China’s Digital Economy: A Leading Global Force
“China is already standing at the global center of the digital economy”, said Jonathan Woetzel, the Director of the Mckinsey Global Institute and a senior managing partner worldwide. According to a report by MGI entitles “China’s digital economy: A leading global force”, China has the most digital technology investors, adopters and unicorns in the world. The report also points out the three main reasons for the rapid development of China’s digital economy: a large potential market, giant companies with affluent capital and plenty of space for investors to play.
China has one third of the world’s unicorns
“The digital transformation in China has aexerted profound effect on its economy and will further influence the digitization process of the world”, said Woetzel. During 2005, China’s e- commerce retail sales volume accounted for less than 1% of the global transaction volume; however, that number exceeded 40% in 2016, and was two times that of the transaction volume in the United States and far more than that of France, Germany, Japan and Britain combined. Early investors in e- commerce have been rewarded with returns thousands of times higher than their investment.
It was revealed in the report that the penetration rate of mobile payments among Chinese internet users has jumped from 25% in 2013 to 68% within three years. Personal consumption through mobile payments amounted to USD 790 billion in 2016, which is 10 times more than the transaction value of same in the United States. One in three of the world’s 262 unicorns is Chinese, commanding 43 percent of the global value of all unicorns, among which internet giants like Baidu, Alibaba, and Tencent are exerting significant influence across the globe.
Besides this, China’s venture capital industry has been undergoing fast growth. In the period of 2011 to 2013, the venture capital volume in China was only USD 12 billion, but that increased by 5.42 times and reached USD 77 billion during the period of 2014 to 2016, showing a rise from 6% of the total venture capital investment to 19%. The Chinese venture capital industry mainly concentrates on digital technology like big data, artificial intelligence, fintech, etc.
Over the past two years, China’s top 3 Internet companies (the BAT companies) made 35 overseas deals, among which Tencent, with USD 8.6 billion, took over 84.3% shares of Supercell, a well-known mobile game manufacturer, which commands more than 10% of the global game revenue. Alibaba invested USD 1 billion and purchased a leading e- commerce platform Lazada in Southeast Asia which, with 650 million clients, holds the first place in e-commerce markets among the six major Southeast Asian nations. Bike sharing companies like ofo and Mobike use GPS in their apps to locate and unlock stationary bicycles and have already expanded their business to Japan, Singapore, Britain and the United States.
Jonathan Woetzel expressed that China had one of the most active digital-investment and start-up ecosystems in the world. China has already become a global leader in the customer-driven digital economy after stopping imitating the West and focusing on innovation by making the best use of their largest homeland market and abundant risk investment funds.
A warning for monopoly disputes
From 2015 to 2017, government work reports haveincluded key concepts like “internet plus”, “sharing economy” and “digital economy” in succession, whic h demonst rates the rapid development momentum of China’s digital economy. However, monopoly disputes in this field still occurred at
home and abroad, for example, the conflict over data between SF Express and Cainiao, as well as the competition between JD. com and A l ibaba. Furthermore, across the world, the European Union has imposed an antitrust penalty of USD 2.42 billion on Google, the largest ever fine levied against a single company.
According to a Senior Partner of Dentons, Deng Zhisong, there are four main characteristics of the digital economy. Firstly, data is the core of competition and could usher in a new era. Secondly, the platform is an essential part of the media for competition. The three internet giants — ( Facebook, Amazon, and Google) in the United States are respectively used for social contact, e-commerce and searching, just like the BAT companies in China.
“This is by no means a coincidence. The purpose of establishing platforms is to collect users’ data and allow for direct market competition,” claimed Deng Zhisong.
Thirdly, cross-border transmission is the competition model. Transmission was first brought up in the case of Coca- Cola’s purchase of Huiyuan. The Chinese Ministry of Commerce believes that the dominating crossmarket transmission is a form of anticompetitive conduct.
“There is plenty of evidence,” said Deng Zhisong. A “war” was triggered between Qihoo 360 and Tencent (known as the 3Q battle) when Tencent launched its QQ consulting app, a conflict between Cainiao and SF Express over data also arose when Alibaba intervened in the logistics industry, and the European Union has been conducted an investigation since 2010 into Google, which abused its search service to promote other services.
Lastly, oligarchs possess a larger share of the market, with winners often taking all the benefits. The Internet is considered to reinforce this situation.
Working against monopolies is undoubtedly essential in regulating market competition, and would not be influenced by dynamic competition, elusiveness, artificial intelligence and big data, but may instead intensify competitive damage instead. Deng Zhisong pointed out that there is legislation regarding the protection of big data which includes the Consumer Protection Law amended in 2014, the Cyber-safety Act, The Criminal Code and judicial interpretations given by superior court and superior procuratorate. However, these documents are not always efficient, especially when applied to special cases. In the market, ambiguities still exist in the definition of some key concepts,such as platform, bilateral, multilateral and cross-border competition, and crossborder transmission.
Deng agreed that identifying abuse regarding dominance in market can be quite technical, exclusive and highly dynamic, thus requiring more evidence. This poses great challenges to law enforcement agencies regarding their abilities to process data and evidence.
“The digital economy also makes things more difficult in terms of discerning anti- trust agreements,” said Deng Zhisong. He pointed out that in 2015, the Department of Justice of the United States investigated and punished Amazon for its sales of posters, which was the first case of an anti-monopoly agreement based on an algorithm. This happened when Amazon used an algorithm to maintain a high price in its sales of posters without any consultation and contact with labor forces, revealing a future trend.
Being proactive when faced with the challenges ahead
Accompanied by the growth and application of global Internet technology, a closer tie has been forged between the Internet and the economic industry. The industry has undergone a transformation and upgrading, business modelsare continually being reformed and innovated, and a new digital economy based on the Internet has sprung up. However, there is an increasing number of economic conf licts and illegal competition between enterprises.
“Obstacles in the way to developing the digital economy remain to be solved and require efforts from different parties.” Si Xiao, the Dean of the Tencent Research Institute, claims that the situation regarding the digital gap is quite austere, and not only includes the gap between infrastructure accessibility, but also that in digital literacy.
In terms of accessibility, four billion people in the world still don’t have access to the Internet. The World Economic Forum has proposed an initiative to establish a network for all, and accordingly many countries have made plans to realize this goal. However, this could take a long time.
As far as digital literacy is concerned, this is a problem which paralyzes all countries. Statistics from the European Union showed that more than 47% of people from EU countries are not qualified in terms of digital literacy, which impedes the digitization process in Europe. This problem is even graver in developing countries.
Si Xiao points out: “At the same time, along with the development of the digital economy, security threats arise, high risk vulnerabilities multiply and network attacks intensify. Infrastructure is under threat and can be severely damaged, especially in the areas of finance and energy.” The Internet is also confronted with unprecedented security challenges along with the development of the Internet of Things.
He also expressed his concerns that “data on the one hand is an essential productive factor; but on the other hand, too much data leads to a deluge to some degree”.
In addition, legal construction lags behind the healthy growth of the digital economy. Si Xiao said that a consensus hasn’t been achieved between countries on issues like protecting users’ privacy, as well astheir “right to be forgotten”. In this way, countries differ greatly in their regulatory policies regarding the digital economy and as such, conflicts between traditional industries and the new ones emerge from time to time.
A senior engineer from the National Research Center for the Development of Industrial Information Security, Wang Hualei explained: “The government, enterprises and all circles of the society should take an active attitude towards the digitization transformation and promotingthe healthy growth of our digital economy. They should not only create a favorable environment for its development, but should also be proactive when faced with all problems that may occur during the development of the digital economy.”