From Click to Boom: The Political Economy of E-Commerce in China (Princeton Studies in Contemporary China)

A compelling, well-documented argument about one of the most astonishing developments in recent decades. Great read!

How did Chinese e-commerce leapfrog western e-commerce even though China had weaker infrastructure and less enforceable laws? This book provides unique theory that explains this counterintuitive phenomenon. A good read!

Very insightful and interesting. Well written and fun to read

IntroductionChina’s meteoric rise to become the world’s largest e-commerce market in just two decades presents a paradox in political economy: an authoritarian state with weak formal institutions oversaw a flourishing digital marketplace. Lizhi Liu’s From Click to Boom : The Political Economy of E-Commerce in China explores this paradox, showing how China charted a “digital path to development” by outsourcing institutional functions to private tech platforms. Instead of stifling innovation, China’s underdeveloped legal and regulatory institutions compelled e-commerce companies like Alibaba and JD.com to create their own systems for trust and enforcement. This piece sheds light on the core arguments about China’s digital developmental state, addressing institutional outsourcing, the innovation-weak institutions paradox, developmental state theory (embedded autonomy and adaptive regulation), extensions to AI/GenAI, global implications, and criticisms of China’s model. Throughout, it tries to engage with and discuss beyond Lizhi Liu’s new scholarship, from diverse yet interconnected perspectives of international political economy and innovation studies, to place China’s e-commerce developmental trajectory in a comparative context.Institutional Outsourcing in E-Commerce: Rationale and OpportunitiesInstitutional outsourcing refers to the state strategically delegating or allowing private actors to perform functions typically handled by public institutions​. In China’s e-commerce boom, this meant online platforms took on roles in contract enforcement, fraud detection, and dispute resolution – essentially building private governance regimes within the market. The rationale was straightforward: formal institutions (courts, regulatory agencies) were too weak, slow, or absent to support the exploding online market​. Rather than letting weak rule-of-law hold back growth, the government acquiesced and even partnered with platforms to fill these gaps​. This partnership allowed China to rapidly develop market infrastructure: escrow payment systems (Alipay) to secure transactions, seller credit ratings, and platform-mediated arbitration for buyer-seller conflicts. Such measures built trust among millions of users and merchants in the absence of strong consumer protection laws.Opportunities for innovation and marketisation: By outsourcing institutional functions, the state unlocked entrepreneurial innovation. Private firms had the freedom to devise novel solutions (like Taobao’s rating system or Meituan’s delivery logistics) without waiting for new laws or bureaucratic approvals. Liu argues that it was because of weak institutions, not despite them, that e-commerce platforms innovated creatively. They blurred the line between public and private authority, effectively operating as quasi-regulators in their domains. This spurred marketisation by lowering entry barriers (any small vendor could now reach consumers nationwide) and by creating trust mechanisms that enabled strangers to do business online. In sum, institutional outsourcing turned a potential governance deficit into a space for institutional innovation and rapid commercialisation of the digital economy.However, implementing institutional outsourcing was not without challenges. Handing key governance functions to profit-driven companies carries the risk of market power abuse and uneven protections. In China, platforms gained immense power over data and trade flows, raising concerns of monopolistic behaviour and consumer exploitation. This approach’s success also hinged on the state’s implicit trust in private companies to pursue growth in line with national goals.The Paradox of Weak Institutions Enabling InnovationChina’s experience illustrates a seeming paradox: weak formal institutions can facilitate innovation under the right conditions​. Typically, robust legal frameworks and predictable regulations are seen as prerequisites for market development. Yet Chinese e-commerce thrived in a context of underdeveloped contract law and patchy enforcement. The key to this paradox is that the institutional void compelled private actors to step in. E-commerce platforms essentially became institutional entrepreneurs, building an ecosystem of rules and norms from scratch.Crucially, this occurred within a supportive political environment. For much of the 2000s and 2010s, Chinese authorities tolerated a degree of