The rise of digital technology businesses has the potential to transform the Chinese economy. Digital innovation is becoming the country’s new driver of growth, raising national competitiveness, incomes, and living standards.

As China is reaching the point where the rise in wages has made China less cost-competitive as an exporter, the country is attempting to move into higher value-added industries, gradually shifting to a consumer-driven, services-based economy. The global trend of mobile devices and proliferation of mobile apps creating on-demand businesses to meet customer needs is rapidly growing in China, providing a new and promising growth path for the country.

Chinese digital technology firms have already rapidly transformed the economy at home. They have leapfrogged Western, and indeed, Chinese competitors, in many traditional industries to offer consumers new products and services, often more efficiently and at a lower cost. E-commerce giants like Alibaba have enabled shoppers, particularly those living outside big cities where global brands and Chinese retailers do not have a presence, to purchase a great range of products they would not otherwise have access to. At the same time, numerous small businesses outside major Chinese cities are able to reach large numbers of customers through the e-commerce platform, in turn generating employment opportunities for millions. Mobile social media apps like WeChat and Sina Weibo, both with hundreds of millions of users in China, transformed communication by providing an integrated platform for chatting, photo and video sharing, shopping, and gaming. The potential for transformation in finance could be even more profound. Whereas individuals and small businesses often have difficulty securing loans from state-owned banks, digital platforms have begun to provide credit, loans, payment processing, and insurance to previously underserved small companies and consumers. What these companies are doing promises to overcome some of the country’s domestic market inefficiencies and policy problems.

The rise of China’s digital economy has huge future growth potential. China has 650 million Internet users, about double the entire U.S. population; China also has more social messaging users than the U.S. population. Future demand, both domestic and global, is set to drive even greater growth. This briefing explores the global take-off of China’s digital innovation businesses, as well as major challenges that the sector faces in order to become globally competitive.

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