Carlos Barria / Courtesy Reuters An Apple store in Pudong, the financial district of Shanghai, February 29, 2012.

Dragon Net

China's Next Economic Miracle

With 632 million Internet users, China has already become the world’s largest e-tailing market, with almost $300 billion in sales posted in 2013. Although digital marketplaces have changed the face of Chinese retail, however, other major sectors such as manufacturing and healthcare have been much slower to embrace the Internet. China’s digital transformation is just beginning, which means that over the next few years, the world’s second-largest economy will radically transform the way it does business. And as new research from the McKinsey Global Institute projects, that change (from the adoption of online marketing and supply-chain management to cutting-edge innovations such as big data analytics and the Internet of Things) could fuel as much as 22 percent of China’s total GDP growth through 2025. How much of this potential China will actually see depends on the government’s ability to create a supportive policy environment, the willingness of companies to go digital, and the adaptability of workers.

As of 2012, only about a quarter of China’s small and medium-sized enterprises had begun to use the Internet for functions such as procurement, sales, and marketing. When they do go online, they and larger companies alike will be able to streamline their operations, find new ways to collaborate, and expand their reach via e-commerce. These types of changes are beginning to ripple through traditional industries outside the tech sector, translating into faster productivity growth.

Consider the real estate sector. Chinese homebuyers and renters increasingly search for their ideal home on sites such as SouFun.com, which combines listings and advertisements. The ability to identify serious buyers quickly is streamlining real estate searches and transactions, reducing developers’ and agents’ marketing and carrying costs. Local governments can now conduct land auctions online, and Taobao has launched an auction platform for foreclosed properties. Developers, contractors, and hotel chains now frequently purchase construction materials, equipment, and décor on e-commerce platforms that reduce purchasing costs by 5–30 percent. Property management companies are experimenting with online communities that connect with

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