regulatory grey area, giving platforms latitude to experiment. Companies like Alibaba blurred boundaries between commercial enterprise and quasi-public institution by, for example, mediating disputes akin to a court or guaranteeing transactions akin to a financial regulator. They earned public trust by providing efficient services that the formal system did not. Consumers came to trust Alipay’s escrow or Taobao’s internal policing of fraud as much as (or more than) government alternatives because these private systems delivered results swiftly and fairly in most cases.Why would an authoritarian state trust private firms to carry out quasi-state functions? Part of the reason is performance legitimacy: the Communist Party values rapid economic development and public satisfaction. If outsourcing certain functions to Jack Ma’s Alibaba helped millions safely participate in e-commerce, that ultimately enhanced the Party’s legitimacy. Moreover, the state maintained leverage over these firms (through business licensing, data access, Party cells within companies, etc.), creating an “asymmetric alliance” between the Party and the private sector​. In this alliance, the Party granted operational autonomy and tacit legitimacy to private firms, so long as they delivered outcomes the state desired (innovation, jobs, convenience) and did not challenge political authority​. This ensured that even as platforms took on public-like roles, they remained aligned with state objectives. The result was a mutually beneficial setup: weak institutions did not stop innovation – they arguably stimulated it by forcing the emergence of new institutional solutions, all under the watchful eye of the state.Notably, other scholars find analogous dynamics in China’s political economy. Jiangnan Zhu and Dong Zhang (2016) observe that despite high corruption (a form of weak institution), private businesses grew rapidly when corruption was predictable under stable local leadership​. This suggests that even in a low-quality institutional environment, stability and informal adaptations (predictable “rules of the game”) can enable entrepreneurial success. Likewise, China’s e-commerce platforms created a stable transactional environment in the absence of strong formal law, resolving the trust problem informally. Thus, the Chinese case turns the conventional wisdom on its head by showing how a lack of formal institutions can, under certain conditions, catalyse novel institutional innovations that drive development.Embedded Autonomy and Adaptive Regulation: A Developmental State LensChina’s approach to digital economy governance can be analysed through the developmental state framework, especially the idea of embedded autonomy. Originally coined by Peter Evans (1995) to describe East Asian developmental states, embedded autonomy refers to a state that is deeply involved in the economy (embedded in close ties with businesses) while retaining independent bureaucratic capacity (autonomy) to pursue national goals. In the e-commerce boom, the Chinese state exhibited embedded autonomy by working closely with tech firms (embedding) but also stepping in to recalibrate policies as needed (autonomy). The state was “embedded” in platforms’ growth through informal partnerships, data-sharing, and by embedding Party committees inside firms. At the same time, it stayed “autonomous” enough to pull back or intervene if private activity deviated from broader developmental objectives.One manifestation of this was China’s adaptive regulation – a regulatory style characterised by experimentation, learning, and adjustment. During the early boom, regulators took a hands-off stance (“crossing the river by feeling the stones”), essentially allowing laissez-faire experimentation in the nascent e-commerce sector. As the sector matured and problems emerged (fraud cases, counterfeit goods, growing monopoly power of giants), the state adapted, shifting to tighter oversight. Liu notes how China’s regulatory posture oscillated “from laissez-faire to crackdown and back to support,” struggling to balance innovation with control​. For example, after years of leniency, authorities issued new antitrust rules in 2020 to rein in Big Tech and halted Ant Group’s IPO to address financial risks​. But by 2022–2023, seeing the need to revive economic dynamism, the government signalled a return to supporting platform innovation (albeit under clearer rules) – a swing back toward a developmental orientation.This push-and-pull reflects the dual nature of the Chinese state’s involvement: it nurtures industries but also disciplines them when they grow too powerful or misaligned with state priorities. In developmental state terms, China achieved a degree of “embedded autonomy” by maintaining a close alliance with tech entrepreneurs while forcefully reminding them of the state’s ultimate authority when necessary. The platforms’ willingness