As global digital divide grows, China shows how to achieve more with less

Low- and middle-income nations are reaping poorer rewards from their tech investments – but China is bucking the trend
China’s success can be a reference for policymakers to realign investment in innovation and digital transformation with impact

Soumitra Dutta

Published: 10:00pm, 8 Dec 2022

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Today, the economic outlook appears challenging at best. A looming global recession, war in Europe, the climate emergency and sustained threats to supply chain security have turned things upside down. In particular, productivity growth, typically spurred by increased innovation, has stagnated in recent years.

Equally of concern is that in spite of increasing investment and innovative activity last year, against the backdrop of the Covid-19 pandemic, the impact of these efforts varies widely across sectors and countries.

Furthermore, this seems to have widened the competitiveness gap between economies at different stages of development. Given the volatile, uncertain, complex and ambiguous environment, such a disconnect is cause for concern.

There are, however, matters to be optimistic about. In addition to the increase of innovative activity in sectors such as health care, over the past two years there has been a global shift towards digital transformation.

Yet the levels of investment in innovation and this technological shift are uneven and reflect gaps between economies at different developmental stages.

Those at higher levels, such as the United States, Germany and Japan, seem back on track towards higher stages of innovation and digital readiness. But in many middle-income economies there is a widening rift between, on the one hand, investment in innovation and its impact, and on the other hand, a lower adoption rate of technology.

This is not the case for all middle-income economies, though. China leads a group of emerging economies that have weathered the storm successfully, leading efforts in innovation and digital readiness domestically, and in competitiveness internationally.

Supported by a focused national strategy, China’s system of “re-innovation” has bolstered its innovation capabilities and adapted them to fit within local production models. Government backing and incentives for research have also enhanced its innovation potential.

According to the 2022 Global Innovation Index (GII) published by the World Intellectual Property Organisation in partnership with the Portulans Institute, for the first time, China has as many top science and technology clusters as the US, with Beijing ranking as the world’s third-highest performing cluster.

China has speeded up its tech adoption and shaped the global digital landscape, largely due to closely aligned priorities among the country’s individuals, private sector and government.

Besides being based in one of the world’s most digitally engaged societies, Chinese businesses have put digital technologies at the heart of their structure and strategy, making China one of the top three global investors in cutting-edge technologies, including virtual reality, autonomous vehicles, robotics, drones and artificial intelligence.

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The Chinese government is putting high technology at the top of all economic policies through initiatives such as Made in China 2025 and the Next Generation Artificial Intelligence Development Plan.

In the GII, a tool that ranks the innovation performance of 132 economies using 81 parameters such as political environment, education, infrastructure and knowledge creation, China has established itself as the 11th most innovative economy and the only middle-income economy approaching the top 10.

China shows a strong ability to efficiently translate innovation inputs into outputs, starting with lower levels of inputs but ending with output levels which are comparable to those of high-income economies such as the US, Netherlands and Germany.

China is a model of continued perseverance as the only middle-income economy staying in the top 30 for years. It continues to come in first in areas such as the number of patents and trademarks, domestic market scale, labour productivity growth and creative goods exports.

Another measure, the Network Readiness Index (NRI) published by the Portulans Institute and Saïd Business School at the University of Oxford, positions China as the 23rd most network-ready economy.

On the NRI, which assesses 131 economies’ digital readiness across 58 indicators, China is the only non-high-income economy among the top 25. The country is also a global leader in key areas such as AI talent (at No 8) and publications (No 2), e-commerce (No 1), gig economy prevalence (No 1) and education quality (No 1).

While China helps bridge the network readiness gap between high- and middle-income economies, it still trails behind powerhouses like the US in its adoption of and investment in emerging technologies, computer software spending and robot density.

The NRI notes that in terms of social impact, China remains in the shadow of European nations such as Britain, Denmark and Sweden, which continue to set global standards for sustainability, energy and gender equality.

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The data shows a clear link between innovation or technological success, and economic prosperity and competitiveness. But unless we work to bridge the gap between productivity and output (and importantly, between economies at different developmental levels), many middle- to low-income economies will continue to slip.

With resources scarce, coffers running low and markets looking increasingly volatile, how we invest becomes as important as how much we invest. Both the GII and NRI, and in particular the success of China in both, can serve as a reference and tools for policymakers to realign investment in innovation and digital transformation with impact.

Amid the immense economic turbulence, China sets a good example of how to do more if resources and knowledge are leveraged properly. And the NRI and the GII can help define policy interventions to steer the development process and maximise benefits for the economy and society at large.

Professor Soumitra Dutta is dean of the Saïd Business School at the University of Oxford and creator and co-editor of two major global indices, the Global Innovation Index (GII) and the Network Readiness Index (NRI)