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Why China is investing billions in rural broadband

Why China is investing billions in rural broadband
2015-11-162015-11-24emerging marketsen
China has the world’s largest online population – and the government is not satisfied. It believes that investing in broadband infrastructure could help lift tens of millions of rural Chinese into the middle classes.
Published November 16, 2015 by Steve Harris in emerging markets

China has the world’s largest online population – and the government is not satisfied. It believes that investing in broadband infrastructure could help lift tens of millions of rural Chinese into the middle classes.

By the end of 2014 there were 642 million internet users in China, around 22 percent of the world’s total users and more than the next three countries, United States, India and Japan, combined.

That said though, China still also has a pretty significant digital divide. The rise of a moneyed middle class with ever-growing disposable income has contrasted with an internet penetration rate of just 47.9 percent in 2014 - with connectivity particularly low in smaller cities and rural areas.

In 2013 China’s State Council announced a new national broadband plan aimed at bridging this digital divide. That initiative has now been backed by the news that the country plans to invest $22 billion on improving its rural broadband connectivity, targeting 50,000 villages around the country. It is a logical next step forward, since narrowing the digital divide between urban China and its rural outposts is a key priority of the Chinese government's broadband and economic expansion plans.

Expanding coverage, increasing opportunities

The eventual goal of the investment in rural broadband is to extend higher quality connectivity to an additional 30 million rural households by 2020, and the national council has also targeted giving 98 percent of China’s rural population internet access by then.

While China’s major cities and urban localities have already enjoyed the benefits that high speed connectivity can bring, bringing rural communities inside the tent has taken some time. The $22 billion investment in strengthening rural telecom services is intended to help attract external and internal investment as well as power commercial and social development of the areas.

A further goal is to help grow e-commerce in rural locations, increasing competition throughout the country and having knock-on effects like helping local farmers, for example. Another element of the project is to trial e-commerce village projects in poorer parts of the country, pilot initiatives designed to bring ‘smart city’ style benefits to rural towns and villages.

Addressing a growing demographic

There is a symbiotic relationship at play. As China’s middle classes and urban areas have grown in wealth and sophistication, so the knock-on effect to citizens in rural areas has created increased expectation levels. Citizens in rural parts of china now have higher expectations in terms of wage increases than their urban counterparts. They too want to be consumers – which in turn creates demand and commercial opportunities.

These commercial opportunities are a key part of the mix. Industrialization is widespread throughout Asia’s economies, and it is not solely an urban phenomenon. Companies that want to expand operations are finding what they need to look outside of major cities, with the advantages of reduced CAPEX and OPEX thrown into the pot. Rural locations offer cheaper land and labor costs, reduced congestion and a potential workforce eager to embrace next generation infrastructure and technologies. The potential is huge. Rural broadband initiatives like China’s help create a development path for remote regions, with fast broadband their connection to the wider world – creating all new economic opportunities.

Likely outcomes and benefits

The potential benefits to China’s citizens who live in remote and rural areas are numerous. High speed broadband connectivity can help them become regular consumers, able to tap into e-commerce savings currently enjoyed by their urban peers. There are potential education benefits too, with fast connectivity opening up the possibility for e-learning initiatives. Similarly healthcare opportunities can grow, with m-health and e-health suddenly options not previously available.

In economic terms, local businesses in rural locations will have increased opportunities, thanks to links with larger urban markets within China and potentially global markets too. Job growth can be positively affected, while those working in the agricultural sector – a significant number in China – have the potential to grow their businesses. Furthermore, China's investment in rural broadband could even benefit global network equipment makers, with more physical technology kit needed to support the expansion.

The investment in rural broadband in China certainly appears to be a win-win situation for all – with service providers, e-commerce companies, infrastructure providers, the Chinese government and most of all its consumers all set to benefit.

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