to perform quasi-public functions was partly because they knew the state endorsed their role – until it didn’t. The adaptive regulatory adjustments can be seen as the state recalibrating that alliance. Throughout, the state aimed to preserve the benefits of institutional outsourcing (rapid innovation, market growth) while mitigating its downsides (monopolies, systemic risks). This delicate balancing act is emblematic of a 21st-century developmental state: one that leverages private sector agility but isn’t afraid to intervene and reassert control in the public interest.An Extended Model: AI and Generative AI EntrepreneurshipChina’s institutional outsourcing and adaptive governance approach also have an essential interaction with emerging sectors like generative AI and artificial intelligence (AI)-empowered tech-innovations. The recent rise of Chinese AI firms – exemplified by startups like DeepSeek (a company known for advanced LLMs- large language models) – shows similar dynamics of state-business interaction. The government has poured funding and set strategic directions (e.g. classifying AI as a national priority), but it also relies on private companies and research labs to drive innovation at the ground level​. This mirrors the e-commerce story: the state creates an enabling environment and broad goals (such as becoming a global AI superpower) while tech entrepreneurs and scientists experiment relatively freely within those bounds.However, AI also highlights new aspects of the developmental state dynamic. The Chinese state has actively delegated some functions to AI platforms – for instance, content moderation and censorship duties for generative AI services are largely handled by the companies under government guidelines. Much like e-commerce platforms acted as private regulators, AI companies in China are now required to perform quasi-public responsibilities (ensuring AI outputs align with state content rules) under the recent generative AI regulations. They are trusted to do so in part because they have developed technical capabilities the state lacks and because the regime can hold them accountable if they fail.At the same time, the dual nature of China’s state involvement is evident. On one hand, embeddedness: many leading AI enterprises (e.g. Baidu, Alibaba’s AI lab) are closely connected to state initiatives, and officials often consult industry experts – a sign of embedded networks. On the other hand, autonomy and control: the government has swiftly introduced rules for AI safety, such as the 2023 regulations requiring licensing and security reviews for generative AI systems. This proactive regulation aims to prevent the kind of unbridled development that could threaten social stability or Party control. It may constrain some AI ventures (especially those in open-ended content generation), yet it provides a stable framework in which “approved” innovation can flourish.In essence, China’s AI push is guided by the same developmental logic as its earlier tech booms: encourage rapid progress and commercialisation (via funding, political support, relatively permissive early regulation) but be ready to adapt policies to steer that progress in line with national interests (data security, ideological control, etc.). The case of DeepSeek, which has reportedly achieved cutting-edge AI breakthroughs with state backing, underscores how a private startup can thrive when its mission aligns with strategic state goals, blurring the line between entrepreneurial initiative and state project​. Simultaneously, any misstep (for instance, an AI application causing social outcry) could prompt an immediate regulatory reaction, much like the Ant Group episode signalled to fintech innovators. Thus, China’s generative AI sector illustrates the continuity of the institutional outsourcing model – private innovation carrying out state objectives – as well as the evolving techniques of adaptive regulation in a sensitive, high-stakes field.Global Implications: Regulatory Innovation vs. Market DynamismChina’s experience raises a broader question with global implications: When and how can regulatory innovation (new governance approaches) and market dynamism coexist, and when do they clash? In China’s case, for a period, regulatory innovation (institutional outsourcing, experimental governance) and market dynamism (the e-commerce boom, AI surge) reinforced each other – a virtuous cycle. China effectively pioneered a model of regulatory permissiveness in the early stages to spark dynamism, followed by regulatory innovation to formalise and correct the market as it grew. This suggests that, under certain conditions, a government can foster a highly dynamic tech sector by deliberately refraining from heavy-handed rules and even learning from the private sector’s innovations in governance. As Liu’s study shows, the outcome was a set of hybrid institutions (part