Taobao Villages: Bridging the Rural-Urban Divide

Chinese growth is perpetually a hot topic in the news: major newspapers are constantly packed with stories of China’s shift from labor intensive factories to advanced manufacturing and services. What these stories often miss, however, is that over 40% of China’s population is still rural — what goes on in the countryside remains a crucial part of China’s economic story. Chinese urban-rural inequality remains ever high, with inland provinces earning only 60% of that earned by coastal provinces per capita.

The advent of e-commerce offers rural areas the chance to shrink this inequality. Taobao Villages are rural villages that have become involved in e-commerce via Alibaba’s Taobao website. Villages using Taobao enter a nationwide market for goods, which presents a rare opportunity for rural Chinese households to access a slice of the growing national prosperity. Yet, villages also exemplify a distinctly Chinese phenomenon: a bubbling dynamism that is both strained by and symbiotic with the heavy hand of the Chinese state. E-commerce, by itself may be insufficient to solve the thorny problem of Chinese urban-rural inequality.

Alibaba defines Taobao Villages as “a cluster of rural e-tailers within a village where total annual transaction value exceeds 10 million RMB, and where at least 10% of the population is involved, or 100 active shops operate.” Villagers themselves lead the charge into the online marketplace. In 2006, Lü Zhenzhong, a resident of Beishan in Zhejiang province, started to sell outdoor gear on Taobao. Beishan, known for its buns and baked goods, was enthralled with Lü’s success as his business grew. In 2014, Lü’s company, BSWolf, generated 8 million RMB of sales through Taobao. Quickly, other residents started to ask Lü how they too could get involved in Taobao.

As rural e-commerce spread, Alibaba responded by formally establishing the now-familiar Taobao Village classification in 2009. Taobao has allowed villagers to capitalize on latent geographic and location advantages. For example, villagers in Shuyang, a county in rural Zhejiang, started to hawk vegetables and other specialized agricultural produce on Taobao. Shuyang sits on a north-south junction, enabling it to produce vegetables and fruits that thrive in its climate, while still having convenient access to northern markets. According to the residents of Shuyang, this advantage was revealed only by their use of Taobao and the greatly expanded market that was available through e-commerce. The main benefit of Taobao here was the ease of access to the world’s largest online market for goods that it enabled. The market was worth $630 billion in 2015, nearly 80% larger than the second largest market, United States, and the growth has only continued since then.

In addition to generating new ways to buy and sell, Taobao Villages also provide many attendant benefits, like jobs for people involved in the hard logistics of transporting goods and services, designers for online shops, and a professional class that can manage the day-to-day operations of online stores.

The businesses in Taobao Villages operate like any other private sector enterprise. To operate an online store on Taobao requires significant skill, business savvy, and resourcefulness. Not every store that opens on Taobao is a guaranteed success, and therefore Taobao tends to reward those that are particularly able or lucky, like any market-based institution. Alibaba’s own training camps for e-commerce entrepreneurs, as well as local county training sessions, are split into two tracks: one for entrepreneurs, and one for employees who fulfill essential but non-managerial tasks supporting online stores. One curious result of this is that Taobao Villages, through the online business they bring, have the curious effect of increasing intra-village inequality. Not all the residents of Beishan, one of China’s first Taobao Villages, are involved in e-commerce. Some still remain on the farm.

Taobao Villages, indeed, build on and magnify already present advantages. Taobao Villages are also mostly concentrated in wealthier coastal provinces: 68% of Taobao Villages are located in Jiangsu, Guangdong, and Zhejiang. In other words, villages that are located close to China’s export-oriented, industrialized urban coast are able to tap into existing infrastructure and find a suitable niche. As of 2017, Alibaba’s own research designated over 2,100 Taobao Villages, and only 68 were in Central and Western China, although this was an increase of 172% from 2009.

For many of the Taobao Villages that have sprung up in Zhejiang, Guangdong and Jiangsu, like Shuyang, these advantages also include a trailblazing government infrastructure program that has brought roads, high-speed rail and other forms of informational and electronic infrastructure. Crucially, many of these elements are relatively less advanced in China’s poorer interior provinces. After all, Taobao, despite its advantages, still depends on the physical delivery of goods. This is hard to accomplish without smooth, well-functioning roads and goods that are of sufficient quality to be sold in China’s competitive e-commerce space.

The coming infrastructure investments, particularly through China’s Belt and Road Initiative will concentrate development on Central-Asian facing Western provinces.  This could potentially create room for a further surge of Taobao Villages. As of now, the total number of villages that Alibaba deemed significant enough for its designation is roughly 2,100, which is hardly insignificant, but unable to capture the full scope rural Chinese poverty. It is here where the Chinese paradox becomes clear. The charge towards e-commerce in rural Chinese areas has been led by former farmers and villagers, yet e-commerce would only be possible with ample supporting infrastructure. And in China, this infrastructure can only come about as a result of state-led investment.

Thus, the explosive growth of rural e-commerce may be unsustainable, especially given the Chinese government’s hopes for moving more growth to interior provinces. Many of the remaining pockets of rural poverty are concentrated in areas where mass-infrastructure would not be economically or physically viable, and the type of e-commerce that exists in these villages will depend on the delivery of physical goods for the foreseeable future. So while Taobao Villages are enabled by the government’s intense focus on infrastructure investment, this emphasis may be insufficient to help remote rural communities without any of the other natural advantages that are conducive to e-commerce. Taobao Villages, even though they have the state’s full support behind them, are the result of the efforts of only one Chinese company.

Claron Niu is a senior at the University of Chicago. Contact him at claron@uchicago.edu.

 

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