A tuyere with a ten-year cycle must be supported at the national level.

At the Fourth Session of the 13th National People’s Congress, which ended on March 11, the development of the “digital economy” was elevated to the height of national strategy. The vision for a digital China has been written into the country’s 14th Five-Year Plan.

During the 14th Five-Year Plan period, the share of core industries in the digital economy will rise from 7.8 percent in 2020 to 10 percent in 2025, according to the plan. The transformation and upgrading of the digital economy will become a key window of opportunity for the whole of China in the next decade, and the digital economy will become a core component of China’s economic transformation.

This is a big issue in science and technology that everyone in our community needs to understand in order to build a business out of.

So what exactly is the digital economy? What does it have to do with the buzzword “digital transformation”? What makes it so important at the national level? And how should each of us respond? In this article we will talk about this topic.

1. What is the digital economy

Digital economy is a new economic form, in which digital technology is widely used, and data is also effectively developed and utilized as a factor of production. Therefore, the efficiency of commercial activities has been greatly improved, and productivity has been greatly developed, so that the whole economic environment has undergone fundamental changes.

In the face of unprecedented changes in the past century, building a digital economy is the first move for China to take advantage of the crisis and open a new door in the midst of change. We’ll talk about that later in the text.

So what is the relationship between the digital economy and the traditional real economy? They are mutually integrated, symbiotic and win-win. The digital economy provides new technologies and new models for the real economy, while the real economy provides application markets and big data sources for the digital economy.

There are two dimensions of digital economy, one is called digital industrialization, the other is called industrial digitalization.

  • The country’s 14th Five-Year Plan has just identified seven key industries for China’s future digital economy. They are cloud computing, big data, Internet of things, industrial Internet, blockchain, artificial intelligence, virtual reality and augmented reality. Including but not limited to the continuous development and expansion of these digital industries, is the digital industrialization. Digital industrialization is also the foundation of digital economy.
  • With the support and guidance of the new generation of digital technology mentioned above, and supplemented by data as a key element, we can carry out digital upgrading, transformation and reengineering of the whole process of the entire industrial chain in the real economy. This is industrial digitization.

So what we often call digital transformation is the process and means of industrial digitalization.

After completing the digital transformation and upgrading of their own processes and businesses, many enterprises begin to extend the digital process to their own upstream and downstream systems, or even build a new ecosystem around their own businesses and reconstruct their industrial chains. This is the industrial Internet.

II. The past and present lives of digital economy

To fully understand the digital economy, we need to know something about the development of the digital economy. Let me take my time.

As we all know, the current Internet giants started in e-commerce, social networking and other fields. What they do best is enhance the experience of individual users in everyday life scenarios, such as shopping, entertainment, travel, and so on. These Internet products are all consumer-centered and aim to improve the efficiency and user experience of products or services in the process of consumption. Therefore, this kind of Internet application form is also called consumer Internet.

Two years ago, there was also a hot word called Internet +. In fact, Internet + is a kind of traditional industry. The two industries are deeply integrated, using Internet technology and platform to create a new business model or ecology. For example, Internet + traditional market = Taobao, Internet + traditional bank = Alipay, Internet + traditional traffic = Didi, Internet + traditional news = Toutiao, and so on.

Therefore, we can also regard Internet + as an upgrade of the consumer Internet, or an extension of the direction of the traditional industry.

Internet +, led by Internet companies, transforms traditional industries with Internet thinking and solves the connection problem between traditional enterprises and individual consumers. Therefore, the main body of Internet + is still on the Internet, and more models still allow traditional industries to carry out marketing activities on the Internet or reach users.

However, Internet + mode is difficult to transform the internal process of enterprises and improve the efficiency of product production and manufacturing. So the industrial Internet came into being. It focuses on improving efficiency within traditional firms, the efficiency of product manufacturing, and the efficiency of connections between firms. So in the concept of industrial Internet, the original industry is more important, the Internet is just one of the tools. In the process of realizing industrial Internet, traditional industries or enterprises play a leading role.

The Internet + model is that Internet companies continue to infiltrate and even subvert traditional enterprises. Industrial Internet is the traditional enterprises to use the Internet thinking to subvert their own, so as to counter the Internet companies on the attack of various industries.

