Things must be bad if Lenovo thinks farmers will help it get back on track. Chairman Liu Chuanzhi is out promoting the company's aggressive expansion into the countryside, lured in part by government subsidies for rural consumers who buy home appliances and IT products. This isn't the first time Lenovo has turned to low-cost products to grab market share in China -- anyone remember the Yuanmeng PC? For investors, the news is bittersweet. Lenovo will marginally boost the top line, but likely see its profits shrink on the back of lower ASPs and higher marketing costs.

Lenovo hopes to sell 5 million PCs in rural areas, establish 700 county-level sales and service outlets, and cover 320,000 villages across the country through 7,800 sales networks in the following three years. That's a tall order, but Lenovo is the best positioned to do it in China, with a market share of 42% in areas at or below county level.

Lenovo will launch 15 new models designed for rural users, with retail prices of roughly RMB3,000 (US$437). This qualifies the products for a 13% government rebate, intended to stimulate rural demand by increasing affordability. For other PC makers in the program, known as 家电下乡 click here.

It should be no surprise that affordability, not technology alone, has always been more important to the development of China's PC industry. Lenovo knows this well. The company's 2004 introduction of the Yuanmeng PC became a growth enabler for China's computer industry. Priced as low as RMB2999, or about $361 at the time, it marked a record-low price point for China. Other vendors had to follow Lenovo down the price curve, causing PC ASPs to drop 14% in 2005 versus a 6% drop in 2004, according to market research firm RedTech Advisors. This drop helped accelerate sales from 11.4% in 2004 to 18.8% in 2005.

I don't believe Lenovo's current move will have similar effect. China's rural consumers only comprise one-third of retail sales. That won't change anytime soon, especially since migrant workers are being disproportionately affected by China's export slump.  Moreover, rural ownership of PCs markedly trails that of urban ownership -- implying the market has potential but also implying it is tougher to crack because of lower levels of disposable income.ck because of lower levels of disposable income.