News Stories · Competitiveness - Digital

China and US pursuing markedly different digital transformations

The US and China are pursuing radically divergent strategies for digital transformation across business, government and society, the latest digital research from the IMD World Competitiveness Center (WCC) has revealed.
September 2021
China and US pursuing markedly different digital transformations  - IMD Business School

Data unveiled on 29 September, shows how the US tops IMD’s Digital Competitiveness Rankings for the fourth year running. China has risen 15 places in that time, from 30th to 15th.

Based on a mixture of hard data and survey replies from business and government executives, the digital rankings help governments and companies to understand where to focus their resources and what might be best practices when embarking on digital transformation.

Arturo Bris, the WCC’s director and IMD Professor of Finance, said: “The success of rapidly divergent digital strategies rests heavily on public trust in the societal and institutional leaders driving them, and this research is part of our effort to help build a broader understanding and a better-quality public debate.”

 - IMD Business School

No single way to digitalize

The world’s two largest economies – according to the World Bank, the USA’s GDP in 2020 was 20.9 and China’s 14.7, both in trillions of US dollars – are evenly matched on some of the criteria measured by the WCC to determine digital competitiveness, namely: knowledge transfer, business readiness and educational investment.

“On the one hand, the Chinese digital competitiveness model is state-based: financing to digital enterprises provided by government-owned banks; posing severe restrictions to the data economy; exercising governmental control of technology; promoting private enterprise only to the extent that it does not collide with socialist goals…” said Bris. “In contrast, the US model is privately funded, based on both foreign and home-grown talent, and fully market-based.”

They are, however, united by the fact that there is significant divide between the US and China as one entity, and the rest of the world as another, in terms of the data economy, he said. China and the US are both data importers; the rest of the world are data exporters.

An Asian trend

China’s improvement is part of a broader leap up the ranks involving neighbouring countries Japan, South Korea and Taiwan.

In terms of regional competitiveness, Eastern Asia has outstripped North America and Western Europe when it comes to its investments in science education, research, robotics and high-tech exports.

In addition, Hong Kong SAR was up from 5th place in 2021 to 2nd. Its economy leads the world in graduates in sciences; it exports more high-tech goods than any other economy as a proportion of all its manufactured exports; and it also tops business perceptions as a host to companies able to respond quickly to threats and opportunities.

Europe doing ‘the right thing’

“Whilst for the US, the digital economy has become an enormous source of monetization and for China a form of control, Europe is seeking to keep data flow democratic and transparent,” Bris added.

Western Europe’s story in the rankings appears at first sight to be one of merely lagging behind the leaders, but the region has in fact made a big improvement in the last year in terms of General Data Protection Regulation (GDPR) implementation. It has also committed to a broader, more efficient digital infrastructure, as the Gaia-X initiative for a trustworthy digital infrastructure shows, Bris explained.

Sweden’s third place in the rankings – up one place from 2020 – has been achieved in large part by the country’s strong knowledge economy and talent development, and by global business perceptions that it hosts readily accessible digital and technological skills.

Switzerland continues its 2020 hold on 6th. It tops global business perceptions that it attracts highly skilled foreign talent, hosts internationally experienced managers, and that it enforces intellectual property rights.

Regionally, South America is shown to be lagging, while the Middle East saw its biggest rise in the ranks from the United Arab Emirates, which came in the top 10.

Economies and companies are increasingly aware that they must keep ahead of the curve by finding their competitive advantage when it comes to benefitting from the data-driven digital economy, as producers, innovators and exporters.

A webinar on 29 September saw a panel of business, academic and government experts moderated by Professor Bris convene to discuss “Monetizing digital data in the post-covid era: opportunities and risks for economic competitiveness”. They kicked off the debate that today’s rankings will feed for months to come on how digital competitiveness looks to shape global economic dominance and national welfare.