China to pursue digital trade expansion under new five-year plan as cross-border data flow restrictions remain in place

China’s Ministry of Commerce has pledged to support the expansion of digital trade under its 14th five-year plan for trade in services
The country’s digital trade volume reached US$294.76 billion in 2020, up 47.4 per cent from US$200 billion in 2015

China technology

Xinmei Shen

Published: 10:00pm, 21 Oct 2021

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China is seeking to step up development of digital trade, a segment that is shaping into an integral part of the economy, amid questions that this effort might be impeded by the country’s restrictions on cross-border data flows.

That plan was set out by the Ministry of Commerce (Mofcom) under its 14th five-year plan for trade in services, which was published on Tuesday. The agency pledged to support the trade of digital products, to foster a good environment for digital products to go overseas, and to explore the trading of data. It will also push for traditional trade in services to digitalise.

This marks the first time digital trade was included in Mofcom’s five-year plan. The agency has also committed to foster the development of “digital service trade”, which includes professional services, social media platforms and search engines.

Digital trade, according to the Organisation for Economic Cooperation and Development (OECD), refers to “digitally enabled transactions of trade in goods and services that can either be digitally or physically delivered”. Buying a book through an online marketplace and renting a flat through a matching application are examples of digital trade, the OECD said.

A man checks on his smartphone near the main entrance gate of the Ministry of Commerce in Beijing. The agency included digital trade for the first time in its 14th five-year plan for trade in services. Photo: AP

Developing digital trade and engaging in international cooperation in this field will help China move forward with its demand-side reforms and dual circulation strategy, as well as help with its post-pandemic economic recovery, Vice-Commerce Minister Wang Bingnan said at a recent industry summit, according to a report by state-run newspaper People’s Daily.

China‘s digital trade volume increased 47.4 per cent to US$294.76 billion in 2020, up from US$200 billion in 2015, according to data from Mofcom. The share of digital trade in the country’s overall trade in services grew to 44.5 per cent in the same five-year period, compared with 30.6 per cent previously.

Mofcom’s focus on digital trade under its latest five-year plan reflects President Xi Jinping’s recent call for “healthy development” of the country’s digital economy, as the government continues to curb anticompetitive behaviour and the “disorderly expansion of capital” in the technology sector.

China must embrace the digital economy to facilitate the country’s development and strike a balance between “regulation and promotion” of the technology sector, according to Xi in comments he made at a Politburo meeting on Tuesday.

In China’s 14th five-year plan for 2021 to 2025, which was released in March, the digital economy is positioned to play a bigger role in the country’s national development. The goal is to get the digital economy’s core industries to account for 10 per cent of the country’s gross domestic product, up from 7.8 per cent in 2020.

The nation’s digital economy was worth 39.2 trillion yuan (US$6.1 trillion) last year, a 3.3 trillion yuan increase from 2019, according to a white paper published by the China Academy of Information and Communication Technology, a think tank affiliated with the Ministry of Industry and Information Technology (MIIT).

While China’s digital economy has vastly expanded over the years to become a global force, the country has not been as competitive in digital trade, according to Li Jun, director at Mofcom’s digital trade research centre, in an interview last month with state-run daily newspaper China Economic Times.

Li indicated that China’s digital economy remained insufficient in terms of “going global and bringing in [more business]”.

Questions have also been raised on how China’s digital trade can expand under its strict rules on cross-border data flows.

The country’s Data Security Law (DSL), which was rolled out in September, and the Personal Information Protection Law, which will take effect on November 1, both impose tough penalties for the unauthorised collection, processing, storage and use of data generated in the country.

The DSL requires the protection of certain “core data”, which involve national and economic security, people’s welfare or an important public interest. Earlier this month, the MIIT drew up new regulations that will prevent crucial industrial and telecommunications data from leaving the country.

“One [challenge for industries] is not enough openness, especially in terms of regulations on cross-border data flows,” Chen Hongna, researcher at the Development Research Centre of the State Council, said in a report published by China Economic Times last month. Chen said the situation could adversely affect efforts to “cultivate and attract high-quality multinational internet companies” in China.

Beijing’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a multilateral trade pact covering modern issues such as digital trade, could also prove complicated because of China’s new data security laws that restrict cross-border flows of information, according to an MIIT researcher.

With various data localisation policies, China has become the most restrictive country when it comes to cross-border data flows, according to a report in July by Washington-based think tank Information Technology and Innovation Foundation.

This article appeared in the South China Morning Post print edition as: Mainland to expand digital trade push

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