Office Hours: From Click to Boom Examines a Digital Path to Development

Over the course of two decades, China built from scratch a $2-trillion-annual-sale e-commerce market, with 800 million users, 70 million jobs, and nearly 50% of global online retail sales. China’s rapid ascent into the world’s largest e-commerce market showcases a digital path to development. 

Lizhi Liu, an assistant professor of strategy, explores this phenomenon in her new book, From Click to Boom: The Political Economy of E-Commerce in China. A decade in the making, Liu’s book draws on a range of qualitative and quantitative data, providing a true insider’s view of the industry and its changes. She examines a digital solution to development: governments strategically outsourcing tasks of institutional development and enforcement to digital platforms in a process she calls “institutional outsourcing.” 

Here, Liu discusses the takeaways about China’s growth trajectory presented in From Click to Boom and how digital infrastructures are reshaping governance, market access, and development paths worldwide.

How did the idea for From Click to Boom: The Political Economy of E-Commerce in China originate?

Well, randomness in life played a big role. It all began with a casual conversation during my doctoral studies at Stanford University. A friend was talking passionately about how e-commerce had transformed some impoverished villages in China, turning them into unexpected selling hubs. I was captivated. The urban-rural divide in China has always been a big issue, and the idea that technology could bridge that gap — democratizing market access and empowering remote communities — was thrilling to me.

I decided to visit some of these villages and met many grassroots entrepreneurs who, honestly, you wouldn’t expect to be running large online businesses. One story that particularly stuck with me was of a young man running his business out of a small warehouse. His parents had initially been worried about his online gaming addiction, but his exposure to the digital world eventually led him to start his own business. His success was so remarkable that his parents quit their jobs to help him, and his sales hit 100 million RMB a year. When I met him, he was just 15 years old.

That experience really stuck with me, and it got me thinking about the true “boom” that e-commerce can create. It’s not just about big sales or profits – it’s about the explosion of opportunity for people and the entrepreneurial spirit it can unleash. That’s why the title of my book, From Click to Boom, isn’t just about financial success, but about the life-changing transformations e-commerce can bring to people.

How was research for the book conducted?

It was truly an odyssey. When I started, e-commerce in China was still in its early stages, and there was very little research or open data available. I essentially had to start from scratch, which is why the book relies so heavily on first-hand or proprietary data — data that was often very difficult to obtain.

I spent 14 months in China, traveling across six provinces and two municipalities, conducting interviews and trying to understand what was really happening on the ground. I also ran online surveys to compare the behaviors of online versus offline business owners. Fortunately, around that time, Alibaba launched a research program connecting researchers with e-commerce sellers across the country. This program allowed me to expand my network of interviewees and, eventually, led to a deeper understanding of the platforms themselves.

Due to my long-term interaction with Alibaba, China’s e-commerce giant, I was able to persuade them to conduct an economic experiment with me and my co-authors. This was a rare and perhaps unprecedented opportunity for researchers to collaborate with a platform to randomize first-time e-commerce access across regions, and we obtained close to 30 million transaction records from the platform to evaluate welfare impacts on rural households. The whole process was painful, but I’m incredibly proud of the data I was able to gather for this book. The research is based on a wide range of qualitative and quantitative data, providing a true insider’s view of the industry and its changes.

Your book details how China’s e-commerce market reached an astonishing scale in just two decades. What were the most pivotal moments or decisions that accelerated this growth?

The key obstacle was actually trust. About 20 years ago, China had a weak rule of law in the markets, widespread counterfeiting, and very low credit card usage. This meant that Chinese consumers had minimal legal protections and security from fraud, making them hesitant to shop online. In other words, the key need was to build strong institutions that could enforce contracts and prevent fraud — institutions that could foster trust.

China addressed this issue through a process I call “institutional outsourcing,” where the government essentially outsourced much of the responsibility for institutional building and enforcement to digital platforms like Alibaba’s Taobao.com. There were two key factors at play. First, gaps in government institutions forced e-commerce platforms to create their own private systems for contract enforcement, fraud detection, and dispute resolution. Second, despite the disruptive nature of these private platforms, the authoritarian government acquiesced, endorsed, and even partnered with them. The government didn’t directly provide these institutions; rather, it granted autonomy to the platforms.

In my book, I explore how these platforms solved the trust issue, and why the Chinese government — often seen as interventionist and authoritarian — tolerated the rise of powerful private platforms, and how they worked together.

Were there any pivotal moments while doing the research?

The most important breakthrough came when I connected ideas from history to what was unfolding in China’s digital economy. While reading about something seemingly unrelated — medieval long-distance trade in Europe — I realized that, after the fall of the Roman Empire, Europe faced challenges strikingly similar to those in China’s early e-commerce development.

After the collapse of Rome, Europe entered a prolonged “dark age” marked by chaos and economic stagnation. Yet, medieval long-distance trade — transacting across different regions and jurisdictions — generated significant profits and ultimately laid the foundation for Europe’s resurgence. But this kind of trade raised a critical question: how could merchants, often strangers from different regions who might never meet again, trust one another enough to engage in business? The solution emerged in the form of lex mercatoria — the Law Merchant, a private legal code that governed transactions. Private judges enforced this code using a reputation mechanism, keeping public records of traders’ past behavior to incentivize honesty and contractual adherence.

What struck me was the parallel to China’s e-commerce market. Just like medieval trade, it involves long-distance transactions between strangers. And, like medieval Europe, China lacked a robust rule of law when e-commerce first took off. It was the digital platforms that stepped in, creating their own systems of trust and enforcement. They established online ratings and kept public records of traders’ past conduct — echoing the function of lex mercatoria in medieval times.

At that point, I realized I wasn’t just studying a new technology or a new market — I was exploring something that’s been a recurring theme throughout human history: the relationship between institutions and trade. It has been fascinating to connect the dots.

What lessons can other countries, especially those with emerging digital markets, learn from China’s experience with institutional outsourcing and e-commerce growth? What should governments be cautious of when trying to replicate this model?

First, digital institutions matter. While the importance of government institutions has long been recognized, firm-driven digital institutions are becoming equally essential in today’s world. This book encourages readers to view digital infrastructures not just as technological tools, but as powerful forces reshaping governance, market access, and global development trajectories. The organic emergence of private institutions and platform-based governance is both fascinating and promising, offering potential solutions to significant governance challenges that governments are often unable to address effectively.

Second, digital institutions do have limitations, and I provide numerous examples of these throughout the book. For instance, users often manipulate online ratings and exploit the system’s rules. One of the key objectives of this book is to offer a nuanced perspective and challenge the hype surrounding the digital economy — examining both its successes and its shortcomings. While it presents a digital path forward, the road to development is still long and winding.

If other countries were to follow this path and leverage the digital institutions created by digital firms, they would need to be very careful about when and how to regulate these platforms. There’s a regulatory dilemma: on the one hand, inadequate regulation can allow platforms to abuse their market power. On the other hand, excessive regulation can stifle institutional innovation. For example, China’s regulatory approach to platforms has been quite fluid — it has shifted from a laissez-faire attitude to crackdowns and then back to support. This back-and-forth underscores the challenge of finding the right balance between encouraging platform innovation and protecting consumers.

From Click to Boom is now available on Amazon and Princeton University Press.