Factors affecting Internet diffusion in China: A multivariate time series analysis

Highlights

• China’s Internet industry has boomed in the past two decades.

• A theoretical framework called EPIC was proposed.

• Relationships between Internet diffusion and determining factors were examined.

• The growth of Internet was mainly driven by Internet access cost and content.

Abstract

China’s Internet industry has boomed over the last two decades. Given that China is home to the world’s largest Internet population, we may wonder what factors have caused this medium, which is strictly controlled in China, to grow and flourish. Based on previous studies and theories, a framework called EPIC (Economy-Policy-Infrastructure-Content) is proposed, and a multivariate time series analysis is performed to examine the relationships between Internet diffusion and these factors. The growth of Internet penetration was found to be mainly driven by Internet content and access cost; however, GDP per capita and telecommunications infrastructure were inconsequential. The implications of these findings are discussed.

Introduction

China first embraced the Internet in 1993, when a Chinese academic institute leased a satellite link to the U.S. Subsequently, China Telecom, China’s telecommunications industry monopoly,¹ connected to the U.S. in 1994 and provided Internet access to the general public in limited areas. In the meantime, China Telecom initiated the construction of a nationwide Internet network called “ChinaNet”, preparing for large-scale commercial service throughout the country. In January 1996, subsequent to the completion of the ChinaNet backbone, China Telecom began to offer nationwide Internet service (Loo, 2004). This represents the official beginning of China’s Internet era.

The Chinese government has long hoped to take full advantage of the economic benefits of Internet development while remaining wary of the threat it poses to the regime (Kalathil and Boas, 2003). Due to these double motives, the Chinese government encourages the industrial use of the Internet on the one hand, while strictly monitoring private Internet use on the other (Foster and Goodman, 2000). Despite Internet controls, China’s Internet population has been booming. Since June 2008, China has possessed the world’s largest number of Internet users, a total of 649 million who account for 47.9% of China’s total population as of January 2015. Nevertheless, the contributing factors to China’s rapid Internet development have been understudied, although the factors affecting Internet diffusion in other regions have been extensively examined in the literature. Nonetheless, most studies use variables at the individual or organizational level [for a review, see Dewan and Riggins, 2005, Fichman, 1992, Kumar et al., 2007], relying on Rogers’ (1983) theory of the diffusion of innovations, Rubin’s (1994) theory of use and gratification [e.g., Ebersole, 2000], the model of the adoption of technology in households (MATH) [see Venkatesh and Brown, 2001, Brown and Venkatesh, 2005], the decomposed theory of planned behavior (Taylor and Todd, 1995a, Taylor and Todd, 1995b), Dutton et al.’s (1987) chain process model [e.g., Zhu and He, 2002], and Davis’ (1989) technology acceptance model to investigate factors affecting people’s intentions or behavior in adopting certain technologies, either at the workplace or in households (for a review, see Vishwanath and Chen, 2011, in addition to chapters 2 through 4 in the same work). Despite the importance of individual-level factors, they missed the variance driven by those effects due to the country-level factors and passage of time.

Relying on country-level data, the present study aims to discover the dynamics of China’s Internet population, explicate what and how it has driven the Internet to diffuse, and determine why it has such a diffusion pattern by proposing a new integrative theoretical framework. Before formally introducing this framework, relevant studies (see Table 1 for a summary) are reviewed in the following section.