Rules Setting In The Digital Age – Analysis

By He Jun*

In an increasingly digitalized world, the digital economy continues to show astonishing growth.

China’s conceptual definition of the digital economy seems to be all-encompassing, and any economic activities connected with the internet can be included in the digital economy. According to the China Internet Plus & Digital Economy Index (2017) report, China’s digital economy grew rapidly in 2016. Which was the year that saw the national digital economy reach RMB 22.77 trillion, accounting for approximately 30.61% of the country’s total GDP that year. Comparatively, in 2016, the digital economy of the United States, Japan, and the United Kingdom accounted for 50.2%, 45.9%, and 54.4% of GDP, respectively. Compared with developed countries, China’s digital economy accounts for a relatively low proportion of GDP. According to the statistics of the Digital China Index Report 2019 by Tencent Research Institute, the scale of China’s digital economy in 2018 has reached RMB 29.91 trillion. In 2018, 1/3 of China’s total GDP was realized with digital technology, making it safe to say that a digitalized China has begun to take shape.

With the development of the digital economy, digital-related business forms continue to develop while the consumption habits of the public continue to change. The digital economy is in the process of dynamic development, making it rather difficult to accurately define the digital economy. To be sure, a global trend is already very obvious, i.e. the digital world is becoming a new “battlefield” for global competition, with the digital economy becoming a new space proving to be just as important as the traditional commodity economy.

ANBOUND’s researchers believe that the gradually emerging competitive situation in the digital economy and digital trade will be no less intense than the competition in the commodity trade field. From a global perspective, the three major economies of the United States, the European Union, and China have developed their own characteristics in the fields of digital economy and digital trade.

With its strong technological innovation capabilities and global internet giants, the United States is “rampaging” and conquering territories in the digital world. The United States has absolute advantages in terms of underlying technology, model innovation, digital commerce, digital resources, and financial capital support, to name but a few. Relying on the huge domestic market, China has developed certain characteristics mainly in the application of digital resources and digital commerce. However, China’s still does not have a firm foothold in the technological foundation, and it is easy to get stuck when the geopolitical environment deteriorates. The European Union has adopted a “defensive” approach in the digital field. Based on the Data Protection Act enacted in 1995, the European Union passed the General Data Protection Regulation (GDPR) in 2018. The EU’s focus is on the protection and privacy of personal information, the protection of EU data resources, and the protection of local interests in global digital trade. According to the GDPR, regulators can fine companies with inadequate data protection for up to 4% of their global revenue or 20 million euros. Through a series of digital laws that they have implemented, the EU has built a protective wall for itself in the digital field.

Beyond these three models, India, as a populous country, has a rich digital resource base. The huge population not only generates huge data resources, but also makes India a potential digital consumer country since digital consumption demand is also related to population size. Compared with the aforementioned three major economies, India is a relative latecomer to the digital realm, but it has a distinct feature of protecting digital resources. India already has strict laws requiring that digital resources generated in India cannot be transferred outside India. In July, an Indian government panel recommended setting up a regulatory body in India to manage information that is anonymous or does not have personal details but is vital for companies to do business. The panel proposed a mechanism that would require companies to share data with other entities or even competitors, which would stimulate the digital ecosystem. The report, if approved by the Indian government, will form the basis of a new law regulating the use of data. In response, the USA-India Chamber of Commerce, which is part of the U.S. Chamber of Commerce, said mandatory data sharing was “abhorrent”, which undermined companies’ investments in processing and collecting such information, and also confiscated investors’ assets and undermined intellectual property rights. The USA-India Chamber of Commerce strongly opposes mandatory sharing of proprietary data. The USA-India Chamber of Commerce also said that “mandatory data sharing” would restrict foreign trade and investment in developing countries and run counter to Prime Minister Narendra Modi’s call to welcome the U.S. companies to invest in India.

Judging from the different measures taken by the United States, China, the European Union, and India in the face of the digital era, the competition among major countries in the digital field will be very fierce in the future, and may even become an important source of conflicts. Competition may be mainly reflected in the following areas: (1) Taxation on the digital economy. Global internet giants have taken advantage of the digital age. Some internet technology giants in the United States, such as Amazon, Google, and Facebook, do business globally without paying taxes, which has prompted the European Union to levy a tax on it. (2) Protection of digital resources. There are two main aspects: one is the protection of personal privacy; the second being the protection of national security related to digital sovereignty. But how can digital rights be protected? Does the government have the right to force data sharing? There are still many differences on such issues. (3) Digital trade rules. With the rapid development of digital trade, it is urgent for countries to formulate the rules for economic activities such as the production of digital products, the provision of digital services and digital trade. (4) Intellectual property rights and digital technology transfer. In peacetime, this manifests itself in the commercial issue of paying royalties for the use of rights; in the times of geopolitical deterioration, this is often manifested as state sanctions on digital technology.

Like it or not, with the progress and popularization of digital technology, a highly digital world in on the horizon and we will face the problems of “digital survival”, “digital development” and so on. Since there are insufficient rules in this new field, it is important to establish relevant rules. As a major emerging market, China needs to actively participate in the formulation of these rules in the digital era.

Final analysis conclusion:

The digital age has arrived, and China is an important participant in such an age where it needs to play an active role in the formulation of the rules of the game.

*Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.