Addressing the Issues in China's Digital Economy Development

Professor Ba Shusong believes that，the development of digital economy industry requires both re-positioning in the “dual circulation”economic development paradigm and the selection of targeted policy measures based on the new features of the digital economy industry.

With the invention of computer and the rapid development of electronic information technology，digitization has brought tremendous momentum to global economic growth，and objectively triggered a digital revolution. The revolution aims to digitalize information with information technology and the Internet， improving economic efficiency and realizing a new economic pattern that may reasonably allocate social production and resources - digital economy. In view of the situation in China，how can we achieve a higher level development in digital economy and promote the formation of a new dual-circulation development pattern  by ensuring its deep integration with the real economy? In this session’s China Forex，we had an exclusive interview with Professor Ba Shusong，Executive Dean of the HSBC Financial Research Institute of Peking University，Chief Economist of the China Banking Association and Vice President of the China Macroeconomics Association，and discussed major issues on China’s digital economy development.

China Forex: Digital economy has already become a major area of global competition and an important driving force for economic growth. At the current stage，what are the differences of digital economy development between China and other countries? What are the focuses of the competition in this area? And what  international experiences China may learn from?

Ba Shusong: To look from a global perspective，the differences of digital economy development between China and other countries are mainly reflected in three aspects.

First，compared to developed economies，China’s digital economy has a large total scale but takes up a small GDP proportion，there is still much room for expansion. Statistics from China Academy of Information and Communications Technology shows that the United States topped the world in digital economy with a total scale of US$11.5 trillion，while China ranks the second with US$4.02 trillion. In terms of the proportion of digital economy in total GDP，Germany，the United Kingdom and the United States stay at the top level，while China only reaches a middle level with 30.5%. This means that although China’s digital economy is large in scale，it’s still underdeveloped，which suggests there is plenty room for future growth.

Second，compared to developed economies，China’s digital economy development is uneven. McKinsey Global Institute measures the value added by ICT industries as a share of GDP in each region of major economies，and defines it as the iGDP Index. As per the result，developed economies generally have a more balanced regional digital economy development than developing economies. That’s because their solid industrial foundations are able to provide more space for the integration and development of digital technology and real economy. Regional developmental differences also appear in developed economies，but the differences are not as prominent as in a huge economy like China. Regional agglomeration is currently a major feature of China’s digital economy development，and Beijing-Tianjin-Hebei，Yangtze River Delta，Pearl River Delta，and the urban clusters in the middle and lower reaches of the Yangtze River are at the heart of digital economy development. This is also attributed to the superior economic foundation of these areas，which provides sufficient resources (both talents and funds) for the development of the digital economy，but also causes significant siphonic effect to the surrounding regions.

Third，compared to developed economies，China has a more rapid growth in digital economy，and our technological update and iteration are also relatively faster. However，we need to further focus on the innovation and breakthroughs in key technical fields，improve the global layout of the industrial chain and supply chain related to digital economy and enhance its risk resistance capability. According to the calculation by Chinese Academy of Social Sciences，China’s total scale of digital economy might reach 32.67 trillion yuan by 2025，and the overall nominal average annual growth rate will be 11.3%. This is a reflection of our industrial policy and enterprises’ investment in scientific and technological innovation in recent years. Technological innovation，especially the development of information and communication technologies related to digital economy and relevant enterprises，is on the top supporting list of senior government authorities，industrial policies and capital market policies，and  it is also the part that needs to be strengthened in China’s digital economy. China is expected to maintain a rapid growth in this field，which also means，in order to promote the development of China’s digital economy，greater efforts need to be made to drive technological innovation.

Digital economy development is valued by all the world’s major economies from the national strategic level. Almost all OECD members have developed their respective national digital development strategy. And as suggested by their strategies，competition in digital economy mainly falls in the following areas.

First，artificial intelligence (AI)，block-chain and quantum computing are hot competitive fields. By mid-2020，more than 60 countries formulated their national Al strategies. Australia，China，Germany，India，Switzerland and other countries have launched block-chain strategies of their own. The United States，China and the European Union have also increased their research and development expenditures on quantum computing.

Second，data access to public sectors and various market entities，as well as data sharing under privacy protection would be a major focus in the future. China has a comparative advantage in this field. Innovation in data security is the key to promote the transformation of data into asset， the major factor to balance privacy protection and data application potentiality release，and  the major breakthrough direction of  digital economy development in the future.

