Chinese farmers shop online for the Chinese New Year. Photo: CFP

 

With China's urban online shopping market becoming saturated, e-commerce companies are eyeing rural areas. But experts say that poor transportation infrastructure and a lack of Internet access, despite the companies' aggressive recruiting of village e-commerce ambassadors, mean the market still has a long way to go.

For farmers in the village of Jixia in Suichang county in East China's Zhejiang Province, this year's Spring Festival shopping season is a little different than years gone by.

In a small one-story room at the village center, Ye Songwang, a skinny 45-year-old local farmer, is busy helping computer-illiterate villagers choose products online, placing orders on a desktop computer. Dozens of parcels, packed with products ranging from clothing, home appliances, furniture and farming supplies, have already piled up in the 15-square-meter shop, waiting for those who bought them to pick them up. Sales sometimes hit several thousand yuan each day.

"Some farmers no longer buy all goods at the local market for the Chinese New Year. Instead, they come to me for help with online shopping. The number of orders soared in the past month," Ye told the Global Times.

Just several months ago, the village, located in the mountainous areas at the southern border of Zhejiang Province, had been unreachable by China's courier delivery services. The nearest county is three hours' drive away, and when Ye, a pioneer in e-commerce in the village since 2011, wanted to send or received a parcel, he had to pay a local minivan driver, who often drove to the county, to run the errand for him.

But the winds of change have quietly blown in. In the past several months, three national delivery companies have extended their tentacles to this remote village, and last September, Ye set up his pickup service center with the help of an online start-up targeted at the rural e-commerce market called 51ganjie. These initiatives, promoting e-commerce to villagers and making last-mile delivery possible, are helping rural residents benefit from the lower prices and greater variety of products available online.

"Clothes online are cheap and nice-looking, much better than those sold in local stores," said one villager who had ordered online via Ye's service center.

An untapped market

China boasts 310 million online shoppers, generating over 2 trillion yuan ($320 billion) in transaction fee each year, making it the largest e-commerce market in the world. Sales growth has slowed, however, from 130.8 percent in 2011 to an expected 32.8 percent in 2015, according to Analysys International, an Internet consulting firm. "The e-commerce market in first- and second-tier cities in China will soon become saturated. The future of China's e-commerce companies lies in the burgeoning rural areas," Zhang Zhouping, a senior analyst at China E-Commerce Research Center, told the Global Times.

The market potential for the rural area is huge. According to a report by Ali Research, a research center under China's biggest e-commerce company Alibaba, online sales to rural markets will grow to 460 billion yuan in 2016. Statistics from the Ministry of Commerce show that total turnover in agricultural products was 4 trillion yuan in 2013, 80 percent of which were done through traditional means. "If tapped properly, the rural market could generate online sales volume equivalent to that of 20 or 30 Alibabas," Pan Dongming, founder of 51ganjie, told the Global Times.

But poor transport infrastructure and a lack of access to the Internet means that e-commerce has largely passed by rural buyers. According to the Ali Research report, rural buyers account for less than 10 percent of total online sales in China.

This is where Pan Dongming sees his opportunity. Since 2010, his start-up has established e-commerce service stations in 2,000 villages and 15 counties across Zhejiang, employing local farmers as representatives. "We hope to make villages more modern by building an e-commerce service system that provides a whole range of services, including ordering, logistics and after-sales support," Pan told the Global Times.

In each of the 2,000 villages, 51ganjie recruited a local villager, someone like Ye Songwang who has experience buying and shopping online and knows local customs, to promote online shopping to villagers and help deliver services. 

Ye's one-man service center is the village's window on online shopping, a logistics and after-sales service center rolled into one. For parcels that cannot reach villages, Ye asks buyers to send them to the county-level service center, also run by 51ganjie, which will then send them to the villages. As part of his job, he goes door-to-door collecting villagers' fresh farm products, selling them through an online store on taobao.com, Alibaba's C2C portal.

Since Ye started the service last September, villagers have spent over 10,000 yuan a month at his service center. Most of the buyers are middle-aged people, Ye says.

The 2,000 villages his startup works with each generates 10,000 to 50,000 yuan in online sales each month, says Pan, with shoppers' ages varying from teenagers to 80 years old. Most of them have never shopped online. While some say it is hard for villages to trust online shopping, Pan disagrees. "Rural areas have close-knit networks of villagers, who are realistic about shopping. If they see online products are cheaper and better quality, they will join in," he said.

While the business model isn't yet clear for his company, which is providing services free in order to grab market share, Pan said he might charge an agent fee in the future or launch his own mall. "We will keep investing until we've reached a certain scale," Pan said, adding that 51ganjie will expand to 20,000 more villages in more than 10 provinces this year.

Competition ahead

51ganjie is not the only company to spot the potential of the rural market. E-commerce giants have all stepped up their expansion into rural areas, using basically the same strategy. On October 2014, Alibaba announced plans that it will build 1,000 county-level and 100,000 village-level e-commerce service centers with a 10 billion yuan investment over three to five years, covering a sixth of China's rural areas. "The buying power of Chinese farmers is huge…we want to let the farmers enjoy the authentic urban life through e-commerce," said Ma Yun, founder and chairman of the Alibaba group, during a speech in Guangzhou in December.

Also in December, Liu Qiangdong, CEO of JD.com, one of China's biggest B2C websites, said that it plans to recruit 100,000 rural e-commerce ambassadors, covering 100,000 villages in China, by June 2015. It is also setting up service centers where people can experience online shopping with the help of JD's service people.

E-commerce companies are also plastering village walls with giant posters urging villagers to shop online. "If you want to be thrifty, log onto JD.com," one poster read.

In Huxian County in Shaanxi Province, a JD service center opened on January 20 received over 300,000 yuan in orders for home appliances within 20 days of its opening, according to Hu Po, head of the center.

The center has also started to recruit village e-commerce ambassadors. "We are looking for local villagers who are young, computer savvy, and, ideally, own shops in villages so that the shop can also work as a window for JD," Hu told the Global Times.

According to a spokesperson from JD.com, it has already recruited 1,000 rural ambassadors, including village grocery store owners and small business owners. They will play a vital role in the future of China's e-commerce.

A long way to go

While competition is heating up, experts say it will take a long time and continued efforts for e-commerce companies to conquer the rural market. "It took 18 years for e-commerce companies to explore and build the market in cities. For the rural market, it might take even longer," Zhang, the e-commerce analyst, said.

For Xie Yang, a research fellow at the Development Research Center of the State Council, the expansion of e-commerce in rural areas will fundamentally change China's urbanization process. "E-commerce will bring a revolution to the consumption habits and lifestyle of rural people. When e-commerce becomes popular, the physical shops and commercial complexes now being developed in many counties and villages at much cost might lose their appeal," he told 21th Century Business Herald.

The structure of labor force is also likely to undergo changes in the long term. "Quite a number of rural people will no longer need to migrant to the cities for work. The flow of laborers might change," Xie said.

Compared with e-commerce in the city, fostering relationships with local governments is an important factor in facilitating rural e-commerce. "In counties and villages, you have to be trusted by the government to successfully operate in villagers. [Village] officials don't care if you are the biggest e-commerce company in China. Trust is built in the long term," Pan said.

The opening of a JD.com service center in Mengcheng county, Anhui Province, on January 25 attracts onlookers. Photo: Courtesy of JD.com