China's digitized economy

2024 Author: Seth Attwood | [email protected]. Last modified: 2024-01-16 18:34

At the end of 2016, Beijing announced that China came second in the world in terms of the level and scale of development of the so-called digital economy. In particular, in November, China hosted a Forum on the Digital Economy as part of the Third World Conference on Internet Governance.

As the director of the State Chancellery for Internet Information Affairs Ren Xuilin said at the forum, the scale of China's digital economy in 2015 was estimated at 18.6 trillion. yuan (approximately 2.7 trillion US dollars, or almost 14% of the PRC's GDP). The assessment is rather arbitrary, since there are no well-established and reliable methods for calculating the size of the digital economy sector.

Until now, there is not even a clear definition of the digital economy. In a narrow sense, this refers to the development and production of information and computer technologies (ICT). This includes most of what is commonly called "high-tech" (high-tech companies). Specifically, ICT refers to the development and replication of computer technology (both hardware and software), mobile communications, the Internet, and other means of communication.

In a broader sense, the digital economy also includes ICT users. These are banks, trading companies, insurance companies, industrial, agricultural and other manufacturing firms. ICTs provide direct and quick interaction between participants in various markets, and, first of all, companies with end consumers of goods and services. These “digitized” connections take the form of e-commerce, e-banking, e-banking, internet advertising, internet insurance, internet consulting, internet games, and the like.

Expanding this concept further, the digital economy also includes ICT-enabled in-house production. This means, first of all, equipping production with machine tools with software, as well as the introduction of computers to improve the management of different areas of production (corporate governance). However, today robotics is taking the first place, which makes it possible to make some parts of production and management completely deserted.

Finally, in the broadest possible sense, the digital economy also includes “digitized” public administration, the concept of which is radically changing. Previously, the state bore certain obligations to society, fulfilling them in accordance with the powers that were determined by the constitution and other laws. Today the state is gradually shifting to "providing services" (in the field of health care, education, culture), while services are becoming paid. Commodity-money relations are being built between the state and citizens, in the sphere of which ICT is being actively introduced. In some places, such “digitized” relations between the state and society have been called “electronic government”.

And China today is indeed ahead of most countries in the world in digitizing its economic life. According to the Boston Consulting Group (BCG), in 2014 the share of e-commerce (trade through online stores) in the total retail turnover in China was 8.4%. Higher relative indicators were recorded only in the UK (11.4%) and Germany (10.2%). And in countries such as the United States and Japan, they were lower (6, 8 and 6, 2%, respectively). True, other elements of the digital economy in China are less developed than in the US and EU countries. We are talking, in particular, about electronic banking, electronic payments, etc. As you can see from the table. 1, e-commerce accounted for about 55% of all turnover in China's digital market.

Development of the digital market in China (billions of dollars)

Development of the Internet in China

Of the year	2007	2011	2014
Number of users, mln.
Fixed internet	210	513	649
Mobile Internet	50	356	557
Number of users to population,%
Fixed internet	16, 0	38, 3	47, 9
Mobile Internet	3, 8	26, 5	41, 1

Read also: The Chinese are not at all 1.5 billion?

The number of mobile Internet users is growing at an outstripping pace. Tab. 1 shows that in 2011-2014. The value turnover of operations in the digital market of China using the fixed (landline) Internet has grown 3 times, and with the use of mobile - 7, 2 times. Experts predict that in a few years, the mobile Internet in China will surpass the fixed Internet in both the number of users and the cost of operations.

I would like to draw your attention to the fact that digital transactions are becoming an important part not only of China's internal market, they are beginning to take over the country's foreign economic relations. At the end of 2016, the Alibaba Group Research Institute released the China Cross-Border Electronic Commerce Development Report 2016.

Here are some figures from the report. In 2015, China's cross-border e-commerce volume was 4.8 trillion. yuan (about $ 740 billion) and increased by 28% over the same period last year. Cross-border e-commerce accounted for 19.5% of China's total import and export trade. China's cross-border e-commerce volume is expected to reach $ 12 trillion by the end of 2020. yuan (1 trillion 818 billion US dollars) and will amount to 37.6% of the total share of China's import-export trade. One of the priority geographic areas of China's cross-border e-commerce is the Russian Federation.

