Speeches & Transcripts

The Taobao Villages as an Instrument for Poverty Reduction and Shared Prosperity

October 29, 2016

Bert Hofman Shuyang County, Jiangsu Province, China

As Prepared for Delivery

Honorable Vice Governor Zhang Lei of Jiangsu Province, Honorable Party Secretary Wei Guoqian of Suqian municipality, Honorable Party Secretary Hu Jianjun of Shuyang County, President Jin Jianhang of Alibaba, Distinguished experts, ladies and gentlemen:

It is a great pleasure for me and the World Bank to address the Taobao Village summit today.  I am grateful for the organizers for inviting me.

I am also indebted to the Shuyang Government and Alibaba for organizing yesterday’s study tour to some Taobao villages to help us deepen our understanding of this phenomenon.

The Taobao villages, Alibaba and China’s digital development in a broader sense have been at the forefront of the digital revolution that is taking place around the world today.  Digital technologies have spread rapidly in much of the world. In many instances digital technologies have boosted growth, expanded opportunities, and improved service delivery.

More households in developing countries now own a mobile phone than have access to electricity or clean water, and nearly 70 percent of the bottom fifth of the population in developing countries own a mobile phone. The number of internet users has more than tripled in a decade—from 1 billion in 2005 to an estimated 3.2 billion at the end of 2015. Thus, businesses, people, and governments are more connected than ever before.

Access to digital technology can transform people’s lives. A digital identification system such as India’s Aadhaar, helps governments include disadvantaged groups in government programs. Alibaba’s Taobao e-commerce site significantly reduces coordination costs and boosts efficiency in China’s economy and arguably in the world’s economy--and supports an estimated 10 million jobs, or 1.3 percent of China’s labor force. 

Didi Chuxing, Uber and AirBNB enable existing cars and houses be better used for delivering transport and lodging services around the globe.  And the M-Pesa digital payment platform in Kenya in Africa generated financial sector innovation that benefited the people of Kenya as well as people around the world. 

Inclusion, efficiency, innovation—these are the main ways in which digital technologies support development.  The Taobao villages, and e-commerce in China more generally, illustrate how the internet promotes inclusion, efficiency, and innovation for development—and all of this in less than a decade. 

I visited some of the Tabao villages yesterday and was impressed with the rapid development that e-commerce has triggered in Shuyang County and Jiangsu Province.  Indeed, Jiangsu was the cradle of the Tabao Villages, and is at the forefront of its expansion. 

Take Dongfeng village in Shaji town for example. In 2006, one migrant from the village returned to open an online shop to sell simple furniture. His success encouraged other villagers to do likewise, and by the end of 2010, the village had 6 board processing factories, 2 metal parts factories, 15 logistics and shipping companies, and 7 computer stores serving 400 households engaged in online sales throughout China and even in neighboring countries.

Tabao promotes inclusion of remote and poor areas into the modern economy.  While the economies of China’s coastal cities have grown rapidly over the last three decades, rural and western parts of the country have lagged behind.

But China’s large investments in rural connectivity are beginning to pay off. More than 90 percent of villages had fixed broadband access by the end of 2015—which creates an enormous opportunity to further expand the number of Taobao villages—and Alibaba and other online platforms are working on exactly this.

Online commerce has allowed producers in towns and villages to participate in the national and even the global economy. At the end of 2015 there were some 780 Tabao villages—here in Shuyang country alone there are 22.  [And we just heard the latest number is now over 1000 villages.]

At the end of 2014, there were more than 70,000 online merchants in those villages, and many more in other rural areas. Most of the merchants are small, with an average of 2.5 employees. Four in 10 owners are female, and one-fifth were previously unemployed. And about 1 percent are persons with disabilities. Indeed, one of Alibaba’s top “netpreneurs,” confined to a wheelchair after an accident built a thriving online business.

E-commerce has also promoted efficiency and productivity.  Besides the Taobao e-commerce site for consumers, Alibaba and other Chinese firms operate business-to-business platforms. They facilitate intercompany trade in China’s already efficient production sector, and they promote exports. They also make it easier for foreign firms to sell in China.  Consumers benefit from greater choice and convenience on online retail sites.

