Cheng Shi is the Chief Economist and Managing Director of ICBC International and a director of the China Chief Economist Forum
"The window contains the thousand autumn snow of the West Ridge, and the door is berthed by the East Wu Wanli Ship." Looking back on 2021, we believe that there are two major events in the digital economy that deserve to be mentioned and deliberated: the first is that in June, the National Bureau of Statistics of China issued the "Statistical Classification of the Digital Economy and Its Core Industries (2021)", which clarified the correspondence between the digital economy and the real economy, indicating that the digital economy is becoming increasingly material; the second thing is that in October, the social media company Facebook changed its name to Meta, completely transforming into a meta-universe company, reflecting the evolutionary idea of virtual reality "double cycle". Following these two evolutionary directions of the digital economy, digital regulation is becoming a breakthrough force that smooths the process of convergence and removes obstacles to evolution. On the one hand, the timely replenishment of supervision makes the integration of the digital economy and the real economy more peaceful, stable, orderly and controllable. On the other hand, supervision will focus on e-commerce and Internet media with excessive concentration in the industry, and will also spur enterprises to take the initiative to seek breakthroughs, from stock game to incremental mining. We have observed that the capital market with future expectations has confirmed the above logic with actions, and the stock price performance of the digital economy sector in 2021 will begin to decouple from the revenue growth rate, and industries that conform to the direction of evolution and regulatory posture can win the recognition of the capital market. For example, the revenue growth rate of the e-commerce sector has increased significantly compared with 2020, but the yield performance has been the last, even in the first three quarters of the US stock market, the yield was only 1.5% (the yield in 2020 was 78.6%). Looking forward to 2022, the evolutionary trend of the "double cycle" of digital economy materialization and virtual reality will continue to strengthen, and correspondingly, the development focus of the global digital economy will be further focused: first, the penetration of industrial digitalization into the primary and secondary industries is conducive to the digital efficiency improvement industry that carries out all-round and full-chain transformation of agriculture and industry; second, the demand for digital goods is significantly improved, which is conducive to the digital element driving industry involving the creation and confirmation of digital content.
The Evolution of the Digital Economy: Grasping the Key Trend of the "Double Cycle" of Digital Economy Materialization and Virtual Reality. In 2021, two major events related to the direction of the evolution of the digital economy deserve our attention. First, in June 2021, The National Bureau of Statistics of China issued the Statistical Classification of the Digital Economy and Its Core Industries (2021) (hereinafter referred to as the Classification), reflecting the increasingly substantialization of the digital economy. In the past, the digital economy was always regarded as a grand conceptual term, and lacked a direct correspondence with the real economy, and the emergence of the Classification marked the confirmation of the correspondence between the digital economy and the real economy. The Classification defines in detail five categories of the digital economy, including digital product manufacturing, digital product service industry, digital technology application industry, digital element driven industry and digital efficiency improvement industry. The first four categories are the digital industrialization part and the core industry of the digital economy, while the fifth category belongs to industrial digitalization, focusing on the integration of the digital economy and the real economy. Since this classification covers a wide range of fundamental activities closely related to digital technologies, it is applicable on a global scale, and the development of common standards makes statistical regulation of the digital economy more realistic. Second, in October 2021, the digital economy representative company Facebook changed its name to Meta, reflecting another evolutionary direction of the digital economy: the "double cycle" of virtual reality. Facebook shook off its former social media positioning and took the lead in completely transforming into a meta-universe company, and since then, other leading technology companies such as Microsoft have also begun to announce a full-scale entry into the meta-universe. The transformation of these giant companies in the era of mobile Internet means that the digital economy is entering the era of the meta-universe of virtual reality. Meta means After and Beyond in Greek, so we believe that the metaverse is not an ideal utopia completely detached from reality, but focuses on reflecting the inheritance and transcendence of the real world, which inherits the cognitive laws and emotional changes of human beings in the real world on the one hand, and on the other hand, it will be detached from the real world, providing a shocking experience of breaking free from the shackles of physical space and real life, so as to release the new vitality of the digital economy.
