Accelerating digitalization amid the pandemic: the development of digital economy in China

Introduction

The spread of COVID-19 promotes the active phase of the digitalization process, unwittingly becoming a trigger for accelerating the realization of the accumulated potential for using digital technologies, as well as initiating new solutions to combat it and its devastating socioeconomic consequences.

The digital economy is experiencing rapid growth and innovation, and has become a new driving force for the high-quality economic development of various countries. As a new social and economic system in which both information and business activities are digitized, digital economy needs to be fully understood and deeply grasped. China has maintained a vigorous development trend in the digital economy. In 2020, the scale of China's digital economy reached 39.2 trillion yuan, accounting for 38.6% of GDP, making a huge contribution to supporting epidemic prevention and control and sustainable economic development [18].

The research on the development of digital economy not only has the academic significance of clarifying the current situation and improvement of digitalization in China, but also has important practical significance for other countries to analyze the circumstance of digitalization and provide directions of its improvement.

In recent years, the application of digital technology has become more and more extensive, and various industries are seeking digital transformation. Actively promoting the high-quality development of the digital economy is an inevitable choice to follow the development trend of the times. Most of the existing literature focuses on the development of a country's digital economy from a macro perspective. At present, academic research on China's digital economy mainly pays attention to the following aspects. By combining the existing researches, China's digital economy evaluation index system from the three dimensions of information development, Internet development and digital transaction development to study the current situation and driving factors of China's digital development is constructed [11, p.81-96]. Based on the problems in the digital development, such as insufficient infrastructure, low integration of traditional industries and digital technology, lack of digital talents, and residents' digital literacy to be improved, the causes of the above problems are deeply analyzed [10, p.11-18] , and corresponding countermeasures and suggestions are put forward [17, p.31-36]. The opportunities and challenges brought by digital economy to China are also analyzed through dialectical methods [23, p.275-301].

The purpose of this paper is to analyze digitalization in China, offer the suggestions on the development of China's digital economy and provide guidance for other countries experiencing the transformation of digitalization.

The novelty of the work lies in systematical analysis of China's digitalization process and clarifying the steps to analyze and improve digitalization in countries that are lagging behind or experimenting digital transformation.

The article is structured as follows: in section 1, an overview of China’s digital economy is made and presented; in section 2, the problems arisen during the China’s digital practice is analyzed; in section 3, the suggestions about future development of digital economy are given.In conclusion, the results of the study are summarized in accordance with the goals set and hypotheses put forward.

1. Concept of research: overview of China's digitalization process

Figure 1 shows that in 2020, the U.S. digital economy will rank first in the world, with a scale of 13.6 trillion dollar, accounting for 41.7% of the global share. China’s digital economy ranks second in the world with a scale of 5.4 trillion US dollar. Japan and the United Kingdom ranked third to fifth, with a scale of 2.54, 2.48 and 1.79 trillion US dollars respectively. In addition, the digital economy of 27 countries including France, South Korea, India, Brazil, Russia, Switzerland, Singapore, Malaysia, Thailand, and the Czech Republic exceeds 50 billion US dollars. Nationally, China's digital economy has developed on a large scale.

Figure 1 The digital economy scale of major countries in the world in 2020 (trillion dollar)(Source: [3])

As shown in Figure 2, in terms of the ratio of digital economy to GDP, the digital economy of Germany, Britain, the United States and South Korea has become the dominant national economy. Affected by the epidemic in 2020, the economies of various countries have declined significantly, but new models and new formats of the digital economy have gained a lot of space for development. The proportion of the digital economy in the national economy has increased significantly, and digitalization has become an important symbol of a country's economic modernization and development. The digital economy of Germany, the United Kingdom, and the United States accounted for more than 60% of GDP, 66.7%, 66.0%, and 65.0%, respectively. The digital economy of South Korea also accounted for more than 50%, reaching 52.0%. However, China's digital economy accounts for only 38.6% of GDP. Overall, in the world, China is in the middle in terms of the overall level of economic digitization.

Figure 2 The ratio of digital economy to GDP in major countries in the world 2020 (%) (Source: [3])

According to the "2020 China Digital Economy Development Index", in terms of China's domestic digital economy development, the average digital economy development index of China's 31 provinces and municipalities in 2020 is 29.6, of which 10 provinces and cities are above the average. Guangdong Province ranked first in the country with a total index of 65.3, followed by Beijing and Jiangsu, with scores of 55.0 and 52.2 respectively (Figure 3).