private, part public) that underpinned a vibrant market​.However, there are points where this coexistence can turn into conflict. When private companies become systemically important (think Alibaba with finance, or a hypothetical AI that influences public opinion), the state’s priorities (stability, security) may clash with unfettered market growth. The Chinese government’s crackdown on Big Tech in 2020–2021 illustrates such a clash: the very success enabled by laissez-faire policy created entities powerful enough to alarm regulators, leading to a clampdown that temporarily chilled market dynamism​. Similarly, in AI, if an innovation threatens social norms or state authority, regulatory intervention is swift (e.g. banning crypto or deepfake misuse). The challenge is finding a balance where neither innovation nor public interest is permanently sacrificed.From a global perspective, China’s case contrasts with other regulatory models. Western liberal economies often rely on strong formal institutions from the start, while China innovated institutionally on the fly. This “adaptive” or “learning-by-doing” regulation could inspire other emerging markets: for example, countries in Southeast Asia or Africa looking to leapfrog in fintech or e-commerce might emulate aspects of China’s approach, tolerating informal solutions to bloom before codifying them. At the same time, China’s example is cautionary about oscillation: swinging between extremes can create uncertainty. Entrepreneurs may hesitate if they fear today’s support is tomorrow’s crackdown. A lesson for global regulators is that consistency and clarity eventually matter for sustained innovation.In the realm of AI, where a global race is underway, China’s model of aggressive support, coupled with stringent content control, offers a stark alternative to the U.S. model of freewheeling innovation with relatively minimal regulation. The coexistence of dynamism and control in China’s AI sector will test whether a highly regulated innovation environment can outperform a more laissez-faire one. Interestingly, scholars like Jeffrey Ding (2023) point out that China faces a “diffusion deficit” in technology – it innovates impressively but sometimes struggles to diffuse and fully utilise those innovations domestically​. This implies that even if China’s top-down regulation doesn’t kill innovation at the frontier, it might impede the broad adoption of new technologies (for example, strict rules might slow how widely AI is implemented across society). In contrast, more open systems might have weaker initial breakthroughs but faster diffusion. Globally, we may see different trade-offs: China’s regulatory innovation seeks to channel market dynamism in an orderly way, whereas more liberal regimes accept a bit of chaos for the sake of speed and diversity of innovation. The outcome of China’s AI endeavours – whether they achieve both cutting-edge progress and widespread economic impact, or whether one comes at the cost of the other – will be closely watched as a case study of this coexistence/clash dynamic.Meanwhile, China’s heavy investment in AI and its efforts to set standards internationally (for instance, in facial recognition or smart city tech) are influencing global norms. If China shows that state-guided innovation can produce world-class results (like competitive LLMs) without complete freedom, other governments might be emboldened to impose more rules on tech sectors. Conversely, if overregulation stifles China’s AI diffusion or international appeal, it would vindicate those who argue that free markets have the edge in turning innovation into broad benefits.Not a Conclusion: As the Story Is Still EvolvingChina’s phenomenal experience offers both inspiration and caution. It suggests that non-traditional institutional pathways can generate rapid development – a valuable lesson for many developing countries grappling with weak institutions. Yet it also underscores the importance of eventually building robust governance to oversee the markets one has unleashed. Will China’s model produce sustainable innovation with societal stability, or will it hit a ceiling as informal institutions show strain? The answer will shape not just China’s trajectory but potentially the global norms of how states and markets interact in the digital age.

I am very interested in consumer behaviors and policy implications on e-commerce platforms. Before reading the book, I could not imagine that the political economy environment is so dramatically different between China and the developed countries. The heavy reliance on institutional outsourcing in the past decades and the regulatory storms during 2020-2023 jointly make the e-commerce sector in China an interesting observation. The author has done an excellent job in connecting the dots, making keen observations, rationalizing the arguments, and informing the readers—a very nice read.