Executive Briefings

China, the World's Largest Internet User, Discovers It's Useful in Running Businesses

Until recently, China's internet economy was consumer driven. The country leads the world in the number of internet users, and Chinese enterprises deploy sophisticated e-commerce strategies. The same companies, though, have lagged behind the United States and other developed nations in using the internet to run key aspects of their businesses. That's changing.

China’s companies are quickly climbing the adoption curve. Their increased digital engagement will not only give the economy a new burst of momentum but also change the nature of growth. China sorely needs a new leg of expansion because the industrial growth of recent years—driven by heavy capital expenditures in manufacturing—will be difficult to sustain. The internet, by contrast, should foster new economic activity rooted in productivity, innovation and higher consumption.

For global companies counting on China for continued growth, the new internet wave will change the nature of competition: it will enable the most efficient Chinese companies to grow more quickly, shine more transparency on business and consumer markets, and create conditions for a better allocation of capital.

McKinsey research shows that Chinese companies are investing heavily in the building blocks of the internet economy: cloud computing, wireless communications, new digital platforms, big data analytics, and more. Across six sectors, which accounted for 25 percent of Chinese economic activity in 2013, we find that increased internet adoption could add 60bn to 1.2tr renminbi (about $10bn to $190bn) in GDP to individual sectors by 2025. About one-third of these gains will come from the creation of entirely new markets, the remainder from productivity gains across the value chain. When we scale up this level of growth across all sectors of the economy, we find that internet adoption could add 4tr to 14tr renminbi to GDP by 2025. The internet is also expected to contribute 7 to 22 percent of total GDP growth from 2013 to 2025.

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China’s companies are quickly climbing the adoption curve. Their increased digital engagement will not only give the economy a new burst of momentum but also change the nature of growth. China sorely needs a new leg of expansion because the industrial growth of recent years—driven by heavy capital expenditures in manufacturing—will be difficult to sustain. The internet, by contrast, should foster new economic activity rooted in productivity, innovation and higher consumption.

For global companies counting on China for continued growth, the new internet wave will change the nature of competition: it will enable the most efficient Chinese companies to grow more quickly, shine more transparency on business and consumer markets, and create conditions for a better allocation of capital.

McKinsey research shows that Chinese companies are investing heavily in the building blocks of the internet economy: cloud computing, wireless communications, new digital platforms, big data analytics, and more. Across six sectors, which accounted for 25 percent of Chinese economic activity in 2013, we find that increased internet adoption could add 60bn to 1.2tr renminbi (about $10bn to $190bn) in GDP to individual sectors by 2025. About one-third of these gains will come from the creation of entirely new markets, the remainder from productivity gains across the value chain. When we scale up this level of growth across all sectors of the economy, we find that internet adoption could add 4tr to 14tr renminbi to GDP by 2025. The internet is also expected to contribute 7 to 22 percent of total GDP growth from 2013 to 2025.

Read Full Article