In the process of the evolution of the digital economy, the industry's plate dividend will also usher in a switch. Over the past few decades, the platform economy, as the dominant model of the digital economy, has opened up a new path of economic growth by optimizing the matching of supply and demand. However, if it is only to connect existing supply and demand, without tapping new demand and improving supply chains, then with the basic realization of supply and demand matching, it is difficult for the platform economy to create new increments, and its contribution to economic growth will gradually weaken (although the platform economy itself can still achieve short-term revenue growth by increasing taxes, but the sustainability of growth without economic contribution is questionable). Based on the basic supply and demand model of microeconomics, we found that in order to play the long-term support role of the digital economy for economic growth (the total output of society increases in equilibrium), the most fundamental thing is to promote the supply and demand curve to the right, which means that the next stage of development of the digital economy focuses on creating new demand and strengthening the management ability of the supply chain. From the supply side, the materialization of the digital economy will promote industrial digitalization into a stage from quantitative change to qualitative change. As new infrastructure such as 5G and industrial Internet moves from pilot construction to integrated application, the penetration rate of the digital economy to the secondary and primary industries in 2022 may accelerate, and the development dividend is expected to radiate in subdivisions such as smart agriculture, smart industry and smart transportation. From the demand side, the "double cycle" of virtual reality will open up the growth space of digital goods. At present, the types and quantities of digital goods available for consumption are still in their infancy, and with the increase of people's online time investment and the wide application of blockchain technology, the potential market space for digital content and media is worth looking forward to. According to Adrroit Market Research, the current global market size for all virtual goods is about $50 billion, and by 2025 it is conservatively estimated to grow to $190 billion, with a compound annual growth rate of 40%. Although digital goods are not the first time to appear, the metacosm and the NFT correspond to the upgrading of productivity and production relations in the digital world, respectively, giving digital goods a new source of value. On the one hand, the metacosm has spawned a vast market for commercial online redoing by recreating a virtual parallel world. On the other hand, by confirming the property rights and ownership of digital goods, the NFT has made digital goods that originally supported unlimited reproduction scarce. Recently, from the first-line luxury brands LV and Burberry to the mass consumer brand Coca-Cola, major companies have tested the waters of NFT and launched digital versions of their products. Gucci's virtual Dionysus bag and physical even have a phenomenon of price inversion, although there is a factor of hype, but the market potential of the metacosm is indeed not to be underestimated.
Therefore, our core judgment is that the focus of the development of the global digital economy in 2022 will focus on the digital factor-driven industry and the digital efficiency improvement industry. Among them, the investment opportunities in the digital element-driven industry will be born in digital content and media, on the one hand, the construction of new information infrastructure provides a technical guarantee for the creation of digital content, on the other hand, data resources and property rights transactions shape an orderly production relationship for the exchange and realization of digital content, and the resonance of productivity and production relations will give birth to a broad market space for digital content. In the digital efficiency improvement industry, due to the integration of the digital economy and the service industry has been relatively mature, the all-round and full-chain transformation of digital technology for agriculture and industry will become the core driving force.
