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China's Digital Economy's Growth Will Soon See It Outpace The Traditional Economy

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China has a rising digital economy, which is equal to 30.3% of GDP or 22.6 trillion yuan ($3.35 trillion) and is driven to a large extent by leading technology companies Baidu, Alibaba, and Tencent. These companies at the forefront of innovation give credence to the idea that the digital economy will soon become the economy, in the not-too-distant future.

Why? New areas of the digital economy, including the Internet of Things, virtual currencies, financial technology, artificial intelligence, advanced robotics, and big data are expanding rapidly in China. The digital economy is also spreading through traditional sectors such as education, industry, and health care, improving efficiency and adding value in these areas.

Online customers and supportive government

A large amount of venture capital funds in China are pouring into digital technologies, as the potential is huge. China is home to more internet users than the United States and European Union combined, and these users are becoming increasingly digitally savvy. Consumption-related mobile payments amounted to $790 billion in 2016, or 11 times that of the United States. This past singles day (November 11), shoppers spent 254 billion RMB or $38.2 billion shopping online.

It is not only venture capitalists and customers driving China’s digital economy, however. The government has promoted growth of the digital economy through its Internet Plus policy, which encourages firms to use the internet in order to grow and innovate. The concept was first proposed by Premier Li Keqiang as a means of leveling the playing field between developed and developing countries. The government has also encouraged funding for projects incorporating artificial intelligence, with the goal to generate a market valued at 100 billion RMB ($15 billion).

Baidu, Alibaba, and Tencent

Baidu, Alibaba and Tencent (BAT) have driven the digital economy forward, providing 42% of venture capital investment in China in 2016. Integrating with traditional industries, Baidu aims to bring autonomous driving products to market through its Apollo project and is addressing inefficiencies in health care through the Baidu Medical Brain project. Alibaba is purchasing retail outlets with the aim of integrating technology to better manage inventory and raise profit margins. Alibaba has recently invested $2.88 billion in exchange for a major share of hypermarket firm Sun Art.

Tencent launched the “Open Platform” strategy in 2011. The Open Platform allows partners to make use of Tencent’s technology and WeChat’s traffic base to digitize any industry. This has the effect of reducing time (and therefore money) spent developing digital processes for other companies. Tencent is also working to provide cloud computing services to create an industrial big-data platform for Sany Group Co Ltd, a large machinery equipment producer. Sany’s equipment will be connected to the platform to detect malfunctions as they happen.

Digital economy is the economy

China’s digital economy is expected to reach $16 trillion by 2035, with a penetration rate throughout the overall economy of 48%, according to a report by Boston Consulting Group. This will change the nature of the economy, replacing jobs that carry out standardized types of processes with technology and increasing the number of jobs for higher-skilled workers. Start-ups will continue to arise, as entrepreneurs are provided with the capacity to use existing technologies like Tencent Open Platform to get ahead.

The China Academy of Information and Communications Technology has found that the ten most digitized sectors include the insurance, broadcasting and media production, professional services, monetary finance, capital market services, public administration, postal and logistics, general services, education, and social security sectors.

In a speech to the IMF Statistical Forum on November 16, Seng Yee Lau, Senior Executive Vice President, Tencent stated, “…in China, the concept of Digital Economy is just a transition in nature, as eventually, digital economy, will just become simply the economy.” Lau stressed that, on the supply side, China’s “Internet Plus” policy has played a strong role in integrating the internet and cloud computing into traditional sectors, while digital innovations have arisen to satisfy demand in the form of fintech and bike-sharing, for example.

Due to the strong presence of both supply and demand factors, China’s digital economy will help to boost growth and will create diverse investment opportunities in the coming years. Forward-thinking government policy continues to pave the way for innovation in China’s rapidly changing digital economy.

 

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