China's rural market, will it decline or prosper? Opinions vary. Some believe that with a shrinking rural population and rapidly falling consumption, economic decline is inevitable, or at least not optimistic. However, the author argues that the rural market will never wither, and the current drastic changes are a necessary process for the release of energy from this huge market of 600 million people.

Source: Lanli Jiandui

From a historical perspective, debts must eventually be repaid. Since the founding of the People's Republic, agriculture and rural areas have heavily subsidized industrial and urban development through the "price scissors" mechanism, causing widespread poverty in rural areas. With market liberalization (no more "capitalist tails," agricultural product prices liberalized) and population liberalization (initially allowing farmers to enter cities with their own grain, and now gradually recognizing migrant workers), this inequality has been gradually broken. In the future, resource liberalization (rural land transfer) will accelerate this process. As for the large-scale outflow of rural population during this period, I believe it is merely a temporary overreaction caused by excessive wealth disparity. Just as there were waves of going abroad and returning, in recent years, rural areas have gradually become wealthier, the population decline has slowed, and a wave of returning entrepreneurs has emerged in affluent areas. Thus, what is owed to farmers and rural areas will eventually be compensated, and the rural market will not wither.

From the present perspective, demand will always be met. In the last two decades, farmers' per capita income and consumption have grown rapidly, with accelerating growth rates. Especially in the last five years, the growth rate of farmers' per capita consumption has outpaced that of per capita income, indicating a clear trend of consumption upgrading in rural China. This market, currently undergoing consumption upgrading, has a large population (600 million) and a huge scale (nearly 5 trillion yuan in total retail sales of consumer goods), and will certainly become a global market hotspot, with all parties focusing on the rural market. Therefore, the countryside will not be a desert but an oasis and a blue ocean; the rural market will not wither.

From the future perspective, resources will not be wasted. At a time when urban resources are increasingly depleted, rural China still has a large amount of inefficient resources, such as the most representative land resources. The market will seek the optimal allocation of resources to maximize efficiency. Therefore, with the liberalization of rural resources (such as land transfer), the rural economy will undergo a huge transformation, and perhaps farmers moving to cities and urbanites moving to villages will become a trend. No matter what transformation occurs, with the marketization of resources, the urban-rural wealth gap will narrow, and the rural market will not wither.

[Question 1] Why is it a temporary overreaction caused by excessive wealth disparity? Due to the excessive urban-rural wealth gap, when farmers were allowed to enter cities, a rush to cities quickly formed. Early migrant farmers did gain economically, further stimulating this process. However, in recent years, with rapid rural economic development and slowing urban economic growth, in relatively affluent rural areas, the urban-rural income gap is narrowing, and a return wave has begun. I have seen a young rural couple who contracted dozens of acres of watermelon greenhouses, with a net annual income of about 200,000 yuan, far better than their previous income from working in cities.

[Question 2] Rural hollowing-out is severe, and the trend is hard to reverse. As for the issue of rural population outflow or return, I will not elaborate further. From another perspective, even if rural hollowing-out becomes severe in the future, a large number of idle resources (such as land) will not be wasted; the market will promote efficient use of resources. Currently, because China has not yet fully marketized and legalized the transfer of rural land resources, farmers have no way to transfer or use their land. However, from the policy environment, rural land transfer is a necessary and inevitable trend. Once low-cost rural resources, represented by land, are liberalized, many enterprises or individuals will enter rural areas, leading to a thorough transformation of the rural market.

Rural Market Environment

[Market Size]: In 2014, China's total retail sales of consumer goods reached 27,189.6 billion yuan, with a compound annual growth rate of 13.72% over the past 20 years. The rural market share remained stable at around 15%, approximately 4,000 billion yuan. Thus, although the rural market share is relatively small, it is relatively stable, and its market size remains considerable.

[Social Environment]: In 2014, China's total population was 1.368 billion, of which the urban population was 749 million, with a year-on-year growth rate of 2.47%; the rural population was 619 million, with a year-on-year growth rate of -1.74%. China's urbanization process continues to advance; in 2011, the urban population exceeded the rural population for the first time. However, with the increasing burden on cities and the gradual development of new rural construction in recent years, the trend of rural residents moving to cities is slowing, and the process of local urbanization is accelerating! Perhaps the future direction is to build rural areas into cities, rather than bring rural people to cities. Over 600 million rural consumers have always been a huge market!

[Economic Environment]: In 2014, the per capita disposable income of rural households was 10,489 yuan, and consumption expenditure was 8,383 yuan, with both per capita net income and consumption expenditure growing rapidly. Among them, per capita net income had a compound annual growth rate of 10.14% over the past 20 years, 13.15% over the past 10 years, and 13.70% over the past 5 years; per capita consumption expenditure had a compound annual growth rate of 10.26% over the past 20 years, 14.11% over the past 10 years, and 17.61% over the past 5 years. The growth rate of per capita consumption expenditure is higher than that of per capita net income. From this, it can be judged that with steady income growth, the rural consumption structure is changing, consumption demand is rapidly releasing, and rural areas are entering a phase of consumption upgrading!

[Policy Environment]: In the past two years, China has issued consecutive documents directly targeting rural consumption upgrading and targeted poverty alleviation in agriculture. In the current situation of overcapacity in industrial production and high circulation costs of agricultural products, fully activating the rural market, building infrastructure, accelerating two-way circulation, and achieving the delivery of industrial goods and agricultural materials to the countryside and agricultural products to cities should be the necessary means to solve economic problems under the new normal. In a word, the whole society needs a prosperous and stable rural market.

[Economic Time Lag]: In 2005, urban per capita disposable income was 10,493 yuan, and per capita consumption was 7,943 yuan; in 2014, rural per capita disposable income was 10,489 yuan, and per capita consumption was 8,383 yuan. The similar figures indicate that China's urban and rural economies are ten years apart. This ten-year gap also means that rural China will inevitably experience the rapid economic development that cities experienced in the past decade. Therefore, perhaps a wildly growing market is on the eve of its launch!

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