Cooperative's Status and Role in Rural Area of China

By Yintang Du

Rural Development Institute of Chinese Academy of Social Sciences

For the international conference on Co-operative Alternatives to Capitalist Globalization

2006, South Africa

        The Chinese cooperative movement started from the 1920s and has gone through the three historical development stages.

        The first period was from the 1920s to the 1949. During this period the cooperative movement divided into three branches. The one was the cooperative movement launched by the people, the second was the cooperative movement launched by the Kuomingtang government and the third was the cooperative one launched by the Chinese Communist Party. The cooperatives at this stage were established as the main agricultural marketing cooperatives and credit ones and the most of them were at the scattered and experimental stage.

        The second development period was from 1949 to 1952. The cooperatives were mainly set up on the basis of agricultural production cooperatives. Meanwhile, the Supply and Marketing Cooperative and Rural Credit Cooperative were also established.

         Since 1982 the third development period has began. For this period China has extensively carried out the system of land contracted and run by the households in the countryside on the basis of the collective ownership. Under the condition of the households engaging in agricultural production and management the original agricultural production cooperatives of the collective ownership disintegrated one after another. At the same time the farmer’s specialized technical associations and farmer’s specialized cooperatives have appeared on the farmer voluntary basis. These two organizations are the main patterns of the Chinese farmer’s cooperatives at present.

        A. Briefly Historical Review

        In the early 1920s and 1930s the various experimental cooperatives started among the people in China. Among them the most famous China and Foreign Relief Fund, Liang Shuming and Yan Yangchu, conducted cooperative experiment respectively in Xianghe County of Hebei Province, Zouping County of Shandong Province and Ding Xian County of Hebei Province. The cooperatives established by the China and Foreign Relief Fund were mainly credit ones, and the most of them developed into more than 10,000. The cooperatives established by Liang Shuming were mainly agricultural marketing cooperatives, the most of them developed into over 300. The cooperatives set up by Yan Yangchu were mainly credit ones and engaged in agricultural marketing and purchase of goods, the most of them developed into over 100. From the whole the above cooperatives were mainly established by a number of Chinese excellent intellectuals, and the number was limited and their cover field was very small.

        In addition to the experiment of the non-governmental cooperative, the then Kuomingtang government launched a series of cooperative experiment in China's countryside in the 1930s and passed a first cooperative law in the Chinese history. However, the most of the rural cooperatives promoted and established by the Kuomintang government accepted landlords and rich peasants as their main members. The credit cooperatives were main bodies and agricultural marketing cooperatives and purchase ones occupied a small proportion of them. At that time the tenant peasants and farm labors who occupied the majority of the rural population had been basically excluded and hardly benefited from such cooperatives.

        Before 1949 the third branch was the agricultural mutual aid cooperatives and supply and marketing cooperatives by the Chinese Communist Party in the revolutionary bases. At that time the revolutionary bases carried out the agrarian reform, the broad masses of peasants became the land-holding ones. During the war period the laboring forces were lacked, the agricultural commercialization level was not high, the peasants universally lacked draught animals, production tools and industrial goods for daily use. Under such circumstance the Communist Party government in the revolutionary bases organized the peasants to set up agricultural production and mutual aid cooperatives and supply and marketing cooperatives which engaged in exchange of agricultural products and coordinated surplus and shortage of agricultural products and by-products. Therefore, such cooperatives were greatly welcomed by the peasants of the revolutionary base.

        Although it was, in the pro-liberation period the cooperative movement was generally in the scattered and small-scale experimental situation in the old China. Particularly the development of Agricultural marketing cooperatives was not positively responded by the broad masses of peasants in the large scope. The basic reasons were two: Firstly, at that time the Chinese agricultural commercialization level was very low, except for the cotton for the textile industry, the most of agricultural products were for the peasants' own use, and thus it was not necessary to organize the cooperatives to sell them, and secondly, in the pro-liberation the most of Chinese peasants were tenant and farm laborers, they were not independent producers of commercial goods and to organize the marketing cooperatives was not in the close interest of them. In the opposite they as tenant peasants and farm laborers urgently demanded for the reduction of rent and loan interest. Therefore, the peasants' association whose main purpose was to lead the peasants to fight for the reduction of reducing rent and loan interest became the major peasants’ organization pattern with the extensive basis at that time.

