Catching up digitally

To stay ahead in this new global race, China must accelerate its digital economic growth and sharpen its international competitiveness

The digital economy has entered a stage of global strategic competition with every country desperately trying to gain first-mover advantage. The key lies in accurately measuring the development of the digital economy globally and identifying each country's strength and weakness in the path for growth.

This is the premise and basis for countries to formulate their strategies and policies for international competition. Based on the advantages of existing digital economy measurement indices, a new set of indices — TIMG Index — has been constructed in four dimensions: technology, infrastructure, market and governance.

The index measured the digital economic growth in 106 major economies worldwide from 2013 to 2021, providing important references for international investors and policymakers to gain insight into the digital economy's development pattern and seize new opportunities for future growth.

Based on the TIMG index, the global digital economy shows a trend and characteristics of "overall development, regional agglomeration, and competition among countries".

First, the global digital economy shows a trend toward sustained development. The average score of the TIMG index increased by about 26 percent from 45.33 in 2013 to 57.01 in 2021. The higher the score of this indicator, the greater development of the digital economy. Especially since 2018, the catch-up trend of digital economy development in major countries has accelerated. The digital market and infrastructure are the main forces driving the rapid growth of the global digital economy. Global digital governance has gone through slow-paced to fast-paced development. In comparison, technological progress in the digital sector has been relatively slow. In addition, the global digital economic development becomes convergent and the gap between countries is gradually narrowing.

Second, the global digital economy shows a trend toward regional agglomeration. North America, the Asia-Pacific and Western Europe are the top three developed regions; the Association of Southeast Asian Nations, Central and Eastern Europe, the Commonwealth of Independent States are at a moderate level, while Africa is relatively backward. Estimates show that the development of a country's digital economy is closely related to its economic and financial foundation, and the average level of the TIMG index shows a decreasing trend from high-income to low-income countries. From the perspective of development trend, low- and middle-income countries are actively leveraging their latecomer advantages, while low-income states are facing the risk of a wider digital gap. In the high-income group, the United States, Singapore and other developed countries are the leading countries with rapid growth, while China and India are the leading countries in middle- and high-income group and low- and middle-income group, respectively.

Third, developed countries are leading in the area and inter-country competition exists in a differentiated manner. On the whole, major developed countries are in a leading position in the global digital economy, while latecomers such as China are accelerating their pace to catch up. In 2021, based on the TIMG index, the US, Singapore and the United Kingdom were the top three countries, while China ranked the 8th. In terms of digital technology, the US, Finland and Switzerland ranked among the top three in the world; in terms of digital infrastructure the world's top three were the US, Singapore and China; in terms of digital market, the US, China and the UK ranked among the top three globally; in term of digital governance, Singapore, Finland, and Denmark took the top three places.

After analyzing the global digital economic development pattern using the TIMG index, it was found that China has a strong cutting edge in the digital market and infrastructure.

In 2021, China's digital market and infrastructure index ranked second and third globally and respectively. On the one hand, the digital market holds a relatively stable competitive advantage for China. The improvement of its digital market index is mainly driven by the demand side. As of 2022, China had 1.067 billion internet users, laying a broad foundation for digital product innovation, business model promotion, data generation, and model training. On the other hand, digital infrastructure is becoming a new growth point for China's digital economic development. The implementation of strategies such as "Broadband China" has greatly improved the inclusiveness, convenience, and security of digital infrastructure. Especially in recent years, China has achieved curve overtaking in the 5G field, going on to build the world's largest 5G network.

However, China still needs to improve its digital technology and governance. In 2021, there was a certain gap between China and developed countries in these two indices, with China ranking 15th and 41st globally.

Although it ranks the highest in the world in terms of the number of patent applications and papers published in the digital field, China still lags behind in terms of human capital accumulation and innovation capability. In addition, China's digital governance index ranks relatively low, making it a comparatively underdeveloped field and weak link compared to the scale and advantages of its digital economy.

In this sense, China must accelerate its digital economic growth and sharpen its international competitiveness.

First, China should actively transform its edge in scale into technological advantage. It should focus on developing digital technology and guard against barriers brought about by technological monopolies in developed countries through strengthening high-tech talent cultivation, better protecting intellectual property rights, and encouraging independent innovation.

Second, the country should further advance the construction of digital infrastructures in key areas. The construction of new-generation digital infrastructure such as artificial intelligence, 5G and data centers should be speeded up. While increasing the penetration rate of advanced digital infrastructure and focusing on alleviating the digital gap, it should also develop high-quality digital infrastructure with a focus on enhancing the security of international networks.

Third, the institutional construction that supports the digital enterprises should be improved, especially the establishment of an investment and financing system for digital startups to encourage digital companies' innovation and entrepreneurship. Also, it can cultivate industry clusters with international competitiveness and support capable digital enterprises to "go global".

Fourth, China can speed up the construction of legal and regulatory systems that are suitable for its digital economic development. At the same time, China can draw on the experience of countries ranked high in the global digital governance index and launch pilot programs before promoting them nationwide in a bid to reduce the cost of trial and error.

Wang Zhe is a post-doctorate at the Institute of Finance at the Chinese Academy of Social Sciences. Zhang Ming is deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences and deputy director of the National Institution for Finance and Development. Chen Yinmo is a researcher with the National Institution for Finance and Development. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.