The current Chinese economy is facing a complex situation and is under unprecedented pressure to maintain steady economic growth. The growth was only 4.8% in the first quarter, making a poor start to 2022.
Domestic consumption has been in a slump for two years and is still lackluster in the first quarter of this year, with total retail sales of consumer goods growing by only 3.3% year-on-year (in the first quarter) and falling by 3.5% year-on-year in March. In terms of foreign trade, in the first quarter, imports and exports grew by 10.7%, exports by 13.4%, and imports by 7.5%. Compared with last year’s foreign trade data (in U.S. dollar terms), the growth of imports and exports slowed by 17 percentage points compared with the whole of last year, while exports slowed by 14.1 percentage points and imports significantly slowed by 20.5 percentage points.
With consumption and export growth slowing down, investment becomes an important means of stabilizing growth this year. In recent years, there has been a new concept of investment, known as “expanding effective investment”. Compared with the past investment that focused on scale and speed, to improve the effectiveness of investment is to pursue high-quality investment, which can also be seen as part of “high-quality development”. According to China’s National Development and Reform Commission (NDRC), the active expansion of effective investment is the focus of current macro policy, which will not only boost current demand and cope with downward pressure on the economy, but also help optimize the supply structure and promote high-quality development.
The NDRC called for targeted and effective investment, while resolutely avoiding indiscriminate investment. The state will appropriately advance infrastructure investment, and actively enhance water conservancy, transportation, energy, and other infrastructure construction. It will also strengthen the construction of new infrastructure and enhance the core competitiveness of the manufacturing industry. Additionally, it aims to improve the social and ecological environment, as well as urban infrastructure. The active expansion of effective investment does not mean blindly expanding projects or expanding infrastructure investment, nor imposing massive stimulus through large-scale infrastructure investment. Rather, it means focusing on key areas in economic and social development and carrying out targeted and orderly investment projects that benefit both immediate and long-term interests.
Yet government-driven investment still requires big projects. The NDRC put forward that 102 major projects in the 14th Five-Year Plan should be steadily promoted. In the view of the NDRC, the promotion of these projects is a major measure to actively expand effective investment. In addition, the expansion of effective investment also requires the market to play a major role in mobilizing social investment to participate. For example, within the more than RMB 50 trillion annual fixed-asset investment in China, government investment accounts for a very limited share, while nongovernmental investment accounts for the majority. Government investment plays a guiding role and arouses the proactiveness of social investment.
According to the researchers at ANBOUND, improving the effectiveness of investment starts with an understanding of effective investment itself, and how it can be differentiated in diverse situations.
What then, is an effective investment? As we have pointed out, effective investment is embodied in three aspects. First, it is economically effective. It would not be an investment for the sake of investment, nor to create a pile of debt and turn it into a dead-end project. Investment should be market-oriented, and should not be wholly invested by the state and government. Otherwise, it will cause a crowding-out effect on the private economy and foreign capital and is not conducive to giving full play to the guiding role of financial capital investment. Second, such an investment should be effective in innovation. There is no doubt that effective investment should reflect high-quality development as much as possible and give priority to innovation. In recent years, there has been a large amount of investment in semiconductor chips in China, but a lot of investment has resulted in hundreds of billions of yuan worth of dead-end projects, resulting in the most ineffective waste of investment. Third, it needs to be effective in improving people’s livelihood. Steady economic growth is closely related to the realization of common prosperity. To realize effective investment, the state needs to increase investment in projects related to public subsistence. Investment in the ecological environment, urban renewal, education, medical care, elderly care, and urban public services will all be encouraged.
In particular, under the current economic situation in China, it is impossible to expand effective investment by only undertaking large projects or investing in infrastructure, because such projects will not boost the economy in a broader way. When it comes to boosting effective investment, the policy objective cannot be focused solely on making economic data look good. In addition to the three types of effectiveness mentioned earlier, the following aspects should also be noted:
First, effective investment should be made in a wide range of areas, rather than allowing only a few areas to occupy too many resources. Second, the focus of this round of investment is to stabilize the economy, but stabilizing the economy is not the same as maintaining steady growth. Under the current circumstances, stabilizing the economy is more about ensuring people’s well-being. The investment to be stepped up in 2022 is a bottom-up investment for the macroeconomy, which focuses on ensuring livelihood, basic operation, and social stability. This is different from investments aimed at high growth. Third, the current situation of domestic investment in China should be divided into several stages, namely, stabilizing the economy (basic fundamentals), seeking growth (fundamentals of growth), and seeking development (fundamentals of future growth). In terms of investment priorities, the first one should be promoting consumption, ensuring employment, and guaranteeing the survival of small enterprises. This should then be followed by investments in urban renewal, agriculture, energy, social security, and key industries. Finally, there should be investments in major projects and industries, which are related to the long-term development of the country.
