Inscription: On December 16, 2023, the first "Chengze Digital Intelligence Forum" and the 3rd Annual Meeting of the Digital China Alliance of the National Development Institute were held, initiated by the Digital China Alliance of the National Development Institute of Peking University and supported by the teachers, students, alumni and current students of the National Development Institute. This article is based on the keynote speech delivered by Xie Xuanli, a young scholar of liberal arts at Peking University, an associate researcher of the National Development Institute, and a young scholar of the Yangtze River of the Ministry of Education.
Achievements and concerns of China's digital economy
China and the United States are the undisputed leaders in the global digital economy. According to the United Nations Digital Economy Report, China and the United States account for 90% of the market capitalization of the world's 70 largest digital platforms. Still, China's share is only 22%, compared to the U.S.'s 68 percent, suggesting that we still have to catch up, and that global competition between China and the U.S. in the digital economy will continue.
Why does China rely on its leadership position in the global digital economy? I think it is closely related to the following four important factors.
First, China's huge market size. This allows many digital business models to be implemented in China, but are difficult to replicate in other countries and regions. In the food delivery industry, for example, digital platforms such as Meituan and Ele.me provide a lot of convenience services in the mainland, but this is not necessarily the case in Hong Kong and the United States. It is the size of the Chinese market and the high population density that create the conditions for the development of such business models.
Second, the development of related fields is not perfect, and there are a large number of market gaps, which provides opportunities for the development of digital technology to catch up. For example, in the field of digital finance, Alipay and WeChat Pay have achieved outstanding development results, which are related to the insufficient development of the traditional financial system in the mainland and the unmet potential demand.
Third, in the early stages of the development of Internet platforms, government regulation was relatively lax. Compared with the strict systems of developed countries, the relatively mild regulatory environment in the mainland provides a broad space for the development of new technologies. Of course, this also brings some developing problems, and the regulation of digital platforms has become a new topic.
Fourth, entrepreneurship is a huge source of innovation. Outstanding entrepreneurs in mainland China have founded and developed many of the world's leading digital platforms. Unfortunately, in recent years, our advantage has gradually weakened, and the gap between China and the United States has widened: the data shows that in the list of the top 20 global technology companies by market capitalization, there were 9 Chinese companies in 2018, and in 2021, the number of new unicorns in the world has also decreased.
How will China's digital economy compete with the United States in the future? From the perspective of the mainland's national strategy, it attaches great importance to the development of the digital economy and puts forward a high-quality development strategy. The five key words of innovation, efficiency, fairness, greenness, and openness constitute the core elements of high-quality development. Next, I will share our relevant research and findings based on the three keywords of innovation, green, and efficiency.
Innovation: the first driving force for digital and intelligent transformation
The Outline of the 14th Five-Year Plan proposes that the digital economy will become a new engine of development. The "Overall Layout Plan for the Construction of Digital China" released at the beginning of 2023 also clearly pointed out that "by 2035, the level of digital development will be at the forefront of the world, and the construction of digital China will make significant achievements." The systematic layout of the construction of digital China is more scientific and complete, and the digital development in the fields of economic, political, cultural, social, and ecological civilization construction is more coordinated and sufficient. "Today, nearly half of the mainland's GDP is related to the digital economy, including the contributions made by the core industries of the digital economy such as Internet companies and the computer industry, and more importantly, the contributions made by the digital transformation of many traditional industries.
According to our nationwide sample of small and medium-sized enterprises, 98% of them have started to go digital in at least one area, with the highest proportion of digitalization being customer relationship, sales, finance, employee and other management systems. This reflects that digital technology has been widely used in domestic enterprises and penetrated into all aspects of enterprise operations.
However, the heads of many enterprises in the survey also admitted that digital transformation is full of challenges. Internally, this stems from the fact that innovation is given top priority, and digital transformation is seen as a key way to promote enterprise innovation. In other words, the root of enterprises' pursuit of digital development is the pursuit of innovation.
