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China’s Internet Revolution

As Internet adoption reaches critical mass in China, it will help to unleash the economy’s productivity-growth potential. Indeed, the Internet can help China attain its goal of developing a sustainable economic model that can lift the country to high-income status.

BEIJING – It is a story that has played out worldwide. Internet adoption reaches critical mass, changing how business is conducted and creating billion-dollar markets for digital goods and services – and causing massive “creative destruction.” It is now China’s turn to experience this phenomenon – only, in China’s case, it is occurring amid broad economic transformation and rapid social change. The collision of these forces could fundamentally transform the world’s second-largest economy.

With 632 million users, China’s Internet has already produced a dynamic technology sector, thriving social networks, and the world’s largest e-tail (consumer-facing e-commerce) market. Global investors’ excitement about the IPO of China’s largest online retailer, Alibaba, reflects the scale of the economic value that has already been created.

But most of the action so far has been on the consumer side. Key sectors, from manufacturing to health care, have not progressed beyond the early stages of the shift online. Indeed, as of 2012, only about one-quarter of China’s small and medium-size enterprises had started to use the Internet in areas like procurement, sales, and marketing – meaning that the most sweeping changes lie ahead.

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