Covid-19 and digital transformation – What do we see now and what will we see soon?

Digital economy – A source of resilience in the COVID-19 outbreak?  Already long before the Covid-19 breakout, the digital economy has been playing an increasingly significant role as a new driver for China’s economic growth and social...

Digital economy – A source of resilience in the COVID-19 outbreak? 

Already long before the Covid-19 breakout, the digital economy has been playing an increasingly significant role as a new driver for China’s economic growth and social transformation. For instance, using the OECD framework of digitalisation, China’s digital economy accounts for approximately 6% of GDP in 2017. Following a broad definition by the China Academy of Information and Communication Technology (CAICT), the digital economy share of China’s GDP has already reached around 30% (see the international comparison summarised by the International Monetary Fund in Figure below[1]).

Figure: How big is China’s digital economy? – An international comparison. Source: IMF, 2019

Underneath China’s first quarterly GDP figure of a contraction by – 6,8%, there are also positive signs, indicating that the digital economy related fields may have demonstrated a stronger resilience in such a “black swan shock”. For instance, the service sector, on average, showed a less sharp drop of – 5,2% (compared to the industry sector of – 9,6%). Even more telling, “Information Transmission, Software and Information Technology Services” have actually increased by 13,2% in the heavily Covid-19 stricken first quarter of 2020.  

New digital business and new digital enablers for new digital economy

As explained by CAICT’s research, China’s development of the digital economy has been mainly driven by the integration of ICT with traditional service sectors (see Figure below), such as financial and entertainment sectors as well as e-commerce.  As a result, the service sector is the most digitalised, with ICT contributing to 33% of the service sector’s value-added in 2017.

Figure: China’s digital economy – Transformation of the traditional and creation of the new

Behind the positive number of digital economy related services, we do see that new digital services and business have served as new enablers and new growth boosts in the Covid-19 stricken economic and social life in China. A few representative and important examples are:[2]

  • Online medical services

More than 10 on-online medical platforms and more than 200 free on-line diagnosis and consultation service platforms on Covid-19 by public hospitals, serving nearly 10 million people.

The new hospital to deal with Covid-19 emergency in Wuhan, Huoshenshan Hospital was the very first 5G-supported hospital that enabled connections with top clinical experts from the whole country. 

  • Online working

The number of telecommuters in China, i.e. working remotely from home or another location outside the office, reached 5.3 million in 2019. After the Spring Festival in February 2020 more than 18 million companies and organisations in China used telecommuting. In total, more than 300 million people use telecommuting software in China since then.

  • Online education

In 2019, The number of China’s online education users has already reach 261 million in 2019.  Since February 2020, schools in more than 300 Chinese cities have joined Dingding Class (one of the major education platforms in China), covering approximately 50 million students nationwide.

  • Non-contact services and AI Robots for delivery

On January 26, Meituan, one of China’s largest providers of delivery services for food, consumer products and retail services took the lead in launching a “non-contact delivery” service in China.

In February, China Banking Regulatory Commission issued instructions that all financial service institutions should improve the efficiency of online financial services and increase the capacity for non-contact financial services.

To reduce personal contacts, package delivery robots, food delivery robots, disinfection robots, and security robots play a significant role in Wuhan and other parts of China.

Looking back, looking ahead and looking for a new path for digital transformation

When looking at the bright side of the Covid-19 darkness, the enormous suffering, constraints and challenges imposed on society and people’s life have also spurred an enormous spirit and effort for survival, for innovation and for development. In this on-going journey, many companies have learned and developed “digital covid-19 survival strategies” and have become more aware of the need for digital skills and digital competitiveness. Tencent Research Institute conducted a survey among 1638 Chinese companies of different size, different maturity and different orientation of their digital business. The following findings are indeed interesting – not only for the business sector itself, but also from a future policy-development viewpoint:

  • Large companies with 2B (Business) and 2G (Government) orientations for their business are generally highly digitalized enterprises and were able to recover from Covid-19 crisis faster and better. At the same time, SMEs have limited knowledge of policy supports and implementation capacity for digital upgrading.
  • An emerging consensus among almost all of the surveyed companies that digitalization is becoming even more strategically important and Covid-19 has become an “accelerator” of the on-going and future digital transformation in China.
  • The majority of surveyed enterprises will increase their digital investments in the future by 10% – 30%.
  • Top 4 key technologies for their future digital investments and business development: big data, IoT, cloud computing and 5G.
  • The 3 most applied scenarios: marketing, services development and communication /telecommuting.
  • 3 major obstacles for their digital transformation:  lacking funds, talents shortage and difficulties in finding proper business models.

Despite the variety in degree of maturity as well as in innovation and implementation capacity across sectors and among the companies, it is clear that China has made a long-term effort and prepared ground for a digital transformation now and in the future. This process, not least on the policy side, started more than a decade ago (see Figure below).

Source: Innovation and Science Office, Beijing  

Parallel with the “policy push”, we also see an accelerated and deepened evolution of how ICT and digital technologies are continuously changing the business and market dynamics. This in turn, could fundamentally change China’s role in the global digital transformation race as well as its role in the global research and innovation landscape (See Figure below)

Figure: China’s Digital Transformation – from catch-up to leapfrogging? Source: Innovation and Science Office, Beijing  

Having this highly strategic policy development and tremendously dynamic business development in mind, our Innovation and Science Office will be following China’s digital transformation as part of the Covid-19 exit strategy with great interest. In our blogs in the coming weeks, we will share more insights on China’s new policy-thinking on the future digital transformation in a “post-Covid 19 era” as well as how the research and innovation communities’ contribute to the transformation.    

Given the fact that Digital Transformation of the Business Sector is also one of the strategic Innovation Partnership Programmes (Samverkansprogram) of Sweden, we believe that there will be a clear interest and need from both sides to put the domestic developments into a global context. We are looking forward to the brainstorming, exchange and joint effort to achieving more analytical and operative insights  – together with our colleagues and friends both in Sweden and in China!

Linnea Yang and Nannan Lundin       

[1] China’s Digital Economy – Opportunities and Risks, IMF 2019.

[2] Source: Presentation on New Digital Economy in Covid 19 outbreak by Prof. Ouyang Rihui and completed and complied by the Innovation and Science Office in Beijing.

Featured image source: The strategy-business (Illustration by sankai)