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E-Commerce Lends a Hand to Eradicating Rural Poverty in China

Summary

In 2015, President Xi committed to eradicating rural poverty by the end of 2020, and despite the economic distress brought on by the pandemic, China declared its momentous victory. While a mix of state policy and private sector support were key to the campaign’s success, digital technologies such as e-commerce played a pivotal role in improving the quality of life in rural areas and have brought China one step closer to realizing a moderately prosperous society.

In a year overshadowed by the pandemic, a bright spot in human development has emerged in China. Last November, Beijing announced that it had eliminated rural poverty nationwide, lifting all rural citizens above the centrally-defined poverty line of CN¥2,800 per year, or roughly US$400. Eradicating extreme rural poverty has been a core initiative of President Xi since taking office in 2012. While the target sits below the international level of absolute poverty of US$700 per year, this has still been nothing less than a monumental feat, lifting almost 100 million rural citizens above the state-designated poverty line in a matter of eight years.

Initiatives for poverty alleviation are nothing new, with China having been credited with lifting over 850 million people out of extreme poverty since Deng Xiaoping’s ‘Reform and Opening-up’ policy. However, in today’s age, tech industries such as e-commerce are contributing to President Xi’s core social policy of poverty alleviation and are helping to bridge deeply rooted social barriers to rural inclusion in China’s economic development. In particular, China’s e-commerce giants are applying digital technologies to China’s rural economies, improving livelihoods by connecting underdeveloped areas to more developed urban and global markets.

Xi’s Helping Hand Alleviates Poverty

President Xi’s campaign draws on past efforts amongst Chinese leadership to eliminate poverty, from China’s 1986 anti-poverty policy to Hu Jintao’s welfare policies in the early 2000’s. Continuing along this trajectory, Xi Jinping has eradicated extreme rural poverty in China, taking a significant step towards Chinese leadership’s future social vision of a xiǎokāng shèhuì, or moderately prosperous society, a Chinese term used to describe a well-off and expanding middle class.

Breaking from his predecessors, Xi’s approach has greatly intensified efforts, and he became the first Chinese leader to introduce an explicit timeline and measurable targets to end rural poverty by 2020. This has involved a centrally backed expansion in poverty reduction funds, allocating over US$60 billion since 2015. To more efficiently allocate these funds, 800,000 party officials and members have been mobilized to evaluate and identify localized approaches to China’s most poverty-stricken areas.

The details of this approach were outlined in November 2015 in a statement released by the government entitled ‘Decision to Win the Battle of Poverty Eradication’. This introduced a strategy of ‘targeted’ poverty alleviation, stipulating evaluation of the impoverished situation at a county and household level and to apply appropriate measures given local factors of poverty.

These measures have focused on market-based strategies to develop small-scale rural industry, connecting rural manufacturers to urban consumers, and vice versa. Measures for direct aid to poor rural households were also delivered to ensure poverty elimination targets were met by the 2020 deadline.

E-commerce in China 

Over the past decade, e-commerce has grown rapidly in China, with total sales volume reaching over CN¥32 trillion, or US$4.9 trillion, in 2018. Two decades ago, the value of the e-commerce industry in China was negligible, and now it is a multi-trillion dollar industry homing domestic tech giants such as Alibaba, JD, and Pinduoduo, who currently own a combined 44% of the global e-commerce market. The role of these companies has been crucial to driving domestic consumer demand and turning China’s tech industry from imitator to global innovator. Moreover, the e-commerce industry in China has continued to innovate alongside human development initiatives in China’s rural areas.

Research conducted by the World Bank and the Alibaba Group show a positive correlation between participation in e-commerce and improved rural welfare at the household level. Despite growth in China’s domestic e-commerce market heavily favoring urban areas, online retail sales in China’s rural areas saw explosive growth of 572% between 2014 and 2017. E-commerce has garnered the attention of China’s public and private sector as an industry with great potential to improve rural livelihoods and serve as the next growth point for consumer demand. 

