Alibaba rural revolution

Every year, on November 11th, China celebrates the Single's Day, an anti-Valentine's Day holiday during which Chinese netizens spend billions of dollars in products online. It is a tradition that has been going on since 2009, but this year it has handily surpassed the U.S.’ s Black Friday as the world’s most lucrative online shopping day. The Chinese e-commerce giant Alibaba exceeded $2 billion in sales volume processed through payments app Alipay within the first hour and 11 seconds of Nov. 11. Just two months ago, the company founded by Jack Ma had already pulverized a first record by landing on Wall Street with an IPO of $ 25 billion, the biggest in US financial history.

While the mainstream media were busy praising the achievements of the internet retail market leader, only a few have become aware of how the Singles Day snapped a photo of the China's complex reform process. According to data released by the company, rural consumers accounted for about 10 percent of Alibaba’s $9.3 billion haul for the day. The detail is not negligible. While it is true that the Chinese population is still largely rural (citizens in the proper sense account for only 53% of the population), it is equally true that netizens hacking away at keyboards are mostly urban residents. So even a 10% rate is quite appreciable. What did these rural online shoppers buy? A top ten products listed by 'TechInAsia'  in order of popularity are: mobile phones; flatscreen TVs; Boots; Wool coats; women’s down coats, men’s down; coats; low-top shoes; bedsheets/sets; facial skin products; washing machines. As Alibaba VP Wang Yulei noted, there are some significant differences between that list and the urban top ten, on which flatscreen TVs rated lower and washing machines didn’t rate at all, among other differences.

According to a report released by Alibaba Group, sales from rural areas on Taobao, Alibaba's major shopping platform, accounted for 9.11 percent of the total in the first quarter of 2014, rising from the 7.11 percent in the second quarter of 2012. Vice President, Gao Hongbing, predicted that the size of the rural e-commerce market will reach 460 billion yuan in 2016. How? In mid-October, the e-commerce company announced a plan to invest 10 billion yuan (1.6 billion U.S. dollars) within three to five years in order to build 1,000 "county operational centers" and 100,000 "village service stations" to tap rising demand in these areas. A project that will see Alibaba's network extend to one third of China's counties and one sixth of its rural areas, starting from the Zhejiang province, where the Group has its headquarters. Let's be clear: this is not a brilliant intuition of Alibaba. Since a couple of years, local competitors, as DJ, are trying to implement similar plans with the praise of the Chinese government.

At the end of November, on the same days leaders of Chinese IT service giant (like Alibaba and Tencent) met the boss of international high-tech companies at the World Internet Conference in Wuzhen, Zhejiang Province, the Chinese Premier Li Keqiang visited Qingyanliu. Qingyanliu is a Zhejiang village houses the headquarters of several Taobao traders. Here, where residents  villagers can log on to the Internet via a free, government-funded wireless network, there are more than 2,800 e-commerce stores with estimated annual sales of 4 billion yuan ($652 million) in 2014. Every year, more than 4 million parcels are sent out from the village to destinations across the country and even abroad. Qingyanliu represents a model to be replicated on a national scale. In fact, as Li Keqiang explained, despite the e-commerce industry is based in the virtual world, it can serve the real economy. Li said e-commerce "not only supports the economy, but also gives equal business opportunities to rural and urban residents alike and narrows the living standard gap between them".

In view of all this, it is no coincidence that a few days ago Jack Ma has decided to set foot in Xinjiang after four years of absence. Xinjiang is that remote region of western China that Beijing suspects to host Islamic separatist forces. Furthermore, in the plans of the Chinese leadership, Xinjiang should become the main commercial hub of Central Asia as part of the New Silk Road project strongly supported by President Xi Jinping. Although the distance between Beijing and Urumqi, the provincial capital, is just slightly more than the distance between New York City and Seattle, there is only one train line and one national expressway that enters Xinjiang through the Gansu province. Things will change in a few years, but at the moment all commerce in and out of Xinjiang have no alternative transport routes. On a practical level this bottleneck causes exhausting waits. The orders in the province are treated like it are being shipped internationally, explains on his blog Josh Summers, an entrepreneur resident in Urumqi. "We can only say the logistics industry in China is developed when sending a parcel to Xinjiang is as fast as sending one to big cities such as Beijing and Shanghai", said Jack Ma announcing the opening of three online shopping mall specialize in local products. The business has a huge potential to grow. The sales of products sold by sellers in Xinjiang reached 1.3 billion yuan ($212 million) on T-mall, the sister e-commerce platform of Alibaba's Taobao in the first half of 2014, an increase of 68.7 percent year-on-year.

All this fits perfectly with the new paradigm of development outlined by the new leadership in power since March 2013. While China's manufacturing continues to slow, Beijing is trying to liberate national economy from its dependence on traditional sectors, turning its gaze to the immense pool of  'cybernetic'consumers. China currently has 632 million Internet users, including 527 million mobile Internet users. The four main companies of China (Alibaba, Tencent, Baidu and JD) today are worth about $426 billion. Online commerce has grown by 18% in the first three quarters of the year, whereas the economy linked to the Internet came to cover 4.4% of China's GDP, compared with 3.3% in 2010.

Confirming the numbers of Singles Day, a study of Tsinghua University shows a growing activism of migrant workers -those who leave their villages to seek employment in town- on online platforms, especially to purchase clothes. This is not a local phenomenon, but a trend that affects many emerging economies; besides China and India, also South Africa, Russia and Mexico. The Emerging Consumer survery 2014 by Credit Suisse Research Institute makes reference to a "rural middle class" as new catalyst for consumption globally. In the case of China, a rebalancing of the economy towards the countryside goes along with what the leaders promised. After thirty years of  export-driven economic growth, the financial crisis that has crippled the main buyers of the Made in China forced Beijing to focus on domestic consumption as a driver force for a more sustainable growth. A transition that requires as a basic condition raising the purchasing power of citizens. Beijing wants citizens to spend more, but for this to happen it is necessary to ensure welfare services so that the money paid out by the Chinese for their own health may soon go to oil the recovery of the national economy. Hence the need to soften the hukou system and grant farmers the power to more freely rent, sell, and mortgage their land, but without affecting the system of collective ownership. The goal is to enable farmers to benefit from an appreciation of the land's value, leaving them more savings to be allocated to the discretionary spending. The process has been ongoing for several years, or since 2003, when the previous administration decided to abolish agriculture taxes, expanded health-care coverage and increased minimum purchase prices of grains under efforts to boost rural development. In 2010 rural per-capita net income rose more than those of urban residents for the first time since 1997, as migrant workers boosted their pay and government strengthened the social safety net.

The direction is right, but the road is still long and paved with obstacles. In 2012, rural income per capita was still less than a third of the urban disposable income (respectively 7,917 yuan and 24,565 yuan). Just the difference between the wages earned in the towns and big cities led to four months of protests involving teachers in the smaller cities and inland provinces, the most backward.