E-commerce is often perceived as a phenomenon of high-income countries, but the industry’s rapid growth in China demonstrates that the transition from physical to digital commerce does not necessarily demand such high levels of development.
China’s worldwide e-commerce transaction value grew from less than 1% a decade ago to over 40% now, exceeding that of France, Germany, Japan, the United Kingdom, and the United States combined, according to a McKinsey study. In rural China, the development of e-commerce shows strong signs of clustering. The number of Taobao villages – those significantly engaged in e-commerce with a total annual e-commerce transaction volume of at least RMB 10 million and at least 100 active online shops – has increased from 20 in 2013 to 3,202 in 2018.
Distribution of Taobao Villages in China, 2014-2018
A joint research initiative between the World Bank and the Alibaba Group is examining how China has harnessed digital technologies to aid growth and expand employment by developing e-commerce in rural areas. At the 6th China Taobao Village Summit Conference this month, early findings from this initiative showed e-commerce in Taobao villages fosters entrepreneurship and creates flexible and inclusive employment opportunities, including for women and youth.
Taobao Villages in China Show E-commerce’s Transformational Power
Drawing from a survey conducted in collaboration with Peking University, covering 1,400 households and 80 Taobao villages in rural China, our analysis provides in-depth profiles of Taobao villages, including individuals and households that participate in e-commerce (e-households), and e-commerce firms (e-shops) in Taobao villages.
What a typical Taobao village looks like
Rural areas with good infrastructure and good access to markets tend to be most conducive to e-commerce. More than half of the people in Taobao villages use the Internet. The internet is a key resource for news, entertainment, online shopping, work, and education. Most people, especially in e-households, perceived their social status as equal or higher compared with five years ago. They also believe they will have equal or even higher social status two years in the future.
The profile of a typical e-commerce shop owner
E-households are richer than other households. Business income, including e-commerce income, is the main income source of e-households. E-shop owners are younger and more educated than the rest of the population in the village. Many e-shop owners are returned migrants and women.
A typical e-shop
Most e-shops are small. E-shop workers in Taobao villages have wage levels equal to or higher than workers in urban private industries. For e-shop owners, the top three barriers to develop e-commerce are the high cost of online advertisement, tough competition, and lack of skills. Access to finance also remains a key constraint. Most e-households have never borrowed to cover operation costs, or only borrowed from household members, friends, and relatives.
Where to go from here
E-commerce is showing a promising role in alleviating poverty and improving people’s lives. Anecdotal stories show that people can get rich and have better lives after participating in e-commerce. Many cases also highlight that access to an online market allows people in rural areas to enjoy the convenience, variety, and similarly low prices available in big cities. There’re also anecdotal stories that many young and talented people, including women, have returned to their hometown in rural areas, earning as much or more than they did as migrant workers in the cities, while at the same time enjoying more family time. Many have become e-commerce leaders in their home villages and are role models for others.
All of this success begs the question: How can we develop e-commerce’s full potential to support inclusive growth? With rigorous research, we can identify the right channels, policy levers and areas for improvement, while policy measures need to be developed to address the new challenges of upgrading value chains and expanding the e-commerce ecosystem in rural China. One thing is certain: China’s experience so far with e-commerce can inspire other countries to seek unconventional solutions and a wider set of partners to reduce poverty and increase shared prosperity.
Stay tuned as we work further on our research with the Alibaba Group and the broad research community, and please share questions or observations in the comment section below.
