Globalization and E-Commerce I: Factors Affecting E-Commerce Diffusion in China

Abstract

China is a large economy with a large absolute gross domestic product (GDP.)However, its huge population brings its GDP and wealth level per capita way below developed countries and in-line with many developing countries. Between 1900 and 2001, China's economy experienced rapid growth (7-8% on average) as did its telecommunications, information technology (IT) and Internet infrastructures (50% - 200% on average). Its large population brings the penetration rates of these infrastructures way below developed countries and a little higher than many developing countries. China's infrastructure is characterized by "disparities" among geographic areas, demographics, and firm size. Large cities and economically advanced coastal provinces enjoy much better infrastructure and many more Internet users than remote and economically poorer provinces. Large enterprises have bigger IT budgets and better-trained staffs than small- and medium-sized enterprises. A younger population with higher education is more likely to adopt Internet and e-commerce. The infrastructure disparity leads to e-commerce diffusion disparity. Current e-commerce activities are concentrated in large cities, coastal provinces, large enterprises, and among well-educated young people. The legal environment for e-commerce is better in large cities and coastal provinces because they publish local laws regarding e-commerce and IT infrastructure. Barriers to e-commerce diffusion include poor technical infrastructure, lack of security, lack of a system to monitor and guarantee buyer and seller credibility, and an inefficient delivery system. The lack of a credibility monitoring system extends to both vendors and individual consumers. Taxation and privacy, which are vital to e-commerce diffusion in many other countries, do not appear to be serious concerns yet. However, content censorship is among the top concerns. The most significant driving forces are government promotion and private entrepreneurial desire to make profits. Government initiatives include general promotion of the IT industry, an industrial and regulatory policy to foster competition among service providers, encouragement of E-government, and sponsorship of projects to mobilize public awareness, such as the "Enterprise Online Project" and "Home Online Project". The poor infrastructure for e-commerce in China pulled e-commerce back to a base building stage after an initial explosive stage. Significant diffusion can only occur after a solid infrastructure is built up, including the technical and legal infrastructure. Two examples, an E-store for residents in a local living complex and the E-system for college admissions, demonstrate e-commerce models unique in China.

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