Figure 3 China's Digital Economy Development Index in 2020(Source: [1,2])

According to China's digital economy development index, China's digital economy development has prominent regional aggregation characteristics and presents obvious regional characteristics. The digital economy development index reflects a clear trend of high east and low west. The development of the central, western and eastern regions are quite different. However, the central region represented by Hubei and Hunan and the western region represented by Sichuan and Chongqing have shown strong development momentum at the digital industry level. Beijing-Tianjin-Hebei, Yangtze River Delta, and Pearl River Delta have become the regional core of my country's digital economy development. The results in Figure 3 also prove that there is an obvious "Matthew effect" in the development of my country's inter-regional digital economy [12, p.52-61], forming a relatively serious "digital divide" phenomenon [4, p.7-11]. The "digital divide" reflects the serious inequality in the distribution of information resources and knowledge resources [22, p.82-94]. In some underdeveloped areas, the backward infrastructure makes it impossible to fully enjoy the "knowledge dividend" brought by the Internet. Restricting local economic development and reducing the scope of application of technologies such as the Internet.

However, compared with 2019, despite the impact of the epidemic in 2020, the digital economy sub-index of some digital back-tier cities in China has maintained rapid growth. Among them, Yunnan, Gansu, Inner Mongolia, and Xinjiang are all located in the western region of my country. This shows the rapid development of the digital economy in the western region (Figure 4). The growth rate has exceeded the number of first- and second-tier cities, maintaining the momentum of catching up, and continuing the trend of narrowing the gap with the developed areas along the southeast coast.

Figure 4 Comparison of China's Digital Economy Development Index

in 2019 and 2020 (Source: [1,4])

In general, from the perspective of China, the development of China's digital economy shows a clear trend of high in the east and low in the west, but the rapid development of the digital economy in the western region continues the trend of narrowing the gap with the developed regions along the southeast coast.

2. Problems in the development of digital economy in China

In 2020, China's digital economy grew at a rate of 9.7%, ranking first in the world, and the digital economy reached 5.4 trillion dollars, ranking second in the world. However, compared to developed countries such as the United States, there are still major shortcomings in the development of China's digital economy. After reviewing the literature and data comparison methods, the problems are summarized as follows.

First, the total digital infrastructure in China is insufficient. Infrastructure is a necessary condition for the application of digital technology, a foundation to support the development of the digital economy, and a prerequisite for technological breakthroughs and economic transformation [10, p.11-18]. Currently, 5G has become the focus of digital infrastructure development. The number of 5G network users in China exceeds 160 million. Despite the rapid pace of 5G construction, coverage still needs to be improved. The number of large data centers operated by hyperscale providers increases to 700 by the end of 2021, with the United States accounting for 49% of hyperscale data center capacities as measured by critical IT loads. China is the country that is the second largest contributor to those data center capacity, accounting for 15% of the total (Figure 5).

Figure 5. IT load capacity (Source: [15])

There is also the issue of uneven development of digital infrastructure within China's regions. Guangdong, Jiangsu, and Zhejiang provinces have far more 5G base stations than the six central provinces and the western region. As of June 2021, the number of Chinese Internet users was 1.011 billion, of which 70.6% were in urban areas and 29.4% were in rural areas. The Internet penetration rate in urban areas is 78.3%, the Internet penetration rate in rural areas is 59.2% [16, p.25-27], which makes it impossible to share all kinds of digital resources equally. In addition to economic reasons for the urban-rural digital disparity, the backward rural digital infrastructure is also an important reason. The network in rural areas is still dominated by 4G, the coverage is not comprehensive and the network signal is poor, which seriously limits the digital development in rural areas.

Figure 6. Internet penetration rate in urban and rural areas in China (Source: [3])

Second, traditional industries have a low degree of integration with digital technology. Digital technology can accelerate the intelligent development of traditional industries, effectively improve production efficiency and reduce operating costs. Digital transformation can realize green production, intelligent production, innovative production, improve product quality and service quality, and accelerate the transformation of new and old industrial dynamics [13, p.13-19]. At present, the problems of digital transformation in China's traditional industries are mainly concentrated in agriculture, manufacturing and service industries, with digital economy penetration rates of 8.9%, 21% and 40.7% respectively [18, p.3-4]. In the agricultural sector, low levels of digitization have increased labor costs for agricultural products in China, with labor costs for corn production in China 17.78 times higher than in the U.S., wheat 16.33 times higher, soybeans 8.5 times higher, and cotton 28.2 times higher than in the U.S. Manufacturing is the key to achieving economic prosperity [8, p.85-94]. In the manufacturing sector, Chinese companies are less innovative, have higher production costs and poorer profit margins. In the service sector, the digital economy penetration rate in developed countries is higher than 60% [19, p.12-15], while China still needs to improve.

