China's rural areas' USD 200 bln online sales are e-tailers next battlefields.

Online retail sales in the most impoverished areas of China have surged last year by 52% to RMB 120.8 billion with commerce in these areas shaping up to be the next battlefield for Chinese e-commerce giants.

China's rural areas are home to more than 620 million people or nearly 10% of the world's population with total online consumption from these areas increasing by 39% in 2017 to RMB 1.245 trillion (USD 180 billion), crossing the RMB 1 trillion mark for the first time. China's rural residents spent RMB 894 billion in 2016 according to the Ministry of Commerce. Retail sales from rural areas is expected to continue growing by 12% this year, about 1% to 2% higher than that in urban areas.

Rural e-commerce now represents the next frontier for China's e-commerce giants. However, the question on how to penetrate these areas remain. Efforts by e-commerce giants Alibaba and JD.com to enter the rural market have been faced by roadblocks such as a lack of talents as more young people choose to migrate to larger cities, and the current state of poor logistics services. Logistics costs in rural China can run up to 5 times higher compare to urban areas with many of these areas out of deliverable areas for logistics companies.

In its effort to expand to more rural areas in China, Alibaba has launched the "Rural Taobao" project back in 2014 to bring its high-tech cloud-based logistics services to these areas and to develop what is known as "Taobao Villages". Alibaba hopes to be able to include more than 1,000 counties and 150,000 villages within the next 3 years.

A "Taobao Village" refers to a cluster of e-tailers who sell their products through Alibaba's Taobao platform. Such villages aim to bolster the company's partnerships with these local sellers and bring greater online visibility to these sellers. The annual turnover in one of these villages through e-commerce can hit more than RMB 10 million (USD 1.45 million). The number of "Taobao Villages" reached 2,118 last year across 24 provinces and has contributed to a spike in online retail by 39% in the same year.

Alibaba hopes to bring next-day delivery of merchandise and home installation of large electronic products to rural areas through its "Rural Taobao" project.

Similarly, JD.com is also looking to tap into the country's rural market with a "blitzkrieg" of convenience stores. JD.com aims to open a million new convenience stores in the country with half of them being based in rural areas.

JD.com...