After a year witnessing regulatory interventions against "big tech", China has recalibrated its strategy for the digital economy. In early January 2022, the dedicated Five-Year-Plan (FYP) and an article by president Xi Jinping on the digital economy were released, sparking heated discussion on Chinese media and a surge in tech stocks' price.
Assessment
The 14th FYP on the digital economy, was published by the State Council on January 12. Recognizing China’s innovation shortcomings in key technologies, supply chain vulnerabilities, and a wide digital gap between different regions and industries, the plan aims to grow the digital economy to “full expansion” by 2025 when it shall grow from 7.8% to 10% of the nation’s GDP. Highest expectations are set for information infrastructure such as 5G, key software and IT service industry, industrial internet, and key technologies such as integrated circuits.
Further, the plan vows to upgrade China’s digital infrastructure by expanding 5G/Gigabit internet connectivity and IPv6 usage, exploit data as vital assets with better pricing and trading mechanisms, promote digitization of traditional industries, achieve innovations in key areas such as integrated circuits and AI, as well as improve performance of digital public services.
The plan also reiterates the Chinese government’s determination in stronger regulation over the tech sector, particularly in safeguarding cybersecurity and curbing the “disorderly expansion of capital”. The plan pledges to lead investment to innovative and sustainable domains, incorporate digital finance into financial regulatory frameworks, provide wider social security coverage for the workforce in digital industries, and optimize protection mechanisms for minors and the elderly against risks arising from consumption of digital services.
Following through on the FYP publication, on January 16, president Xi published an article in the Qiushi Journal, the party’s leading publication for party ideology, discussing his vision on China’s digital economy. The article covers broadly Xi’s speech given at a collective study session of the Politburo back in October 2021.
Acknowledging that irregularities in digital industries, such as over-leveraged internet finance and monopolistic practices by “mega internet platforms”, have endangered China’s economic and financial security, Xi points out that “development of the digital economy is a strategy to grasp new opportunities of new technological revolution and industrial transformation."
Xi outlines his blueprint for a “stronger, superior, and big digital economy” as the new policy slogan. While calling for innovation in key technologies, better digital infrastructure and integration of the digital and the real economy, Xi also sets eye on unresolved governance issues of the digital economy such as unfair competition, labor rights, tax collection, and national security.
The plan and Xi’s article taken together make clear that the Chinese government still attaches strategic importance to the digital economy but favors hard tech that can drive productivity gains in its real economy rather than consumer internet which contributed to the digital boom in the past decade. China’s resolve thus remains to climb up on the global value chain and strengthen its technological self-reliance as the U.S. goes all out to consolidate its tech dominance in the world.
Implications
After a yearlong regulatory upheaval, the Chinese government’s vision on the digital economy has been clear. The digital economy shall help upgrade the real economy and strengthen China’s supply chain resilience. It is no more an embryonic marketing conception in China but an issue examined by the leadership through a strategic prism.
National security, industrial competitiveness, “orderly capital expansion” and social equality will continue to be the overriding policy objectives on the governance side of Beijing’s big bet on crucial enabling technologies. Regulation will not relent in cybersecurity and anti-trust and will become more prominent in labor and consumer rights’ protection.
Foreign business active in key enabling technologies of the digital economy such as AI, quantum computing and semiconductors will need to ponder if they join the local race now, or may lose out of the Chinese market longer-term as tech decoupling in particular with the US continues.
State Council: 国务院关于印发“十四五”数字经济发展规划的通知 国发 (2021) 29号
Qiushi: 不断做强做优做大我国数字经济
