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What’s behind the incredible growth of China’s digital economy ?



What's behind the incredible growth of China's digital economy

What’s behind the incredible growth of China’s digital economy, which now accounts for nearly 40 percent of the country’s GDP?

1. Mobile-first in China
First, China’s economy is growing rapidly, and alongside it has emerged a deep consumer market focused primarily on mobile devices. Similar to other late industrializing countries, China jumped in mobile internet penetration compared to developed economies where internet infrastructure was well developed, first with dial-up and broadband. In China, by contrast, many people first connected to the Internet through mobile phones. This means that Chinese mobile phone users, who touch almost every aspect of our social life, are familiar with using mobile phones not only for communication but also for online shopping.

2. Mobile payments in China
Second, the development of online, especially mobile payments, is another big factor. In developed countries, many people have bank accounts, credit scores, and credit cards, allowing consumers to shop online through online banking from their computers. However, financial innovation in mobile payments has been relatively slow due to the control of companies operating in the financial sector and the payment system. In contrast, shopping online among people who don’t have a bank account is risky for a business because neither the seller nor the buyer wants to be the first to send goods or money for an online purchase. This problem of lack of trust has turned out to be an opportunity for entrepreneurs to develop mobile payment escrow, as pioneered by Alipay and Taobao in China. Serves as a trusted intermediary. Soon, it would be possible for not only big brands but also smaller brands to set up shop on Taobao.

3. Mobile messaging in China
What's behind the incredible growth of China's digital economy

Third, the interaction between the above two points has meant that the ubiquitous use of mobile internet and mobile payments have made the mobile phone an integral part of the daily life of many Chinese consumers. This social aspect of mobile phone use is exemplified by Wechat, which has added a key third component to China’s digital economy: mobile internet payments integrated into social media and mobile messaging. This combination of all three elements reinforces each other. Consider, for example, the contrast with developed markets such as Japan or Germany, where many use mobile phones but are not as comfortable with mobile banking as opposed to online banking. Similarly, in the US, the most popular social media platforms such as Facebook’s Meta, Whatsapp, Instagram or Twitter do not offer the same integration of mobile messaging, mobile payments and e-commerce that Alipay and Wechat offer.

4. Digital industrial policy in China
The growth of China’s digital economy is also thanks to its digital industrial policy. China has retained the ability to continuously modernize the country’s infrastructure, including its digital infrastructure. This is in stark contrast to many European countries. For example, in Germany, access to high-speed Internet is still not suitable for Germany’s status and level of economic development. This is not for lack of effort, but rather in part due to private market forces and purely profit motives not being enough to guide infrastructure investment.
What's behind the incredible growth of China's digital economy

China’s industrial policy attempts not only to provide state leadership but also to create synergies between government and private sector efforts. This is an example of the development of digital RMB. It is a development spearheaded by the People’s Bank of China, but is also being developed in close cooperation with private sector participants, including commercial banks and fintech platforms such as Alipay.

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