COVID-19 Drives Global Surge in use of Digital Payments
The COVID-19 pandemic has spurred financial inclusion – driving a large increase in digital payments amid the global expansion of formal financial services. This expansion created new economic opportunities, narrowing the gender gap in account ownership, and building resilience at the household level to better manage financial shocks, according to the Global Findex 2021 database.
As of 2021, 76% of adults globally now have an account at a bank, other financial institution, or with a mobile money provider, up from 68% in 2017 and 51% in 2011. Importantly, growth in account ownership was evenly distributed across many more countries. While in previous Findex surveys over the last decade much of the growth was concentrated in India and China, this year’s survey found that the percentage of account ownership increased by double digits in 34 countries since 2017.
The pandemic has also led to an increased use of digital payments. In low and middle-income economies (excluding China), over 40% of adults who made merchant in-store or online payments using a card, phone, or the internet did so for the first time since the start of the pandemic. The same was true for more than a third of adults in all low- and middle-income economies who paid a utility bill directly from a formal account. In India, more than 80 million adults made their first digital merchant payment after the start of the pandemic, while in China over 100 million adults did.
Two-thirds of adults worldwide now make or receive a digital payment, with the share in developing economies grew from 35% in 2014 to 57% in 2021. In developing economies, 71% have an account at a bank, other financial institution, or with a mobile money provider, up from 63% in 2017 and 42% in 2011. Mobile money accounts drove a huge increase in financial inclusion in Sub-Saharan Africa.
“The digital revolution has catalyzed increases in the access and use of financial services across the world, transforming ways in which people make and receive payments, borrow, and save,” said World Bank Group President David Malpass. “Creating an enabling policy environment, promoting the digitalization of payments, and further broadening access to formal accounts and financial services among women and the poor are some of the policy priorities to mitigate the reversals in development from the ongoing overlapping crises.”
For the first time since the Global Findex database was started in 2011, the survey found that the gender gap in account ownership has narrowed, helping women have more privacy, security, and control over their money. The gap narrowed from 7 to 4 percentage points globally and from 9 to 6 percentage points in low- and middle-income countries, since the last survey round in 2017.
About 36% of adults in developing economies now receive a wage or government payment, a payment for the sale of agricultural products, or a domestic remittance payment into an account. The data suggests that receiving a payment into an account instead of cash can kickstart people’s use of the formal financial system – when people receive digital payments, 83% used their accounts to also make digital payments. Almost two-thirds used their account for cash management, while about 40% used it to save – further growing the financial ecosystem.
Despite the advances, many adults around the world still lack a reliable source of emergency money. Only about half of adults in low- and middle-income economies said they could access extra money during an emergency with little or no difficulty, and they commonly turn to unreliable sources of finance, including family and friends.
“The world has a crucial opportunity to build a more inclusive and resilient economy and provide a gateway to prosperity for billions of people,” said Bill Gates, co-chair of the Bill and Melinda Gates Foundation, one of the supporters of the Global Findex database. “By investing in digital public infrastructure and technologies for payment and ID systems and updating regulations to foster innovation and protect consumers, governments can build on the progress reported in the Findex and expand access to financial services for all who need them.”
In Sub-Saharan Africa, for example, the lack of an identity document remains an important barrier holding back mobile money account ownership for 30% of adults with no account suggesting an opportunity for investing in accessible and trusted identification systems. Over 80 million adults with no account still receive government payments in cash – digitalizing some of these payments could be cheaper and reduce corruption. Increasing account ownership and usage will require trust in financial service providers, confidence to use financial products, tailored product design, and a strong and enforced consumer protection framework.
