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Out of the fast-growing e-commerce market in China, one area is showing even more potential: rural China. These parts of the country, where about 40% of the total population live, generated RMB1.37 trillion ($195 billion) worth of e-commerce sales in 2018, up 30.4% year-over-year and far outpacing the 24% growth seen in China’s overall e-commerce market.
Something unique is happening on both the consumption and business sides of rural e-commerce in China. A virtuous circle is taking place whereby e-commerce is enabling more rural residents to become entrepreneurs by selling local products online, and the resultant income growth is driving up e-commerce-based consumption as these rural residents seek out products they can’t find in their neighborhood stores.
What Are Taobao Villages?
On the business side, e-commerce has enabled rural villagers to sell agricultural products, handicrafts and manufactured goods by opening stores on platforms such as Alibaba Group’s Taobao. AliResearch, Alibaba’s research arm, defines a Taobao Village as a village that generates RMB10 million or more in e-commerce sales annually and have 100 or more active online shops on Taobao operated by local residents.
WATCH: Defining Taobao Villages, Exporting the Model Overseas
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Have They Driven Change in China?
After 10 years, the Taobao Village model has achieved scale to benefit about half of the total rural population in China. As of August 2019, there are a total of 4,310 Taobao Villages in 25 provinces, where 250 million out of China’s total 564 million rural villagers reside, according to data from AliResearch. The total sales generated by Taobao Villages – and Taobao Towns, which are larger-scale rural townships that deploy the same Taobao Village model – amounted to RMB700 billion in the 12 months ending June 2019. The total number of active online shops on Taobao operated by Taobao Villagers surged by nearly tenfold to 660,000 in 2018, from just 70,000 in 2014, said AliResearch.
At this scale, Taobao Villages have leveraged e-commerce to drive more-inclusive economic growth in rural China. A direct result of the Taobao Village boom is improved economic conditions and the creation of jobs in the most impoverished areas in China. A new study by the World Bank and AliResearch showed that household incomes in Taobao Villages are almost three times that of the average rural household income in China, and are similar to urban household incomes. E-commerce in rural areas has also led to higher household consumption, the report says, reduced income inequality and better job opportunities for women and young people. AliResearch estimated that Taobao Villages created 6.8 million jobs in the 12 months ending June 2019 throughout the e-commerce value chain. In 2019, the 63 Taobao Villages located in the country’s most impoverished areas generated about RMB2 billion in e-commerce sales, an AliResearch report said.
Aside from economic prosperity, Taobao Villages have also helped to keep both parents and young workers, who might otherwise head to factories or big cities for work, in the village. This helps to keep families and communities together and connected. These Taobao online stores also employ many local women who have limited job opportunities: About a third of e-shop owners and nearly half of the employees are women in Taobao Villages, the World Bank report said.
Taobao Villages have attracted attention from entrepreneurs in developing countries who want to replicate the model to drive economic growth at home. The annual Taobao Village Summit, where rural entrepreneurs and scholars in China share best practices for rural e-commerce businesses, is seeing an uptick in number of international participants from countries such as Rwanda, Mexico and Malaysia.
“The stories of entrepreneurs from China are very similar (to Rwanda),” said Patrick Molenbeek, an entrepreneur and a former Rwandan diplomat, at the Taobao Village Summit. “You have migrant workers, you have builders. If given the exposure (to e-commerce), they would be able to develop just as quickly.”
The Future of Taobao Villages
With the development of internet infrastructure throughout all of China, selling local products via livestreaming on e-commerce channels will be a new frontier for rural markets in the country. As Chinese consumers demand more transparency in food sourcing and enjoy the novelty of discovering locally grown or made products, livestreaming provides an instant and interactive way for rural villagers to connect to consumers.
As rural entrepreneurs engage consumers through e-commerce, they will gain valuable consumer feedback that they can leverage for product innovation. For example, Chaoyang Nanshi Village in Henan province is a national cultural heritage village known for its Tang dynasty-style tricolor pottery. Local pottery businesses started to make rear-mirror charms for cars after learning through Taobao that consumers wanted them. In the future, more Taobao Village shops will be able to offer more differentiated products, beyond their traditional crafts, that suit the changing demands of consumers in China.