Digital economy of China

One of the underlying factors for the success of the expansion in digital economy of China is the Chinese people who were ready to adapt to this new technological environment

This paper is based on the interview with Chanuka Wattegama, a Policy Researcher in the field of Economics and Technology, on ‘Rising China and Lessons for Sri Lanka’. The interview series was launched by the Veemansa Initiative – an independent think tank in the areas of economic, political and social issues. Through this interview series, Veemansa brings about the views of intellectuals and experts on various dimensions of the miraculous development experience of China, by drawing lessons, parallels and prospects for Sri Lanka.

Digitalisation feeds into development, and development feeds into digitalisation. Although both China and Sri Lanka commenced their market-oriented development drive in the late 1970s, China has advanced far ahead of Sri Lanka in terms of developing its digital economy. 

The term “digital economy” reminds of the use of computers, internet and smartphones. However, it’s a whole economic environment which covers hardware development, software development, telecommunication services, data services and other services such as e-commerce and e-governance. China has the world’s second largest digital economy after the USA, while its economic value has been estimated as $ 5 trillion. But due to fast expansion of the Chinese digital economy, China is catching up with the US very soon.

Perfect match

While the Chinese economic development over the past 40 years has been a miracle, the same applies to the rapid expansion of its digital economy as well. The main reason is that China has identified the importance of ‘digitalisation’ even to achieve its economic growth efficiently by introducing the digital economy. 

China has the world’s largest population of 1,400 million, out of which 600 million people have already been connected with Internet connectivity. As a result, various products emanating from the digital economic environments such as e-commerce, financial technology (fintech), and social networks, can reach a massive market more efficiently and more cheaply than in many other countries. 

Chanuka Wattegama

Because of the huge market, the benefits of ‘economies of scale’ and the reduction in costs are also huge for the producers in the digital economy. One of the underlying factors for the success of the expansion in digital economy of China is the Chinese people who were ready to adapt to this new technological environment. What we have seen is the perfect match among three parties which have made the growth of the digital economy a great success; that is the government, the private sector and the people.

Change in lifestyle

Digital economy would change the lifestyle of any person when he or she acts as a consumer, a producer, an employee, a student or any other in an economic environment. For instance, Chinese consumers don’t want to hang around hopping among the shops to purchase what he or she wants. The customer can search what he or she wants in an e-commerce platform, order the commodity and, make the online payment.  The government has built the digital infrastructure and logistics in order to facilitate this transaction. As a result, within few hours what has been ordered would be delivered to your doorstep. If this transaction happens in a traditional way, the customer must go out physically searching for the commodity spending money and time. As a result of the development of the digital economy, millions of transactions a day take place on e-commerce platforms in China.

In a similar way, investors in the financial markets – bonds or stocks or currencies, are also using the financial technology. They can watch the market trading activity on the smartphone or the computer screen in staying at home or any other convenient place and participate in trading activity of various financial products. In fact, Chinese people are used to smartphones much more than personal computers.

In the same way, the Chinese digital products are also widely sold all over the world. For instance, the well-known ‘Tik Tok’ is one of the largest Chinese products that have conquered the world market. Therefore, China is exporting not only the physical goods and services to the rest of the world, but also their digital products.

Crypto currency

Perhaps, the latest technological development in the international financial system is the creation of crypto currency – a digital currency, in which transactions are verified and records maintained by a decentralised computer system using cryptography without the mediatory role of a banking system or the control of a central authority.

China has also been the second largest crypto currency mining country in the world after the USA. However, crypto mining is a private financial activity so that it is hard to control by a government. Therefore, China not only banned crypto currency, but introduced a digital version of the Chinese currency – yuan, as an alternative virtual currency. China was the first country in the world to take a step as such in 2021.

Chinese policy of introducing the digital yuan is a smart and intelligent answer to the spread of crypto currency usage in China. In fact, there is no way to control or regulate or even ban crypto currency. In a situation as such the smartest way of addressing the problem was to create a better digital version of China’s own currency which substitutes the crypto currency; in fact, it would be more acceptable to general public than the privately mined crypto currency.

Lessons for Sri Lanka

Sri Lanka is still at the early stage of the development of its digital economy. Due to the COVID pandemic the use of e-commerce and online delivery services have progressed, but by international standards such systems have a long way to become developed systems. There have also been some efforts on the development of e-governance services in this country. 

However, these efforts seem to be ad hoc and piecemeal type at numerous places without much inter-connectivity. Sri Lanka has not yet established international payment gateways so that particularly the small and medium scale producers have a digital barrier to reach international markets. 

Therefore, Sri Lanka has a long way to go in this particular field of developing its digital economy. China is, at present, far ahead of not only Sri Lanka but also many developed countries in the world. In terms of digital technology, China is competing well with the USA and the Western European countries; some of its new digital technological advancements are not available even in developed countries in the world. Sri Lanka has many opportunities to benefit from China’s advanced digital economy learning from the Chinese experience, adopting Chinese technologies, and opening the economy to receive Chinese outward direct investment that come along with advanced technology.

The Government has a major role to play as the Chinese government did for the private sector and for the people in preparing a conducive environment for the development of the digital economy. As Sri Lanka is a small country, there is no question that it should sell its products internationally for which the economy has to be open. Digital infrastructure, conducive regulatory system and people’s readiness to adopt digital technology are important preconditions that we need to establish in opening the door for the development of Sri Lanka’s digital economy.

(The writer is a Professor in Economics at the University of Colombo who conducted the interview series on Rising China.)