Alibabanomics: Online Commerce, Market Integration, and Macroeconomic Rebalancing in China

Abstract

China's economic rise has coincided with the arrival and mass adoption of the Internet in China. The convergence has enabled entrepreneurs like Jack Ma of Alibaba to take advantage of immense arbitrage opportunities in a country with rapidly rising levels of income and fragmented and unmet consumption demands-- transforming the retail landscape and spurring both innovation and entrepreneurship. Drawing on data provided by CEIC Data Company Ltd (CEIC) as well as previous market research by McKinsey Global Institute on China's 21st century economy (Chen, Orr, Manyika, Chui, & Chang, 2013), this paper examines the impact of expanding Internet penetration on two key drivers of future Chinese economic growth: domestic consumption spending and service sector employment. Private sector innovations have also played an integral role in creating a conducive environment for China's transition into a more mature economy to occur by conquering key China-specific challenges. The incremental effect of Internet access on consumption is stronger across China's poorer provinces where regional disparities in development have created larger obstacles such as lack of physical retail, highly fragmented marketplaces, and heavy consumer focus on savings.