Online disrupting traditional retail channels in China

According to McKinsey & Co, the online revolution is expected to boost productivity, creating 46 million new jobs in China by 2025, many of them higher-skilled. The losers will be as many as 31 million traditional roles.

While such creative destruction is a global phenomenon, its speed and scale in China is unparalleled, believes Cao Lei, director of Hangzhou-based China E-commerce Research Centre, a private research agency. “The Internet helps improve productivity and efficiency, but it can be quite painful for traditional businesses. Bookstores fail first followed by clothing chains, consumer electronics stores and air-ticket booking offices. And in the future, bank branches and other traditional services facilities may fail as well,” Lei adds.

The shift online could contribute up to 22% of the nation’s productivity growth by 2025, accounting for 7-to-22% of the total increase in GDP from 2013-25, indicates McKinsey. By 2025 that could translate into as much as $2.2 trillion in China’s annual GDP.

Clashes between the old and new economies are set to intensify, forecasts Ouyang Rihui, deputy dean at the Academy of Internet Economy, a research agency within the Central University of Finance and Economics in Beijing, adding that the loss of retailers is just the beginning of the effect of technology on jobs. “The real challenge for China will be at the front-end of production — imagine a day when most manufacturing is automated. At the end of the day, the new economy will win,” Rihui concludes.