China’s ecommerce giants turn to rural areas as growth in big cities slows down

Two years ago, Li Yuhua’s daughter taught her how to shop online. Since then, the 51-year-old farmer in Wushan, a small village of around 100 people in China’s central Hubei province, has been a regular online shopper, even preordering 2,000 yuan (US$282) worth of goods this week ahead of China’s Singles’ Day shopping festival next month.

“I have so many choices online and can get a refund if the products don’t suit me,” Li said, adding that she was tired of carrying goods back home from shops in town. “In our village, the elderly people who don’t know online shopping feel a little bit ashamed of themselves. They asked me to teach them how to use Taobao and Pinduoduo.”

Shoppers like Li are the new target for China’s ecommerce giants, including Alibaba Group, which operates the Taobao platform, and Pinduoduo, a rapidly growing site that is popular in smaller cities and rural areas.

Photo credit: 123RF

Rural China added 3 million more internet users in the first half, taking the total number to 225 million, or 26.3%, of the country’s total internet population of 854 million, according to a report on rural ecommerce development released last week by the China International Electronic Commerce Center.

That helped boost rural online sales in the first half of the year by 21% to 777.1 billion yuan (US$109.6 billion), outpacing the national growth rate by 3.2 percentage points.

The rural internet population is now big enough to represent a lucrative new market opportunity for China’s ecommerce players, which are experiencing a marked slowdown in business growth from consumers in first tier cities such as Beijing, Shanghai, and Shenzhen.

“Most ecommerce players are sharpening their focus on less developed areas because they see potential there,” said Chen Tao, a senior analyst at consultancy Analysys.

“It is a little bit early to say that China’s ecommerce battlefield is moving to rural China, but these tech giants are connecting rural residents and making preparations to take the lead [in expanding the rural China market].”

Unlike urban residents, most rural Chinese have yet to experience ecommerce shopping. While that provides online platforms with one of the last untapped markets for ecommerce, progress has been slow due to the lack of infrastructure and logistics support, exacerbated by the lower population densities in rural areas.

To address that problem, China’s second-largest ecommerce operator, JD.com, which had traditionally focused on providing a premium shopping experience for consumers in tier one and two cities, hired more delivery personnel and tested drone delivery services to improve service in rural China.

Alibaba Group, China’s largest ecommerce player, announced in April last year that it had invested US$717 million in Huitongda Network Co., which provides online merchandising and marketing to retail outlets in 15,000 towns across 18 provinces. The deal would see both companies work on supply chain logistics, warehousing, and technology to improve ecommerce infrastructure in rural areas.

For its financial year ending March, Alibaba added 100 million people to its Chinese platforms, taking its total number of annual active users to 654 million. Of those new users, 70% were from less developed cities. Rural Taobao, Alibaba’s rural initiative, plans to expand its coverage to 1,000 counties and 150,000 villages across China by 2021.

Chris Tung, Alibaba’s chief marketing officer, said the company’s focus on less developed markets in China “is reflected in its new customer acquisition growth.” Alibaba is the parent company of the South China Morning Post.