        After the liberation in 1949, China carried out the agrarian reform nationwide, the broad masses of peasants became land-holding ones. On the basis of land returning to the peasants, the Chinese government led the peasants to launch production mutual assistance groups and use their land to be a share holding member of the agricultural production cooperatives afterwards. Meanwhile, the Supply and Marketing Cooperative and Rural Credit Cooperative with the peasants hold shares were established nationwide. In 1958 the Chinese government changed the agricultural production cooperative which carries out the land share dividends system into the people's commune of the collective ownership of production means and calculation of payment according to their work. The original Supply and Marketing Cooperative and the Rural Credit Cooperative with the peasants hold shares were incorporated in the state-owned commercial departments and state-owned financial sectors one after another and broke away from the principle of peasants' voluntary mutual aid. Under the system of the planned economy, the basic people's communes, Supply and Marketing Cooperative and Rural Credit Cooperative had not the right to independently run. The task targets of various production plans, purchase and sales and deposits had been assigned the basic cooperatives by administrative means at each level and enforced them to implement. Within the cooperatives there was no encourage system so that the members and staffers of the cooperatives lost enthusiasm for production and management. Thus the cooperatives fell into the difficult position of low efficiency and income falling short of expenditure.

         B. Change of Rural Cooperative Organizational System since the 1980s

        1. The Reform of People's Commune System

        After the 1980s the original people's commune system  rapidly dissolved, because the system of the household contracted responsibility linking the remuneration to output was widely pursued in China. The collective properties constituted under the original people's communes and production brigades were divided or sold out to the individuals during the process of carrying out the responsible system of household contracted land, and some of them were reserved and became the properties of township and village management organizations. Thus the two-layer system of the household and collective management has been formed. Except for the original people's commune and brigade enterprises, the scope of the collective management mainly included production items like orchards, pasturelands and fish ponds run by the townships and villages and service items run by the tractor-ploughing teams.

        Since the entry into the 1990s, with the reform of economic system being further pursued, the system of township and village management has further undergone a change. In the agricultural and service field some collective management items have become ones run by the  individuals or partners through the contracts. Some of them have become joint-capital ones, because the contractors have bought shares, offered funds or equipment replcement, and even some of them have turned into the individual holding business. In the second and tertiary industries some township and village enterprises have turned into ones of Share holding cooperative or pure share holding enterprises through the reform of stock properties and newly added properties which absorbed staff stock and social stocks. Still some township and village enterprises have become mixed ones through mutual participation in the stocks and joint management by the state-owned, private and foreign-capital enterprises. Thus the township and village collective enterprises have not simply been community collective economy and become the pattern of crisscross, mergence of multiple economic elements and increasing differentiation and heterogeneous.

        2. The Reform of Supply and Marketing Cooperative System

        The reform of Supply and Marketing Cooperative system is similar to the reform of the production field. The system reform of agricultural products circulation field has realized multiple circulation channels and rearrangement of Supply and Marketing Cooperative system according to the gradual opening-up of agricultural products market and final cancellation of the system of state monopoly for purchase and marketing.