Rural Development of E-commerce

Taobao Villages

In recent years, there have been a growing number of successful rural experiences in e-commerce called Taobao Villages. This term is used to describe rural counties with a developed e-commerce industry and where rural livelihoods have improved through participation in e-commerce. These villages began to appear through grassroots entrepreneurship and have subsequently received government and private sector support to accelerate further expansion into rural areas.

The preconditions for the formation of a Taobao Village are threefold: Taobao is the primary e-commerce platform, total e-commerce transactions exceed CN¥10 million per year, and 10% or more of households are engaged in e-commerce.  Since 2013, the number of Taobao villages has expanded from a meager 20 to over 3,000 in 2018, with over 70% of villages located in China’s more developed coastal provinces such as Jiangsu, Zhejiang and Guangdong. It is reported that in these villages, rural households that participate in e-commerce have an 80% higher per capita income over those that do not.

As most Taobao Villages emerge in proximity to developed urban markets, online sales through Alibaba platforms in counties below the poverty line increased from CN¥8.4 billion in 2013 to 29 billion in 2017. The below two case examples show how e-commerce as a tool for poverty alleviation has had a positive effect.     

Pingxiang County, Hebei Province

Previously a poverty-stricken county, Pingxiang County of Hebei Province moved above the poverty line in 2018 at a time when it had 18 Taobao Villages. With the county government using e-commerce to alleviate poverty, training and targeted support were provided to digitize the existing industry of manufacturing children’s bicycles. Now the county is China’s largest production base for bicycle parts. With annual online sales of CN¥1.6 billion, it is estimated that 1,320 households have been lifted out of poverty through participation in e-commerce.

Cao Country, Shandong Province

Cao County, Shandong Province is a designated poverty-stricken county that only had 2 Taobao villages in 2013, but increased that number to 74 in 2017. In 2018, the county’s online sales reached CN¥15.8 billion. The county guided villages to improve livelihoods through the ‘One Village, One Product’ approach where a single village manufactures a single commodity based on comparative advantage. Since, 12 more previously poverty-stricken county villages have become Taobao Villages.

Despite the positive experience of Taobao Villages, e-commerce is not a panacea to China’s rural policy objectives, or at least not yet. Just as China’s economic growth has been skewed towards urban residents, so too has e-commerce’s rural spatial development, occurring overwhelmingly in counties located in China’s central and eastern provinces. Only approximately 20% of Taobao Villages are located in counties below the poverty line with sparse examples in China’s most poverty challenged western provinces.

In response to these development issues, the central government has, alongside private sector companies such as Alibaba, created targeted programs to support the development of e-commerce in underdeveloped rural areas.

The China E-commerce Demonstration Program

Launched jointly by the Ministry of Finance and Ministry of Commerce in 2014, the China E-commerce Demonstration Program program targets rural counties to develop the role of e-commerce in poverty alleviation. As of 2019, the demonstration program has grown to 1,231 targeted counties, covering 737 poverty-stricken counties, or 89% of the total counties, that fell below the poverty line.

In addition to funding from the central government, demonstration counties also actively cooperate with e-commerce platforms and companies to accelerate e-commerce’s economic penetration. With help from a number of platforms, local governments have been able to make meaningful gains connecting rural industries and their production capabilities to domestic and global commerce.

For example, Alibaba’s logistical arm Cainiao has teamed up with local partners to improve demonstration county logistics networks. By 2018, it could deliver 60% of county-to-village packages in the same day, and 99% by next day. In 2016, JD began setting up service centers to help rural consumers navigate the buying and selling functions of e-commerce platforms. Their service centers are now in more than 1,700 counties, which cover 440,000 administrative level villages (out of 560,000 total in China).

Since the commencement of the program, online retail sales in demonstration counties reached CN¥110.99 billion, a 29.55% increase and 7.1% higher than average rural growth.

