The digital economy has become a cornerstone of China’s economic transformation, driving innovation, productivity, and sustainable growth. Over the past two decades, China has emerged as a global leader in digitalization, with rapid expansion in e-commerce, artificial intelligence (AI), fintech, and big data applications. This paper examines the role of the digital economy in reshaping China’s industrial structure, improving business efficiency, and enhancing global competitiveness. It also highlights the major opportunities arising from digital innovation, such as job creation and rural revitalization, alongside challenges including digital inequality, cybersecurity concerns, and regulatory constraints. The findings indicate that China’s digital transformation is both a driver and a product of its broader economic reform, requiring continuous policy adaptation and balanced growth strategies to ensure inclusivity and sustainability.