The Rise of China’s Digital Economy
October 27, 2023
China Digital Economy

China Digital Economy

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In addition to its robust physical economy, China’s digital landscape and its prominence as a digital economy are experiencing exponential growth, positioning the nation as a formidable force in the global market. With an increasingly highly educated and highly motivated workforce, China is assuming a leading role in the digital landscape. With their ascendancy underpinned by a number of advantages, such as technology, talent, coverage and more, we explore how China’s digital economy is transforming.

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What is a Digital Economy?

There is no one definition for a digital economy – it is so intertwined with the physical economy of a country or location that in many ways, the two overlap. A digital economy encompasses a variety of components ranging from e-commerce transactions and online sales from physical stores to digital currency, trading, and even the Internet of Things and blockchain technology.

The digital economy is characterized by smooth interactions between devices such as Alexa and your Amazon shopping list, online shopping on platforms like TikTok and other social media platforms, and the digital trading of currencies and securities. It involves both business-to-business (B2B) and business-to-consumer (B2C) services.

Generally, though, the digital economy is the total of business transactions that take place over the Internet in a specific country or locality. Some calculations also include other Internet-related services such as Internet coverage and access revenue.

What does China’s Digital Economy Look Like?

China boasts a strong and consistently growing digital economy. Notably, Chinese retail e-commerce sales have surpassed those of the United States retail every year since 2013, with a significant lead since 2015. As of 2021, the Chinese digital economy has surged to an estimated value of US$17 trillion (RMB 47.9 trillion).

Domestic Digital Landscape

As one of the world’s leading manufacturing nations, China’s digital economy comprises both domestic and international components. Within the country’s domestic landscape, the Chinese government actively supports e-commerce by encouraging its citizens to contribute to the economy through several annual commerce holidays and buying seasons. The popularity of mobile-based “infotainment” videos, where various influencers showcase products on social platforms or through videos, is a popular trend in China (read our article on the Livestreaming industry in China).

One of China’s major strengths in the digital economy is its mobile-centric approach. While most shoppers in Western countries associate online shopping with laptops or computers, Chinese consumers not only demonstrate a willingness to shop and engage with content through their mobile devices, but often prefer this method.

China’s Place in the International Digital Economy

Even in the international landscape, China serves as a worldwide center for a diverse range of products, renowned for its ability to provide high-quality items at incredibly competitive prices. These products often reach consumers in Western countries through platforms such as Alibaba and Temu. Furthermore, Chinese merchants are also actively present on marketplaces like Shopify and Amazon, where they promote products manufactured in China under their own brand labels, frequently taking advantage of Western fulfillment networks to ensure rapid delivery.

How is Digital Technology Transforming China’s Economy?

Internet Coverage

China not only demonstrates a strong appetite for digital consumption, but also possesses the necessary bandwidth to sustain it. In 2019, over 90% of China’s broadband internet relied on high-speed optical fiber connections, a stark contrast to the mere 15.8% of American broadband that made use of fiber optics in the same year.

A robust digital economy relies heavily on high-speed and secure internet access. Much of the digital economy revolves around the ability to efficiently download photos and videos, as consumers increasingly seek visual information about their purchases. People desire a clear view of what they are acquiring, and in the case of “infotainment” or social media shopping, sales and viewer interactions critically depend on high speed internet.

As a major driving force of their success as a digital economy, even remote Chinese villages have access to high-speed Internet and 4G internet coverage, with 5G available in all major cities and densely populated areas.

5G Cell Coverage

China is also competing with the US for superiority in 5G technology and has effectively harnessed the capabilities of American giants like Verizon and T-Mobile through companies like Huawei. As of 2022, China had erected an impressive network of over 1 million 5G base stations, serving over 500 million 5G users.

Big Data

China also excels in making use of the power of the data it has amassed. With one of the world’s most extensive and diverse data collections, they have mastered the art of leveraging it to maximize digital consumption and sales. Their proficiency in this domain is particularly evident in the techniques employed by social media and shopping apps.

Payment Apps

China leads the way in embracing the convenience of payment apps. Applications like WeChat Pay and Alipay enable users of platforms like WeChat and Alibaba to make seamless in-app purchases. In 2019, as many as 60% of Chinese mobile users took advantage of these payment systems. In contrast, in the United States during the same year, where fewer than 10% of the population made use of payment processors like Venmo or Apple Pay.

