From Exports to Consumption: How Digital Finance and E-Commerce Drive China’s Economic Shift

Abstract

Historically, China’s economic growth has been attributed to it’s export oriented economy However, since the early 2000s, the Chinese government has been attempting to initiate a transition to a consumption driven economy because of severe trade surpluses and domestic issues such as income gaps. China’s transition to a consumption driven economy has been met with the challenge of encouraging spending of rural citizens. One dominant explanation for this challenge is attributed to a large income gap. Previous research has discussed this income gap and suggested various ways to address rural citizens’ low consumption, however most include significant reforms that are unlikely to occur in the next few years. This paper will propose a different method which leverages China’s strength as a technology hub, employing e-commerce and digital finance to unlock rural spending in a shorter time frame . The contributions of this paper are analyzing how digital finance and e-commerce can work together to increase consumption, and linking this impact to the ongoing economic transition China is undergoing. The findings of this paper are that e-commerce and digital finance should be implemented together to address rural citizen’s income growth, and therefore address consumption. Additionally, by implementing these technologies in a system, a consumption driven economy will be easier to achieve.