Digital Transformation in China

A recently issued McKinsey report listed digitalization as first of five macro trends that COVID-19 has accelerated its arrival in China. Even before COVID-19, China was already a digital leader in consumer-facing B2C markets, accounting for 45 percent of global e-commerce transactions. Much of China's economy had become cashless with Alibaba and Tencent having already over one billion users each and account for half of in-store payments and nearly three-quarters of web sales in China. The emerging trend is the fast-track adoption of digital systems by government, other public service sectors, and B2B transactions.

Digital currency

People’s Bank of China officially unveiled world’s first Central Bank Digital Currency last month. It was rolled out in selected cities. Notably businesses including Macdonalds, Starbucks and Subway are among the first to lead the way piloting the new sovereign digital currency. They will be ready to accept payments in digital currency this month in Suzhou, Shenzhen, and other cities. Chinese authorities do not think small. China often takes small incremental steps towards a much broader, long-term strategy. The overall objective of the currency is to increase the circulation of the RMB and international reach – with eventual hopes that the RMB will be a global currency like the US Dollar. In essence, while the outside world focuses on COVID-19, China has turned the page to economic development with the revolutionary adoption of blockchain technology with potential long term strategic benefits for Chinese economy especially the financial services sector.

Digital Court for IP Trial

While not as publicized as the digital currency, Beijing Intellectual Property Court released a Cloud Court system on February 28. To begin a trial, all you need is a computer, a mobile phone, and a network connection. While it is not clear the cloud based court is a reactive measure necessitated by the COVID-19 situation or a strategic shift to digitalization of the legal process, the adoption will ultimately facilitate fast digitalization of the entire bureaucratic legal system as long as the legitimate rights and interests of the parties are effectively protected.

Digital Education

It is widely recognized that education system in China needs reform. It usually takes an external trigger to change a long held system but this event could catalyze the much needed change across the board. The lockdown due to COVID-19 has very quickly shifted the massive education system to various online platforms. It is very likely some of the infrastructure and learnings will stay post COVID-19. On line education, if administrated wisely, could potentially provides a way to close the wide gap between cities and countryside, both in terms of resources and education quality. Even with the short experiments during the few months, it already became clear that requirement for teachers would be fundamentally different for online education from that for traditional classroom based education. It is likely both the central government and local governments will assess the long term implications of online educations. On the right is a photo of a first grade student taking online lesson under a counter where her parents were busy serving customers in a small shop. (Photo source: Chinese education daily)

Health Care System

It is too early to tell how COVID-19 will impact the healthcare system in China. It is likely government will continue strengthening the national healthcare system to ensure universal coverage. It is reasonable to expect that digital tools will play an increasingly important role in AI based diagnostics, management of patient health data, and big data based system for monitoring pandemic. It has also been reported that e-commence giants are looking at getting into some forms of health insurance.

One of the main balancing concerns for fast adoption of digitalization is the need to protect individual privacy. Partly due to cultural history and partly due to the current political system, people in China has not raised the privacy concerns to a level nearly as high as those in the western society. However, it is still an evolving concept and remains to be seen where the appropriate balance resides and how those decisions would be made in China. 

As pointed in the McKinsey report, all the mentioned changes occurred ahead of expected wide deployment of 5G technology. Adoption of 5G will likely further catalyze a more fundamental digital transformation and also fast development of legal framework to accommodate the changes.

Related Articles:

Understand China: Political-Economic Process (02/19/2020)

Understanding China is a Challenge but also a Necessity (11/30/2019)

Understand Dynamic Stability for Doing Business in China (3/9/2019)

Understand China Through Historical Lens (2/25/2019)

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