E‐commerce and Consumption Inequality in China

• Published date: 01 September 2023
• Author: Zhou Jiang,Maoxia Zeng,Mingming Shi
• Date: 01 September 2023
• DOI: http://doi.org/10.1111/cwe.12502

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 61–86, Vol. 31, No. 5, 202361

*Zhou Jiang, Assistant Professor, Institute of Western China Economic Research, Southwestern University

of Finance and Economics, China. Email: jiangzhou@swufe.edu.cn; Maoxia Zeng, PhD Candidate, School

of Business, Renmin University of China, China. Email: zengmaoxia@ruc.edu.cn. Zhou Jiang and Maoxia

Zeng contributed equally to this work. Mingming Shi (corresponding author), Associate Professor, School of

Business, Renmin University of China, China. Email: ms@ruc.edu.cn. This research was supported fi nancially

by the National Social Science Foundation of China (No. 18FJY018) and the National Natural Science

Foundation of China (No. 41401124).

E-commerce and Consumption Inequality in China

Zhou Jiang, Maoxia Zeng, Mingming Shi*

Abstract

Consumption inequality may impede economic development and hinder the achievement

of common prosperity. Using three waves of the China Family Panel Studies from 2014

to 2018, this paper investigated the impact of e-commerce on consumption inequality,

as measured by the Kakwani index. Th e results indicate that e-commerce can reduce

household consumption inequality. A mechanism analysis shows that e-commerce can

narrow household income inequality, increase the purchasing power of low-income

households, and promote the consumption of households with limited access to offl ine

markets, thereby reducing the consumption gap. A heterogeneity analysis suggests

that the positive role of e-commerce in reducing consumption inequality can be more

significant among vulnerable households, such as households with elderly members

and less-educated households. E-commerce can have varying impacts on consumption

inequality across different subcategories of household expenditure, with the greatest

impact seen in entertainment and education expenditure. These findings provide new

evidence for the role of e-commerce in reducing consumption inequality in the digital

economy, and the implications of this are discussed.

Keywords: consumption inequality, e-commerce, income inequality, Kakwani index,

relative deprivation

JEL codes: D12, L8121, R20

I. Introduction

China’s remarkable economic growth over the past two decades has resulted in impressive

consumption growth. In 2021, final consumption expenditure contributed 65.4 percent

to China’s economic growth, driving GDP growth by 5.3 percent. However, this

growth has been accompanied by increasing consumption inequality (Luo et al., 2020).

Zhou Jiang et al. / 61–86, Vol. 31, No. 5, 2023

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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According to the National Bureau of Statistics of China (NBS), in 2021, the per capita

consumption expenditure of urban households in China was RMB37,994, and the

per capita consumption expenditure of rural households was RMB18,601, resulting

in a consumption expenditure ratio of 2.04 between urban and rural households.

Consumption inequality or income inequality between diff erent areas and diff erent social

groups may restrict the high-quality economic development and hinder the achievement

of common prosperity. The Central Committee of the Communist Party of China and

the State Council of China recognized that the “principal contradiction” facing Chinese

society is now “between unbalanced and inadequate development and the people’s ever-

growing needs for a better life.”1 People’s living standards and quality of life depend on

their entitlement to consumption, which is a more direct and precise measure of welfare

and long-term earning capacity than current income (Kakwani et al., 2022), so it is

important to study consumption inequality and explore ways to reduce disparities.

The rise in consumption inequality in China has recently received considerable

attention in the literature. Given the rapid development of e-commerce in China,

most recent studies have focused on its potential impacts on consumption inequality.

Many studies have shown that e-commerce can promote consumption but its effect

on consumption inequality is ambiguous and requires further investigation. On the

one hand, e-commerce can have strong potential to provide consumers with access

to a wider range of goods at lower prices and search costs, particularly for those with

limited access to offl ine retail stores in remote or rural areas (Duch-Brown et al., 2017;

Luo and Niu, 2019). Employment and entrepreneurial opportunities created by

e-commerce can also have positive income effects, which may lead to higher

consumption. There may also be positive income effects for traders or farmers in

remote or rural areas as they can access larger markets through online platforms. Thus,

e-commerce may help reduce consumption inequality. However, on the other hand,

e-commerce development was uneven across regions (Luo and Niu, 2019), which

could potentially exacerbate existing consumption inequality. In many remote areas,

consumers may experience more barriers to making purchases online, such as higher

delivery and time costs, due to limited internet access and poor logistics facilities. The

slower development of e-commerce can also hinder traders or farmers in remote areas,

limiting their ability to overcome geographical constraints and weakening the positive

income eff ect created by e-commerce. According to E-commerce in China 2021, as of

December 2021, online retail sales in rural areas reached RMB2.05 trillion, accounting

1Specific text are available from: http://www.xinhuanet.com/english/special/2017-11/03/c_136725942.htm

(online; cited July 2023).