China’s Pivot to Digital Services Hinges on Regulatory Overhaul

The digital services sector in China expanded by over 9% annually between 2010 and 2023, yet the country remains tethered to heavy reliance on imported intellectual property. While domestic multinational firms increasingly prioritize home-market sales—climbing from 60% to 80% of affiliate revenue over a decade—international competitiveness is currently hampered by restrictive data flow policies and limited telecommunications competition.

Structural gravity modeling indicates that meaningful regulatory improvements could spark significant gains, with every step toward reform boosting digitally deliverable service exports by 6%. By adopting the International Telecommunication Union’s Generation 4 regulatory standards, China could see its digital exports surge by 50%. Such a transition requires balancing market liberalization with robust cybersecurity and privacy protections. Ultimately, the study suggests that for China to evolve into a global digital hub, policymakers must prioritize institutional capacity, independent regulation, and streamlined licensing to foster an environment where innovation can thrive alongside regional integration.