China’s ‘Internet Plus’ Strategy, A Net Minus – Forbes

“The government needs to deepen reform to help these startup companies survive and thrive,” said Li Keqiang on Wednesday at an executive meeting of the State Council. The premier was speaking in the context of his much-discussed “Internet Plus” plan, unveiled on March 5 in his Government Work Report.

Li gets high marks for recognizing that China needs new businesses, but his solution—active intervention to bring about the new economy—is misguided. He could, by drawing upon ancient Chinese philosophy, accomplish more by doing less.

It’s clear that China has to change course. The economy, Li’s responsibility by virtue of his position as head of the State Council, looks like it is contracting at the moment. Last Wednesday, the official National Bureau of Statistics reported first quarter growth of 7.0%, but during the same period electricity was down 0.1%, trade fell 6.0%, and construction starts tumbled 18.4%.

Capital outflow, at unprecedented rates during the last two quarters of 2014, accelerated in the first three months of this year. The country’s foreign exchange reserves plunged a record $113 billion in the just-completed quarter. The dollar holdings of Chinese corporates dropped $418 billion.

Li, at least from public comments, is trying to reduce reliance on old-time fiscal spending to rescue a deteriorating situation. His solution is something more innovative. “The favorable wind of the ‘Internet Plus’ is set to push the Chinese economy to a higher level,” noted the Xinhua News Agency. “The plan,” the official organ stated, “aims to integrate mobile Internet, cloud computing, big data and the Internet of Things with modern manufacturing, to encourage the healthy development of e-commerce, industrial networks, and Internet banking, and to help Internet companies increase international presence.”

Global Times, the newspaper controlled by People’s Daily, tells us that Internet Plus “will bring about the fourth industrial revolution.” Although that is over the top even for Communist Party propagandists, Internet Plus at first glance looks like a step in the right direction. And so is the State Council’s exhortation issued a week after Li delivered his Work Report: “Encourage hundreds of thousands of people’s passion for innovation, build the new engine for economic development.” The country, China’s cabinet noted, should “encourage the general public to start their own businesses.”

The Chinese people, of course, did not have to wait for a signal from the top. In recent years, China’s home-grown giants—Alibaba Group, Tencent Holdings, and Baidu—have spun off employees who invested in their own start-ups. Chinese start-ups have been creating tech since the 1990s, but now the boom is on. China’s tech sector, according to one estimate, took in $7.2 billion in private equity last year, up from $1.6 billion in 2013.

And in today’s China, everyone can get in on the act. In Qingyanliu Village, in Zhejiang province’s Yiwu City, 800 households started 2,800 online stores according to Premier Li last year. This, he correctly said, “illustrates huge space of entrepreneurship.” As a result of all this frenetic activity, people call Qingyanliu “China’s No. 1 e-commerce village.”