        Before 1985 the new arrangement of the internal system of Supply and Marketing Cooperative was mainly involved in restoring "three characters'' (organizational mass character, management flexibility and democratic management). Such an arrangement also changed the form of "turning government ownership into non-government ownership'' and "restored cooperative nature.'' The implemented measures included two aspects: One was to clear up shares and share out bonuses, finance to increase stock and restore the representative conference of the cooperative members and another was that the quasi-state-owned system of Supply and Marketing Cooperative of the whole country which used to be conducted unified accounting, turned over their profits to the state and assumed the responsibility for their profits or losses, and has been changed into the collective operated system at the basic branches and county unions of Supply and Marketing Cooperative which now is conducted independent accounting, assumed the responsibility for the profits and losses and paid their income taxes. However, before the end of 1985 the reform of "restoring three characters'', "turning government ownership into non-governmental one'' or even "resuming cooperative nature'' did not realize its scheduled goal. The main reason had three aspects: One was that in history the Supply and Marketing Cooperative merged into the state-owned commerce and broke away from it for two times, thus leading to the unclear ownership of original money paid for shares and other huge properties. The second was that a large number of the old staff members of Supply and Marketing Cooperative had become state staffers and constituted such a situation of that they took the "iron bowls'' and "messed together''. The third was that the Supply and Marketing Cooperative carried out the state task of implementing the policies of levy, assignment and purchase, and they often appeared as the state agents, but not as the farmer’s agents. Under such a circumstance it was difficult for the farmer’s interests to integrate with them so that such Supply and Marketing Cooperative could not become a real farmer’s commercial cooperative organization.

        After 1985 with the state monopoly for purchase and marketing being cancelled, the Supply and Marketing Cooperative withdrew from some markets of commercial goods and led to the decrease of economic benefits, increased policy losses and management ones and the burden for their staff welfare keeping increasing, but not reduced. This situation forced the Supply and Marketing Cooperative to embark on the reform road around the economic benefits.

        To reverse the trend of economic benefit declination and expansion losses, the reform of Supply and Marketing Cooperative had been adopted the following forms from 1985 to 1995: 1. Contracted management. On the basis of checking the cost and revenue the target of benefit and loss and quota were contracted with the staff individuals or groups.  2. Renting some properties and selling goods. It was to rent the fixed assets of business sectors of Supply and Marketing Cooperative to the staff members to run and sell goods and floating assets to them. 3. Reform of stock system. To absorb the staff shares, social shares and external legal persons' shares turned the Supply and Marketing Cooperative into share holding enterprises or share holding cooperative enterprises. During the process of the above reforms the arrangement of Supply and Marketing Cooperative system like the township and village collective business organizations was gradually differentiated and becoming heterogeneous.

        3. The Reform of Rural Credit Cooperative System

        The rural credit cooperatives have gone through the process basically similar to the one of Supply and Marketing Cooperative. Before the reform of the economic system the rural credit cooperatives were emerged into the agricultural bank and became the basic branches of the agricultural bank. After the reform of the rural economic system the credit cooperatives firstly broke away from the agricultural bank and resumed their cooperative character. Because the credit cooperatives had only basic ones and did not have cooperative unions, the financing scope was limited within the counties and townships and their fund turnover was still controlled by the agricultural bank. Their credit business was often intervened by the local governments, thus it led to their large management losses, and they were forced to take the road of the commercial bank in order to increase their own economic benefits.

       C. Development of New farmer’s Cooperative Organization

        After the above reforms the Chinese farmers face a completely new situation. Because in one aspect the land is contracted to run by the households, the farmers' enthusiasm for production has greatly been enhanced, the households have become the main body of production, they have the right to independently choose what they produce and how they produce, therefore, their demand for new varieties of production development and new technology increased rapidly. With the production capability being raised, the supplies of agricultural products have also greatly increased. In another one because the guide system of the agricultural production and sales channels under the planned economy have not existed, the scattered business agricultural households have been in the situation of blind development of production and disorderly competition. The urban and rural markets are not perfectly integrated and local markets are separated so that the phenomenon of surplus and shortage of agricultural products appeared at the various places at the same time. Under such a situation the farmers' specialized technological associations and specialized cooperatives as two new farmer’s organizations have emerged as the times require.

