China’s tech crackdown affects only a small share of its digital economy and total GDP

October 20, 2021
China’s tech crackdown affects only a small share of its digital economy and total GDP

Chinese authorities have been reining in some of the country's biggest internet companies, stirring concern about what could be a threat to China's robust private sector. But China's large private sector is more than just internet companies like Alibaba, Tencent, and JD.com. In 2020, only 11 internet companies were among the 500 largest private firms by revenue, according to the All-China Federation of Industry and Commerce.[1] Internet companies account for only 7 percent of the aggregate revenues of the top 500 but 20 percent of the aggregate net profits, reflecting their strong market power.

Some seem to have mistaken the digital share of China's economy for the contribution of the internet companies to its GDP. The digital economy accounts for nearly 40 percent of China's GDP, according to the China Academy of Information and Communications Technology (CAICT), a government-affiliated think tank.[2] But CAICT's definition includes platform services, manufacturing and services surrounding digital devices, as well as application of digital technology in nondigital sectors like agriculture and finance. According to China's statistical authority, the direct value-added of information transfer, software, and information technology services—which is the category in which the value-added of internet companies is counted—accounted for merely 3.7 percent of China's GDP in 2020. The figure shows the contrast between the two series.

Internet companies indirectly contribute to China's economy by raising the productivity of, for example, firms and individuals selling things on e-commerce sites. But despite the tech crackdown, that ability of firms to provide internet-based services does not seem to be impaired, as China's online retail sales have kept growing and ride-hailing services have continued to expand in recent months.

This PIIE Chart is adapted from research for Tianlei Huang and Nicholas R. Lardy's blog, Is the sky really falling for private firms in China?

Notes

1. These include JD.com (#2 in 2020 Top 500 by revenue), Alibaba (#5), Tencent (#6), Zhaogang.com (#59), Meituan (#61), Baidu (#66), NetEase (#122), KE (#128), Huitongda (#194), TAL Education Group (#339), and Weitian Yuntong (#432). Among the internet companies in the top 500, Zhaogang.com, Huitongda, and Weitian Yuntong are not yet publicly traded, and thus are probably less known than the others. Zhaogang.com is a specialized e-commerce platform for the steel industry. Huitongda is an e-commerce platform serving rural China and is now planning an IPO in Hong Kong. Weitian Yuntong is a logistics information service provider.

2. See CAICT's white paper on China's digital economy released in April 2021.

More From

Tianlei Huang Senior Research Staff
Nicholas R. Lardy Senior Research Staff

More on This Topic

China Economic Watch

Simon Johnson (PIIE) and Jonathan Ruane (MIT Sloan School of Management)

January 3, 2018
China Economic Watch

Tianlei Huang (PIIE) and Nicholas R. Lardy (PIIE)

October 14, 2021