A Bird’s Eye View of China’s Digital Economy Development

Since 2012, the growth rate of China’s digital economy has consistently exceeded the GDP growth rate for 11 consecutive years.

Chinese President Xi Jinping

Published Mar 14, 2024


Wang Weiwei, School of Economics, University of Chinese Academy of Social Sciences, Beijing

Over the past 30 years, marked by significant milestones such as China’s connection to the international internet in 1994, the rapid development of e-commerce in 2003, the introduction of the “Internet Plus” strategy in 2015, and the designation of data as a factor of production in the distribution process by the 19th Central Committee of the Communist Party’s fourth plenary session in 2019, China’s digital economy has undergone four developmental stages. The current state of China’s digital economy is characterized by several key aspects.

Firstly, the scale of digital economy is continuing to grow. Since 2012, the growth rate of China’s digital economy has consistently exceeded the GDP growth rate for 11 consecutive years.

In 2022, the digital economy grew by 10.3% year-on-year in nominal terms, which was 4.98 percentage points higher than the nominal GDP growth rate. For the first time, the scale of the digital economy exceeded 50 trillion RMB, reaching 50.2 trillion RMB (approximately 7.5 trillion USD), making it the second largest in the world.

Secondly, the proportional structure between digital industrialization and industrial digitalization is stable. In 2022, the scale of China’s digital industrialization reached 1.37 trillion USD (9.2 trillion RMB), with a nominal year-on-year growth of 5.3%, accounting for 7.6% of the GDP and 18.3% of the digital economy.

The scale of industrial digitalization was 610 billion USD (41 trillion RMB), with a nominal year-on-year growth of 5.7%, accounting for 33.9% of the GDP and 81.7% of the digital economy. In the same year, the digital industrialization scale of 51 major global economies was 6.1 trillion USD, accounting for 14.7% of the digital economy; the industrial digitalization scale was 35.3 trillion USD, accounting for 85.3%.

This demonstrates that the proportional structure of digital industrialization and industrial digitalization in China conforms to general patterns. With the accelerated application of digital technology in traditional industries, industrial digitalization continues to be the dominant force in the development of China’s digital economy.

Thirdly, the digital economy is keeping steady improvement in the total factor productivity. From 2012 to 2022, the production efficiency of China’s digital economy has continually increased.

Overall, the Total Factor Productivity (TFP) of the digital economy in China rose from 1.66 in 2012 to 1.75 in 2022, while the TFP of the national economy increased from 1.29 to 1.35 during the same period, indicating that the TFP of the digital economy has supported and driven the production efficiency of the national economy.

When examined by sector, the TFP of the digital economy in the primary sector has developed steadily, rising from 1.03 to 1.04 with a modest increase. The TFP in the secondary sector initially increased from 1.65 in 2012 to 1.69 in 2018 but then continuously declined to 1.54 by 2022. Conversely, the TFP in the tertiary sector saw rapid growth, rising from 1.70 in 2012 to 1.90 in 2022, marking the most significant improvement.

This growth helps mitigate the issue of Baumol’s Cost Disease in China’s service sector, which refers to the economic phenomenon where, as a country’s economy becomes more service-oriented, the national economic growth rate tends to decline due to typically lower productivity improvements in services compared to industrial sectors. The substantial increase in TFP in China’s tertiary sector in recent years is conducive to enhancing overall economic productivity and alleviating Baumol’s Cost Disease.

Fourthly, the digital economy is continuing to penetrate across major sectors.

The digital economy penetration rate measures the impact and share of the digital economy within various industries, quantified by the proportion of the digital economy to the added value of an industry. In 2022, the penetration rate of the digital economy in China’s service sector was 44.7%, an increase of 1.6 percentage points from the previous year. The industrial sector saw a penetration rate of 24.0%, with a year-on-year increase of 1.2 percentage points, reaching a record high. The agricultural sector’s penetration rate was 10.5%, up by 0.4 percentage points compared to the previous year.

This data indicates that the application of digital technology has had the most significant impact in the tertiary sector, with potential for continued growth in the secondary sector, while its application in the primary sector remains limited by natural conditions, land resources, and other factors. Therefore, China still needs to explore more suitable digitalization solutions for the primary sector.

Finally, the Chinese government takes the strategic planning and advanced layout of the digital economy as a high priority.

In recent years, China has released a series of policies to boost the digital economy, such as the Notice of the State Council on Issuing the Action Plan for Promoting the Development of Big Data, the Development Plan for Next-Generation Artificial Intelligence, the 14th Five-Year Plan for Big Data Industry Development, and the Three-Year Action Plan for Innovative Development of Metaverse Industry (2023-2025), establishing a comprehensive policy system for the digital economy.

Through policy guidance, cutting-edge fields like artificial intelligence and the metaverse have experienced rapid growth. Moreover, the digital economy’s status in China’s Government Work Reports has been continually elevated, signalling a strong commitment to its development.

For instance, the 2017 Government Work Report mentioned “accelerating the development of the digital economy” for the first time; by 2022, the “promotion of digital economy development” was highlighted as a separate section, and in 2023, the report called for a “vigorous development of the digital economy”. Concurrently, China has accelerated the establishment of specialized digital economy departments and cross-industry, cross-departmental coordination mechanisms.

In October 2023, the National Data Administration was officially inaugurated, tasked with coordinating the advancement of data infrastructure, the digital economy, and the planning and construction of a digital society.

In July 2022, an Inter-Ministerial Joint Conference System on The Development of The Digital Economy was established, led by the National Development and Reform Commission and involving over 20 ministries such as the Cyberspace Administration and the Ministry of Industry and Information Technology, to strengthen the national-level strategic implementation and coordination of the digital economy.

China has its unique features and advantages in developing the digital economy but also faces numerous challenges. Report on the Work of the Government 2024 emphasizes the need to further promote the innovative development of the digital economy.

It is necessary to formulate policies to support high-quality development of the digital economy, actively promote digital industrialization and industrial digitization, and facilitate deep integration of digital technology and the real economy.

China will enhance cooperation in the digital economy with other countries, share the dividends of digital economic development, and make greater contributions to promoting the digitalization of the global economy.