        The largest differences between the cooperatives and associations are: The associations are non-profitable organizations in charge of spreading technologies and exchanging information, but the cooperatives are economic entities which are mainly to marketing agricultural products. According to the statistics of the Agricultural Ministry at the end of 2003 among the various new farmers' organizations, the cooperatives were only 5 percent, the associations were 85 percent and share holding cooperatives 10 percent. From the regions new farmers' organizations have rapidly developed in the eastern and central regions of China and slowly developed in the western region. Among them the cooperatives and stock cooperative enterprises are mainly concentrated in the eastern coast areas.

        1. Farmers' Specialized Technological Associations

        The farmers' specialized technological association emerged in the early 1980s. According to the statistics of the Chinese Scientific and Technological Association there were 90,000 farmers' specialized technological associations in China by the end of 2004.

        On the basis of the background of their formation the farmers' specialized technological associations generally have five types: The first is initiated and established by the scientific and technological associations in various places of China, the second is initiated and established by the government agricultural technological service organs including the stations of agricultural technology extension service, the third is initiated and established by the Supply and Marketing Cooperative, the fourth is initiated and established by the rural skill specialized households and crackajacks and last one is initiated and set up by the agricultural products processing enterprises. According to the investigation, among the 758 members of 14 specialized technological associations in Dayi County of Sichuan Province, 11 percent of them were official technicians, 9 percent were semi-official technicians, 49 percent were farmer crackajacks and 31 percent were ordinary farmers in 1987. From this the official and semi-official technicians and farmer technicians played a backbone role in the associations. Among the above farmers' specialized technological associations, some of them simply engaged in information exchange activities, some of them provided paid services and others set up economic entities. According to the related statistics, by the end of 1991 among the 120,000 agricultural technological associations in China 50 percent of them had been loose “technological exchange ones'', about 40 percent of them had been "economic and technical service ones'', and about 10 percent "economic entities''. Among the economic entities set up by the associations there were different institutional enterprises. There were cooperative enterprises, joint-stock enterprises, private and partnership ones. Thus it can be seen that the farmers' specialized technological associations are largely different and multiple organizations.

        Up to now farmers' specialized technological associations have developed for more than 30 years. The number of associations set up in all places of China is large, and they cover wide regions. However, absolute majority of them have still been at the stage of engaging in information exchanges, spreading technologies and conducting guidance activities. A few of them have extended their businesses to the commercial field, but they have also mainly been intermediary agencies. They only do business occasionally in small scale and do things in their own way.

        2. Farmers' Specialized Cooperatives

        In addition to the farmers' specialized technological associations, the farmers' specialized cooperatives are another new-type cooperative organizations which have developed in recent years. These new-type farmers' specialized cooperatives early emerged respectively in Shanxi and Shangdong provinces and quickly developed in the coast provinces.

        Similar to the farmers' specialized technological associations, the main bodies established by the farmers' specialized cooperatives also have multiple characteristics. Some of them are initiated and established by the Supply and Marketing Cooperative, state-owned enterprises, village self-rule organizations, governmental service organs. Some of them are initiatively established by the farmers and a quite number of them have directly come out from the farmers' specialized technological associations or specialized technological associations set up by the agricultural products processing enterprises.

        According to the investigation of Hebei provincial agricultural department, till October of 2003 there were total number of 2694 new farmers' cooperative organizations in Hebei Province and their members were 1.056 million, making up 7.4 percent of the total agricultural households; contacted agricultural households were 3.24 million, making up 22.6 percent of the total agricultural households. The character of these organizations' initiators were largely divided into five types: The first was that about 30 percent of the cooperatives were established by rural skill specialized households, brokers and scientific and technical crackajacks; the second was about 20 percent of the cooperatives were established by the rural administrative cadres; the third was that about 18 percent of the cooperatives were established by large agricultural products processing enterprises and marketing enterprises, based on the specialized markets and production districts; the fourth was that about 17 percent of the cooperatives were set up by the county and township Supply and Marketing Cooperative; and the fifth was that about 15 percent of the cooperatives were set up by the government technical service organs.