Third, there is a serious lack of talent in the digital field. The digital economy incorporates many industrial fields and emerging technologies, and there is a huge demand for comprehensive and professional talents. On the one hand, the threshold of professional and technical talents is high due to the rapid update and iteration of advanced digital technologies, strong professionalism, and high career requirements. Therefore, the serious shortage of talent supply has become a major obstacle limiting the development of the digital economy. Taking 5G as an example, according to the White Paper on New Ideas for 5G Talent Development, by 2030, the shortage of talent, directly and indirectly, related to 5G in China's social industries will reach 8 million [20, p.17-18]. On the other hand, traditional industries are in urgent need of integrating advanced digital technologies, which brings new challenges to the structure of talent demand. Since the development of industrial digitization requires digital technology talents to take into account relevant knowledge and skills in traditional industrial fields, the professionalism, compounding, and practicality of talents are highly required [6, p.16-24]. However, most digital technology talents focus on platform development and do not know enough about the application of advanced technology in traditional industries, while traditional industries are less attractive to talents than ICT industries in terms of salary, therefore, there is a large gap in the demand for applied talents in industrial digitization.

Fourth, the digital literacy of residents needs to be improved. Digital literacy is the ability and attitude of people to use digital technology in their social life [14, p.69-75]. The digital economy is growing rapidly, and for individuals, the ability to improve their digital literacy determines whether they are better equipped for the advent of the Big Data era. If China is to focus on developing a digital economy, it must improve the digital literacy of its residents. The data show that the percentage of residents who do not go online because they do not understand the Internet is 54.5% (Figure 7).

Figure 7 Reasons for not using the network (Source: [3])

It can be seen that the problem of insufficient digital literacy among Chinese residents lies in the urban-rural gap on the one hand and the aging population on the other. The report shows that the digital literacy of urban and rural residents in China is uneven, and the overall situation is "substandard". The digital literacy gap between urban and rural residents reaches 37.5%. As a result of COVID-19, digital industries such as "online healthcare" are growing rapidly, and products and services in life are gradually going digital. However, in contrast, older adults are generally less able to learn new things, and their ability to adapt to digital products and services needs to be improved. By the end of 2020, only 6.7% of China's Internet users will be over 60 years old. However, 18.7% of the resident population is over the age of 60. Increasing the digital literacy of this large group will effectively improve the lack of digital literacy in China.

Fifth, the legislation and regulatory system is not sound. With the further development of digital economy driven by digital transformation, the corresponding legal system has also put forward higher requirements, while the existing laws and regulations in the field of digital economy still have some shortcomings and challenges, and do not cover all the legal challenges of digital economy regulation, and need to be further improved and perfected [7, p.80-95]. For example, in the field of personal information protection, China has not yet issued a special "Personal Information Protection Law", and the provisions on personal information protection at this stage are scattered in the relevant provisions of the "Network Security Law", "Regulations on the Administration of Credit Industry", "Measures on the Administration of Network Transactions" and other laws and regulations, which have not formed a systematic legal system for the protection of citizens' privacy, resulting in the infringement of citizens' personal information in practice. On the one hand, the problem of complicated and time-consuming legislative procedures is more prominent in the field of the digital economy. The introduction of basic legislation in the field of telecommunications infrastructure management and personal information protection has been delayed due to the legislative process. On the other hand, the development of digital technology is dynamic, with rapid updates and iterations, bringing about rapid changes in social relationships accordingly. According to the development trend and update speed of technology, the related business models and industrial forms will change even faster, and the legal issues arising from them will only increase. However, the current legal response has a certain lag, and a considerable part of the legal provisions are made passively in response to the development of technology, with insufficient foresight and initiative of legislation.

Sixth, there is a lack of regulation of monopolistic aspects of digital platforms. While the digital economy and Internet platforms are booming, the number of governance issues related to platform competition and monopoly is also increasing, with frequent mergers of platform enterprises, incompatibility or mutual "blocking" between platforms, "big data killing" and leakage of user data. These problems are closely related to the economic and competitive characteristics of platform enterprises. Some problems have occurred in traditional platform enterprises, but in the digital era, the problems have become more complex, hidden and wider in scope, making it difficult to adapt to some traditional laws and regulations, governance methods and supervision means. There is no standardized method or mature experience in determining the market power of digital platforms, and there are no accepted standards for determining the abuse of market dominance. On the one hand, the market power of platform vendors is significantly different from that of traditional vendors, and reliance on traditional tools such as market share and profit margin often has a large bias. For example, the "3Q war", which has become the "first anti-monopoly case in China's Internet" and resulted in a final judgment, involved "abuse of dominant position to crowd out competition" between Tencent's instant messaging software QQ platform and Qihoo 360's antivirus software. The case involved the "abuse of dominant position to crowd out competition" between Tencent's instant messaging software QQ and Qihoo 360's antivirus software. Such cases have been controversial in terms of market definition, determination of abuse of dominant position and analysis of competition damages. In recent years, the phenomenon of unfair competition and suspected monopoly in several areas such as shared travel and "takeaway" has encountered similar difficulties. On the other hand, there is no universal standard for determining the abuse of a dominant market position. For some large e-commerce platforms, it is difficult to assess the damage or substantial impact on consumers and merchants in advance, although many experts believe that it violates the principle of free trade under the Antimonopoly Law and may weaken competition between platforms. [21, p.52-61] The reasonableness and accuracy of the determination of dominant market position and abuse of dominant market position need to be strengthened.

