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Internet industry optimism to buoy China’s economy?

, August 17, 2013, 0 Comments

At the 2013 China Internet Conference in Beijing, you felt like you had been teleported into a bazaar.

Salespeople lined the entrances handing out business cards and flyers; pretty showgirls in miniskirt with engaging smiles touted their products. Wandering through the maze of little booths that sprawled over two floors, you were bedazzled by colors and deafened by the noise.

This is a snapshot of China’s Internet industry: noisy but full of vitality. The annual get-together of Chinese Internet names big and small that concluded Thursday was a feverish with economic optimism, despite the chill of the country’s slowing growth.

Will this sizzling sector heat up China’s cooling economy?

“Internet-related consumption of information products and services together with e-commerce are becoming the two biggest drivers of China’s economic growth and restructuring,” said Liang Chunxiao, vice president of the country’s top online trading platform Alibaba Group.

He predicted that online retail revenues would account for more than 16 percent of China’s total social sales in 2020 when the aggregated e-commerce volume exceeds 28.8 trillion yuan (4.7 trillion dollars).

“E-commerce will boost related sectors such as logistics and raw materials, and help release the consumption potential in many remote areas,” Liang added.

China’s Internet economy will take up 6.9 percent of its GDP in 2016, up from 5.5 percent seen in 2010, according to a research report by the Boston Consulting Group last year.

The boom of mobile Internet, marked by the popular use of smartphones and tablets across the country, might drive the industry at an even faster pace.

China’s Internet users reached 590 million in the first half of this year, and 80 percent use their smartphones to go online. More people are recognizing the opportunity to tap into China’s huge consumer market.

Home appliance retailer Suning, footwear manufacturing Xtep and commercial real estate developer Insite Space, businesses that used to seem unlikely to make an impact on the digital world, all participated in the Internet Conference. Everyone is jumping on the bandwagon.

“The next generation Internet will definitely transform conventional industry. Those who don’t embrace it quickly enough will be washed out,” said Lyu Zaifeng, executive director of Consumer & Small Business Services at Lenovo Group, the world’s top personal computer maker.

Lenovo is reshaping its business to put more emphasis on wireless computing, as consumers shift away from desktop computers to smartphones and tablets.

China’s Internet giants are speeding up mergers and innovation. Alibaba has invested a hefty amount of money in stakes of China’s most popular micro-blogging service Sina Weibo, and , one of the country’s leading digital map and navigation businesses. Search engine giant Baidu has acquired online video website PPS and 91 Wireless, one of the country’s top mobile app distributors.

Another big player, Tencent, recently launched an updated version of WeChat, a mobile messaging application that boasts more than 400 million users. Looking to capitalize on the app, it added games, paid-for emotions and a mobile payment system.

Chinese entrepreneurship has risen to new highs, thanks to the mobile Internet boom.

The two startup forums at the conference were held to a packed houses of over 1,500. In the cafeteria and the corridors, aspiring entrepreneurs huddled together, exchanging ideas and looking for tie-ups, with few signs of a slowing growth in the world’s second-largest economy.

They are exploring every possible gap in the market that might lure consumers: multi-language translator apps for travelers, vending machines with an online payment systems, taxi apps that allow people to order cabs over the Internet, and fetal movement monitoring apps that can record babies’ heartbeat… If you can imagine something, someone is probably working on it already.

“The Internet is a hypercompetitive market. The rules are clear here. Private capital has easy access and is heavily involved,” said Ramon Zeng, principal of the U.S. venture capital firm DCM.

On the flip side, the startup rush will help to alleviate China’s employment problems. In 2013, about 7 million college graduates flooded the labor market. Many will end up starting their own businesses or landing a position in the thriving IT giants.

Alibaba has created 3 million direct jobs and over 100 billion indirect ones, and the number will keep growing, according to Liang.

Another big online retailer Jingdong hired more than 30,000 delivery men, most of whom are migrant workers, said vice president Zhao Guoqing.

Meanwhile, good news from the government may also give a boost to the industry. Recent guidelines from the State Council, China’s cabinet, said Internet-related consumption of information products and services is expected to reach 2.4 trillion yuan in 2015, with an annual growth of over 30 percent.

The government promised to lower market barriers, and to strengthen fiscal and financing policy support for the sector.

The impact of Internet industry has just begun, said Gao Xinmin, vice president of the Internet Society of China.” It will be ubiquitous in a few years. It will revolutionize all industries, and catalyze China’s economic rebalancing and industrial upgrade.