China’s Quest to be a Global Digital Economy Leader

By Rachel Gong and Yeu-Mynn Yeung

China is on a quest to be the world’s digital economy leader. In December 2021, China released a five-year digital economy plan containing 30 strategies, with the use of data as a focal point. This article highlights three key sectors – data, cloud computing, and the industrial internet – in strengthening its global economic position.

China is making big plans to be the world’s digital economy leader. Its five-year digital economy development plan, released in December 2021, outlines 30 strategies to strengthen its global economic position, with the use of data taking a central role. These strategies include optimising digital infrastructure, expanding digital transformation in both urban and rural areas, accelerating digital industrialisation, especially in manufacturing, and strengthening governance, monitoring and evaluation, and security systems.

In this article, we highlight three key sectors in China’s quest to be a global leader – data, cloud computing, and the industrial internet.

The digital economy can be defined as “economic output derived solely or primarily from digital technologies with a business model based on digital goods or services”¹. It is “part of a bigger digital transformation happening globally, a transformation that necessarily includes social well-being and human rights as well as economic development and growth”².

The added value of core digital economy industries, including big data, cloud computing, and the industrial internet, accounted for 7.8 per cent of China’s GDP in 2020, and the government aims to increase this to 10 per cent in 2025³. E-commerce transactions amounted to CNY37.2 trillion in 2020 (approximately USD5.8 trillion) and are expected to reach approximately CNY46 trillion (approximately USD7.2 trillion) in 2025. Broadband subscribers and industrial internet platform application rates are also expected to increase by 2025, as reflected in Table 1.

China’s digital economy strategies emphasise the value of data, having declared data a factor of production⁴. Its strategies for developing the digital economy include the creation of a data marketplace, a shift towards cloud computing, and the development of an industrial internet.

A Data Marketplace

China makes no secret of how much it values data in the digital economy. The government is developing a data marketplace intended to establish a pricing system for data and encourage the involvement of market entities to explore, promote and improve the pricing mechanism⁵, with plans to nationalise the data of private corporations, both local and international⁶.

However, this could raise data governance concerns. In 2021, China passed two laws governing data: the Personal Information Protection Law⁷ and the Data Security Law⁸. The impact of these laws on Chinese data processing has yet to be determined. As seen elsewhere in the world, misuse of personal data can violate the rights and privacy of consumers and threaten national security.

For instance, Uber’s “God View”, a real-time-movement aerial view of Uber drivers, caused a personal-data uproar in the United States when the company’s drivers discovered that it was monitoring their whereabouts and exposing the data to third parties⁹, essentially breaching its own privacy policy¹⁰. In another instance, when the European Central Bank’s website was hacked in 2014, around 20,000 traces of personal information were stolen, posing a threat to national security¹¹.

Recently, Myanmar approved the sale of Norwegian-based telecommunications provider Telenor’s business in Myanmar to M1 Group¹², a Lebanese investment firm with links to Myanmar’s military government. This sale will involve the transfer of the personal data of 18 million users, an alleged breach of the European Union’s General Data Protection Regulation (GDPR) that could put individuals opposing the military government at risk of retribution¹³.

China’s approach to trading data as a commodity seems intent on establishing a pricing mechanism for such data with less concern for its potential cost. It remains to be seen how this sort of data marketplace will change the way data is governed.

Cloud Computing

China’s shift towards cloud computing to deal more efficiently with data includes plans to build a centralised cloud-computing system powered by regional hubs. Energy-efficient data processors and data centres are intended to transform China’s manufacturing industry from simply producing goods to producing and analysing data.

China’s government is expected to spend over CNY400 billion (approximately USD59.7 billion) per year over the next five years to build eight national computing hubs and ten national data centres across the country¹⁴. Three of the hubs will be in the east, while the remaining five will be in the west. By expanding west, China indicates its commitment to national development without concentrating its data centres in the already well-developed east.

However, it is unclear how national data will be distributed across these hubs, or if each hub acts as a backup for another. While the plan outlines strategic infrastructure improvements, green and sustainable data centres, and cross-regional edge computing, it says little about cybersecurity and redundancy plans to protect all the data being processed.

Industrial Internet of Things

The industrial internet of things (IIoT) has been defined as “the network of intelligent and highly connected industrial components that are deployed to achieve high production rate with reduced operational costs through real-time monitoring, efficient management and controlling of industrial processes, assets and operational time”¹⁵. It combines sensors, instruments, and machines to improve industrial and manufacturing efficiency. For example, IIoT can be used to inspect manufacturing components, manage inventory, and predict equipment maintenance.

China aims to have applications on its 5G-enabled IIoT rise from 14.7 per cent in 2020 to 45 per cent by 2025. The use of informatics and automation in industrial settings should not only improve productivity but also generate data for further research and development. This would allow China to integrate industrialisation and information technology on a large scale and to facilitate innovations such as automated energy management, pushing it further ahead in global manufacturing.

Conclusion

It is important that China – and other countries pursuing national digital transformation – ensure that any national digital economy strategy is inclusive. China recognises the need for inclusion in its digital economy plan, highlighting strategies for rural development and the expansion of digital public and social services, including national television networks and healthcare, in all regions of the country.

China aims to expand the use of digital technology in agriculture, services, and education in rural areas. Some of its initiatives include developing rural infrastructure to support information services and public services, promoting big data in agriculture and rural vicinities, and boosting high-quality educational resources in rural and remote areas¹⁶.

China’s digital economy plan specifically recognises the challenges certain groups, such as the elderly and people with special needs, may face in digital transformation. Accordingly, the government plans to develop digital skills training programmes that specially target these groups as part of its efforts to improve the digital literacy of its entire population.

The eyes of the world will be on China as it charts its “Digital Silk Road”. Much as China would like to be self-reliant and self-sustaining, the digital economy is a global economy. China will have to ensure that, even as it tries to take the lead, it can still play well with others.

About the Authors

Dr Rachel Gong is a policy researcher at the Khazanah Research Institute (KRI) in Kuala Lumpur. She leads the team that produced KRI’s book #NetworkedNation: Navigating Challenges, Realising Opportunities of Digital Transformation on digital policy issues, including digital inclusion, the digital economy, and digital governance. Rachel graduated summa cum laude from Princeton University and holds a PhD in sociology from Stanford University.

Yeu-Mynn Yeung was formerly an intern with KRI. She is also a journalist with The Star, a Malaysian newspaper. As a psychology major, Yeu-Mynn’s research interest lies in the domains of public and mental health, behavioural economics, and presently all things digital. She previously championed a policy proposal enabling healthcare accessibility for the deaf community.

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