3. Suggestions on the Development of China's Digital Economy

First, improve infrastructure construction. The faster the digital economy develops, the more it needs to rely on updated information technology, and the more prominent the dependence on infrastructure. Promoting the construction of digital economic infrastructure can provide support for the transformation and upgrading of traditional industries, and can also provide new impetus for narrowing the economic gap between the east and the west. China should speed up the construction of city-level data centers, provide huge data support for the digital development of cities, coordinate the development of regional digital infrastructure, apply mature digital infrastructure construction technologies to backward areas, and increase the number of optical cables and communications between provinces and between urban and rural areas. The construction and expansion of network equipment such as pipelines will gradually promote the construction and commercial deployment of 5G networks in townships and villages, and provide more solid support for the digital transformation of township enterprises and the development of new forms of digital economy. In addition, foreign investment in digital infrastructure should also be actively attracted. The active participation of foreign-funded enterprises in the construction of digital economy infrastructure is expected to enable leading technologies such as 5G and artificial intelligence to promote efficient synergy between various production factors and release a "multiplier effect" for social development. Therefore, China should cooperate with a wider range of industry partners to empower industries such as industrial Internet, smart transportation, smart manufacturing, and smart cities through technology and innovation.

Second, accelerate the digital transformation and upgrading of traditional industries. In terms of agriculture, it is recommended to establish an agricultural digital platform. China is a big agricultural country, and the establishment of an agricultural digital platform is of great significance to improving the process of agricultural marketization and accelerating agricultural modernization. This also provides an efficient and accurate information exchange platform for agricultural producers, operators and regulators, establishes a corresponding digital supply chain system, and promotes the construction of agricultural e-commerce. In the manufacturing sector, subsidies are provided for the procurement of new digital equipment. New digital equipment is the basic condition for enterprises to carry out research and development, and the government's introduction of corresponding subsidy policies will help promote the digital upgrade of traditional enterprises. At the same time, guide enterprises to increase investment in technological innovation. To implement targeted digital development measures, the government should issue relevant inclusive policies to jointly promote the collaborative innovation of production, education and research [24, p.3-16]. In terms of the service industry, it is necessary to take advantage of the situation and maximize the advantages of the digital life service platform.

Third, increase the training of digital economy talents. To promote the development of the digital economy, compound talents are particularly important. China's digital economy talent pool can be enhanced from both external attraction and internal strengthening. On the one hand, the publicity of talent construction planning and talent introduction policies should be increased, digital talent introduction policies should be publicized through domestic and foreign media and relevant forums to create a high-level research platform and a more excellent innovation environment to attract external high-end talents to join.

On the other hand, strengthen the training of digital economy talents internally. The government should attach importance to the training of digital economy talents, and provide funds and policy guarantees for the training of digital economy talents. Encourage the exchange and cooperation of talents between universities. Promote the exchange and cooperation of digital-related professionals between universities. Promote the joint training of enterprises, scientific research institutions and universities, improve the talent training system, set up talent training bases, and focus on cultivating digital talents. Through talent training, the academic advantages, technological advantages, and scientific and technological resources advantages are transformed into industrial advantages and economic development advantages, which lays a talent foundation for the development of China's digital economy.

Fourth, improve the digital literacy of residents. The digital literacy of residents can be improved from the three aspects of government, school and society. The government should strengthen the publicity of digital technology, digital economy and other related content to enhance residents' awareness of "digital". In schools, digital education should be integrated into the basic education system. Letting citizens learn to use digital services is only the most basic part of digital literacy, and digital skills will be the key to digital literacy in the future. The state popularizes digital education facilities in rural areas, organizes teachers to conduct digital training in a planned way, and takes the lead in improving teachers' digital literacy is a prerequisite for improving the digital literacy of rural residents. Socially, promote the digital transformation of urban libraries. Referring to the ongoing construction of "digital libraries" and "smart libraries" in various universities, urban public libraries should digitize most of their management and service work, which is conducive to improving the digitalization level of the whole city and reflecting the social value of libraries. Affected by the new crown pneumonia epidemic, people's access to information has gradually changed from offline to online. Libraries should also make corresponding transformations, simplify the user interface of online platforms, speed up online information interaction, and promote the use of digital platforms.

