Alibaba and Battle to Capture Rural China's Spending Power

Billions are being spent to reach a new generation with higher incomes, better education and armed with smartphones

Rural Chinese Get an Online Shopping Habit

The new target consumer for China’s e-commerce giants sits in the tiny hamlet of Miaoxia, deep in rural Henan province.

Gao Xiaoli, who is training to be a doctor, has money to spend, a smartphone to shop with and online emporiums Inc. and Alibaba Group Holding Ltd. beating a path to her doorstep more than 500 miles south of Beijing. Rural e-commerce is expected to be worth 1 trillion yuan ($148 billion) by 2020, providing a massive incentive for marketplaces such as Alibaba’s Taobao.

“I have some friends who spend over 2,000 yuan each month buying clothes on Taobao,” Gao said.

With the approach of Singles’ Day on Nov. 11, the biggest shopping promotion of the year for both Alibaba and JD, consumers outside megacities such as Beijing, Shanghai and Chongqing are opening their wallets more. Inc. trucks sit parked at a company warehouse in Shanghai, China, on Monday, April 27, 2015. jumped to a record as Chinese e-commerce companies advanced in New York amid speculation they'll continue to benefit from growth in online sales in the country. Photographer: Tomohiro Ohsumi/Bloomberg warehouse in Shanghai.
Photographer: Tomohiro Ohsumi/Bloomberg

Once known mainly as a source of labor for city factories, China’s sprawling countryside has about 618 million people who call it home, and they are coming into their own as incomes rise and education improves. Alibaba and JD are spending billions of dollars to extend their reach in far-flung provinces, and smartphone brands Vivo and Oppo are surging into the top five globally on their ability to capture sales from rural consumers.

Alibaba has committed to spending at least 10 billion yuan in rural areas, making it easier for customers to order and deliveries to be made.

JD is fighting to catch up to its larger rival and says it has a presence in about 90 percent of the nation's counties and districts. That means new warehouses and almost 2,000 regional sorting centers as well as an army of drivers and other workers to full deliveries.

"We have somewhere around 200,000 agents and representatives in rural areas," said Shen Haoyu, president of JD's international business. "They help people to place orders and in certain circumstances they help with the delivery as well.'"

Employees check packages at a Inc. delivery vehicle in Beijing, China, on Wednesday, March 2, 2016. Obscured by the focus on the accuracy of China's growth figures is a tumble in estimates for the economy without adjusting for inflation -- a slide that gives a clearer picture of why the country's slowdown has stoked rising concern about its debt burden. Photographer: Qilai Shen/Bloomberg employees check packages in Beijing.
Photographer: Qilai Shen/Bloomberg

With lower living costs, people in the countryside have more money to spend than ever before. Disposable income in rural towns rose by 160 percent in the decade ending 2014, helping lift many out of poverty and fueling the government’s push to promote domestic consumption.

“Rural populations, especially the young rural population, are not what we knew before,” said Wang Feng, a professor of sociology at the University of California at Irvine. “They are the best-ever educated rural youth in Chinese history. Their parents -- as migrants or farmers -- worked hard, and then they gave the young people the capacity and resources to be able to consume.”

In Yanglou, a speck of Henan province in central China, Yang Jifang can get Danone SA’s premium baby formula delivered within three days from JD. A decade ago, that purchase would have required an hours-long bus ride with no guarantee the milk powder would even be on the store shelves.

“You can’t buy Bullpen milk formula from shops here,” she said, balancing her daughter and two tins of powder on her knees.

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