SPECIAL REPORT

China e-commerce firms tapping rural dollar

Many, like Alibaba and JD.com, are turning to the country's immense interior in search of fresh profits

Mr Wang Deyou used to have to pick up his online purchases at a nearby township, about 40 minutes away from his village of Zhuting in eastern Shandong province.

This year, for the first time, his Singles Day purchases of a water heater, a television set and a portable car-wash machine, which came up to more than 4,000 yuan (S$884), were all delivered right to his doorstep.

"It feels good to finally enjoy the services and convenience of cities. After all, more than half of China's population live in villages," Mr Wang, 32, told The Straits Times.

"Ma Yun has finally recognised the purchasing power of the common people," he added, referring to Mr Jack Ma, founder of China's largest e-commerce firm Alibaba.

While the world of online shopping might seem dominated by young and well-educated urbanites, industry giants like Alibaba and rival JD.com are turning increasingly to the country's immense interior in search of fresh profits.

RISE OF RURAL COMMERCE

It feels good to finally enjoy the services and convenience of cities. After all, more than half of China's population live in villages. Ma Yun has finally recognised the purchasing power of the common people.

MR WANG DEYOU, referring to Mr Jack Ma, founder of China's largest e-commerce firm Alibaba, who has set out to tap rural consumption 

  • More villagers become e-retailers

  • Not only are they becoming increasingly big online spenders but China's villagers are also quickly embracing e-commerce as retailers.

    Taobao Villages, where at least 10 per cent of households make their living by selling products online and conducting at least 10 million yuan (S$2.2 million) in e-business every year, are rapidly emerging across the country as the Internet transforms the way of life of entire rural communities.

    At the end of last year, there were 211 such villages, compared with just 20 in 2013, according to Alibaba, China's largest e-commerce company with an 80 per cent share of the online shopping market. Taobao is the firm's online consumer-to-consumer platform.

    One example is Beishan village in Zhejiang province. While residents used to sell baked sesame buns known as shaobing, many are now online vendors of outdoor equipment such as tents and sleeping bags.

    Beishan's fortunes changed after one of its residents, Mr Lu Zhenhong, started buying sleeping bags directly from manufacturers and selling them online in 2006. His business grew and he eventually established his own brand, BS Wolf, a reference to the name of his home town.

    As of last year, there were more than 300 Taobao stores selling mostly outdoor gear and more than 600 people working in Beishan's e-commerce sector. Collectively, they churn out more than 200 million yuan in annual revenue, according to a Shanghai Daily report.

    Another example of a Taobao Village is Wantou in eastern Shandong province, where grass and willow wickerwork is its 600-year-old traditional handicraft.

    In 2008, its first online store was launched and, today, Wantou's 1,700 households run more than 1,000 online stores selling wickerwork products.

    Some 30 stores on their own generated an annual turnover of more than one million yuan last year.

    Alibaba said Taobao Villages are concentrated mostly in the coastal provinces of Zhejiang, Guangdong, Fujian, Hebei and Jiangsu. They account for more than 90 per cent of the total number.

    But the phenomenon is spreading, with four villages in the inland provinces of Sichuan, Henan and Hubei making the list for the first time last year.

    But there are risks involved. Vicious competition and poor quality control might lead to problems and eventually cause these small businesses to fail.

    Esther Teo

Alibaba said recently that it will come up with a new online shopping event for Chinese New Year to tap rural consumption after villagers chalked up purchases worth more than 10 million yuan within the first eight minutes of Singles Day, the annual Nov 11 event seen as China's equivalent of Cyber Monday in the United States.

A farmer in Wenzhou, eastern Zhejiang province, even plonked down a 500,000-yuan deposit for a Porsche Macan, making it the most expensive buy on Cuntao, or Rural Taobao, Alibaba's online shopping website targeting villages.

Indeed, it was the first time Zhuting village, with about 2,000 residents, participated in the Singles Day event, which racked up record-breaking sales of 91 billion yuan in the 24-hour period.

A Taobao rural service centre had opened there last month, allowing residents' purchases made on the Rural Taobao website to be delivered directly to their homes, finally solving the logistics sector's so-called "last mile" problem.

Zhuting village is just one of the beneficiaries of Alibaba's wider strategy, announced in October last year, to invest 10 billion yuan in logistics, hardware and training in a bid to push its e-commerce model into 100,000 villages over the next three to five years.

The plan is to start by selling popular items such as washing machines, televisions and clothing, while gradually building up an online platform for farmers to sell vegetables and fruit to the cities, the company's executives had previously said.

Due to high commission fees and transportation costs, rural consumers often pay more for these household appliances than their urban counterparts.

Rural service centres, often located in villages' main convenience stores, are at the heart of Alibaba's new strategy.

As China's rural residents tend to be older and less familiar with technology, the centres provide computers for browsing and buying, help to ensure timely delivery of goods, and have trained Alibaba representatives on hand to provide assistance.

Mr Chen Xiaolong, 28, is one of the firm's young, Internet-savvy recruits. He assists some five villages in Shandong's Yanzhuang township, and said that while villagers were initially sceptical about online shopping, doubting the quality of the products they might receive, the idea has gradually caught on as positive experiences spread through word-of -mouth.

In fact, it was so busy on Singles Day that he had only two hours of sleep as villagers flocked to the service centre in droves.

"Even the elderly are getting more comfortable with the idea. I helped a 75-year-old grandmother buy a mobile phone on Singles Day," he told The Straits Times.

"But for those who are unsure, we tell them to buy known brands, such as Haier for home appliances, so they can be assured of a certain quality and can also compare the discount they are getting at physical stores," Mr Chen added.

E-commerce growth in the countryside now outpaces that in the cities, although less than a tenth of online purchases made on Alibaba platforms - which have an 80 per cent share of China's online market - were shipped to rural areas in the first quarter of this year.

The rural online market is estimated to be worth 460 billion yuan by next year, more than doubling from 180 billion yuan last year, according to Alibaba's research division.

The figures are even more staggering when taken in their entirety. China's e-commerce market recorded 2.79 trillion yuan in revenues last year, a jump of 50 per cent from the year before. This is equal to the entire economy of Austria last year.

As Beijing attempts to shift from investment-led growth to consumption-driven growth in the light of a slowing economy, e-commerce firms are finding that their strategies are dovetailing with government policies.

The Commerce Ministry said recently that it will encourage more e-commerce and logistics firms to expand into rural areas in a bid to create more jobs and provide better information access.

Said ministry official Kong Lingyu in May: "Building information sharing, financing and credit systems will be priorities to facilitate the development of e-commerce in rural areas, along with cheaper mobile Internet and logistics services."

Analyst Philix Liu of market research firm Mintel told The Straits Times that China is likely to see a rising number of rural entrepreneurs, with more graduates and migrants returning to start online businesses.

"But e-commerce firms are still in the early stage of developing the rural market so I don't expect a prominent national economic lift in the short term," he said.

"In the long run though, I would speculate that rural market growth would have a stronger and more positive impact on China's growth."

Until then, Mr Wang is more than happy to play his part. "This is just the beginning.

"After a good first experience, I will definitely be buying more things online now," he said.

A version of this article appeared in the print edition of The Straits Times on December 01, 2015, with the headline 'E-commerce firms tapping rural dollar'. Print Edition | Subscribe