Fifth, improve regulation and legislation in the digital field. Promoting the digital economy is inseparable from legal supervision. The Chinese government should focus on solving problems such as data governance, network facility security, personal information protection, platform responsibility, and supervision of new technologies and new businesses, coordinate and promote legislative work in related fields and international rules for the digital economy, and adhere to the rule of law to regulate social relations and regulate social behavior to ensure that the development of the digital economy is both vibrant and orderly. In addition, China should speed up the promulgation of the Personal Information Protection Law, establish major systems and basic principles for China's personal information protection, and solve problems such as fragmented legislation and inconsistent law enforcement powers. Clarify the definition and scope of personal information, reasonably define the attributes and rights of personal information, and clarify issues such as personal information protection agencies, further enrich law enforcement means, increase punishment, and take into account the development trend of new technologies and applications, so as to protect personal information. To maximize the value of data resources while being safe, it is necessary to find a balance between the protection and utilization of personal information to better meet the needs of China's digital economy development.

Sixth, innovative anti-monopoly analysis tools and enforcement ideas. In response to the antitrust challenges in the digital era, one should avoid adopting inapplicable traditional thinking to analyze and anticipate the digital market. The new challenges of competition on digital platforms should be combined with innovative enforcement ideas. On the one hand, the digital economy has obvious data- and algorithm-driven characteristics, and the weight of data and algorithm should be gradually increased in the process of determining the anti-competitive effect of suspected illegal acts. For example, data resources have become the core concern of competition among digital platforms: it is difficult for new entrants to grasp enough data in a short period of time to carry out effective market competition; monopolistic platforms may also take advantage of big data to implement classification management of users, as well as the so-called "first-degree price discrimination", and may even abuse the privacy information in the data to This may even abuse the privacy information in the data and affect national security. The German Federal Cartel Office launched an investigation into Facebook's alleged abuse of a dominant market position in March 2016 and issued a formal ruling in February 2019, the core of which is that the illegal collection, merging and use of user data by a dominant platform operator is considered an abuse and constitutes an "abuse of trading conditions" under antitrust law - which is considered highly innovative by many industry experts (combining data protection with abuse of monopoly position). "This is considered by many industry experts to be highly innovative (combining data protection with abuse of monopoly position).

On the other hand, digital platforms should be classified, and different types of digital platforms should be regulated differently and precisely [9, p.61-67]. From the perspective of different types of platforms, in the case of search engine platforms, the focus of competition regulation should be on whether there is abuse or tampering with the algorithm related to ranking power leading to unreasonable differential treatment. In the case of social networking platforms, excessive collection and use of user data has become a focus of competition concern in recent years. In the case of e-commerce platforms, the focus of attention should be on the reasonable use of buyer power, tying, bundling and vertical restrictions, and also timely consideration of "algorithmic collusion", a new type of monopoly agreement that has caused widespread concern in recent years and is highly concealed.

Figure 8 Ways to improve the Development of China's Digital Economy

(Source: drawn by author)

Conclusion

The COVID epidemic has become a "black swan" event that affects the fluctuation of the global economy and 92.9% of the economies have fallen into recession. This is the most severe challenge for the global economy since the "Great Depression". Behind the negative impact, new economic growth points have emerged against the trend, and the unique resilience and immunity of the digital economy in the face of the crisis have been greatly demonstrated, becoming the key to boosting economic recovery. The scale of China's digital economy is increasing year by year. Despite the rapid development of the digital economy, China's digital economy is still relatively backward compared with other developed countries. The development of China's internal digital economy is also unbalanced and incomplete. In the development of China's digital economy, there are problems such as insufficient total digital infrastructure, low integration of traditional industries and digital technology, lack of high-end digital talents, low digital literacy of residents, and imperfect laws and regulations on the digital economy. In the face of the development of China's digital economy, China needs to better adapt to the development of China's digital economy by improving infrastructure construction, accelerating industrial digitization, increasing the training of digital economy talents, improving residents' digital literacy, and improving regulation and legislation in the digital field.

During the research process, the following work was carried out: the literature on the development of China's digital economy, comparison of the development of the digital economy in major countries in the world, construction of the digital economy indicator system of various provinces in China, and exploration of the problems of China's digital economy.