The Global Findex database, which surveyed how people in 123 economies use financial services throughout 2021, is produced by the World Bank every three years in collaboration with Gallup, Inc.
Global Findex 2021 Regional Overviews
In East Asia and the Pacific, financial inclusion is a two-part story of what is happening in China versus the other economies of the region. In China, 89% of adults have an account, and 82% of adults used it to make digital merchant payments. In the rest of the region, 59% of adults have an account and 23% of adults made digital merchant payments—54% of which did so for the first time after the beginning of the COVID-19 pandemic. Double-digit increases in account ownership were achieved in Cambodia, Myanmar, the Philippines, and Thailand, while the gender gap across the region remains low, at 3 percentage points, but the gap between poor and rich adults is 10 percentage points.
In Europe and Central Asia, account ownership increased by 13 percentage points since 2017 to reach 78% of adults. Digital payments usage is robust, as about three-quarters of adults used an account to make or receive a digital payment. COVID-19 drove further usage for the 10% of adults who made a digital merchant payment for the first time during the pandemic. Digital technology could further increase account use for the 80 million banked adults that continued to make merchant payments only in cash, including 20 million banked adults in Russia and 19 million banked adults in Türkiye, the region’s two largest economies.
Latin America and the Caribbean saw an 18 percentage -point increase in account ownership since 2017, the largest of any developing world region, resulting in 73% of adults having an account. Digital payments play a key role, as 40% of adults paid a merchant digitally, including 14% of adults who did so for the first time during the pandemic. COVID-19 furthermore drove digital adoption for the 15% of adults who made their first utility bill payment directly from their account for the first time during the pandemic—more than twice the developing country average. Opportunities for even greater use of digital payments remain given that 150 million banked adults made merchant payments only in cash, including more than 50 million banked adults in Brazil and 16 million banked adults in Colombia.
The Middle East and North Africa region has made progress reducing the gender gap in account ownership from 17 percentage points in 2017 to 13 percentage points—42% of women now have an account compared to 54% of men. Opportunities abound to increase account ownership broadly by digitalizing payments currently made in cash, including payments for agricultural products and private sector wages (about 20 million adults with no account in the region received private sector wages in cash, including 10 million in the Arab Republic of Egypt). Shifting people to formal modes of savings is another opportunity given that about 14 million adults with no account in region—including 7 million women—saved using semiformal methods.
In South Asia, 68% of adults have an account, a share that has not changed since 2017, though there is wide variation across the region. In India and Sri Lanka, for example, 78% and 89% of adults, respectively, have an account. Account usage has grown, however, driven by digital payments, as 34% of adults used their account to make or receive a payment, up from 28% in 2017. Digital payments present an opportunity to increase both account ownership and usage, given the continued dominance of cash—even among account owners—to make merchant payments.
In Sub-Saharan Africa, mobile money adoption continued to rise, such that 33% of adults now have a mobile money account—a share three times larger than the 10% global average. Although mobile money services were originally designed to allow people to send remittances to friends and family living elsewhere within the country, adoption and usage have spread beyond those origins, such that 3-out-of-4 mobile account owners in 2021 made or received at least one payment that was not person-to-person and 15% of adults used their mobile money account to save. Opportunities to increase account ownership in the region include digitalizing cash payments for the 65 million adults with no account receiving payments for agricultural products, and expanding mobile phone ownership, as lack of a phone is cited as a barrier to mobile money account adoption. Adults in the region worry more about paying school fees than adults in other regions, suggesting opportunities for policy or products to enable education-oriented savings.
G7’s $600 Billion projects, no threat to Chinese BRI
Although G7 launches a $600B global infrastructure project to counter China, but, what are the ground realities? Can G7 counter China? Do they have enough money or resources to implement it? Is there any sincerity among G7 countries to invest such a huge amount, while they are also a victim of a global economic meltdown?
Group of Seven leaders pledged on Sunday to raise $600 billion in private and public funds over five years to finance needed infrastructure in developing countries and counter China’s older, multitrillion-dollar Belt and Road project.
U.S. President Joe Biden and other G7 leaders relaunched the newly renamed “Partnership for Global Infrastructure and Investment, (PGII)” at their annual gathering being held this year at Schloss Elmau in southern Germany.
