and self-organization so that the computing power is closely combined and coordinated with physical systems.

On such a foundation, with the development of technologies including artificial intelligence, virtual reality (VR), and augmented reality (AR), there occurs a cyber-physical-human system (hereinafter abbreviated as CPHS) featured with the fusion of man, machine and material. This system has changed the way human beings interact with the physical world, and a greater emphasis has been laid on the man-machine interaction and the seamless collaboration between machines and human beings. CPHS promotes the gradual disappearance of the boundaries between the physical world, cyberspace, and human society, forming a new, interconnected world.

Advancements in Information Technologies Constantly Drive the Development of the Digital Economy

Technological advancement spurs industrial revolution. The steam engine powered the Industrial Revolution while the information and communications technology triggered the information revolution, which in turn has boosted the continuous growth of the digital economy. In recent years, the breakthroughs made in and integrated development of such information technologies as mobile Internet, cloud computing, big data, artificial intelligence, IoT, and blockchain have facilitated the rapid development of the digital economy.

The development of the mobile Internet has fundamentally broken away from the restrictions and constraints of the wired Internet, expanded application scenarios of the Internet, and promoted extensive innovations concerning mobile applications. The mobile Internet itself has also evolved from the third-generation mobile communication technology 3G to 4G and then 5G. 5G focuses on expanding from the mobile Internet to IoT applications, so as to meet the future needs for the thousand-fold growth in traffic and the need of billions of devices for access to the