The relationship between digital intelligence and innovation can also be understood from the perspective of the changes of the digital economy compared with the traditional economy. I summarize it in the following five points:
First, the change from atom to bit: products have changed from physical form to many products, including books and CDs, which have also been digitized, and their transmission costs and production marginal costs can be greatly reduced, or even reduced to close to zero.
Second, the change from physical space to virtual space: the channel has changed from being based on offline to being able to achieve it through virtual space, and can even be open 24 hours a day, 7 ×, and it is easier to break through geographical restrictions and quickly reach a wider range of people around the world.
Third, the change from centralization to decentralization: between enterprises and consumers, consumers are mostly in a passive position, and enterprises consume what they produce, but in the digital era, consumers' rights have greatly increased, and they can even drive production, and the digital economy's ability to allow consumers to influence other consumers has also been significantly enhanced.
Fourth, the change from product to service: the original bicycle is a product, but with the help of digital technologies and platforms such as positioning and payment, shared bicycles transform products into services. It can be seen that the digital economy enables traditional industries to turn products into services.
Fifth, the change from competition to cooperation: the original competition is "life and death", and the enterprises under the digital economy are more in a competition and cooperation relationship, that is, there is both competition and cooperation in the ecology of jointly serving customers.
In a nutshell, innovation is the primary driving force for enterprises to carry out digital and intelligent transformation, and it should also be the core content of digital and intelligent transformation.
Green: The social value of digital and intelligent transformation
The "dual carbon" goal of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060 is the most intense and shortest emission reduction goal in global history. Under this goal, the great challenge we face is how to maintain high-quality economic development while reducing carbon emissions.
The digital economy may offer practical solutions from the following perspectives:
1. Optimize the industrial structure: Compared with the traditional economy, the digital economy has more low-carbon characteristics, which will help optimize and upgrade the industrial structure.
2. Optimize the energy structure: Digitalization boosts the development of new energy, improves energy efficiency, and reduces dependence on fossil energy.
3. Improve resource efficiency: With the help of digital technology, insight into market information is convenient for rapid adjustment of production and operation strategies.
4. Conducive to low-carbon emission reduction: Online shopping, e-government, online meetings, etc. can reduce the demand for travel, and the popularization of electronic payment, e-invoicing and e-contract can reduce transaction costs and resource consumption.
We decompose the digital economy into four dimensions: factor input, production organization, digital output and digital consumption, and find that the development of the digital economy in mainland China accelerated significantly from 2013 to 2020. Among them, the fastest average annual growth rate is digital consumption, with a growth rate of 18.57%, followed by digital output, with a growth rate of 11.83%, and the average annual growth rate of production organization and factor input is low, with a growth rate of 7.29% and 6.47% respectively, which may become a bottleneck restricting the development of the digital economy. In addition, compared with the central and western regions, the eastern region has always had a leading advantage in four dimensions, and the leading advantage in the two dimensions of factor input and production organization is particularly obvious.
In addition, looking at China's digital economy in the context of the "dual carbon" goal, there are several important findings in general:
1. China's digital economy has a significant carbon reduction effect, with digital consumption as the main driving force. This not only reflects the leading position of the mainland's consumer Internet, but also shows that the industrial Internet still needs to be further developed.
2. Increasing investment in digital elements and developing digital services are important ways to achieve carbon emission reduction.
3. There is a regional imbalance in the emission reduction effect of the digital economy, so the development strategy of the digital economy needs to be adapted to local conditions.
Efficiency: An important goal of digital and intelligent transformation
In terms of efficiency, let's take the financial sector as an example.
The banking industry is now actively engaged in digital transformation. According to the data, the total annual investment in science and technology of the six major state-owned banks has exceeded 100 billion yuan, and many banks have invested more than 10 billion yuan in science and technology. According to the "Peking University Commercial Bank Digital Transformation Index", which covers 246 banks, from 2010 to 2021, all large state-owned, joint-stock banks, urban commercial banks, rural commercial banks, foreign banks and private banks are actively working on digital transformation.
