China’s cities: paving the way for economic growth

As China shifts the balance of its economy away from investment and import/export business models and towards domestic consumption, Premier Li Keqiang has written that “urbanization has the greatest potential for boosting domestic demand”.

China’s new plan, released in March 2014, aims to boost domestic consumption by increasing the proportion of urban residents from 53.7% to 60% by 2020. It is thought that a steady source of growth for the Chinese economy will lead to huge investment in public infrastructure, with authorities seeking a substantial increase in social housing as well as the development of underground transport networks by the end of the decade.

What makes this ambitious programme unique is the government’s parallel effort to promote information-related consumption as another source of growth. The Broadband China strategy equates internet networks with traditional forms of public infrastructure, such as electricity grids and oil-supply networks, and there are plans to build 100m fibre-optic networks in cities and extend broadband connectivity to rural villages.

By late 2013, the Ministry of Industry and Information Technology (MIIT) officially granted fourth-generation mobile technology licences to three domestic telecommunication operators, marking the beginning of China’s 4G era.

This new round of urbanization will make many smart cities even smarter.

More importantly, the combination of information consumption and urbanization encourages creative e-commerce in China, as illustrated by the boom in online-to-offline (O2O) retail consumption. O2O basically means attracting retail customers online, and then directing them to real-world, physical stores. This appears to be a new trend in the retail industry, and is expected to be the primary influencer of people’s purchasing habits in the near future.

What makes O2O different from traditional e-commerce? The latter only covers standard goods, such as packages delivered in the mail, and can’t offer social experiences like going to restaurants, bars and museums, or signing up for a yoga class or tennis lesson.

Due to the rise of popular internet applications to book tickets, order meals, play games, watch movies, etc, China’s mobile terminal market saw explosive growth in 2013. People of all ages and from diverse backgrounds have become accustomed to the internet lifestyle through this kind of service, which drives the growth of information consumption and urban populations simultaneously.

It has also blurred the line between online and offline shopping. Online shoppers can become fans of department stores and restaurants while the shopper on the street is still connected to online outlets.

For example, e-commerce sites have been discussing with retailers how to send discount information, tailored to suit a customer’s shopping habits, to their mobile phone as they enter the store.

At a national level, some leading online businesses plan to team with partner stores to link customers in all cities with their distribution networks, allowing customers to collect their orders from cities anywhere in the country.

These are examples of how information is being used to benefit the people as the Chinese population becomes more urbanized and cities get smarter. It’s a process that will drive economic growth and, more importantly, improve people’s standard of living.

Author: Winston Wenyan Ma is a Managing Director and Head of North America Office at China Investment Corp (CIC) and a World Economic Forum Young Global Leader.

Image: People walk along a busy street at Pudong financial district in Shanghai, March 27, 2013. REUTERS/Carlos Barria