When it comes to new technologies and platforms, Chinese consumers are considered early adopters, especially when compared to other countries like the United States, where in-app payments and digital currency only gained significant traction during and after the pandemic. This distinction is accentuated by the fact that Alipay and WeChat Pay are not tied to specific platforms, unlike major payment processors in the United States.

The Chinese payment system is also notably more streamlined than in other Western systems, where certain payment options are restricted to specific apps and systems, and are not universally accepted.

Regulations

The Chinese government has adopted a relatively hands off approach when it comes to regulating the digital economy, but does prioritize a China first approach. Recognizing the critical role of the digital economy in GDP growth and China’s economic dominance, they have allowed the digital economy to flourish without heavy intervention. The regulations that are in place primarily aim to ensure sustainable growth, while preventing economic bubbles or crashes.

This regulatory framework has also provided a conducive environment for the growth of China’s domestic digital economy. For instance, when Alipay was first launched, global expectations were that it would swiftly integrate with PayPal. However, Chinese regulation did not permit an immediate entry for PayPal into China. As a result, Chinese payment processors had the opportunity to develop independently. By the time PayPal did enter China, it faced competition rather than being the dominant leader in a competitive marketplace.

This regulatory approach is consistent with technology regulation in China, which prioritizes the development of China’s own digital tools and industries.

China’s Digital Market Advantages

China possesses several advantages that have propelled it to rapidly become one of the world’s largest digital economies.

Population

Firstly, China boasts one of the world’s largest populations, second only to India. Due to their high level of Internet connectivity and vast population, they have the advantage of size over any other country. They simply have the largest number of users.

Internet Accessibility

Internet is highly accessible to the average Chinese citizen. Not only is the Internet available even in remote areas of the country, but it is also incredibly affordable. The average Internet package in China costs approximately $7 per month, equating to just about 1% of the average Chinese monthly income.

In contrast, in the US, the average monthly Internet package costs $90 per month, or about 2% of the average American monthly income. This translates to Internet being twice as affordable in China when considering currency differences and the cost of living.

World’s Largest Market of Internet Users

While the US may have the highest nationwide Internet penetration in terms of percentages, China boasts the largest population with internet access in absolute numbers. In terms of e-commerce and digital consumption, China holds clear market advantages.

Additionally, the average Chinese citizen exhibits a considerably high willingness to adopt new technologies and utilize them for shopping and other digital activities. This inclination significantly contributes to China’s success in cultivating its digital economy.

Mobile-first Internet Usage

China leads globally in the development of mobile-first internet tools. Unlike conventional websites primarily designed for desktop use, with mobile optimization as an afterthought, Chinese developers prioritize mobile usage by aligning with the preferences of Chinese consumers.

Notable apps like TikTok and Pinduoduo prioritize the mobile user experience. This, in conjunction with China’s seamless app-based payment systems, has made it exceedingly convenient for Chinese consumers to conduct the majority of their shopping using their mobile devices.

How China Develops Its Digital Economy

China recognizes the importance of digital economy in driving GDP growth. In acknowledgment of this, the government has implemented initiatives aimed at accelerating the digital economy’s expansion. One of the latest of these initiatives, the 14th Five-Year Plan on Digital Economy Development, encompasses well-thought-out objectives in crucial areas.

Each of the goals in China’s 14 5th year plan is carefully crafted to reinforce China’s position as a global economic leader. These vital areas encompass blockchain, 6G internet, sensors, integrated circuits, and semiconductor technology, all playing a paramount role in shaping digital infrastructure and ensuring China’s continued rise as one of the world’s largest digital economies.

MSA in China

For over a decade, MSA has dedicated itself to supporting foreign businesses in China. Our comprehensive range of services includes accounting, tax advisory, and corporate setup. Our team, with its wealth of experience, possesses a profound understanding of China’s intricate business environment. If you’re considering the possibility of working together, we encourage you to get in touch with us to arrange a consultation. We are fully committed to guiding you on your journey to achieving business success in China.

Disclaimer: all articles and its related content are the property of MSA Consulting Company Limited and may not be reproduced either in part or in full without prior consent.
China Digital Economy

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