Supply and marketing cooperatives in rural China are one step ahead of foreign and domestic retailers in the race to win China's booming rural consumer market.

Retailers ranging from US-based Wal-Mart and France's Carrefour to domestic supermarket operator China Resources Vanguard are turning their attention to China's smaller cities as markets in the country's first-tier cities start to get saturated.

Beijing's determination to boost rural consumption is also expected to set off competition among retailers that have until now focused mainly on the country's big cities, said Li Chengyu, president of the All China Federation of Supply and Marketing Cooperatives.

"The supply and marketing cooperatives have helped to consolidate distribution and retail resources in rural China, establish many retail centers of consumer goods, and franchise shops and convenience stores across the nation. This has significantly boosted consumption in the rural areas," Li said.

Through rapid expansion of its network of retail chain stores, supply and marketing cooperatives such as New Cooperation Joint-Stock Trade Chain Co Ltd, a subsidiary of China Co-Op Group, are rising as major players in China's rural retail market.

Established in 2003, the Beijing-based supermarket chain is planning to grow its retail outlets to 100,000 with total sales revenue reaching 50 billion yuan ($7.35 billion) in the next two years.

"The retail market in rural China has high growth potential and we know that the competition will only get tough," said Chen Zuxin, a senior manager at China Co-Op Group, the parent company of New Cooperation. "Our advantage is the extensive retail network and resources we have with the local cooperatives."

With more than 80,000 stores in 16 provincial regions, New Cooperation is preparing for an initial public offering in the country's capital market to raise funds for its retail expansion.

China established a nationwide system of supply and marketing cooperatives in the 1950s under a planned economy as a way to facilitate the country's rural economic growth.

The supply and marketing cooperatives have undergone extensive restructuring during China's transition into a market economy since the late 1970s.

The system has become a major force in the burgeoning distribution and retail sector of rural China. There are 2,377 supply and marketing cooperatives at the county level and 21,000 more at the township and village levels.

In the first half of the year, China's supply and marketing cooperatives made a total of 634 billion yuan in sales, a 15 percent rise year-on-year.

The cooperative system also posted a 16.1 percent profit surge to 3.88 billion yuan in the first half of this year.

The opportunity for rural retailers is enormous as two-thirds of China's population lives in rural areas.

Retail sales in the country's rural areas jumped 16 percent to 4 trillion yuan last year, outpacing urban spending for the first time, according to the Ministry of Commerce.

Private equity funds and venture capital firms have already sniffed out lucrative opportunities in China's rural retail market.

My Decker Capital, a China-focused investment firm that has investors from the United States and Russia, recently injected $40 million into New Cooperation as a strategic investor.

In the meantime, China's supply and marketing cooperatives are expanding its presence in the international cooperatives community in an effort to intensify cooperation and exchanges with overseas cooperatives in the field of rural economic development.

The supply and marketing cooperatives have been playing an important role in the international cooperative movement by establishing more than 1,400 joint ventures and cooperative enterprises with overseas cooperatives.