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China's Digital Strategy

How can China use digital to help pick up slowing growth?

28Sep

China’s economic growth over the last thirty years has been nothing short of staggering. However, it is beginning to show signs of slowing down. August’s collapse of the country’s stock market showed how unstable the country’s economy is. Michael Pettis, finance professor at Peking University in Beijing, has warned that things could get significantly worse, noting that that every ‘growth miracle’ since the Second World War has ended either in financial collapse or stagnation - without exception.

Financial implosion seems to be approaching, the ramifications of which are likely to be felt around the world. The Chinese government has pledged to meet a growth target for the coming years of 7% - a target many believe will not be achieved. According to some in the Chinese elite, there actually needs to be a slow down in growth, as the economy rebalances in favour of consumer spending and technological innovation.

Digital could well prove to be China’s saviour. According to McKinsey, the Internet is expected to contribute 7-22% to the total GDP increase through to 2025, and as much as 22% to China’s productivity growth by 2025.

China’s digital transformation so far has been consumer driven, as opposed to enterprise driven, so the signs are good that it will help address this. As of 2014, there were 632 million Chinese Internet users and 700 million active smart devices. For digital marketers, this is clearly a huge audience, and a survey by Adobe found that 93% believe that digital engagements will drive competitive advantage for their brands. And there is still huge room for expansion into the Northern provinces, where take-up is far, far lower than in the cities.

From a policy perspective, China’s government faces multiple challenges if they are to use the Internet as a resource for economic growth. They must start by building out networks to increase the number of people able to get online, and facilitate the adoption of new Internet applications. They also need to put in place a balanced set of regulations for data sharing, which will help them to harness the power of Big Data.

Businesses must also be made more aware of the power that digital can have. According to McKinsey’s latest survey of CIOs, the typical Chinese company spends just 2% of revenue on IT, far below the 4% international average. However, respondents predict that this year will see significant increases, indicating clear momentum. India and Australia are way out ahead in terms of digital confidence in the APAC region, with 42% of marketers in India and 35% of marketers in Australia giving themselves pretty good to high marks. China was some way behind, with 51% saying they need improvement or are lagging behind. The Government, and corporations, must ensure that everyone is being equipped with the right skills, or they will risk losing their competitive edge.

According to US economist Henry Adams’ famous syllogism: ‘All Civilization is centralization, all centralization is economy, therefore all Civilisation is the survival of the most Economical. Under economic centralisation, Asia is cheaper than Europe. The world tends to economic centralization, therefore Asia tends to survive, and Europe to perish.’ Michael Pettis may be proven correct in his pessimism, or it could be that Adams is proven right. The Internet can enable GDP growth based on productivity, innovation, and consumption. The economy’s shift to online could ultimately support China’s goal of creating a more sustainable model for economic growth, and end the reliance on credit that has funded it thus far. Whether it’s enough remains to be seen.

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