China Awakening Digital Economy – A Giant Awakens

China has a growing demand for energy

China has a growing demand for energy
China has a growing digital economy

Small and Medium Chinese Businesses Go Digital

TORONTO – Business – China is going digital. Small to medium sized business in China are taking the digital economy on with the force of a tiger according to a new report from the McKinsey Global Institute (MGI), China’s Digital Transformation: The Internet’s impact on productivity and growth, projects that new Internet applications could fuel 7 to 22% of China’s incremental GDP growth through 2025, depending on the rate of adoption. That translates into 4 trillion to 14 trillion renminbi (RMBs) in annual GDP in 2025.

Digital MarketingAs individual companies adopt web technologies, they gain the ability to streamline everything from product development and supply-chain management to sales, marketing, and customer interactions, says the report. For China’s small enterprises, greater digitization provides an opportunity to boost their labor productivity, collaborate in new ways, and expand their reach via e-commerce, and  could account for up to 22% of China’s labor-productivity growth by 2025.

The global impact of a focused effort into the digital economy from China will have impact, both socially but also economically across the world.

The report states, “The Internet is not merely a tool for automation and efficiency, says the report. It also expands markets rapidly. Greater adoption of web technologies in China could lead to the introduction of entirely new products and services if government and industry take the right steps to maximize the potential”.

Ford Sales in China are up by 67%
Ford Sales in China are up by 67%

From a consumer oriented Internet, with 632 million Chinese Internet users in 2014, 700 million active smart devices, US $300 billion e-tailing sales and (4.4% of China’s Internet economy as a share of 2013 GDP) higher than the United States or Germany… to a more enterprise driven Internet.

With up to 22% of the Internet’s contribution to China’s productivity growth by 2025; RMB 10 trillion annual GDP at stake by 2025, equivalent in size to Australia’s current GDP and RMB 610 billion potential annual savings in health-care expenditures by 2025

The 10 trillion renminbi gap between the two numbers represents the economic growth at stake. The low end of the projection assumes that the country’s current trajectory continues, with adoption of Internet applications increasing at a moderate pace, under existing constraints. The upper end assumes that China builds a supportive policy environment, individual companies move decisively, and workers adapt to the demands of a more digitized economy.

China’s Digital Revolution

China is in the midst of a digital revolution, says the report. During the course of 2013, the number of active smart devices grew from 380 million to 700 million. On Singles Day, the e-commerce marketplaces Taobao and Tmall posted more than RMB 36 billion (almost $6 billion) in sales in just 24 hours. Some five billion daily searches are made through Baidu, and hundreds of millions communicate via WeChat. Tencent’s mobile messaging app. Now with 632 million users, and counting, the Internet is fundamentally altering the fabric of daily life in China.

Until now, China’s Internet has been largely consumer-focused. But that is about to change as the Internet penetrates more deeply across major sectors of the economy.

As companies embrace Web technologies, their operations become more efficient, translating into productivity gains. While this process is likely to displace some workers from existing roles, the Internet also creates new markets for innovative products and services, increasing demand for workers with digital skills.