The two sides of China’s Internet economy

“China’s Internet economy is a massive technological achievement that will revolutionize China. Not only in terms of productivity but also contributing the expansion of the marketplace”, says Jonathan Woetzel, Director of McKinsey & Company Shanghai Office. Having said that, the issue is, according to Woetzel, how the Internet will actually change the Chinese economy.

The New York Stock Exchange is being a great witness of the buzz created by China’s big tech companies. In mid-April, the largest Chinese micro blogging service, Weibo, raised $ 286 million in its Nasdaq debut. And within weeks, Alibaba, the largest e-commerce platform in the world (with 800 million subscribers), is expected to complete the biggest IPO in history.

The figures are promising. Internet Internet Research consultancy firm, iResearch, estimates that last year China’s Internet economy saw revenues of  600.41 billion Yuan in 2013; and it is expected to reach 1.72315 trillion Yuan in 2017.

China’s Internet is one of the six mega business trends that, according to Woetzel, will transform China. But when compared to the other factors (urbanization, consumer, manufacturing, bank deposits and brain power), it is also the most susceptible to the effects of the country’s relentless censorship.

Weibo itself had a bitter experience upon its launch to the stock market. The Chinese Internet giant managed to sell only 16.8 million shares, from an estimated 20 million. Likewise, shares were sold at 17$ each far from the expected maximum of 19 $ per share.  Weibo has 280 million users and it is worth 3.800 million dollar.  But Market analysts believe investors’ lack of confidence towards Weibo is due to the firm’s recent fall of users (a 9% less) in the past few months. Restrictions imposed by Chinese censors are responsible for the recent popularity decline. Weibo is becoming less free. Chinese law requires all users to register with their real name, while sensitive posts are quickly detected and removed. New restrictions also consider imprisonment and heavy fines against those netizens engaged in publishing ” incendiary rumours”.

Censorship effectively hinders the growth and international expansion of Chinese enterprises. By late April, the avid followers of popular American TV shows that are distributed by China’s popular online video platforms saw some of their favourite titles like Big Bang Theory, The Good Wife, NCIS and The Practice suddenly removed from the sites libraries due to its offensive content. Chinese authorities previous little intervention in the kind of content distributed by these platforms allowed online video to become the fastest growing Internet sector with a 47.6% year-on-year growth.

Nonetheless, the potential of this industry has not prevented authorities to regulate an ecosystem that was so far exceptionally free. Under the new rules, online video websites may distribute foreign movies and TV shows only if the content has been previously approved by the relevant bodies. Those companies that do not comply with the norms will be severely punished.

The world’s second largest economy has more than 600 million netizens, the double than the U.S. The figure is expected to continue growing in the coming years. “[Thanks to the Internet] issues are recognized and accepted. People have the ability to link and acknowledge issues. The questions I show to respond to that”, says Woetzel.