The industrial Internet and the consumer Internet work together to enable enterprises to complete comprehensive digital transformation and upgrading from back end to front end, from production to marketing.

The digital transformation, upgrading and transformation of traditional industries are inevitable. If not to subvert themselves, only to be subverted by others. And the digital economy is in each traditional enterprise, traditional industry in the continuous digital upgrading transformation, complete one iteration, the final achievement of industry digitalization and digital industrialization.

In the next ten years, there will be no more traditional industries, and all industries will be transformed and upgraded by digital transformation.

But in the next decade, every industry will still be divided between digital and non-digital traditional companies. These traditional enterprises will be gradually defeated by the digital enterprises in the competition, and their complete disappearance will also represent the completion of the digitization process of the whole industry. Having said so much, I believe we are clear about the past and present lives of the digital economy. So why is the digital economy elevated to strategic status at this particular point in time, and what does it have to do with the individuals in our community?

3. Why build a digital economy now

The first is the disappearance of dividends. China’s high growth in the past few decades is mainly due to the demographic dividend and reform dividend. And those dividends are disappearing.

China’s baby boom lasted from 1962 to 1976. Those born in this period are between the ages of 44 and 59. Internationally, people between the ages of 15 and 64 are generally classified as working-age, meaning that China’s baby boomers are approaching the upper limit of the international standard age range for the workforce. The aging of China’s population is coming fast.

Let me show you two graphs comparing the working population of China and the United States, so you can feel free.

Data derived from https://www.populationpyramid…

At the same time, China is facing the most complex and unfriendly international environment since reform and opening up more than four decades ago. The process of globalization is being challenged as never before. Free trade and investment have been hit, global supply chains have been disrupted and China’s geopolitical environment has deteriorated significantly. China’s future economic strategy has to be changed to focus on the internal cycle, domestic and international double cycle.

That’s not all. China’s Internet dividend is also disappearing. After nearly 20 years of rapid development, the number of Internet users in China reached 989 million by December 2020, and the Internet penetration rate reached 70.4%. This is a remarkable achievement, but it has almost reached the limit of the number of Internet users in China.

Therefore, whether the population is aging, the economy is dominated by internal circulation, or the Internet population is at its peak, it means that incremental development has to be transformed into inventory development.

It turns out that if you want to develop, the most important thing is to see who can run fast, fight is the ability to circle the field. When the population is growing and the economy is expanding, as long as the enterprise’s products can win over more customers and cover more areas, it will be fine. Operating efficiency is not the most important thing. But now the circle of land is basically finished, the total land area is no longer larger but in the shrinking, everywhere rolled, the enterprise to grow again is not so easy, can only hope that their one acre of land can receive a little more. In order to achieve development, what is most important is who has higher efficiency and production capacity, and what is important is the ability of intensive farming.

Of course there are opportunities to expand, but more often through mergers and acquisitions. For example, when you move to large-scale mechanized operations, and you find that black slaves are still picking cotton by hand in the fields next to you, annexation is a natural progression.

The term “private traffic” has become particularly popular recently, also because public Internet traffic (the lopsided land) has been carved up pretty much. When the overall growth of users slows down, the cost of obtaining traffic from the public domain becomes higher and higher, and enterprises have to find ways to manage private traffic and explore the value of each user in private traffic.

A friend of mine decided to go into a traditional industry more than 10 years ago because he was not satisfied with the service he received. In the first few years, he only bought Baidu to promote marketing, the company’s scale to achieve the first position in the industry. But in recent years he also bought Baidu promotion can not afford to buy, began to operate the public number, small program, do customer personalized, precise operation, this is the typical digital transformation, public domain traffic to private domain traffic.

Therefore, both domestic and international political and economic situations require the development of digital economy to promote the transformation and upgrading of China’s economy and take off again. This is an external cause.

The internal cause is that with the annual reduction of the cost of digital technology and the gradual increase of human costs, the intersection of the two costs (inflection point) has come.

The cloud computing, big data, Internet of Things, artificial intelligence and other technologies needed for the digital transformation have become more mature and cheaper, and few enterprises are now completely unexposed to these technologies or the services they provide. That would have been completely unimaginable a decade or five years ago.

