Rural Development Since 1978: Agricultural Banking

Encyclopedia of Modern China, Volume 3 – Finals/ 6/8/2009 20:08 Page 313

Rural Development since 1978: Agricultural Banking

bank began to liberalize the rural financial sector in 2007 by issuing licenses for the establishment of private township-andvillage banks and credit companies as part of its efforts to restructure the rural credit market.This market liberalization was a turning point in the rural financial sector. Since 1978 farmers have enjoyed user rights to land though the ownership rights still formally reside with the collectives. The lack of property rights was not an issue in the 1980s, but it has prevented farmers from making long-term investment in the land, reducing the ecological sustainability of the farmland. Rural land issues are a constant source of social clashes between peasants and local government officials. As urbanization and industrialization proceed rapidly in China, land in this densely populated country has risen tremendously in value. Local government officials convert farmland to industrial and commercial uses in order to sell them to real estate developers and industrialists for lucrative prices. These transactions often are conducted without proper public consultation or compensation to the peasants whose livelihoods depend exclusively on farmland. Thousands of land-related rural protests are staged annually, manifesting the serious sociopolitical implications of ambiguous land ownership rights. Nonetheless, if the central government were to allow for private ownership of farmland, economic downturns and layoffs from urban industries may leave no social safety net for many migrant workers. Because farmland is the only life support for rural residents, the issue of privatizing land ownership is treated with extreme caution by central policy makers in China. After nearly three decades of reforms, 70 percent of the country’s population (900 million people) still resides in the countryside. To lift the living standards of the large rural population, the central policy makers know they need to allow some rural residents to migrate to the cities. The household registration (hukou) system that divides the population into rural and urban and binds them to their places of birth has been relaxed gradually during the 1990s to allow rural residents to find jobs in urban factories. However, with the sluggishness in global demand that began in 2008, many factories in the coastal cities have closed down and laid off migrant workers. The ability of the cities to absorb migrant workers is being challenged for the first time since the launch of reform in 1978. Hence, sustainable rural development in China remains a key policy challenge. SEE A LS O

Township and Village Enterprises.

BIBLIOGRAPHY

Byrd, William, and Qingsong Lin, eds. China’s Rural Industry: Structure, Development, and Reform. New York: Oxford University Press, 1990.

Jinqing Cao. China Along the Yellow River. Trans. Nicky Harman and Huang Ruhua. London and New York: RoutledgeCurzon, 2000. Nyberg, Al, and Scott Rozelle. Accelerating China’s Rural Transformation. Washington, DC: World Bank, 1999. Ong, Lynette. The Political Economy of Township Government Debt, Township Enterprises, and Rural Financial Institutions in China. China Quarterly 186 (2006): 377–400. Zhou, Kate Xiao. How the Farmers Changed China: Power of the People. Boulder, CO: Westview, 1996. Lynette H. Ong

AGRICULTURAL BANKING Agricultural banking provides essential banking services to about 800 million rural residents living in western and central China as well as peri-urban locales in the eastern coastal region. For the period beginning in 1978, agricultural banking in China can be divided into banking for retail consumers and policy banking for state agricultural procurement. Retail banking serves the credit demands of rural households, individual household businesses (getihu), and small and medium-sized enterprises in rural areas, whereas policy banking provides loans to enterprises specializing in state agricultural procurement. The Rural Credit Cooperatives (RCCs) or nongcunxinyongshe, which collectively account for more than an 80 percent share of total rural deposits and loans, are the backbone of household finance in rural China. Owing to their monopoly position in rural China, the RCCs are critical to lifting household income, stimulating the growth of small and medium-sized enterprises. Beginning in 1979 the central government required the RCCs to report to the Agricultural Bank of China (ABC) (zhongguo nongye yinhang). For a decade-and-a-half the credit cooperatives functioned as the state bank’s grassroots branches and were required to place low-interest-yielding reserve at the bank. This resulted in historic financial losses at the RCCs. Their relationship with the ABC was formally severed in 1996 as part of the central government’s move to restructure the rural financial system around three institutions entrusted with distinctive tasks: the ABC for commercial loans, the Agricultural Development Bank of China (ADBC) (nongye fanzhan yinhang) for agricultural policy loans, and the RCCs for household finance. The credit cooperatives were managed indirectly by the central bank between 1996 and 2003. Since 2003 they have been managed by the provincial unions (shenglianshe), which are effectively controlled by the provincial governments. Provincial unions are the bodies managing all credit cooperatives that exist within the provinces. They are strictly administrative organizations that do not take savings or issue loans.