Biden said the United States would mobilize $200 billion in grants, federal funds, and private investment over five years to support projects in low- and middle-income countries that help tackle climate change as well as improve global health, gender equity, and digital infrastructure. The rest of the US Dollars 400 Billion will be shared by other G7 nations. It is very much clear that this money is not aid, nor charity, but, an investment, which will generate profit and will be shared by investors accordingly.
The US has experience with the “Marshal Program” launched just after WWII in Western Europe. The aim was to assist Western Europe to rebuild its war-damaged infrastructure and revive its economy. The US was a major beneficiary of the Marshal Program while Western Europe also gained a lot.
But, this time, the objective is very much different – to counter China or to counter the Chinese mega initiative of Belt and Road. China’s belt and Road Initiative (BRI) was launched in 2013, with trillions of dollars, and got recognition from around 150 nations, countries, and organizations. Many countries are the beneficiaries of BRI already and the fruits of it are being enjoyed in many countries. BRI has no political motives and is open to all, any nation, country, or organization can be a beneficiary of it. Contrarily, G7’s program is politicized and focused to counter China only.
Does the G7 have sufficient funds? Can they spare such funds when their own economies are in trouble? Unlike China’s huge BRI initiative, the proposed G7 funding would come largely from private investors and is therefore not guaranteed. Do G7 countries have experience with infrastructure developments like China? Do they have capacity? If their own infrastructure is lacking behind, how can they assist other nations to develop? China upgraded its own infrastructure first and demonstrated its capability, after getting recognition, it assisted other nations in development. China is much more advance in infrastructure as compared to the rest of the world. Can all the G7 nations be willing to counter China? Some of the G7 members are close partners with China in trade, economy, and S&T. Some of the G7 depend on Chinese investment and or at least beneficiary of it. Few are dependent trading partners with China. Are all G7 nations on the same page politically? Are they willing to face the backfire or repercussions?
Overall Europe is a close partner with China in trade, investment, and development. They cannot sacrifice their national interests. Politically, they are closer to China.
Chinese foreign ministry spokesman Zhao Lijian defended the track record of BRI when asked for comment at a daily briefing in Beijing on Monday. “China continues to welcome all initiatives to promote global infrastructure development,” Zhao said of the G7’s $600 billion plan. “We believe that there is no question that various related initiatives will replace each other. We are opposed to pushing forward geopolitical calculations under the pretext of infrastructure construction or smearing the Belt and Road Initiative.”
In fact, China is an open country and does not consider it a threat to its mega initiative of BRI. It is good to have multiple approaches to development, developing nations should have more options and opportunities. China strongly believes in globalization, multi-laterals, and open, free & fair competition. It trusts in its capacity, capability, experience, and financial strengths. Its approach of win-win cooperation got global recognition and established confidence, so there is no need of panicking. Rightly, China welcomes.
It is believed that more projects and initiatives are required for global developments. Advanced and developed nations should come up with more options. Developing nations warmly welcome, if more options and choices are available. A healthy completion is always a good phenomenon. It will be much more appreciated if such projects are purely for development, no politics at all. The focus should be on the welfare of humankind and not on gaining hegemony or supremacy.
Digital Economy Development in China Shifts the Focus to the Production Side
Just recently, China’s Central Commission for Comprehensively Deepening Reform reviewed various plans for data system, including a guideline on building the basic systems for data and making better use of data resources. The central government’s layout from the construction of the basic system of data is intended to lay a solid foundation for the further development of the digital economy, in addition to pushing for the development of the data-based data industry to further accumulate resources and driving force. These new changes in the digital economy signify that there is the establishment and improvement of rules in the digital economy of China.
Looking at the content of the guidelines and plans, there are two aspects worth noting, the first is to clarify the ownership and classification of data, and the second is to build a mechanism for data transactions. The clarification of the ownership and the rights and responsibilities is crucial in establishing the legal foundation for data transactions. Of course, the new plan has yet to clarify this, but it does present the hope to develop a system with clear ownership so that the corresponding data transactions can be carried out. Although Shanghai, Beijing, Hainan, and other places have begun the attempt of creating data exchanges and data transactions, in terms of scale and transaction frequency, this is still in the initial trial stage. Researchers at ANBOUND believe that the focus of data resource development and application of digitalization will shift from the consumer side to the production side.
