Understanding the Digital Economy: Definition, Evolution, and Why It Matters Now

Source: CIO Talk

Author: Chang Hongping

A ten‑year wind‑fall window requires national support; the 13th National People's Congress elevated the development of the "digital economy" to a strategic level, embedding it in China’s 14th Five‑Year Plan.

The plan aims to raise the GDP share of core digital‑economy industries from 7.8% in 2020 to 10% by 2025, positioning digital‑economy transformation as a key opportunity for the next decade.

Digital economy is a new economic form where digital technologies are widely used and data serves as a production factor, dramatically improving business efficiency and reshaping the entire economic environment.

It co‑exists and synergizes with traditional real‑economy; digital industry (cloud computing, big data, IoT, industrial internet, blockchain, AI, VR/AR) forms the foundation (digital industrialization), while applying these technologies across entire industry chains creates industry digitalization.

Digital transformation is essentially the process of industry digitalization.

Companies that have completed internal digital upgrades are extending digitalization to upstream and downstream systems, forming new ecosystems—known as industry internet.

The article then outlines the historical evolution of the digital economy, distinguishing consumer internet (e‑commerce, social) from "Internet+" (internet integrated with traditional sectors) and finally industry internet, which focuses on internal efficiency and B2B connections.

Why now? Demographic dividends are fading, China faces an aging population, a challenging international environment, and a plateau in internet user growth, shifting focus from incremental to incremental‑to‑stock development.

Simultaneously, the cost of digital technologies (cloud computing, big data, IoT, AI) has dropped while labor costs rise, creating a cost‑gap that drives enterprises to adopt digital transformation for cost reduction and efficiency gains.

Successful digital transformation can yield non‑linear benefits and even give digital‑enabled firms a competitive edge over non‑digitalized rivals.

Globally, major economies have released digital strategies (U.S., Germany, UK), making digital economy a battlefield of great‑power competition.

For IT professionals, the advice is to understand macro trends, align with high‑growth sectors such as cloud computing, big data, IoT, and AI, and focus on industries where industry digitalization is just beginning (e.g., manufacturing, agriculture, construction, property services).

Property services, highlighted in the 14th Five‑Year Plan, are poised for rapid growth, with projected industry scale increase of 30% and revenue surpassing 2 trillion RMB by 2025.

Overall, the digital economy is a national priority, and IT practitioners should consider how to lead or support digital transformation within their enterprises.

Author bio: 20‑year IT veteran, former IBM global software sales leader, current CIO of Sunac Services Group, dedicated to digital transformation of traditional enterprises.

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