One of the underlying factors for the success of China’s digital economy expansion is the Chinese people who were ready to adapt to this new technological environment.
This article is based on the interview of Chanuka Wattegama, policy researcher in the field of economics and technology, on “Rising China and Lessons for Sri Lanka”. The series of interviews was launched by the Veemansa Initiative – an independent think tank on economic, political and social issues. Through this series of interviews, Veemansa brings the views of scholars and experts on various dimensions of China’s miraculous development experience, drawing lessons, parallels and perspectives for Sri Lanka.
Digitization fuels development, and development fuels digitization. Although China and Sri Lanka started their market-oriented development drive in the late 1970s, China has far surpassed Sri Lanka in terms of developing its digital economy.
The term “digital economy” refers to the use of computers, the Internet and smartphones. However, it is a whole economic environment that covers hardware development, software development, telecommunication services, data services and other services such as e-commerce and e-governance. China has the second largest digital economy in the world after the United States, while its economic value has been estimated at $5 trillion. But due to the rapid expansion of China’s digital economy, China is catching up with the United States very soon.
While China’s economic development over the past 40 years has been a miracle, so has the rapid expansion of its digital economy. The main reason is that China has recognized the importance of “digitalization” itself to effectively realize its economic growth by introducing the digital economy.
China has the largest population in the world with 1,400 million, of which 600 million people have ever been connected to the Internet. As a result, various products from digital economic environments, such as e-commerce, financial technology (fintech) and social networks, can reach a massive market more efficiently and at lower cost than in many other countries.
Due to the huge market, the benefits of “economies of scale” and cost reduction are also enormous for producers in the digital economy. One of the underlying factors for the success of China’s digital economy expansion is the Chinese people who were ready to adapt to this new technological environment. What we have seen is the perfect match between three parties that have made the growth of the digital economy a great success; that is, the government, the private sector and the people.
The digital economy would change the way of life of any person when acting as a consumer, producer, employee, student or any other in an economic environment. For example, Chinese consumers don’t want to hang around stores to buy what they want. The customer can search what he wants on an e-commerce platform, order the goods and make the payment online. The government has built the digital infrastructure and logistics to facilitate this transaction. As a result, within hours, what was ordered would be delivered to your doorstep. If this transaction takes place in the traditional way, the customer has to physically search for the goods by spending money and time. Due to the development of the digital economy, millions of transactions take place on e-commerce platforms in China every day.
In the same way, investors in financial markets – bonds, stocks or currencies – also use financial technology. They can watch the market trading activity on the smartphone or computer screen while staying at home or any other convenient location and participate in the trading activity of various financial products. In fact, the Chinese are much more accustomed to smartphones than personal computers.
In the same way, Chinese digital products are also widely sold around the world. For example, the famous “Tik Tok” is one of the biggest Chinese products that have conquered the world market. Therefore, China not only exports physical goods and services to the rest of the world, but also their digital products.
Perhaps the latest technological development in the international financial system is the creation of cryptocurrency – a digital currency, in which transactions are verified and records maintained by a decentralized computer system using cryptography without the mediating role of a banking system or the control of a central authority.
China is also the second largest cryptocurrency mining country in the world after the United States. However, crypto mining is a private financial activity so it is difficult for a government to control. Therefore, China not only banned cryptocurrency, but introduced a digital version of Chinese currency – yuan, as an alternative virtual currency. China was the first country in the world to achieve such a milestone in 2021.
China’s policy of introducing the digital yuan is a smart and clever response to the spread of cryptocurrency usage in China. In fact, there is no way to control or regulate or even ban cryptocurrency. In such a situation, the smartest way to solve the problem was to create a better digital version of China’s own currency that replaces cryptocurrency; in fact, it would be more acceptable to the general public than private cryptocurrency.
Lessons for Sri Lanka
Sri Lanka is only at the beginning of the development of its digital economy. Due to the COVID pandemic, the use of e-commerce and online delivery services has increased, but by international standards, these systems have a long way to go to become developed systems. Efforts have also been made to develop e-governance services in this country.
However, these efforts appear to be ad hoc and piecemeal in many places without much interconnectivity. Sri Lanka has yet to establish international payment gateways, so small and medium producers, in particular, have a digital barrier to accessing international markets.
Therefore, Sri Lanka has a long way to go in this particular area of developing its digital economy. China is, at present, far ahead of not only Sri Lanka, but also many developed countries in the world. In digital technology, China competes well with the United States and Western European countries; some of its new digital technological advancements are not available even in the developed countries of the world. Sri Lanka has many opportunities to benefit from China’s advanced digital economy by learning from China’s experience, adopting Chinese technologies and opening up the economy to receive outward Chinese direct investment that comes with advanced technologies.
The government has a major role to play as the Chinese government has done for the private sector and for the people in preparing an environment conducive to the development of the digital economy. Since Sri Lanka is a small country, there is no doubt that it should sell its products internationally for which the economy must be open. Digital infrastructure, a conducive regulatory system and people’s willingness to embrace digital technology are important prerequisites that we must establish to open the door for the development of Sri Lanka’s digital economy.
(The author is a professor of economics at the University of Colombo who conducted the interview series on Rising China.)