In the eyes of many people, the banking industry belongs to the service industry rather than the high-tech industry, but the data shows that since 2018, the banking industry has invested rapidly in cutting-edge technology and R&D, and the number of patent applications has increased from thousands to tens of thousands, focusing on technology fields such as blockchain, artificial intelligence and distributed technology.
The reform of banking channels is also deepening. The total number of bank branches has entered negative growth since 2018, but online channels such as mobile apps and WeChat mini-programs have covered almost all banks. In order to promote the digitalization process, banks have set up relevant departments such as digital finance departments and fintech departments. More than 80% of banks now have such departments, and a further 19 banks of all sizes have fintech subsidiaries.
The study also found that the benefits of digital transformation to banks and society are significant.
First, digital transformation can improve banks' operational performance, especially by improving efficiency and reducing costs. Among them, the application of artificial intelligence cannot be ignored. Banks that have achieved remarkable results in digital transformation have not only significantly reduced the number of employees, but also changed the structure of talent demand, such as an increase in the demand for talents with a master's degree or above, and a decrease in the demand for talents with a bachelor's degree or less.
Second, digital transformation can help banks serve the real economy more effectively. Digital transformation has enabled banks to reduce loan concentration, increase the proportion of credit loans, and better facilitate the financing of small and medium-sized enterprises. Of course, the risk factors should not be ignored. For small and medium-sized banks, digital transformation may lead to an increase in NPL rates. In addition, businesses of all sizes may face different challenges and opportunities in their digital transformation journey.
How to make digital and intelligent transformation better improve the efficiency of enterprises? The digital transformation of the banking industry has given us the following inspirations:
First, different types and sizes of enterprises have different transformation paths. As shown in the figure below, there is a gap between the transformation curves of different types of banks compared with large state-owned banks, joint-stock banks, urban commercial banks, and rural commercial banks. Why? Because transformation requires investment, and economies of scale, both in terms of user size and asset size, are conducive to decreasing unit input costs. As a result, SMEs are likely to lack the motivation and resources to invest in transformation.
详见: "Peking University China Business Index" (2010-2021) Third period (2010-2021) https://www.idf.pku.edu.cn/bqzt/xw/527811.htm
In view of this contradiction, we suggest that an ecosystem can be formed between large and small enterprises, and large enterprises can export their technology to small and medium-sized enterprises with their sufficient resources and advanced technology. Or small enterprises can seek common development through alliances, avoid duplication of construction, and reduce investment.
Second, digital and intelligent transformation is not a simple technology adoption, but focuses on transformation. The weak link in the process of digitalization is often the adaptation of organizational management. Our digital transformation data for the banking industry shows that organizational transformation has generally lagged behind strategic and business transformation. In our survey, companies also generally agreed that the most difficult factor in transformation is not a lack of financial resources, but a lack of talent and a limited way of thinking. These bottlenecks need to be addressed to ensure the success of your transformation.
Finally, I would like to emphasize that transformation needs to focus on three priorities: strategic direction, business strategy, and organizational building. Among them, first, enterprises should clarify the direction of transformation and how to use digital technology to innovate, second, innovation ideas need to be put into practice by technology and business teams, and finally transformed into concrete products, and finally, it is necessary to promote the digitalization of organization and management to ensure that talents and organizations are suitable, so that the organization can not only ensure the implementation of existing innovations, but also lead the direction of future transformation. These three links are indispensable, and if they can form a virtuous circle, they will promote the continuous innovation and development of enterprises.
Finishing: Wang Zhiqin | Editor: Wang Xianqing
Dr. Xie is currently a Young Scholar of Liberal Arts at Peking University, a Changjiang Young Scholar of the Ministry of Education, an Associate Research Fellow at the National School of Development of Peking University, and a Senior Research Fellow at the Center for Digital Finance at Peking University. Dr. Xie's research interests include innovation and entrepreneurship, digital transformation, overseas development, and corporate governance.