Liu Shijin, vice-chairman of the Committee on Economic Affairs of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), called for efforts to integrate digital and real economies in an opinion piece published in Beijing Daily on Jan 10.

He started by explaining the reasons behind China's emphasis on the development of real economy and the misunderstandings that come with it. He said the digital economy needs to address the core problem of being heavily financialized. The rapid growth of IT application and digital transformation is seen by some as a distraction from real economy, as some have blamed e-commerce for the closure of brick-and-mortar stores. However, it doesn't mean that we can consider a ban on finance and digital economy, because there has been a consensus on solid ground that finance lies in the heart of modern economy and that digital economy is an inevitable development trend, according to Liu.

He went on to argue that the real problem is how financial sector can serve the real economy and how digital technologies can be effectively integrated with traditional sectors in the real economy. The benchmark for an effective integration, in his view, is to enhance productivity. For example, over-financialization hasn’t improved productivity or created wealth; it’s just a redistribution of wealth. In comparison, the digital empowerment in some production and logistics fields has optimized the supply chain, increased productivity, and built a competitive edge in a real sense, said the opinion piece.

He said it's necessary to realize there are two different real economies, one with declining traditional competitiveness and excessive capacity and the other is a new one, which is empowered by digital transformation to have better productivity. This then leads to the real challenge we face – how to advance digital transformation of the traditional real economy into a new real economy with enhanced productivity, according to Liu.

On the relationship between the manufacturing and service industries, Liu advocated for an objective, comprehensive and scientific view in promoting coordinated development. He said services including R&D, design, logistics, finance, human resources and legal affairs were initially the integral parts of the manufacturing sector and they only became standout components of the service industry after getting more sophisticated and professional. As a result, these productive services and manufacturing are indeed highly interdependent. In reality, according to Liu, a place with a well-developed productive service sector usually boasts a high-level manufacturing industry.

As for the digital transformation of the real economy, he put forward three ideas at the end of the piece.

First, the digitalization process should now shift from the fronts of consumption and circulation to production and manufacturing. China has already experienced the booming development of the digital economy in fields like retail, wholesale and social media where individuals are at the center. Digital empowerment should focus on the production process, which will be a big stride and can truly improve the quality, efficiency and sustainability of the real economy.  

Second, artificial intelligence (AI) should take center stage in digital transformation. AI can optimize the allocation of production capacity and support real-time understanding and future decision-making on macroeconomic, industrial and market issues, thus significantly improving the efficiency of resource allocation and economic stability.

Third, it's necessary to properly handle the relationships among government, enterprises and the market. The government should focus on setting rules, safeguarding fair competition, providing infrastructure and basic public services, and guiding reasonable expectations. The government should avoid much intervention in specific technological issues and instead allow the market competition and industrial development to find solutions. Meanwhile, governmental regulation should keep pace with the development of digital technologies and strike a balance with innovation.