Alibaba Rural Taobao Program

In 2014, Alibaba set up the Rural Taobao Program to grant broader access to goods and services that help rural farmers connect products to urban markets. Ultimately, by increasing connectivity to wider markets, this program seeks to improve rural livelihoods while generating a new wave of commercial activity on Alibaba’s platforms. 

One of the program’s main activities has been rural finance through Alibaba’s microfinance arm, Ant Financial. By the end of 2017, Rural Taobao had provided financial services to 816 counties below the poverty line (98% of all counties below the line) and provided CN¥11.2 billion in loans for expansion of rural e-tailer businesses. 

As of 2018, the Rural Taobao Program has expanded into more than 30,000 villages in 1,000 counties and created more than 60,000 rural jobs at its rural service centers.

Rural E-commerce During COVID-19

While 2020 has been a trying year across the spectrum, e-commerce in China has experienced solid growth with China’s three biggest e-commerce platforms all reporting millions of new active users and significant increases in year-over-year revenue growth. Rural e-commerce has fared particularly well with increased urban demand for agricultural products during the pandemic.

In the early months of the pandemic, the production and distribution side of China’s food systems were disrupted due to lack of mobility under lockdown measures. Central and local governments established a new logistical channel called the ‘green mile.’ This preferential transport channel gave priority to essential supplies for urban residents allowing vehicles to forgo inspection checkpoints and parking fees. Once supplies reach the destination, shared pick-up locations were used in some cities at designated stores and neighborhood service points for contact-free delivery. 

C2M E-commerce

In the pandemic, Chinese farmers lost access to traditional wholesale markets. Under such circumstances, reliance on smartphones and associated technologies increased rapidly with newfound willingness to connect directly with consumers through e-commerce channels. In February 2020, Alibaba provided farmers free subscriptions to its live streaming services, and within three days farmers sold 15 million kg of produce through Taobao Live. As of May 2020, 50,000 live stream hosts promoting agricultural products had signed onto the live streaming platform, compared to only 1,000 in 2019. 

As sales channels were disrupted, live streaming turned into a must-have marketing tool. This gave farmers and businesses new lifelines and encouraged them to further digitize their operations through e-commerce platforms that could direct consumers straight to their digital storefronts. This consumer to manufacturer (C2M) purchasing model has helped rural producers connect directly with consumers, cutting out intermediary links for a more efficient and cost-effective transaction. 

With increased efforts to connect rural and urban economies via e-commerce, China’s largest platform in agriculture has been Pinduoduo. Before the pandemic, over 65% of the platform’s users were located in tier 3 cities and below with a total value of agricultural products sold across the platform reaching US$19.3 billion in 2019. In the first quarter of 2020, the company reported agricultural product orders exceeding US$1 billion, an increase of 184% over the same period in 2019.

As China’s most interactive e-commerce app, Pinduoduo has been able to promote agricultural products to urban consumers through group purchasing, similar to Groupon, using the C2M purchasing model. This, combined with the sharp rise of farmers live streaming the nostalgic bits of rural life as well as their produce, has connected new sentiment and trust to urban consumers’ demand for fresh fruits and vegetables.

Just One Piece of the Puzzle

With the internet and digital technologies such as e-commerce penetrating China’s rural sectors and households at an increasing rate, new and more flexible forms of employment and grass roots entrepreneurship have taken hold in rural areas. This has been particularly important to overcoming long-standing social and geographical barriers denying rural inclusion in China’s economic rise. With the onset of the pandemic, rural participation in e-commerce has been drastically sped up as farmers and rural businesses turned to C2M models to directly connect with consumers and improve their bottom line. 

With standout examples of Taobao Villages and rapid digitization of rural supply chains during COVID-19, e-commerce has the potential to support poverty alleviation. However, it takes more than internet access to build a conducive environment for e-commerce to develop and improve rural welfare. Issues remain with many of China’s most poverty challenged areas that still lack necessary infrastructure and logistics, as well as the business skill set to identify products that have a market for online sales. In such circumstances, e-commerce as a tool for poverty alleviation and inclusive growth may not yet be suitable to certain locations and households.

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