Why the future of Chinese e-commerce is in its rural areas

China announced a mere 6.7 percent economic growth in July 2018, the lowest growth rate since 2016. Despite a slowdown in overall economic growth, Chinese e-commerce has only increased, accounting for 40 percent of all worldwide e-commerce today, compared to a mere 20 percent of the global retail market just three years ago.

The fast-paced growth of the e-commerce sector in China can be seen through rapidly expanding companies such as Pinduoduo, which went through a $1.5 billion U.S. IPO in mid-July. However, why has e-commerce continued to grow despite an overall economic slowdown in conjunction with urban market saturation? The answer to this question lies in China’s rural areas, with its untouched older demographic, potential for infrastructure development and government-backed initiatives.

An untouched older demographic primed for growth

The older demographic of China’s population, typically living in the Western rural areas of China, presents immense growth potential for e-commerce retailers, with the 60+ demographic numbering 241 million, representing nearly 20 percent of China’s total population.

With comparatively newer exposure to technology compared to younger urbanites, this older generation presents an untouched income stream for e-commerce. Chinese retailers have only recently begun to recognize this fact to shape their marketing initiatives accordingly, with companies such as Alibaba introducing this year a Taobao shopping app specifically designed to cater to those 50 and older.

In fact, a huge catalyst for Pinduoduo’s success is its popularity with users in this demographic, playing on social factors to promote use by older customers. However, additional user education and more elder-specific initiatives must be introduced to fully tap into this older demographic.

Infrastructure development for e-commerce

Lack of technological development in rural Chinese areas is another reason why e-commerce has not yet reached its full potential. Rural Western-based users make up a meager 27 percent of all internet users in China, with the vast majority of infrastructure developments being focused on China’s Eastern seaboard.

Lack of cellular infrastructure development runs in parallel with a similarly dismal rural logistics network, making it difficult to order and deliver e-commerce goods in the region. To counter this problem, JD.com received approval earlier this year from China’s Civil Aviation Administration to test a drone delivery network in the northwest Shaanxi province, with an aim to build more than 10,000 drone airports in the future, with a specific 185 being dedicated to deliver goods in the mountainous Sichuan region.

These developments are indicative of e-commerce companies recognizing the deficiencies in connecting rural consumers to the ability to purchase goods online, with potential for growth being huge in the next coming years.

Governmental backing and countryside rejuvenation

The Chinese government is also encouraging growth in the countryside, with this growth providing the opportunity for e-commerce to flourish accordingly.

The National Strategic Plan for Rural Vitalization from 2018 to 2022 aims to boost rural incomes and living standards, closing a widening wealth gap and boosting a slowing economy. Other government initiatives subsidize rural manufacturing, rural drone development and much more. With this government backing, some in China are moving back to the countryside, with these initiatives developing jobs that re-attract former rural-to-urban migrants.

These returning migrants help spread the influence of e-commerce in rural areas through their familiarity with such platforms from their time in Chinese cities, thus increasing demand in these regions. Government initiatives to increase wealth in rural areas, whether through job creation or through regulated programmed development, help to grow e-commerce in China’s countryside by providing rural households with increased disposable income.

Simply put, rural China has not yet experienced the growth of e-commerce that has become so familiar to many urban Chinese. China’s e-commerce companies have begun to recognize the rural sector as having the largest potential for prosperity, with an older and newly online population, desperately needed infrastructure and logistical development, as well as with government-backing.

China’s rural areas present huge growth potential for e-commerce in the near-future, and represent one of the last untapped market areas for Chinese companies.