Prof. Huang Zhuo: Instate Three Fulcrums to Invigorate Economic Momentum
Weak economic growth over the last year hasn’t prevented some bright spots from shining through, especially digital economy and tech innovation, said Prof. Huang Zhuo at China Economic Observer, an event of the NSD. He is the NSD Assistant Dean, Fashu Scholar, and Executive Deputy Director of PKU Institute of Digital Finance.
Statistics show that China’s digital economy expanded to a scale of 50.2 trillion yuan in 2022, posting a nominal year-on-year growth of 10.3% and consolidating its position as the world’s second-largest. Amounting to 41.5% of China’s GDP, the digital economy has become an important driver for anchoring growth and spurring transformation. In 2022, China recorded a digital output of 8.1ZB, increasing by 22.7% over the previous year and accounting for 10.5% of the global total. Between 2016 and 2022, China’s digital economy achieved an annual compound growth rate of 14.2%, far above the GDP growth figure and 1.6 times that of the average of the US, the UK, Germany, Japan, and Korea. A number of research has indicated that the digital economy will continue to raise its contribution to China’s economic growth.
Some tech-heavy industries have also performed well, noted Prof. Huang. In the first half of 2023, China exported 2.14 million cars, a same-period jump of 75.7%. Being the second largest auto exporter in 2022, second only to Japan, China has since ascended to the No.1 position. Its auto industry has become highly competitive in the global market, not least because it shipped 534,000 new energy cars to other countries, 1.6 times that of the same period.
Some other indicators also point to the strides made by China’s digital economy and tech innovation. To further tap the power of the two, Prof. Huang suggested focusing on three fulcrums. First, measures should be taken to reinvigorate the confidence of market entities and reinstate respect for market rules and entrepreneurship. Taking the platform economy as an example, he believed anti-trust undertakings are coming to an end and top officials and ministries are sending out signals and taking measures to put the industry on track. Prof. Huang advised that the government promptly clarify relevant institutions and rules and strike a fine balance between setting directions and conducting micro-interventions. In addition to boosting entrepreneurs’ confidence in investment, measures should be taken to get entrepreneurship into full play in the age of AI in terms of identifying new market opportunities and exploring different tech paths, he said.
More concretely, Prof. Huang proposed that the central government use its fiscal budgets to take the lead in investments in digital infrastructure which caters to future needs. This is in light of the fact that many local governments are indebted and can hardly shoulder such a responsibility. Digital economy commands network effect, said Prof. Huang, so infrastructure investments in one region are bound to create positive spillover effects on other areas and thus benefit the whole country. Prof. Huang enumerated a range of projects, including communication network infrastructure, the digitalization of traditional infrastructure, the establishment of a data factor market, and digital finance infrastructure.
Another lever to pull is to build an investor-friendly capital market and guide capital to support the innovation and development of the real economy, he said. Rather than just being saddled with financing functions, the capital market should also benefit investors, in the long run, to render itself attractive. Besides, stringent regulatory policy adjustments over the last few years have drastically dampened the returns of investors, who barely have the means to diversify their investments. For enterprises that need capital for their innovative endeavors, Prof. Huang questioned if venture capital funds set up by the government and SOES can stay a reliable source of funding and their capacity for absorbing losses linked to the adventurous nature of innovation. Therefore, it is high time that an investor-friendly capital market be built, in which adventurous capital can be guided to support the digital economy and innovative development.