Co-operative financial institutions and local development in China

Abstract

In recent decades the Chinese financial system has undergone dramatic restructuring, which has substantially altered the country's mutual and cooperative financial institutions. This paper aims to contribute to our understanding of the process, practice and consequences of these developments by systematically charting the trajectory and dynamics of the co-operative financial landscape in China, and by analysing the role that these financial institutions have played in China's socioeconomic change. It is argued that China's financial co-operatives have been de-localised through processes of consolidation and centralisation. They have also been increasingly commercialised within a system based on 'market logic', which has changed their developmental role in the Chinese economy. At the same time, however, recent policy has sought to reinstitute locally-focused financial and farmer co-operatives in rural areas. Moreover, local informal and semiformal modes of co-operative organisation and action have continued to be widespread across the country.

1. Introduction

“…' 5 This issue of decreasing support for marginal households and rapidly increasing socioeconomic inequality within rural areas -particularly after the waves of privatisation in the 1990s -resulting in seemingly intractable poverty for certain segments of the rural population, has also been highlighted in much research on rural China (Sanders, Chen, & Cao, 2007;Schak, 2009;Unger, 2002a). At the same time, China's wider integration into the global capitalist system and the ensuing market-oriented policy reform has systematically marginalised rural China in favour of urban areas that are better linked to the world economy and, therefore, represent more secure and profitable locations for investment (Loubere & Zhang, 2015). This has resulted in rapidly increasing inequality between rural and urban areas, as reflected in the national Gini coefficient, which is estimated by many to be over 0.5 (indicating extreme income inequality), and underlined by the fact that urban incomes are, on average, three times larger than those in rural areas (Chen, Dai, Pu, Hou, & Feng, 2010;Li & Sicular, 2014;Thøgersen, 2011;Yeh, O'Brien, & Ye, 2013).…”

“…These crises have the potential to destroy the foundations of livelihoods across the spectrum, but are particularly dangerous for the most marginal members of society. With the continued transition toward commercialised approaches to financial operation and organisation in rural China (Loubere & Zhang, 2015), the financial sustainability of local financial institutions and the governments that borrow from them has become a growing concern, requiring careful and vigilant observation and analysis (Ong, 2006(Ong, , 2012. Finally, and more fundamentally, the organisation, distribution, and utilisation of financial resources reflect the formation and constitution of local society, as well as local understandings of what development entails.…”

2. Rural Financial Services in China

“…Central planning was the order of the day, and the overarching policy frameworks put forth by the central government favoured urban heavy industry over agriculture and the rural sector. Within this context, RCCs became one of the institutional mechanisms that facilitated the transfer of rural resources (including rural household deposits) to urban areas and industries -particularly through policies mandating that RCCs place their local deposits in the more central branches of the PBC (Loubere & Zhang, 2015). At the same time, however, RCCs also provided limited financial support -such as the necessary start-up and operational capital -for an emerging sector of rural enterprises, which generated extra cash income for both the collectives and rural households, especially in relatively better-off areas with stronger collective entities.…”

China’s Internet Finance Boom and Tyrannies of Inclusion

“…While these underlying extractive processes had already been exacerbated through the liberalisation and commercialisation of China's brick-and-mortar financial institutions over the past decade (Loubere and Zhang 2015), they have been dramatically accelerated by the unabashed profit orientation of those participating in the Internet finance boom. For instance, research has illustrated that electronic payment systems-such as Alipay and WeChat Pay-facilitate transfers of wealth from the poor to rich segments of society through accumulative processes (Mader 2016b).…”

“…(30) However, China's economic miracle in the 1980s and 1990s cannot be attributed only to the release of the Chinese people's entrepreneurial spirit. Rather, it was largely the result of banks and credit cooperatives funnelling investment into state-owned enterprises (SOEs) and township and village enterprises (TVEs), thus providing large-scale employment (Bateman 2010;Loubere and Zhang 2015). It is also worth remembering that China's statedominated financial system originated in efforts to create less exploitative financial arrangements through the expulsion of local loan sharks and big capital from the financial sector after the establishment of the People's Republic of China in 1949 (Cheng 2006).…”