Yale School of Management

International Center for Finance

Providing academic and professional support for research in financial economics.

Internet economy will pump up China's economic growth, says economist

By Yuan Can (People's Daily Online

China should focus more on consumption than on manufacture in order to pump economic growth, said Chen Zhiwu, a Professor of Finance at Yale School of Management.

At an innovation conference held by Iyiou.com, an emerging media focusing on O2O, Chen said that China's economy faces the slowdown pressure at current phase and China should refer to service and consumption sectors including Internet, tourism and medicine and health care.

Chen said that as the fixed asset investment take up more than 70 per cent of total GDP of China, nearly four times higher than that in 1980, it is less possible for China to keep economy growth via investment. "If China continues to rely on fixed asset investment, China need to print more cash," Chen said.

Chen said that most of traditional industries in China face the problem of over capacity and those industries should transfer their excess capacity to consumption. Layoff may occur in this movement. Service industry could train the laid-offs to make them qualified for future jobs, he said.

Internet plays an important role in this transformation. With the help of Internet, resources are more accessible to ordinary people. "Goods like financing are not exclusive to the wealthy and the influential," said Chen.

Government, state-owned enterprises and large private enterprises are easier to get support from banks based on their past credit records, Chen said. Internet finance provides a more favorable platform for small and medium size enterprises and ordinary people, Chen added.

However, Chen said that the Internet finance is also an "unprecedented" opportunity for frauds. According to a report by Xinhua News Agency, China has seen a fast increase of illegal financing, from 2,000 cases a few years ago to 10,000 cases in last year. In the first quarter of this year, police opened investigations into about 2,300 cases, including online peer-to-peer broker Ezubao, which cheated about 900,000 investors out of more than 50 billion yuan (USD 7.6 billion).

To tackle this problem, Chen said that China could carry out relevant market assess rules for Internet finance. Enterprises should improve their transparency to let clients know where their money goes. Chen also said that ordinary people should increase their financial knowledge, but he does not suggest government to interfere specific rules Internet financing enterprises including help set the interest rate.

Talking about Internet economy and current environment for start-ups, Huang Yuanpu, founder of Iyiou.com, said that he predicted that Internet start-ups may experience a hard time until the second half of 2017.

In Huang's words, Internet is more effectively used in first tier metropolises including Beijing, Shanghai, Hangzhou, a city in east China's Zhejiang province and Shenzhen, a city in south China's Guangdong province than second-tier cities and even rural areas. "Internet is regarded as a gaming platform in some rural areas in China," Huang said.

To better solve the problem, Huang suggested that China should focus on both information and service.

Read original article