Are Digital Innovation Policies Effective in Promoting the Development of Digital Economy in China?

How latecomers of emerging countries catch up with the incumbents on technological innovation is always an important topic (Guo et al., 2021). China is also facing challenges in upgrading its manufacturing value-added in the global market and transferring to a more sustainable economic growth model. Digital technology has become the driving force of Chinese economic growth and transition (Li, Hsu, Mao, & Zhang, 2022). In 2013, the size of the digital economy was about 9.5 trillion, accounting for 20.3% of China's GDP. In 2020, the size already increased to around 39.2 trillion, taking a share of 38.6% of GDP. China is also a leading digital economy in the global market. According to CGTN ( Empowering digital transformation for china's economy. 2022), the size of China's digital economy is ranking second in the world in 2020.

Three elements shape the development of China's digital innovation: a large consumer market, a well-developed supply network of digital products, and a unique societal and regulatory structure (Li et al., 2022). On the one hand, in the past ten years, the rise of the middle classes has stimulated consumer demand for high-end products. It has brought a large group of users to digital innovation enterprises in China. On the other hand, the "deep supplier networks, a large skilled workforce, and a developed logistics infrastructure" have enabled China to develop a completed digital innovation ecosystem. As the Chinese government plays a predominant role in economic development, China's institutional system has significantly affected demand and digital supply-side innovation. China has pointed out to develop a national strategy for the digital economy in its Medium to Long-term Planning for Scientific and Technological Development plans. For example, in the Thirteenth Five-Year Plan Outline of National Economic and Social Development of the People's Republic of China, the Chinese government proposed implementing a national big data strategy and promoting the open sharing of data resources (Xinhuanet, 2016). Furthermore, in Fourteenth Five-Year Plan Outline, the Chinese government has proposed accelerating digital development and building a Digital China (Xinhuanet, 2022). In response to the government's national strategy, Chinese governments at all levels have introduced policies for digital economy development and digital transformation. The data from the Chinese policy database shows that in 2013, the Chinese government introduced 342 digital innovation policies, and in 2021, the Chinese government introduced 1242 digital innovation policies. The figures have tripled in the past eight years. Although the Chinese government has implemented a series of innovation policies to stimulate digital innovation in different regions of China, existing digital innovation studies may not systematically evaluate and compare the effectiveness of these policies in fostering digitalization in China. The government may waste many valuable resources on policies that are not very effective. Therefore, it is incredibly intriguing and helpful to find out how the Chinese government uses policy instrument mix to promote the development of the digital economy and comprehensively evaluate the policy effectiveness of digital innovation. Thus, the research questions of this paper are as follows:

Research Question 1: "What kind of policy instruments are frequently used by the Chinese government to promote the digital economy?"

Research Question 2: "Is every type of policy instrument effective in boosting the digital economy?"

Research Question 3: "Among all applied policy instruments, which policy instruments are more effective in facilitating the digital economy?"

The unit of analysis is a province (excluding Hong Kong, Macaw, and Taiwan). This study will collect two kinds of data. The first is the 2013-2021 digital innovation policy document at the province level, collected from Bailu Zhiku (http://www.bailuzhiku.com/) by a web's crawler. The second is the 2020 digital economy index by provinces, collected from the microdatas.cn database. The approach of Natural Language Processing will be used to clean and process the collected policy documents. In this process, some Chinese keywords (“税收减免Tax deduction,” “孵化器 Incubators,” “政府采购 Procurement” and “补贴 Subsidy” etc.) will be used to identify the policy instruments in the policy text. Based on the innovation policy instrument framework proposed by Elder et al. (2016), we define thirteen types of instruments in this study, including "R&D tax credits," "Direct R&D support," "Training and skills," "Entrepreneurship," "Technical services and advice," "Cluster," "Collaboration," "Innovation network," "Procurement," "Innovation prizes," "Standard," "Regulations," "Technology foresight." This study will also construct a multivariate regression model to test if a certain innovation policy instrument significantly impacts the digital economy development of provinces in China and to compare the effectiveness of different types of innovation policies.

The preliminary results show a huge regional heterogeneity of digital innovation development in China. Coastal regions like "Guangdong" (N=302), "Zhejiang" (N=193), "Jiangsu" (N=188), "Fujian" (N=165), "Shandong" (N=128), "Beijing" (N=100), "Tianjin" (N=85) and "Shanghai" (N=73) have launched more digital innovation policies. Southern provinces pay more attention to digital innovation than northern provinces (Guangdong, Zhejiang, Jiangsu, and Fujian compares to Shandong, Beijing, and Tianjin). Besides, Chinese governments frequently use direct support for R&D and innovation, training and skills, and cluster policy when developing a digital economy. Lastly, from the multivariate regression results, we observe that both demand (b=12.57, p<0.05) and supply policies (l=2.62, p<0.05) can significantly improve the development of the digital economy development and the demand-side policy is more effective than the supply-side policy.