This article originally appeared in ValueCap Research’s China Capitalist newsletter. 

Rural consumers have been buying more than their urban counterparts since 2013. With rural residents eager to consume, the biggest challenge seems to be how to reach them.

While most attention paid to China’s rapidly rising incomes has focused on residents of urban areas, slowing growth has prompted some to look towards China’s rural inhabitants, who comprise 43.9% of the population. According to China’s National Bureau of Statistics, rural residents saw their disposable incomes grow 7.5% in 2015, while urban residents saw growth of only 6.6%. Though city dwellers still earn 2.82 times as much as those in rural areas (per capita disposable income in 2015 was RMB11,422 for urban residents and RMB31,195 for rural residents) that gap has continued to narrow in the last five years. Urbanites earned 3.23 times as much as their rural counterparts back in 2010.

The increase in rural incomes has come in large part from remittances sent by family members who have left the countryside to work in urban centers. At the end of the third quarter of this year, there were 176.49 million migrant workers in China. Because of the cultural value placed on supporting family, as well as the fact that they often live in provided dormitories with free board, many migrants send a great deal of money home. According to Nielson, some send as much as four-fifths of their incomes to family members.

Consumption in rural areas has also increased significantly as rural inhabitants capitalize on their new-found economic status. The Ministry of Commerce reports that in the first half of the year, rural retail sales of consumer goods reached RMB 2.2 trillion, up 11.0% year-on-year. That’s 0.8 percentage points higher than that of the urban areas. Consumption and has been growing faster than urban areas since 2013.

This trend has not gone unnoticed by a government eager to boost consumption. Part of China’s strategy for encouraging consumption is to enhance the social safety net, thereby allowing consumers to feel more confident about spending. This is significant for rural residents, as they have traditionally been the ones left out of social programs. Last year, the number of people covered under basic pension insurance increased by 3.65 million, and the number receiving basic health insurance increased by 68.23 million. China’s 13th Five-Year Plan also sets as a target the elimination of rural poverty by 2020. In 2015, the number of rural poor was reduced by 14.42 million.

With financial barriers to consumption diminishing, the main obstacle facing rural consumers is access to products. Due to poor roads and a still underdeveloped highway system, many villages remain remote. Retail is still largely underdeveloped in rural regions. Nielson finds that many rural consumers are forced to make regular shopping trips to higher tier cities to find products not offered in their communities.

This lack of traditional retail space has led rural areas to forgo the development of brick and mortar stores and leapfrog into online buying. In the second quarter of 2015, rural online spending grew 64%. Rural customers make up 22.4% of China’s online shoppers, according to the China Internet Network Information Center (CNNIC). Nielson reports that rural online shopping penetration grew 41% from 2013 to 2014. Growth in cities reached only 16%. Additionally, rural consumers who shop online report spending more than the national average.

Yet e-commerce presents its own logistical challenges. For one thing, internet access remains spotty. According to the CNNIC, Chinese rural netizens accounted for only 28.4% of China’s internet users as of December 2015. However, this percentage is growing fast. In 2015 the number of rural internet users increased by 9.5%. Access through mobile devices contributed a great deal to that growth, with many able to afford a smart phone if not a computer. According to the CNNIC, 90% of China’s internet users access the internet through their mobile phones.

Another barrier to rural e-commerce is product delivery. Nationwide, China suffers from a poorly developed shipping industry. Unlike in the U.S. where FedEx and UPS dominate, China’s shipping industry is extremely fragmented. This has led to price wars and a race to the bottom. Poor delivery service has been a problem for online retailers like Alibaba and in a general sense, but this is especially true in rural areas where the infrastructure is even further behind. There are few warehouses in rural China. Moreover, because it’s often not cost effective for shipping companies to serve remote villages with low populations, few are willing to do it. Qianzhan Industry Research Center has reported that only about 48% of villages and towns in China were covered by delivery services in 2015.

Alibaba and have tried to combat these issues in several ways. has set up its own logistics company. Alibaba has launched Cainiao Network Technology, an alliance of various online retailers and logistics companies who have agreed to work to improve national logistics capabilities. Both and Alibaba have tried to improve internet access by setting up rural service centers where customers can order products on provided computers. Orders can also be picked up at the service centers. The owners of these centers, often tech savvy young people who have returned home after working in cities, can assist local residents with using the sites. According to Alibaba, the company has already set up more than 16,000 of these centers and plans to expand the program to 100,000 villages and 1,000 rural counties in the next 3 to 5 years.

Alibaba and have received help in their efforts by both the national and local governments. In July of last year, the ministries of commerce and finance allocated RMB 3.7 billion in special funds to 200 counties for improving access to e-commerce in the countryside. These funds were designated for developing logistics services, the creation of rural service centers, and trainings for rural residents.

It’s important to note, however, that these investments by Alibaba do come with a high price-tag. In an interview with the Los Angeles Times, a general manager of Rural Taobao refused to reveal whether they were making a profit, emphasizing instead that investing in local logistics was their primary concern.

But Alibaba has increased sales to rural residents. They claim that mobile e-commerce spending by rural Chinese on their sites grew more than 250% in 2014. They also report that “of the top 100 counties with the highest mobile growth in Gross Merchandise Volume (GMV), 75 were located in China’s less-developed central or western regions.”

This new online access to products and the convenience of online shopping is important to rural residents who are used to having to travel long distances to get what they need. According to Nielson, when rural consumers were asked why “they believe now is the time to buy what they need,” 25% said the “convenience of shopping” played the largest role in their decision making. Rural consumers told Nielson that the ability to buy things online was making shopping significantly more convenient. They also said that online shopping helped to increase the scope of items they had access to.

With newly established buying power and access to goods and services, what do these rural residents want to buy? Alibaba reports that the top ten products sold through their rural service centers in the first half of 2015 were, in order: home appliances, refills on prepaid mobile service plans, women’s apparel, kitchen appliances, men’s apparel, mobile phones, cleansers/feminine hygiene products /tissues/air fresheners, flower deliveries/artificial flowers/plants and women’s shoes.

Despite the lower incomes of rural residents, price is not their primary concern when choosing products, maintains Dale Preston, a Senior Vice President at Nielson. Instead, quality of product, shopping experience, and social factors are their main considerations. Because rural residents are earning more than they ever have, they are largely aspirational shoppers—they want products that reflect a rise in their economic status. Rural consumers are also extremely conscious of trends in urban areas, and are eager to emulate the lifestyles of urban consumers. Thus, low cost and low quality items miss the mark. Other research by Nielson shows that maternal and baby care products, personal cosmetics, tourism and virtual service products have higher penetration rates among rural consumers than those in tier one cities.

Those who don’t yet have access to online shopping still must travel to higher tier cities for better retail options. Nielson reports that villagers are willing to make such trips about once a month. Because of their low frequency, shopping is considered a social event and special occasion. The environment, experience, and entertainment element of shopping is highly valued. Villagers often shop together as a family. Because of the extra effort needed, rural shoppers shop less often—they make 20% less shopping trips than urban residents—yet they spend one-third more on each highly valued trip.

It’s also important to remember that China’s rural consumers are incredibly diverse. A report by Boston Consulting Group warns against painting them with too broad a brush. Some villages, it points out, are much more remote than others. Sophistication and brand awareness vary widely among consumers in different parts of the countryside. In order to be successful, BCG argues that companies must segment the rural market. They need to find out what pricing, products, and/or branding work for different populations in the countryside.