China's Internet Revolution: the economic impact: Jianhai Bi discusses the web-based development that is transforming China's economy.

• Author: Bi, Jianhai
• Position: Statistical Data Included

Inevitably, China has been involved in the international current of the Internet and a vigorous Internet revolutionary atmosphere now prevails throughout the country. China's Internet industry has seen exponential growth in recent years, a sharp rise in web-sites and portals with computer popularisation as well as a rapidly increasing number of users. By the end of 2000 there were 265,000 websites and the number of Internet users in China had reached 22.5 million. (1) While influencing politics and society, the Internet revolution has a particular impact on China's economy and economic reforms. (2)

It can be seen how digital technologies are accelerating change not just in a handful of industries but throughout the entire economy. This study focuses on four major aspects: reshaping the various sectors of the national economy; the double impact; accelerating the integration of the Chinese economy into economic globalisation; and facilitating the deepening of economic reforms.

First, the economic impact of the Internet revolution contributes to the reorganisation of the main branches of the national economy by making adjustments to the economic structure. The Internet is helping to transform the structures of industry and consumer markets across the country. This transformation involves a redistribution of resources. The Internet era is instrumental in driving China to restructure its traditional heavy industry-dominated economy, moving economic resources to new growth areas. The information economy is booming whilst manufacturing industries decline.

China's information technology sector is acting as a catalyst for the restructuring of traditional industries, including renovation of the old industrial bases to stimulate structural advancement. The rise of Internet services is a precursor to a major change in the landscape of China's market, challenging the dominant position of the traditional economic sectors. The development of China's service industry is accelerating and this may become an important avenue for stimulating economic restructuring, impelling China's transition away from a growth model based on manufactured exports and agricultural products towards a new service-led economy.

More important, as a `New Economy' evolves, China's economic growth rates will depend upon how it adapts to the changes of new and high technology that emerge, especially information technology. The information sector can become an engine to drive economic development. China's electronic commerce has expanded greatly, reaching US$9.32 billion in 2000 while setting up 1500 e-commerce web-sites. It will see a more rapid and larger growth in the next five years. (3) From 2001 to 2005, China's information sector will enjoy a 20 per cent annual growth rate. This will be about three times that of the country's average annual economic growth rate during the same period, which is expected to be around 7 per cent. (4) With the Internet's impact, China is in a transitional period from the old to a new economy, creating opportunities as well as challenges for the country.

Popular profession

Starting an Internet content provider business has become the most popular profession for China's businessmen and Internet talents. The e-commerce that has made the Internet a hot market phenomenon in China is becoming the new arena for the Chinese economy. The added value of Internet-related commerce is large and attractive. In the land-rush environment of the Internet, even the most backward investors have realised that the demand for Internet-related products and services is exploding, and they are starting to understand that other kinds of businesses are going to be negatively impacted.

Under such circumstances, some sectors of the new economy are growing as the popularity of the Internet has given rise to hundreds of new Internet-oriented companies, which will be a key source of future growth for China's economy. For example, online financial and e-commerce services providers, as pioneers in the development of the new economy, are mushrooming. The banking industry has woken up to the threat posed by the Internet and is investing in systems to defend businesses through the new on-line financial services. The banks have co-operated with many sellers of Chinese Internet service providers and content providers to promote on-line financial exchanges, focusing on credit card use. China's major banks have launched on-line payment business and...