One of the goals of digital transformation is to reduce costs and increase efficiency. In the past, when the costs of these new technologies were too high, the risks of a successful digital transformation were undoubtedly greater. However, today’s digital transformation enterprises have become increasingly easy to use low-cost digital technology to achieve the goal of cost reduction and efficiency.

While the cost reduction of new technologies and the increase in labor costs are largely linear, the success of the digital transformation takes time. Therefore, it is better for enterprises not to wait until the cost scissors gap is further exacerbated before taking action, but to advance the layout. However, the benefits brought by the successful digital transformation can be non-linear and even have the ability to reduce the dimension of non-digital enterprises. The digital economy is to countries what digital transformation is to companies.

Today, China has its 14th Five-Year Plan, the US has its Data Science Strategic Plan as early as 2018, Germany has its Digital Strategy 2025 in 2016 and the UK has its Digital Charter in 2018. The digital economy is another major battleground in great power competition, and one that no one can afford to lose.

4. How should people in IT circle deal with IT?

Understand the macro trend, find the purpose of the tuyere is to conform to the trend, take advantage of the development. Time is always more important than strategy, and choice is always more important than effort.

If you want to join the tide of digital industrialization, you can pay more attention to cloud computing, big data, Internet of Things, artificial intelligence and other new technologies, and use these new technologies to empower traditional industries, or break through technical barriers. Put usury with high technology, kill a cooked, sell a vegetable what of also calculate, basically is the country also does not support. As a high-tech talent, or should aim high.

If you want to get on the fast train of industrial digitalization, you should choose an industry that will develop rapidly for a long time in the future, and become a business expert, technical expert and digital transformation expert in this industry for a long time. It’s better to be in the early stages of the industrial Internet process in this industry than to be in the first few years and then run out of things to do. This with the stock to buy as far as possible in the main force just want to pull up before admission is a truth, the most afraid of chasing up kill down.

Which industries meet the above requirements?

You should have a general feeling if you observe the various industries around your life.

Because the Internet was the first to enter the consumption and social areas, the earliest industries disrupted by Internet companies were retail, media, and some vertical industries of life services, such as catering.

Among the industries that Internet companies are trying to disrupt are communications, finance, and insurance. If it were not for the state’s protection, Internet companies would have almost transformed the entire industry.

Internet companies are infiltrating healthcare, education, public utilities and other industries. In these industries, Internet companies and traditional industry companies are engaged in fierce competition. Some companies that are not native to the Internet are fighting back, and it is unclear which of them will win.

One sector in which Internet companies have not yet fully entered, but where the digital transformation is already in full swing, is manufacturing. The Internet can help manufacturing companies sell their products, but improving the efficiency of the production side requires a digital transformation that the Internet company simply cannot do.

Internet companies have yet to enter, and the digital transformation has just begun in agriculture, construction, real estate and property services. In these industries, the digital transformation is still in the exploratory stage, with few mature examples. Those who want to digitize the industry will have a bright future here.

If you further choose one of the above industries to enter, you may want to look at property services.

But back to national policy. Also in the 14th Five-Year Plan, “community” and “property” were mentioned for 31 times in total, and property was upgraded to national top-level planning for the first time. The plan puts forward the general requirements of “accelerating the service industry of health, elderly care, childcare, culture, tourism, sports, property”, and points out the next development direction for the property service industry.

Property service itself just entered the outbreak period. As China’s urbanization process slows down and real estate development enters the Silver Age, many real estate companies are looking to property services as their new growth point.

If the digital economy is the second curve of the development of the traditional economy, the property service is the second curve of the real estate industry, one of the engines of the traditional economy.

According to the prediction of China Property Management Association, by 2025, the management scale of property management industry will increase by 30%, the operating income will exceed 2 trillion yuan, and the employees will reach more than 10 million. Some downstream industries will also stimulate the employment of 1 million people. The great industry value of property service is being deeply explored and repositioned.

The topic of the digital economy is national. For enterprise managers and IT students, we still need to think about how to carry out the digital transformation of enterprises.

Author: Chang Hongping

He is a 20-year IT veteran. He is the former head of IBM Global Software Sales System and the head of CIO China Lab. Led a multinational team of hundreds of people, took charge of the core e-commerce system with the turnover of tens of billions of dollars during the Spring Festival, and won the gold award of the global annual IT team. He is now the CIO of Sunac Services Group, committed to the digital transformation of traditional enterprises.

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