China’s rapid development of e-commerce has begun to reshape production and consumption patterns as well as change people’s daily lives. In 2016, the World Bank and the Alibaba Group launched a joint research initiative to examine how China has harnessed digital technologies to aid growth and expand employment opportunities through e-commerce development in rural areas. The research seeks to distill lessons and identify policy options to enhance the positive effect of e-commerce on the reduction of poverty and inequality. Emerging findings from that research show that rural e-commerce evolves from grassroots development to become a potential tool for poverty alleviation with public-private partnerships.
E-commerce has grown quickly in China. Total e-commerce trade volume increased from less than 1,000 billion yuan (US$120.8 billion) in 2004 to nearly 30,000 billion yuan (US$4.44 trillion) in 2017. While e-commerce is more developed in urban areas, online retail sales in rural areas have grown faster than the national average. From 2014 to 2017, online retail sales in rural China increased from RMB 180 billion to 1.24 trillion, a compound annual growth rate of 91%, compared to 35% nationally.
And the potential for continued growth remains strong. The number of Alibaba Taobao Villages – a cluster of e-tailers - grew from 212 in 2014 to 1,311 in 2016, and to 3,202 in 2018. While over 95% of the Taobao Villages cluster in the eastern region, particularly in Zhejiang, Guangdong, and Jiangsu, they have started to spread to the inland region, going from 4 shops in 2014 to over 100 in 2018.
The formation of Taobao Villages broadly proceeded through three stages:
- Version 1.0 was mainly about grassroots development: Villagers, often returned migrants with distinct entrepreneurial skills, led the establishment of online businesses and created models for other villagers to follow. Examples include the early Taobao Villages, such as Shaji in Jiangsu province.
- As e-commerce developed and more Taobao Villages prospered, version 2.0 was accompanied by government support: Local governments provided direct support for infrastructure, e-commerce training, and finance. Examples include Jieyang in Guangdong province.
- In recent years, as more Taobao Villages formed, the platform-ecosystem version 3.0 has emerged: Local governments are providing support through subsidies for specialized e-commerce service providers and firms to build an e-commerce ecosystem with e-platform companies. Tailored support to villagers includes training and developing suitable local online products and branding. This process is typical of Taobao Villages in locations where the industrial base is weak and human capital (entrepreneurship and skills) more limited. Examples include Xifeng in Guizhou province.
Success stories in Taobao Villages suggest that digital technologies can contribute to inclusive growth in rural China. They can lower the required skill threshold allowing individuals, including the less educated, to participate in e-commerce and earn more. The experience in Taobao Villages has sparked strong interest among researchers, policymakers, and the private sector to explore the use of e-commerce as a tool for poverty alleviation and rural vitalization. Two initiatives bear mention.
In 2014, the Alibaba Group, in collaboration with the government, launched the Rural Taobao Program to help give rural residents greater access to a broader variety of goods and services and help farmers earn more by selling agricultural products directly to urban consumers in online platforms. The program has four main activities:
- Setting up an e-commerce service network in counties and villages;
- Improving logistical connections for villages through “two-stage delivery” shipping packages from county centers to villages;
- Providing training in e-commerce and promoting entrepreneurship; and
- Developing rural financial services through the AntFinancial subsidiary of Alibaba.
The Rural E-commerce Demonstration Program, launched jointly by the Ministry of Finance and Ministry of Commerce in 2014, aims to contribute to poverty reduction and the modernization of rural areas through the promotion of e-commerce.
Its main activities consist of establishing and improving rural e-commerce public service, fostering rural e-commerce supply chains, promoting connectivity between agriculture and commerce, and enhancing e-commerce training. The program grew quickly and by 2018 had supported 1,016 demonstration counties, covering 737 poverty-stricken counties (89% of the total), including 137 counties with extreme poverty (41% of the total). The share of poverty-stricken counties among demonstration counties increased from 27% in 2014 to 45% in 2015 and 65% in 2016, while in 2017 and 2018, more than 90% were poverty-stricken counties, with the rest underdeveloped.
Many case studies show that strong public-private partnerships can encourage the use of digital technology and e-platforms to support poverty alleviation in rural areas. For example, digital technology improves the quality of agricultural products and e-platforms expand online markets for agricultural products, creating more and better jobs in rural areas. Fengjie, Chongqing Municipality, is a poor county by national standard with long history of growing citrus. ET agricultural brain is applied to improve orange production quantity and quality. With IoT real time data collection and remote monitoring for smart planting decisions, orange yield has increased. Product standardization and online friendly packaging, together with the online promotion through dedicated channels of the Rural Taobao platforms contributed to higher farmgate price and rapid growth in online sales.
E-commerce has the potential to help support poverty alleviation, but developing it requires much more than connecting people to the internet. Infrastructure and logistics, entrepreneurship and skills, and a conducive environment are crucial. Key challenges are identifying suitable products for online sales that will have a market – in this regard, e-platform companies can help by using their data troves, but it also fundamentally depends on the market. It is especially important to ensure that participation is inclusive. The experience in China offers some ways to accomplish this. For example, with an agent from the village to help villagers navigate the e-platform, place online orders using the agent’s online payment account (collecting villagers’ payments only when the product arrives and the customer is satisfied), and help villagers sell things online without the need to first create their own online account or website, there is a lower threshold for the less advantaged to participate.
To assist such efforts, the government can improve the business environment and provide strategic subsidies to support the participation of e-platform companies, logistic companies, and households and individuals. One challenge is the long-term fiscal sustainability of such subsidies. Emerging lessons show that in addition to supporting logistics, providing subsidized training to build human capital, providing subsidized post-training support to help develop online branding, as well as providing incentives and awards for high-volume online sales can help encourage e-commerce, even in areas where the initial endowments are weak.