A rural credit cooperative (RCC) () or () is a cooperative or credit union sanctioned by

People's Bank of China The People's Bank of China (officially PBC and unofficially PBOC) is the central bank of the People's Republic of China. It is responsible for carrying out monetary policy as determined by the ''PRC People's Bank Law'' and the ''PRC Commercia ...

to provide

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

in the rural areas of the People's Republic of China.

History

In the 1950s, a network of rural credit

cooperatives A cooperative (also known as co-operative, coöperative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democr ...

was created. At this time, they were not commercial enterprises similar to banks, but rather channeled credit between the state and the

people's commune The people's commune ( zh, c=, p=rénmín gōngshè) was the highest of three administrative levels in rural areas of the People's Republic of China during the period from 1958 to 1983, until they were replaced by Townships of the People's Rep ...

s in rural areas. In the late 1970s, after economic reforms enabled some individual

entrepreneurialism Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...

and the creation of

collective A collective is a group of entities that share or are motivated by at least one common issue or interest or work together to achieve a common objective. Collectives can differ from cooperatives in that they are not necessarily focused upon an e ...

enterprises, the RCCs began to function as grassroots banks that provided credit and

savings Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an ...

accounts to families and collective enterprises. In the reform era, the RCCs were intended to serve as a means for the

Agricultural Bank of China The Agricultural Bank of China (ABC), also known as AgBank, is a Chinese partially state-owned multinational banking and financial services corporation headquartered in Beijing, China. It is one of the " big four" banks in China, and the second ...

to funnel credit into rural areas. However, the RCCs were insufficient to meet the high demand for credit in these areas. Individual and enterprises often turn to other sources of credit, which range from

rotating savings and credit association A rotating savings and credit association (ROSCA) is a group of individuals who agree to meet for a defined period in order to save and borrow together, a form of combined peer-to-peer banking and peer-to-peer lending. Members all chip in regula ...

s to

pawn shop A pawnbroker is an individual that offers secured loans to people, with items of personal property used as collateral. A pawnbrokering business is called a pawnshop, and while many items can be pawned, pawnshops typically accept jewelry, ...

s. However, these other forms are all illegal, although some are tolerated to a greater degree than others, and are tolerated in some locations more than in others. Commercial banks are legal, but since fewer than one percent of loans from state banks go to private entrepreneurs, they do not meet the credit needs of rural areas. Until 1996, the RCCs were supervised by the

. In 1996, they were transferred to the

. In July 1998, the rural credit

foundations Foundation(s) or The Foundation(s) may refer to: Common uses * Foundation (cosmetics), a skin-coloured makeup cream applied to the face * Foundation (engineering), the element of a structure which connects it to the ground, and transfers loads f ...

(RCF) () were banned when the

State Council of the People's Republic of China The State Council of the People's Republic of China, also known as the Central People's Government, is the chief administrative authority and national cabinet. It is constitutionally the highest administrative organ of the country and the e ...

() issued the "Provisions on the Cancellation of Illegal Financial Institutions and Activities". This left the RCCs as the only legal financial institution (other than banks) that served rural enterprises and individuals. As of 1998, when the RCFs were banned, there were approximately 44,000 township-level RCCs and 280,000 village-level RCC branches.Tsai (2004), 1489. Since 1998, many of the RCCs have gradually been transformed into rural commercial banks (RCBs). The first foreign investment in an RCB was allowed in 2006, when

Rabobank Rabobank (; full name: ''Coöperatieve Rabobank U.A.'') is a Dutch multinational banking and financial services company headquartered in Utrecht, Netherlands. The group comprises 89 local Dutch Rabobanks (2019), a central organisation (Raboban ...

and the

International Finance Corporation The International Finance Corporation (IFC) is an international financial institution headquartered in Washington, D.C. and a member of the World Bank Group that offers investment, advisory, and asset-management services to encourage private ...

(the private sector arm of the

World Bank The World Bank is an international financial institution that provides loans and Grant (money), grants to the governments of Least developed countries, low- and Developing country, middle-income countries for the purposes of economic development ...

) acquired stakes in the United Rural Cooperative Bank of Hangzhou.

Challenges

Due to a high volume of

non-performing loans A non-performing loan (NPL) is a bank loan that is subject to late repayment or is unlikely to be repaid by the borrower in full. Non-performing loans represent a major challenge for the banking sector, as they reduce profitability. They are ofte ...

, many of the RCCs are technically

insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...

. Since 1998, central banking authorities have injected approximately US$4 billion into

recapitalization Recapitalization is a type of corporate reorganization involving substantial change in a company's capital structure. Recapitalization may be motivated by a number of reasons. Usually, the large part of equity is replaced with debt or vice versa. ...

the RCCs, and have considered other measures for improving the performance of the RCCs. Although the RCCs are gradually being transformed into independent commercial banks (RCBs), they are still not immune from government requests to make

policy Policy is a deliberate system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally adopted by a governance body within an or ...

loans (loans issued for political reasons, such as the desire to support certain politically important industries or firms, rather than because the firm is an attractive candidate for a loan).Tsai (2002), 208.

Notes

{{Economy of China Credit unions of China Finance in China Economic history of the People's Republic of China People's Bank of China Rural economics Rural development in China

History

Challenges

See also

Notes