There are now endless possibilities for dividing production and consumption into separate stages. But this also implies the new digital economy’s many successes will be accompanied by many failures.
Indeed, Chinese policymakers will have to confront various ‘digital dilemmas’ in the coming years. Many public utilities in China – such as airlines, railways, ports, and telecommunications – are single-product entities administered by state-owned enterprises (SOEs).
Yet the new tech giants are multi-product, omni-channel platforms which cut across all sectors, including production, distribution, payments, and, increasingly, wealth management.
As in a game of Go, China’s leaders need to move the country’s pieces – which is to say, effect change in the SOEs’ business models – in the right place, at the right time, and in a coordinated fashion.
Superficial complaints about the slow pace of SOE reforms ignore the strategic challenge of creating productive competition between SOEs and publicly listed tech giants in the digital space.
SOE managers can credibly argue heavy regulations place them at a competitive disadvantage, and the tech giants are eating their lunch by free-riding on state-administered telecommunication, transportation, and financial channels.
The tech giants, meanwhile, argue if they could just move faster into inefficient production and distribution areas, not least mobile payments, productivity growth would accelerate.
Another dilemma is digitization is good for consumers, but possibly bad for employment and social stability. In a ‘digital China’, there will necessarily be winners and losers. But the sooner displaced workers can adapt to new realities, the healthier the system will be.
China’s transformation into a knowledge-based economy occupying a central position in the global value chain will ultimately yield a ‘reform dividend.’
But as exciting as the transformation will be, it will also be dangerous. Never before has an economy so large undergone such far-reaching change so quickly.
Andrew Sheng is Distinguished Fellow at the Asia Global Institute at the University of Hong Kong , member of the UNEP Advisory Council on Sustainable Finance and former chairman of the Hong Kong Securities and Futures Commission. Xiao Geng, President of the Hong Kong Institution for International Finance, is a professor at the University of Hong Kong.
Andrew will be the keynote speaker at ANZ’s "Conversations that Matter" Financial Institutions Group event in Singapore on August 30. The event theme is “The Future Growth of Asia: Opportunities for Non-Bank Financial Institutions”
This article is published with permission from Project Syndicate
Copyright: Project Syndicate, 2017. www.project-syndicate.org