Less than a third of China's Web users live in the countryside.

Photographer: Frederic J. Brown/AFP/Getty Images

Where to Find China's New Shoppers

Adam Minter is a Bloomberg View columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”
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China’s economy might be faltering, but Alibaba -- the world’s largest e-commerce company -- is determined to inject some optimism into a gloomy picture. This week it launched the Ali Chinese New Year Shopping Festival, a five-day e-commerce smorgasbord timed to the upcoming Chinese New Year holiday and designed to tap into one of the few bright spots in China’s economy: the growing clout of China’s rural consumers.

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It's an underappreciated and easily overlooked demographic. After all, for more than 30 years China’s economic boom has been powered by the investment and infrastructure spending necessary to transform a largely agrarian society into one in which half the population now lives in cities. But that other half didn’t remain stagnant during these years, and their income levels -- though well behind their urban counterparts -- are high enough now to make them a key source of future growth.

Getting to this point hasn’t been easy. As elsewhere in the world, China’s countryside has lagged in developing the infrastructure necessary to bring in products taken for granted in urban centers. Roads in many of China’s more than 500,000 villages are barely wide enough for cars, much less delivery trucks. For e-tailers in particular, connectivity poses a major challenge: Rural dwellers accounted for only 27.5 percent of China’s 668 million Internet users as of January 2015, despite long-standing Chinese government efforts to extend Web access nationwide.

On the positive side, rural consumer demand is strong. According to a November report from China’s Ministry of Commerce, 77.14 million rural Chinese shopped online last year -- a 40.6 percent increase from 2014. Meanwhile, Nielsen reports that rural Chinese spend more online on average than their urban counterparts, and their online spending is growing faster -- by 64 percent in the second quarter of 2015, compared with a national average growth rate of 54 percent.

That upward trend isn’t surprising. Per capita rural Chinese income growth, boosted by rising salaries for migrant laborers and government assistance, has outpaced its urban equivalent for five years, according to Chinese government figures, and is expected to exceed 10,000 yuan ($1,520) in 2016. When per capita incomes approached these levels in China’s cities, retailers rushed to establish brick-and-mortar stores.

Something similar is happening with e-commerce. However, rather than opening stores (or waiting for the government to build better or wider roads through villages), China’s biggest e-tailers are laying infrastructure of their own to promote the sector’s growth. So, for example, Alibaba has built more than 10,000 rural service centers across China, where locals can pick up packages they ordered online or drop off products that they’ve sold via the company’s platforms. It has plans to open 100,000 service centers eventually, or one for roughly every five villages. JD.com is building 166 regional distribution warehouses and thousands of delivery stations.

These investments are having an immediate impact, bringing more variety and a higher quality of product than has historically been available in the countryside. According to an August Nielsen survey, maternal and baby care products have a higher penetration rate among rural consumers using e-commerce than their counterparts in China’s biggest cities -- an unsurprising development, considering widespread concerns across China about dangerous, adulterated products in those categories. Meanwhile, those same consumers cited convenience and availability as their top two reasons for turning to e-commerce. But what’s most important to the e-tailers, and to China’s policymakers, is that the growth in e-commerce isn’t cannibalizing other sales. A 2013 study from McKinsey showed that online spending raised total Chinese consumption -- and did so in a more pronounced manner in less developed areas.

That trend is poised to continue. According to Alibaba, the rural Chinese e-commerce market was worth 180 billion yuan in 2014. This year, the company expects it to grow to 460 billion yuan. How much Alibaba’s new rural shopping festival will contribute to that total is difficult to project (the company hasn’t released any sales figures so far). It probably won’t match the $14.3 billion in sales rung up during Alibaba’s 2015 Singles Day promotion, which targets urban consumers. Still, if the government really wants to promote consumption, it could do worse than to invest in building up the rural Internet and trunk highways needed to make e-commerce easier in the countryside. That’s where China’s new shoppers are to be found.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Adam Minter at aminter@bloomberg.net

To contact the editor responsible for this story:
Nisid Hajari at nhajari@bloomberg.net