The government's efforts to build a "new socialist countryside" will benefit China's 745 million rural residents and provide huge business opportunities for foreign-funded firms, economists say. Most of these companies, however, seem to be in little hurry to rush into the market.

Consumer goods manufacturer Unilever says the company will continue to focus on sales in the country's urban areas, where it has identified the greatest market potential. The company's sales in China hit approximately 5 billion yuan (US$617 million) last year, and major cities were its main market.

"Yes, there is potential in rural China, but we have to study distribution channels and costs before we expand there," an official at Unilever's Shanghai office says by telephone. "This expansion will depend on the market situation."

Unilever's approach is typical of many foreign-funded firms. Food and beverage giant PepsiCo Inc, US retailer Wal-Mart and the Seven-Eleven convenience store chain are among other foreign enterprises that also do not have any immediate plans to expand into rural China.

"The rural market has potential, but it hasn't really materialized yet. The government's efforts will help increase rural incomes and stimulate consumption, however," a spokesman with PepsiCo's Beijing office says.

The company's sales in China rose 25 per cent last year, and it expects similar growth this year. PepsiCo's beverage unit, which accounts for about 80 per cent of its sales in China, generated approximately US$1 billion in sales last year.

PepsiCo, is of course, competing with Coca-Cola Co in the rapidly growing Chinese market. It said earlier this year that it would invest US$850 million in China within the next three years.

"We do care about the rural market, but that does not mean we have a rural expansion plan yet," the PepsiCo spokesman says.

Qi Jingmei, a senior economist with the State Information Centre, says the cautious approach that foreign-funded firms are taking is understandable.

"They need to study the market and identify which companies are their major competitors," Qi says.

PepsiCo and Coca-Cola, for example, will have to face competition from leading top domestic soft drink maker Wahaha. The producer of Future Cola saw its revenues climb more than 10 billion yuan (US$1.23 billion) for the first time in 2003. It is now the world's fifth-largest beverage producer.

"Foreign-funded firms are also eagerly waiting for rural distribution networks to mature," Qi says.

A lack of development has held back consumption in the country's rural areas. Even in wealthier rural areas in East China's Zhejiang Province, where per capita gross domestic product stands at more than US$3,000, consumer access is limited to small grocery stores with a limited selection of products.

Qi says this situation will soon improve under the government's nationwide programme to establish 250,000 rural stores in most counties between 2005 and 2008. The central government will direct 60 million yuan (US$7.4 million) into these stores, and will work to attract additional private funding as well.

In East China's Jiangsu Province, for example, Suguo Supermarket Co Ltd has already launched more than 1,400 outlets. The company sells products in rural areas and purchases local produce. It plans to further expand into rural parts of East China, including Zhejiang, Jiangsu and Anhui provinces. The consolidation of rural distribution networks will help foreign-funded firms sell their products in these areas, Qi says.

Rising rural incomes should lead to the spread of low-end products such as cheap mobile phones, TVs and motorcycles, says Tang Min, chief economist with the Asian Development Bank's Resident Mission in China.

Rural income levels are already close to what urban residents were earning in the 1990s, Tang says. Figures from the National Bureau of Statistics indicate that per capita net income among rural residents stood at 3,255 yuan (US$401.9) last year, an increase of 6.2 per cent from 2004.

Like their urban counterparts in the early 1990s, rural residents will likely gravitate towards foreign products, which are widely believed to be of higher quality, Tang says.

One of the most important aspects of the country's overall development plan in the coming decade is to stimulate rural consumption, which lags far behind the country's urban areas. Rural residents account for 57 per cent of the country's total population, but only contributed about 32 per cent to retail sales last year.

Although the agricultural sector has performed strongly since the late-1970s when the country began opening up, rural income growth has been slow. This is largely due to relatively slow growth in demand for farm produce.

Between 1998 and 2004, the annual net income of an average rural resident increased by only 4.3 per cent, half of the 8.6 per cent growth rate in urban areas.

The Chinese Government has long emphasized issues related to agriculture, the countryside and farmers. These matters have been on the top of the agenda since the 16th National Congress of the Communist Party of China (CPC) in 2002.

The CPC Central Committee has introduced a new concept to bring about a socialist new countryside in the drafting of the 11th Five-Year Plan (2006-2010). This new countryside will enjoy advanced production, improved living standards, social unity, a clean environment and democratic management.

Chinese Premier Wen Jiabao told the opening of the National People's Congress on March 5 that the government will spend 339.7 billion yuan (US$42 billion) on agriculture, rural development and farmers this year, an increase of 14.18 per cent over last year.

"We need to implement a policy of getting industry to support agriculture, and cities to support the countryside. We need to strengthen support for agriculture and farmers, and continue to reform rural systems. Innovation in rural institutions will bring about rapid and significant changes throughout rural China," Wen said.

(China Daily 03/13/2006 page2)