        The pluralistic origin of the farmers' specialized cooperatives has decided the institutional arrangements are multiple and heterogeneous. The investigation of typical cases shows that in the proprietary structure the farmers' share and corporate share respectively occupied for certain proportion in many specialized cooperatives. In some cases, the Supply and Marketing Cooperative, companies, enterprises, township and village collectives, and governmental departments own big share and the cooperative members have a small share, and in some cooperatives the cooperative members' share holds a major proportion. In the shares owned by the cooperative members some cooperatives pursue the pattern of average share or one share one person according to the traditional principle. Some cooperatives have adopted the form of deducting share funds from the patronage dividends and constituted proportional shares in conformity with the trade volume. In some cooperatives, there is no limitation on their members' shares and the skill specialized households usually own major shares.

        In the field of profitable assignment, it is generally stipulated to draw a certain proportion of accumulation funds and particularly the cooperatives where the corporate share is big have stipulated the high proportion of accumulation funds. Some cooperatives have stipulated not to separate the public accumulation resulted from this. Some cooperatives have stipulated to allocate them to the member’s share record book or increase member’s new shares according to their original share. After deducting the accumulation funds the profits can be assigned, some cooperatives have adopted the form of limiting the share interests and other profits are returned to members as the patronage dividends according to their trade volume. Some cooperatives have adopted the pattern of assigning partial profits according to the shares and partial profits are returned to members as the patronage dividends according to their trade volume. Among them the assigned proportions based on shares ranged from 10 percent to 50 percent. A few cooperatives assign all the profits according to the shares. Some cooperatives set up by Supply and Marketing Cooperative have adopted the pattern of freely buying share and withdrawing them, and those who have bought shares over the one year can draw profitable dividends. Their interest rate of drawing extra dividends are a number of percentages higher than the deposit interest one of the bank. Those who have bought shares for less a year can draw their interest rate according to that of the bank. Thus there is not big differences between the buying shares and deposit in the bank.

        In management a large number of cooperatives have established the system of members' representative conference, council and supervisory committee. In the cooperatives in which the corporate shares are big the corporate representatives often take the posts of council directors or deputy directors and appoint managers to control the right to decision-making and management of the cooperatives. In the cooperatives set up by the farmers' specialized associations and by the farmers themselves a large number of technical crackajacks or skill specialized households take the posts of council directors or cooperative managers, and these cooperatives have well conducted the democratic management and carried out the system of one vote one person.

        Although the present farmers' specialized cooperatives have big differences in the arrangement of their internal system, they have common characteristics. One of them is that in these cooperatives farmer members preserve the status of their independent producers, voluntarily join the cooperatives and freely withdraw from them, and this is entirely different from the past collective-owned economy. The second of them is that these cooperatives receive the skill specialized households as their members, engaging in the management of specific agricultural products. The cooperatives and their members have allied relations of coexistence and co-prosperity, and this is entirely different from the past Supply and Marketing Cooperative. The third of them is that in addition to that the specialized cooperatives hosted by Supply and Marketing Cooperative carry out the system of guaranteeing interest and drawing extra dividends, the most of specialized cooperatives return more or less profits to their members as the patronage dividends according to the trade volume, thus having close interest relations with the farmers. It is just these characteristics that the specialized cooperatives have a strong appeal to the farmers.

        D. The Role of Farmers' Specialized Cooperatives in China's Rural Development

        The Chinese farmers' specialized cooperatives have played multiple roles in organizing the farmers to jointly richen:

        First, these cooperatives have played a big role in spreading new technologies and new varieties. In the past the peasants of the most of Chinese areas mainly grew grain for generation after generation, used backward farming technique and low-yield varieties. They had a little surplus agricultural products to sell on the local markets, and the most of them had fallen in the poor situation. According to the statistics by the State Statistical Bureau before 1985 the poor population in China's countryside was 250 million. In recent years with a large number of farmers' specialized technological associations emerging and new technique of agricultural production and new varieties being quickly spread and popularized, the farmers in many places have turned to grow vegetables, fruits and cash crops from simply growing grain. Their mode of production has changed into specialization and mechanization. In the past the grain of per Mu (a unit of area, equal to 0.0667 hectare) grain yield was about 1,000 Jin ( a unit of weight, equal to a half of kilogram) and the net income was 300-400 Yuan (Reminbi) after deduction of the cost. At present the net income of per Mu vegetables and fruits can amount to 1,000-3,000 Yuan, even more. With the production capability being enhanced and production structure improved, in 2004 the rural poor population of China decreased to 64 million.