Online trade has not only helped raise rural incomes, but also made shopping more efficient. People’s income in rural areas is only about one-third of that in cities, but the total consumption of China’s 600 million rural residents is vast, contributing to the national goal of moving from an export- and investment-driven economy to one that is more consumption based.

And the boom in online trade has spawned numerous logistics companies that provide quick delivery—sometimes by bicycle in towns and villages, which has created some 2 million jobs.

Taobao and other e-commerce platforms are examples of the innovations generated by the economies of scale triggered by a drastic drop in transaction costs. Since these platforms are highly automated, fees can be kept low, and operations are often financed by advertising alone. Online ratings, escrow services, and conflict resolution mechanisms can overcome the issue of trust that could have hampered online commerce development. 

One of the most valuable assets Alibaba and other e-commerce operators accumulate is data. Each transaction contributes to better knowledge about the economy and consumer behavior. This information supports new business lines, such as extending credit to small firms based on automated evaluations of creditworthiness. This can also advance financial inclusion. In early 2015, for instance, Alibaba’s Ant Financial teamed up with the International Finance Corporation to expand credit to female entrepreneurs in China.

Today the World Bank and Alibaba are signing an agreement for cooperation to research the Taobao village phenomenon.  For us this is a great opportunity to better understand what makes these villages successful, and others not. 

With that knowledge we hope to be able to help villages in poor and remote areas in China to become Tabao villages as well, and help lift themselves out of poverty.  We won’t stop there: indeed, much like Alibaba is a global e-commerce platform, so can the Taobao villages become a global phenomenon.

There are still numerous challenges along the way.  While digital technologies have been spreading, the dividends of these technologies have far less so.  There are two reasons for that.

First, many  of the world’s people are still off line and can’t participate in the digital economy in any meaningful way—for China this number is still about half of the population.  And for every person connected to high-speed broadband, five are not. Worldwide, some 4 billion people do not have any internet access, nearly 2 billion do not use a mobile phone, and almost half a billion live outside areas with a mobile signal.

Second, some of the benefits of digital technologies are offset by emerging risks. Many advanced economies face increasingly polarized labor markets and rising inequality—in part because technology augments higher skills while replacing routine jobs, forcing many workers to compete for low-paying jobs.

What can countries do to address these challenges?

First and Foremost, making the internet universally accessible and affordable.  The unfinished task of connecting everyone to the internet—one of the targets in the Sustainable Development Goals (SDGs)—can be achieved through a mix of market competition, public-private partnerships, and effective regulation of the internet and telecom sector.

Access to the internet is critical, but not sufficient. The digital economy also requires a strong analog foundation, consisting of regulations that create a vibrant business climate and let firms leverage digital technologies to compete and innovate; skills that allow workers, entrepreneurs, and public servants to seize opportunities in the digital world. 

Countries that are able to swiftly adjust to this evolving digital economy will reap the greatest digital dividends, while the rest are likely to fall behind. 

Finally, there are considerable challenges to overcome in cross-border e-commerce—which is true even in China with cross-provincial trade.  In this context it is encouraging to see that the global business community, as exemplified in the G-20 related B20, is keenly interested in strengthening digital trade and other work, and enterprises including Alibaba have taken an initiative to promote the Electronic World Trade Platform (eWTP)—which seeks to harmonize rules and regulations, taxes and customs processing of e-commerce. 

As these challenges are overcome, the internet and e-commerce can truly transform all economies and all villages and help lift the 700 million remaining poor globally, and 55 million poor in China, out of poverty and destitution, and share prosperity across the globe. 

In closing, we at the World Bank hope that we can continue to learn from Shuyang County, Jiangsu province and China, and that we can deepen our cooperation with Alibaba to make the dream of a world without poverty a reality.

I would like to congratulate the Shuyang County People’s Government and the Alibaba group with the organization of this summit and wish the conference a complete success.