C&B Notes

China’s Connectivity Revolution

The rapid expansion of China’s Internet community portends significant cultural, economic, and political changes, all of which will likely complicate central planning efforts:

The pace of transformation is breathtaking.  According to Internet World Stats, the number of Internet users in China has more than tripled since 2006, soaring to 485 million in mid-2011 — more than three times that in 2006.  Moreover, China’s rush to connectivity is far from over.  As of mid-2011, only 36% of its 1.3 billion people were connected — far short of the nearly 80% penetration rates seen in South Korea, Japan, and the United States.

Indeed, with the cost of connectivity falling sharply — China’s mobile users are expected to surpass PC users by 2013 — and, with urbanization and per capita incomes also rising sharply, it is not unreasonable to expect China’s Internet penetration rate to cross the 50% threshold by 2015.  That would be the functional equivalent of adding about three-fourths of all existing Internet users in the US.

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When it comes to analyzing China, it is always easy to get carried away wi th numbers — especially those driven by the country’s sheer size.  But the real message here concerns the implications of connectivity, not just its scale.

A key implication is the Internet’s potential to play a significant role in the emergence of China’s consumer society — a critical structural imperative for a long-unbalanced Chinese economy.  With connectivity comes a national awareness of spending habits, tastes, and brands — essential characteristics of any consumer culture.

The consumption share of China’s economy, at less than 35% of GDP, is the lowest of any major country.  Surging Chinese Internet usage could well facilitate the pro consumption initiatives of the recently enacted 12th Five-Year Plan.

As noted, these trends are fueled — and could even be further accelerated — by the increasing urbanization of China.  China’s National Bureau of Statistics recently reported that, for the first time, over half of the country’s population live in cities — and this is expected to expand to 75% of the total population within 20 years.

>>  Click here for more from Project Syndicate