ENCYCLOPEDIA OF MODERN CHINA

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Rural Development since 1978: Rural Industrialization

The central government has been trying to make the RCCs, in their various institutional forms, more responsive to the needs of rural households. Nonetheless, their loans are often reallocated to local government-related projects that tend not to be repaid. In the early 2000s almost half of the 35,000 RCCs nationwide were technically insolvent. Because they were the only formal credit providers in the countryside, the central government could not allow the RCCs to fail and injected some 650 billion yuan to help them write off enormous historic losses. In addition, the central bank has also introduced various lending schemes with subsidized interest rates to boost lending to rural households and to improve the RCCs’ profitability. The Agricultural Bank of China was established by the central government in the 1950s to support agricultural production and to manage the RCCs. The ABC took over the People’s Bank of China’s rural branches in 1979 and assumed a range of policy and commercial functions, including lending to rural industries, financing state procurement of agricultural products, and managing the RCC system. During the 1980s it functioned largely as a state policy bank to finance the central government’s projects in the agricultural sector. Before the agricultural policy bank was set up in 1994, the ABC was responsible for financing all state agricultural purchases. Despite its name, the Agricultural Bank of China has been largely divorced from agricultural households. Since the mid-1990s the ABC has become increasingly commercially oriented; its loans are mostly allocated to largescale agricultural and industrial enterprises. In the late 1990s it closed down all grassroots branches in rural townships and villages to improve profitability. Meanwhile, the ABC centralized lending decisions to the county and higher administrative levels, resulting in fewer loans for agricultural household borrowers. Since 1998 the ABC has been responsible for administering the poverty loan program (fupin daikuan), intended to alleviate poverty by providing loans at a subsidized interest rate to rural households in poor counties. Nonetheless, the program is widely known to have extremely low repayment rates and suffers from widespread abuse of funds. The Agricultural Development Bank of China is a policy bank specializing in providing loans to enterprises purchasing grain, cotton, and consumption oil for the purpose of national food security. Unlike the RCCs or ABC, the capital of ADBC comes from the central bank instead of household savings or enterprise deposits. Partly owing to its nonprofit orientation and the absence of supervision mechanisms, the ADBC is afflicted with chronic financial losses. Because its capital is heavily subsidized by the central government, the bank has frequently misallocated loans for nonofficial purposes.

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SEE ALSO

Banking: Big Four; Banking: Nonperforming Loans; Financial Markets.

BIBLIOGRAPHY

Findlay, Christopher, Andrew Watson, Cheng Enjiang, and Zhu Gang, eds. Rural Financial Markets in China. Canberra, Australia: Asia Pacific Press, 2003. Ong, Lynette. Multiple Principals and Collective Action: China’s Rural Credit Cooperatives and Poor Households’ Access to Credit. Journal of East Asian Studies 6, 2 (2006): 177–204. Lynette H. Ong

RURAL INDUSTRIALIZATION Rural industrialization has formed part of China’s rural development strategy since the 1950s, and rural industries were already making a minor but significant contribution to total rural output value by the end of the Maoist period. Rural industry underwent sharp changes in organizational form, ownership, and performance in the reform period from 1978. Its expansion in the 1980s and 1990s was so extraordinary that it became the major driver of growth in the national economy. Rural industry has brought about enormous economic, social, and physical change in China’s rural areas. ORIGINS OF RURAL INDUSTRY

Many parts of China had a rich tradition of rural handicrafts at the time of the Communist takeover. Some items for everyday use in the villages, such as furniture, farm implements, bricks, and utensils, were produced in every region, while specialized activities such as textile production, coal mining, or oil processing took place where there were locally available resources. Although individual handicraft enterprises were suppressed after agricultural collectivization in the 1950s, many were reorganized into cooperatives. It was hoped that rural industry, developed partly on the basis of the old handicrafts, could supply agriculture and local rural families with the everyday articles they needed. This policy was intended to free large-scale industry to concentrate on producer goods and the needs of the urban consumer and to relieve pressure on the overstretched transport infrastructure. The mistakes of the Great Leap Forward (1958–1960) included an overambitious program for the expansion of rural industrialization. Cutbacks and closures followed. When the economy recovered, rural industrialization continued with a focus on village enterprises that supplied everyday local needs, and on county- and commune-level plants that produced key inputs for agriculture. Five industries were especially favored: cement, chemical fertilizer, ENCYCLOPEDIA OF MODERN CHINA

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