While the new concept provides a framework for the establishment of the data system, it does not mean short-term boost for the development of the data industry or the digital economy can be formed. The future relies on digital technology to generate data, rather than monetize data, and the same is true in other fields. With this, the model of harvesting from online traffic flow by capital and market expansion will face higher and higher business costs and regulatory barriers. Judging from the development trend of the digital economy in China, after the rectification of internet platforms and the country’s domestic 5G network reaching the stage of large-scale popularization, the overall driving force for the development of the digital economy will be weakened.
Statistics reveal that in 2020, the scale of China’s digital economy has reached USD 5.4 trillion, accounting for 38.6% of GDP, maintaining a high growth rate of 9.7% and becoming the key driving force for stable economic growth. Yet, the growth rate still dropped by 5.9 percentage points from the previous year. The downward trend in the growth rate of the digital economy deserves attention. In 2021, the expected growth of the digital economy scale was RMB 42.4 trillion, accounting for 37.06%, a slight decline from the previous year. At the same time, the proportion of China’s digital economy in GDP was 21.4 percentage points lower than that of the United States, Germany, and the United Kingdom, and 5.1 percentage points lower than the global average.
Researchers at ANBOUND pointed out that the main problem that needs to be solved in the future development of China’s digital economy is the ownership of data resources. The main issue being disputed in the country’s traffic economy that is constraining internet platforms is precisely about the right to data usage. In the existing internet platform economy like online consumption, when the market expansion encounters boundaries and the cost of data acquisition is getting higher and higher, internet platforms that rely on their own accumulated customer data are seeking to realize cash in consumption and finance. This has brought a great impact on the current real economy and financial sectors, and is also an important cause of the authority’s rectification of internet platforms. As noted by ANBOUND, clarifying and resolving the matter in regard to the ownership of data resources is becoming a pragmatic issue. As far as data resources are concerned, although there is still some room for development in the medical and financial fields, under the background of the increasingly perfect anti-monopoly system and the continuous improvement of supervision, the traffic economy is now being constrained and restricted. This signifies that the space for the application and development of the existing large amount of data resources based on consumer data will be constrained on the consumer end.
From the overall trend, when the internet platform is constrained and the traffic economy encounters incremental bottlenecks, the development of digital industrialization dominated by terminal digital consumption will face difficulties in transformation after going through a stage of rapid growth. Looking at the data industry, on the one hand, strengthening supervision means that the Big Data resources, mainly consumer data, also face institutional obstacles to further development and “diversion”. The development of digital industrialization not only faces the obstacles of insufficient digital infrastructure, but also requires technological breakthroughs in its industrialization development itself. In addition, the production side also faces the basic hurdle of lack of a large amount of production data. Therefore, in the new growth space of the digital economy, the demand for large amounts of data on the production side will be the key driving force for building a basic data system and establishing a data transaction mechanism.
The central and western regions of China are building data centers to meet the current and future needs for large amounts of data storage. However, the application of these data and the development of data resources not only face basic systemic problems, but also lack the development of data application fields. In Guiyang, known for its development of the Big Data industry, the focus is chiefly on storage, and the Big Data investment projects there are mainly on the data centers. To mine data resources, it is not only necessary to realize the accumulation and mining of data, this also requires the support of technology and industry to realize the appreciation of data through digital technology. However, the weak real economy and lack of data development capabilities have become the biggest shortcoming of Guiyang’s development. This makes its data industry generally at the middle and low end of the value chain, and its core competitiveness is rather weak. If the Big Data industry in various places wishes to assume further roles, it still needs the upgrading and integrated development of basic industries. The future development of the data industry depends on the accumulation, application, and development of a large amount of production data. This also means that the future focus of the development of the digital economy begins to shift from the consumer side to the production side.
Final analysis conclusion:
The Central Commission for Comprehensively Deepening Reform’s conception of the construction of data infrastructure means that it will solve the fuzzy area of data ownership and further realize the tradability and transfer of data. This provides an institutional and market foundation for large-scale data development. The digital industrialization of the consumer side, as things stand, has come to an end, where the growth focus of the digital economy will shift to the production side.
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