The rapid development of retail cross-border trade is a new phenomenon not only in the economic life of China, but also in the entire world economy. The Alibaba Group report proposed a concept for the Electronic World Trade Platform (eWTP). This open and transparent platform is designed to facilitate the development of world trade. The concept was put forward by the Alibaba Group, it is obvious that it would like to take a leading position and determine the rules of work on this site. Some experts assess the Chinese concept of e-commerce as a blow to the positions of transnational corporations (TNCs). Others believe that this is just one of the subjects of constant competition between various TNCs in the world market. The same Alibaba Group is a typical multinational corporation that seeks to take control of the global e-commerce. However, competitors have already managed to react to the initiative of the Alibaba Group. At the end of last year, there was information that the US authorities put the specified Chinese corporation on the black list of companies operating in the "pirate markets". Alibaba Group was once on this list, but four years ago it was excluded from it. Now everything is returning to normal. The US authorities say there is a huge amount of counterfeit through Alibaba Group's online platform Taobao. During his election campaign, Donald Trump accused Chinese companies of violating intellectual property rights, hinting at the Alibaba Group with its counterfeits based on the use of other people's brands and patents. Alibaba Group President Michael Evans said he was upset by this decision. According to him, it is not yet clear whether "it was adopted on the basis of facts or dictated by the political situation." Many took the Alibaba Group decision as the first shot in the U. S.-China trade war.

There is another curious aspect of the Chinese digital economy. At present, Beijing is extremely concerned about how to ensure the country's economic growth rates at a level not lower than 6.5-7 percent per year. One of the means of solving this problem, they see, is the introduction of serious adjustments in the methodology of statistical accounting of macroeconomic indicators. In particular, Beijing is demanding that the country's statistical offices more fully take into account the digital economy in the GDP indicator. Such accounting will provide a substantial "paper" growth of the economy and create the appearance of a dynamic development of the country.

Another aspect of the digital economy of the PRC is associated with such an initiative of the authorities as the introduction of the Social Credit System. It should be launched throughout the country by 2020, but for now (since 2014) it is being tested as an experiment in a number of regions of China. We are talking about a system of social ratings that every Chinese citizen should receive. The party-state leadership of the PRC plans to organize monitoring of the behavior of the Chinese in various spheres of life and establish a centralized collection, storage and processing of initial information. For "good behavior" citizens will receive points, for "bad behavior" points will be deducted. The authorities are interested in the behavior of their subjects in social and party life, at the place of work and at the place of residence, as well as behavior in the family, abroad, etc. Much attention will be paid to how a Chinese citizen behaves in the field of market relations, what he buys, what he spends money on (except for goods), how accurately he fulfills his obligations on borrowed loans, etc. Depending on the ratings received, the citizen will have incentives or, conversely, punishments. In September 2016, the government of the PRC published an updated list of sanctions that will be subject to holders of low ratings: a ban on work in government agencies; denial of social security; especially thorough inspection at customs; a ban on holding managerial positions in the food and pharmaceutical industries; refusal of air tickets and berths on night trains; denial of places in luxury hotels and restaurants; a ban on the education of children in expensive private schools.

An electronic dossier will be created for each citizen. And a significant part of the information will come to these dossiers from the digital economy sector. The government plans to integrate the Social Credit System electronic database with the digital networks of the Chinese economy. Eight private companies, including Alibaba, are helping the government to create the Social Credit System. About 400 million clients a month pass through its trading platform. Alibaba uses its own Sesame Credit rating system, and the principles for evaluating and incentivizing clients under Sesame Credit are broadly the same as official approaches to the Social Credit System. In particular, the high rating of Sesame Credit allows customers to rent cars and bicycles without collateral, get to the doctor without waiting in line, receive loans at a lower interest rate, etc.

Some experts believe that in China over the next decade, a single state-corporate "electronic cap" could be created, under which one and a half billion people will be found.