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 or informally PBOC; ) is the central bank of the People's Republic of China, responsible for carrying out monetary policy and regulation of financial institutions in mainland China, as determined by ...

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, 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 democratically-control ...

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 () 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. Communes, the largest collective units, were div ...

s in rural areas. In the late 1970s, after

economic reforms An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the p ...

enabled some individual entrepreneurialism 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 ...

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 I ...

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 Agricultural Bank of China (ABC), also known as AgBank, is one of the " Big Four" banks in China. It was founded on 10 July 1951, and has its headquarters in Dongcheng District, Beijing. It has branches throughout mainland China, Hong Kong, Lond ...

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. The first academic descript ...

s to

pawn shop A pawnbroker is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The items having been ''pawned'' to the broker are themselves called ''pledges'' or ...

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 may refer to: * Foundation (nonprofit), a type of charitable organization ** Foundation (United States law), a type of charitable organization in the U.S. ** Private foundation, a charitable organization that, while serving a good cause ...

(RCF) () were banned when the

State Council of the People's Republic of China The State Council, constitutionally synonymous with the Central People's Government since 1954 (particularly in relation to local governments), is the chief administrative authority of the People's Republic of China. It is chaired by the p ...

() 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 that offers investment, advisory, and asset-management services to encourage private-sector development in less developed countries. The IFC is a member of t ...

(the private sector arm of the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...

) acquired stakes in the

United Rural Cooperative Bank of Hangzhou United may refer to: Places * United, Pennsylvania, an unincorporated community * United, West Virginia, an unincorporated community Arts and entertainment Films * ''United'' (2003 film), a Norwegian film * ''United'' (2011 film), a BBC Two f ...

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 it reduces the profitability of banks, and ...

, 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 inso ...

. 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 organ ...

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

History

Challenges

See also

Notes