Breakthrough in digital supervision: In addition to smoothing the integration process of the digital economy and the real economy, the "visible hand" is used to remove the evolutionary obstacles of the digital economy. Inevitably, the evolution and upgrading of the digital economy as a whole is accompanied by the pain of micro individuals. The current digital economy enterprises with the highest market capitalization rankings have experienced the "burning money" stage of staking the land, and now the transformation to the next stage requires them to give up the traffic and data advantages accumulated for many years. We believe that digital regulation is a key element in reducing friction costs and helping companies break through. First, the complement of supervision makes the integration process of the digital economy and the real economy more peaceful, stable, orderly and controllable. The systemic importance of the digital economy to the real economy is increasing, and according to the Calculation of the Academy of Information and Communications Technology, the share of the global digital economy in GDP in 2020 has reached 43.7%. Therefore, the digital economy needs to completely bid farewell to the era of barbaric growth and release the new momentum of economic growth in a comprehensive and standardized manner within the regulatory system that keeps pace with the times. Second, regulation will also use the "visible hand" to remove obstacles to the evolution of the digital economy and accelerate the evolution of the Internet ecology. While digital technology has an amplified, superimposed and multiplied effect on economic development, it has also brought a series of new problems such as platform economy, data privacy and digital currency. In 2021, anti-monopoly reviews of technology companies will spread around the world, but the essence of anti-monopoly is not to suppress the development of the digital economy, but to correct the imbalance in the distribution of social welfare with "visible hands" and promote the ecological evolution and healthy development of the digital economy. On the one hand, excessive concentration of industries will hinder the market environment of fair competition, and companies may use their dominant market position to harm the rights and interests of producers and consumers. On the other hand, the digital economy uses data as a factor of production, and if data is concentrated in the hands of a few enterprises, it will also exacerbate concerns about data privacy and data security. We measured the industry concentration (measured by the HHI index) of different sub-sectors of the digital economy (Bloomberg's Industry Classification). As shown in Figure 3, in the world, the e-commerce industry has the highest concentration, followed by Internet media and digital entertainment content, software, hardware and technical services are in a relatively fully competitive market pattern, and the overall industry concentration of the digital economy industry in the United States is higher than that in China. Among them, the e-commerce field in the United States is basically monopolized by a single company of Amazon (market share of more than 90%), while China shows an "oligopolistic" trend, with a few large companies dividing the market share. This also shows the specific process of supervision to help the digital economy break the shackles, the current supervision will focus more on the high concentration of the industry e-commerce, Internet media and other digital economy in the first half of the power point, it is expected that enterprises will take the initiative to seek breakthroughs under the spur of supervision, focusing on mining the incremental market of the digital economy.
Confirmation of financial markets: Stock price performance began to decouple from revenue growth, and industries that conformed to the direction of evolution and regulatory posture could win the recognition of the capital market. As an early reflection of future expectations, the capital market has confirmed the above trends in 2021. According to our statistics, there is a direct positive correlation between the stock price performance of various sectors of the digital economy and the fundamentals in 2020, while the investment logic of the digital economy has undergone a significant change in 2021. As of 2021Q3, in addition to the overall stock price performance of US companies still positively correlated with year-on-year revenue growth, global and China stock price performance began to decouple from the rate of revenue growth (as shown in Figure 4). In the post-epidemic era, although the revenue growth rate of all industries in China's digital economy has performed well year-on-year, the overall valuation has declined significantly. From a global perspective, the performance of e-commerce in the capital market in 2020 and 2021 has experienced a double day of ice and fire. In 2020, the year-on-year growth of online consumption partially eased the pressure of economic shutdowns, and the investment performance of the e-commerce sector was basically consistent with its fundamentals, and the annual yield of US e-commerce companies even reached 78.6%. In 2021, affected by the low base effect in the first and second quarters, the revenue growth rate of e-commerce is significantly higher than that of 2020 (global 34.6% vs 25.6%, China 41.7% vs 24.6%, the United States 27.2% vs 24.3%), but its performance in the stock price is not satisfactory, the market value of China's e-commerce sector has fallen by 36.6% year-to-date, the global decline of 9.5%, even the record high US stock yield is only 1.5%. In our view, this reflects investors' concerns about the subsequent expansion of e-commerce business under the trend of economic transformation and tightening supervision. It is worth noting that the yield performance of semiconductors is consistent with their actual business growth performance in both China and the United States, which proves that the future development focus of the digital economy needs to shift to hard-core technology, and major technological breakthroughs and key link competitiveness are long-term footholds.