Third，promoting digital industry and transforming traditional industries with digital technologies remain to be the focus in future global digital economy competition，which not only enables traditional industry transformation，but also makes data an effective production factor. ICT technology can be widely used in industrial manufacturing，and will gradually facilitate the formation of new economic patterns including intelligent manufacturing，personalized customization，networked collaboration，and service-oriented manufacturing. Also along with its continuous development and innovation，ICT technology itself is becoming one of the leading industries of our economic society，which will further promote the transformation of traditional industries with digital technologies.

Different countries are at different stages in digital economy development，and vary from one another in endowment resources，thus each country objectively has its own strategic needs to “strengthen advantages and make up for shortcomings” in the development process. It is also the future development trend of various countries in digital economy. The US and UK are among the first few countries to deploy and promote digital economy from the national strategic level，thus are much earlier than others in policy and regulation issuance，infrastructure construction，talent cultivation，technology accumulation and  promotion. While for Japan and South Korea，the thriving digital information industry has laid a solid foundation for the development of their digital economy. Their long term policy support and laws and regulations on digital information industry also create favorable condition for digital economy growth. To learn from the successful experience of these countries，we shall: First，improve our strategic development plan. To achieve the development of digital economy，the developed countries not only rely on their strong economic strength and human resources but also  the formulation of strategic plans of digital economy which supports related key directions. In fact，this is very similar practice whether it is in China or in Western countries who claimed they will never intervene in their industry. Next，attach importance to the protection of intellectual property rights. Innovative software and digital content companies that operate upon copyright，trademark，patent and trade secrets are the most active subjects in digital economy era，and effective protection and enforcement of intellectual property rights are critical to their operational success and growth. Last，enforce legal construction to ensure the security of digital economy. In order to cope with information security risks and ensure the healthy development of digital economy，many countries put information security on its top list of national policy and work out all-round and comprehensive digital security strategies to coordinate related resources and strengths in related fields.

China Forex: China is speeding up efforts to foster a new development paradigm with domestic circulation as the mainstay and domestic and international circulations reinforcing each other. In your opinion，how should we promote it with digital economy?

Ba Shusong: Building the “dual circulation” development paradigm，in which the domestic circulation as the mainstay and domestic and international circulations reinforcing each other，is a significant strategic layout during the 14th Five-Year Plan period，whose social and economic impacts are all-round and fundamental. At the end of 2020，the Central Economic Work Conference pointed out that “we must boost the digital economy”. The government work report of the Two Sessions also specified to speed up digitalization and pursue the Digital China. It is also clearly stated in the 14th Five-Year Plan that China is expecting the core industrial added value of digital economy to account for around 10% of GDP by 2025，and relevant policies for the coming five years were deployed in four aspects as digital economy，digital society，digital government and digital ecology.

The development of digital economy industry requires both re-positioning in the “dual circulation” economic development pattern and the selection of targeted policy measures based on the new features of the digital economy industry.

First，make good digital economy layout under the new development paradigm. At present，relevant state departments and some regions have successively launched regional financial technology or digital economy development plans. The layout of new digital economy industry is inharmonious among different regions and industries，and most underdeveloped regions are only at the initial stage in their digital economy industry and enterprise development. Therefore，we should develop a national level development plan for digital economy industry based on the requirements of the new economic development paradigm，which shall not only consider the long-term goal of integrated development of the digital economy industry，but also take into account the positive effect of digital economy development on real economy regional coordination，so as to lead the development and planning of digital economy across the country.

Next，realize the integration between digital economy industry and  other industries. The industrialization of digital economy means to develop special products，new organizational forms and brands with market power for the digital economy industry. On one hand，we need to center on the new development paradigm to boost the platform economy. By the platformization of industrial economy，we break the limitations of domestic and foreign economic operations in time and space，realize more transactions in cyberspace and improve the successful rate of related transactions and widely apply digital economy technology to platform economy and real economy development. On the other hand，we should strengthen the all-round integration of the digital and real economy. Both the industrialization of the digital economy and the digitization of real economy have a long way to go. We must ensure that digital economy industry fully covers real economy and is fully integrated to it.  We  need to ensure that such integration is happened on a systematical level further， and  the new generation of information technology is wildly applied in consumption，circulation，trading，distribution and the whole process of domestic and foreign trade activities in supporting the “dual circulation” development paradigm.

Finally，give play to the unique function of digital economy in promoting the “dual circulation” economic pattern. Logistics，commercial credit，and supply chain finance are the key links in the new “dual circulation” development paradigm. To give full play to the function of digital economy in “dual circulation”，we should fully make the advantages of digital technology，innovate new economic development pattern，promote the smooth operation of social value chain，supply chain and industry chain，and enha