Taobao Country

By: M.E. Strickland · M.E. Strickland February 1, 2019 5:10 am

So often, the news about Chinese innovation has a decidedly urban edge. After all, it’s the megacities like Beijing, Shanghai, and the Pearl River Delta that have been the test beds for ride-hailing, bike-sharing, O2O services, and a host of other new models of business and consumerism born out of the domestic tech industry. 

But China isn’t just its megacities. Though there are plenty of reports of the country’s ongoing and intense urbanization drive, officially, 40.4% of China’s population is still rural. And where the tech industry has ventured into the countryside, some unique models have emerged.  

A new study out this month takes a look at the growth of “Taobao villages,” which are specifically defined as rural communities where at least 10% of households draw income from selling goods online, with at least 10 million RMB in combined annual revenue, and largely through Alibaba’s Taobao platform. And as of 2017, there were more than 2000 such villages spread all across the country. Rural communities can be very tight-knit, and when a few people jump on the ecommerce bandwagon, others are apt to follow. In some cases, whole villages might even come to specialize in particular markets, like apparel, automotive parts, or cosmetics. Alibaba has of course made deliberate efforts to extend its reach in rural areas, but for the most part these Taobao villages are an organic phenomenon, the result of rural people seizing an opportunity to make extra money for themselves as best they can. 

The study looked at a numbers of factors that might predict where and when Taobao villages might emerge, and two stood out: one, Taobao villages were more likely to appear where there was a higher average level of education, and two, they were less likely to appear where there was ample credit for businesses.  

The first point is intuitive, but the second perhaps is not. Yet as the authors point out, bank loans in China famously favor large and/or state-owned firms; small businesses, which most rural Taobao sellers are, generally don’t feel much difference even when credit markets are strong. What may be happening instead is that, when credit is flowing, larger businesses expand and start employing people who might otherwise take the chance to employ themselves. When credit is tighter, more people take the plunge into self-employment with their own Taobao businesses. 

If that’s true, then it could help predict the growth prospects for rural ecommerce, depending on how business loan activity is faring. 

There are many more questions that need to be asked and answered about China’s rural ecommerce and tech economy, but it’s already clear enough that where the domestic tech industry and rural economy meet, it’s giving rise to radically different dynamics than what we’ve seen in the cities.