Internet sector to fuel 7% to 22% of China's GDP growth through 2025

Online shopping. The Internet brought big changes to people's everyday life in 2014 in China with apps being developed for almost every need. [Photo/China Daily]

The first time Jack Ma, founder of China's e-commerce giant Alibaba Group Holding Ltd, used the Internet was in 1995 in the United States. His search for "beer" and "China" turned up no results. It was then that Ma decided to set up an online platform, one that could make it easy for people to do business anywhere.

Cut to the present, and there has been a sea change in the virtual world. Shoppers can buy almost everything in Ma's online e-commerce empire, which since its initial public offering in September 2014 has vaulted into the same league as Google Inc and Facebook Inc.

But changing the way people shop is not the only thing that the Internet has changed China. In many ways 2014, which was also the 20th anniversary of China getting connected to the Internet, was an excellent year of returns for China's Internet sector, no matter how big or small the company was.

Big Internet firms, such as Alibaba, Baidu Inc and Tencent Holdings Ltd, have made further changes in people's daily lives with huge investments in traditional sectors like finance, video and even taxi hailing.

Entrepreneurs have also found the Internet to be a great avenue for setting up their own businesses. A significant number of the post-1990s generation have become self-employed after the Internet made it easy for them to do business. From selling rice noodles through online promotions to social networking applications that cater to esoteric tastes, people with innovative business ideas have been able to realize their dreams with the help of the Internet.

And it has proved rewarding too. In 2014, top-three richest men in China were all from the Internet industry, with Jack Ma the leader, followed by Robin Li of Baidu and Pony Ma of Tencent, according to the Forbes Billionaire List 2014.

Initial public offerings were another way for Internet companies to raise wealth in 2014. Statistics show that Internet companies accounted for 11 out of the 82 Chinese companies that went public in overseas markets during the first 11 months of 2014, but the money they raised accounted for 64.7 percent of the total funds raised by Chinese firms.

What is worth noting is that some Internet startups, which are yet to be listed, have managed to raise funds from venture capitalists, and in some cases, with even more amounts than those raised by companies through IPOs.

The booming Internet sector has also played an important role in China's economy with domestic Internet companies and services being part of the top government officials' overseas marketing list in 2014.

A study by McKinsey Global Institute said the business and economics research arm of global consulting firm McKinsey & Co, the Internet sector could add 0.3 to 1 percentage point to China's GDP growth rate from 2013 to 2025.

This could fuel 7 to 22 percent of the incremental GDP growth through 2025, translating into 4 trillion yuan ($650 billion) to 14 trillion yuan in the annual GDP by that point.

Hou Xiaotian, chief analyst with T. H. Capital LLC, an independent research and investment advisory firm, said that the Internet can not only become the new engine that drives China's economic growth, but also change the model of economic growth by making it more innovation-led, rather than labor-driven.

"More Chinese Internet companies are expected to make moves in the overseas market next year, much like what Alibaba did in 2014. Most of the Chinese Internet companies are still China-focused, and to realize strong growth they need to expand into other markets and seize the growing opportunities in mobile Internet," said Hou.