Internet Economy and the Reduction of Political Connection in China

• In Event: Chinese Politics Mini-Conference: State and Society in Contemporary China

Abstract

In nations characterized by pronounced political nepotism, firms often establish political connections to secure preferential treatment. This study explores how the emergence of a new economic sector can attenuate such dependence. We argue that the growth of the internet economy, measured in this study by the large-scale video game 'Honor of Kings' (HoK) with over 100 million daily active users, enhances the business environment and diminishes local firms' reliance on political connections. Utilizing provincial and firm-level data from 2007 to 2019, we illustrate that the official operation of HoK within a province fosters a more conducive local business environment and reduces firms' dependence on political connections. The results indicate that HoK can stimulate the growth of digital-related industries and the digital transformation of the business sector. This aligns with the government's objective of fostering a digital economy, thereby securing policy support without necessitating political connections. A subsequent survey experiment also reveals that the experience of HoK's reporting mechanism encourages game players' political participation and willingness to report corruption, thereby diminishing political connections by enhancing political accountability and public monitoring. These findings illuminate how the growth of the video game industry, and the internet economy more broadly, can foster a favorable business environment and reduce the influence of political connections in the economy. This study also urges policymakers to consider the socioeconomic impacts of the internet economy that have been previously overlooked.

Authors

• Wei Gu, City University of Hong Kong

• Ning Liu, City University of Hong Kong

• Dongshu Liu, City University of Hong Kong