Andy Xie on China’s “Internet Bubble”

Dr Andy Xie, renowned Chinese economist, thinks that the e-commerce boom in itself is not sustainable. 

Andy Xie

The current Internet boom, centered around social networking, e-commerce and online gaming, has not produced a significant productivity boost for the economy and likely will not in the future. The boom is mostly about redistributing existing demand from offline to online. As most hot businesses have gained market share with cheap financing and without profit, it is doubtful that the demand re-slicing is entirely due to a more efficient channel of distribution. Cheap financing, i.e., a liquidity bubble, may have been the main engine for the Internet boom.

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Computing power cannot become productivity on its own. It needs to be combined with something physical and make it more efficient. This is why a purely Internet-based business cannot make a significant difference to the economy.

Ecommerce, nevertheless, can help improve the efficiency of the Chinese economy:

China needs to increase efficiency on the supply side and household expenditure on the demand side. The current model is based on quantity expansion on the supply side and government-led investment on the demand side. The first step is to cut inefficient and wasteful investment, and shift the savings to the household income side. The stimulus policy is to increase investment. The needed to change is obvious.

Read his interesting article from CaixinOnline here…

Dr Andy Xie 謝國忠 is Shanghai-based independent economist specialising in China and Asia. He is currently director of Rosetta Stone Advisors and of China Boqi Environmental Science and Technology.

Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.

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