Secondly, these cooperatives have played a great role in organizing the farmers to enter into market and raising added value of agricultural products. In the past a large number of peasants of China were a family as a household, scattered  to run and produced on a small scale. Their agricultural products could sell only in local fairs or sold to the mobile pedlars. The price of agricultural products was slightly higher than the production cost and the cost of laboring forces. All the profits of processing and sales were earned by the middlemen and processing enterprises. After the establishment of the farmers' cooperatives the agricultural products produced by the small agricultural households can sell into far markets on a large scale through the cooperatives, the profits of processing and sales can been drawn through the cooperatives and the dividends are returned to the agricultural households. According to the survey by the Agricultural Ministry, the average net income of those who have taken part in the agricultural cooperatives are 300-400 Yuan higher than those who did not join the cooperatives due to the improvement of the conditions of agricultural products exchanges.

        Thirdly, the farmers' capability to resist the market risk is enhanced. With the level of agricultural mechanization being constantly raised in recent years, the regional and periodic agricultural products surplus on the domestic markets has sometimes arisen. When the supply of some agricultural products falls short to demand and the market is tight, some commercial companies and enterprises have signed a lot of contracts with the farmers to expand production for their own profits. Once the great deal of agricultural products are on the market, these companies and enterprises force the price down to purchase these products, even scrap their contracts signed with the farmers and refuse to purchase or withdraw their funds to transfer them. This has brought about the unexpected losses and market risk upon the farmers. In order to deal with such a situation, the farmers in some places have initiatively organized cooperatives and safeguard their own right and interest with the contracts of these cooperative with companies and enterprises. When the companies and enterprises force the price down and refuse to purchase, these cooperatives organize to sell and process by themselves and play a role in stabilizing the market and production, reducing the market risk and farmers' losses.

        Although the new farmers' specialized cooperatives have developed in China, many problems still exist at present.

        First, up to now there is no law on the cooperative inside of China which definitely stipulates the legal status of the farmers' specialized cooperatives and especially does not give their legal status of enterprise corporate. Thus it is difficult for the farmers' specialized cooperatives to launch normal business activities and prevent their development.

        Next, in history the Chinese government had taken the rural cooperatives as a mode of social transformation and deprived the farmers' initiative right to produce and manage and come along many tortuous roads, thus causing misunderstanding and bias toward the cooperatives from the people. Therefore, it is brought about the ideological and opinion obstacles upon the reorganization of the rural cooperatives.

        Third, because there is no law on the cooperatives and there are no government guidance and typical example, the development of Chinese farmers' specialized cooperatives is not standard. The internal proprietary relations of many cooperatives, management ways and assignment system do not conform with the international current cooperative principles.

        Fourth, the development of many farmers' specialized cooperatives is at the initial stage and their scale is small. These cooperatives lack professional talents and management experience and have not established extensive allied and network relations. In the market competition with the big companies and enterprises they are in an unfavorable position.

        Fifth, the cooperatives' capital strength is weak, their circulating funds are universally not enough and their financial development is stagnant. All these seriously prevent the farmers' specialized cooperatives from developing and become stronger.

        In the light of above issues, the Chinese government is now speeding up to draft the law on the farmers' specialized cooperative and working to formulate the corresponding favorable policies toward them. It is believable that with the Chinese economic systematic reform deepening, the above issues will be resolved one by one in the near future.