How Does the Digital Economy Affect the Domestic Value-Added Rate of Chinese Exports?

Introduction

With a new generation of network information technology revolutions spreading around the world, the digital economy is booming. Led by innovations centered on digital networks, digital devices and digital information services, despite the overall economic downturn, the communications ecosystem is still creating channels for high growth (Hong, 2017). Between 2010 and 2015, the number of information and communication technology companies in the top 100 multinational companies doubled according to UNCTAD’s 2017 World Investment Report (UNCTAD, 2017).

The research in this paper mainly focuses on China, which is an interesting and meaningful case study. First, China has gradually established its position as a digital innovation leader in the world through the rise of influential Chinese digital enterprises, including Baidu, Alibaba, Tencent and Xiaomi (OECD, 2017a). Second, the Chinese central government strongly supports the development of the digital economy. For example, the report of the 19th National Congress of the Communist Party of China clearly promoted the deep integration of the Internet, big data, artificial intelligence and the real economy, which makes up a large share of China's digital economy. By 2018, China's digital economy reached 31.3 trillion yuan, accounting for 34.8% of GDP¹. More importantly, according to the PricewaterhouseCoopers Global Consumer Insight Survey (2019), China's mobile payment utilization rate has reached 86%, ranking first in the world. Third, China's average labor productivity in the digital sector is higher than that of OECD countries, which indicates that the digital sector has a greater impact on the Chinese economy than on other economies (Garcia-Herrero,2018). Fourth, as a large, export-oriented developing country, China is more engaged in processing, assembly and other production links at the low end of the global value chain. Although China is the world's largest country in the trade of goods, the technical content and domestic value-added of its export products are relatively low, and most of its exports are final products with higher foreign value-added. At present, China urgently needs to adjust its export trade structure to ensure more real trade gains.

In the context of the current division of production in the global value chain and the vigorous development of the digital economy, this paper attempts to explore whether the digital economy can effectively improve China's domestic value-added rate of exports to obtain more real trade gains. If so, what are the specific channels by which the digital economy influences the domestic value-added rate of exports? Could the digital economy effectively promote the optimization and upgrading of China's export trade structure? Is the impact from the digital economy heterogeneous for industries with different factor intensities? The answers to these problems remain unclear. To solve these problems, this paper explores the influence of the digital economy on the domestic value-added rate of total exports, the domestic value-added rate of intermediate-product exports, and the domestic value-added rate of final product exports. On the one hand, this research can help China's manufacturing industry obtain more real trade gains and optimize and upgrade its trade structure. On the other hand, research on Chinese issues can provide valuable insights for other export-oriented developing countries. Therefore, the research in this paper has important theoretical and practical significance for both China and the international community.