Forget physical stores! China does 'bytes and bits,' and US should look out

China's exploding smartphone connectivity base is fostering robust online shopping, former Morgan Stanley Asia Chairman Stephen Roach said Wednesday.

"China's e-commerce share of its total retail sales is double that of the United States and rapidly expanding that gap," the Yale economist told CNBC's "Squawk Box" in response to a question by guest host David Novak, departing executive chairman of Yum Brands.

China's internet users going online with a mobile device number about 527 million, according to the official China Internet Network Information Center data from 2015. That's far more than the population of the U.S., which numbers 323 million.

"They don't need to do bricks and mortar. They do bytes and bits," Roach said, adding the phenomenon plays into the big story in China, which is the transition to a more consumer-led economy.

China said last month its economy expanded 6.7 percent in the first quarter, slightly slower than the December quarter. But GDP matched market expectations, suggesting the Chinese government's target range of 6.5 to 7 percent growth for 2016 was feasible.

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— Reuters contributed to this report.