Should we fear China’s brave new digital world?

China has become the world’s principal manufacturing powerhouse and exporter of ICT goods. It is also home to several internationally renowned digital innovators, such as Alibaba, Tencent and Huawei. A closer look reveals that, overall, China’s ICT sector is catching up quickly with that of most advanced economies but does not (yet) rank among the global front runners. We discuss two case studies to illustrate China’s mixed success in its development of a strong digital economy. On the one hand, China is clearly a pace setter in the provision of digital financial services (digital wallets, BigTech credit) and the development of a central bank digital currency (the digital renminbi or e-CNY). On the other hand, it has not yet mastered the cutting-edge technologies needed to produce the most advanced semiconductors, leaving China dependent on foreign suppliers of such critical technologies.

China has high ambitions to become the world’s leading (digital) innovator and is confident that it can win the race with its unique approach to industrial policy. Acknowledging its strategic importance, the Chinese government is increasingly taking control over the digital economy. Yet, some of China’s plans and policies are met with hostility in the US and the EU, prompting them to take countermeasures such as the implementation of investment screening mechanisms, as well as restrictions on the export of sensitive technologies to China in the case of the US. Moreover, both the US and EU are stepping up their own digital and technological ambitions.