The author gratefully acknowledges helpful comments by Stephan Haggard; by an anonymous referee; and by Andrew MacIntyre, Christopher Findlay, Yongshun Cai, and Carsten Holz. This article benefited from suggestions made by participants at the inaugural Graduate Conference on China Studies at the Chinese University of Hong Kong in January 2005. All remaining errors remain those of the author.Google Scholar

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4. The Rural Cooperative Foundations (RCFs) that existed between the mid-1980s and late-1990s offered an alternative source of credit to the RCCs during that time frame. They were initiatives by township authorities to absorb rural households' savings and make loans to rural enterprises, households, and governments. But due to inadequate management and corporate governance, and misallocation of funds, they were shut down by the central government in 1999. For further details, see Ong, L., “The Political Economy of Township Government Debt, Township Enterprises, and Rural Financial Institutions in China,” China Quarterly 186 (2006).CrossRefGoogle Scholar

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17. The estimations were made by calculating the differences between savings by farmers and enterprises and the loans to farmers and enterprises. For further details, see Huang, , Rozelle, , and Wang, , “Fostering or Stripping Rural China.”Google Scholar

18. Through various interviews with Chinese academics and policymakers, I have gathered that the RCCs were required to place reserves at the Agricultural Bank of China when they were part of the state-owned banking system. The credit cooperatives are also required by the central government to place transfer deposits with the Central Bank, the People's Bank of China. This may suggest that the reserves and transfer deposits were then made available to the state-owned bank and the Central Bank to lend to urban enterprises. However, there has been no formal study to put this in context.Google Scholar

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24. Structural losses for the RCCs were caused by several factors. First were the high interest rate differentials between loans and deposits. In the early 1980s, the RCCs paid rates of between 7.2 and 9.4 percent on farmers' deposits, most of which were fixed term; they were required to place 20–30 percent of their deposits with the ABC as reserve, but obtained only 4.3 percent interest returns on capital (Tarn, , “Rural Finance in China”). The negative margins between the interest rate received on the reserve and those paid to depositors were a major source of structural losses for the credit cooperatives (Watson, , “Financing Farmers”). A second factor was low capital utilization rates. The reserve deposit requirement substantially reduced the amount of capital the RCCs had available to lend out to earn returns with which to pay their depositors. Aside from the 30 percent reserve required to be placed at the ABC, the RCCs were also required to retain 15 percent of their deposits as operational reserves, and therefore only about half of their deposits were available for intermediation (Watson, , “Financing Farmers”; Tarn, , “Rural Finance in China”). A third factor was that deposits became a major source of capital for the ABC. Reserve deposits by the RCCs were the single largest source of funds for the ABC, accounting for nearly half of ABC's total deposits.Google Scholar

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29. The different shareholding models include cooperative systems, shareholding systems, and commercial banking. In relatively developed areas with vibrant commercial activities and less need for supporting agricultural households, commercial banking models are being tested. The actual conditions for commercial banks are as follows: the total capital value of the RCC is no less than 1 billion yuan, the nonperforming loan ratio is lower than 15 percent, equity after restructuring is no less than 50 million yuan, and the capital adequacy ratio is at least 8 percent (Yu, Ning, “Nongxinshe youxian gaige” [Limited reforms of the RCCs], Caijing Magazine, no. 15, 2003, pp. 27–36).Google Scholar

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32. Personal interviews with RCC managers; the Sichuan Ministry of Agriculture, which was the base of the former Sichuan Rural Cooperative Management Station; and some township officials.Google Scholar

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47. The County Unions are guided (zhidao)—not managed—by the higher-level RCCs (prefectural and provincial) in terms of information provisions regarding government policy changes. For instance, to support the agricultural sector's credit demand, the central government has required that a certain proportion of RCC loans be given to agricultural households, and the provincial RCC unions are responsible for transmitting the required policy information to the lower units to help ensure that all the units operate in the direction of the central government's macroeconomic and financial policies (personal interview with a provincial RCC director).Google Scholar

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49. This suggests that the variable component of officers' remuneration is determined collectively at the unit, rather than at the individual level. If a township RCC performs well on these criteria, all the officers that work at the unit will receive the same compensations on the variable component. Similarly, if the unit does not perform well due to the action of an officer, the compensation of the other officers in the same unit will also be affected.Google Scholar

50. That said, this upward transfer of excess funds has been partly mitigated by the transfer from the County RCC Unions to townships where capital is in short supply, and some households have been able to obtain loans that they would not have otherwise. One of the functions of the County RCC Unions is to clear funds and accounts. When the RCC in township A has more savings than profitable lending opportunities, it cannot lend the funds to the RCC in township B that has an excess of lending opportunities over savings. However, the RCC in township A can transfer the funds to the County RCC Union, and the latter can then lend the funds to the RCC in township B to invest in profitable lending activities.Google Scholar

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53. This concept has been explained in Watson, “Financing Farmers,” and in various articles in Chinese. See for example, Guo, Xiaoming, “Yi nongmin hezuo de mingyi: sichuansheng nongcun hezuo jijinghui qunwang licheng, 1986–1999” [In the name of farmers' cooperatives: Milestones of RCFs in Sichuan province, 1986–1999], University Service Centre Seminar Series No. 16, The Chinese University of Hong Kong (2001), available at www.usc.cuhk.edu.hk/wk_wzdetails.asp?id=920.Google Scholar

54. A distinction is made between “principals” and “clients.” Depositors who are clients of a bank may not necessarily be the principals to the banks. But bank investors, like the member households, who contribute to the equity of the bank, are principals.Google Scholar

55. I have conducted a thorough search of the secondary literature, such as Chinese-language newspapers and academic papers, and have found no evidence of actions by member households.Google Scholar

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57. Refer to Xie, “Zhongguo nongcun xingyonghezoushe tizhi gaige de zhenglun” for examples of the central government's bailouts of the RCCs.Google Scholar

58. Some political scientists have conducted excellent work on the political economy of rural China, such as Oi, Jean C., Rural China Takes Off (Berkeley: University of California Press, 1999); Whiting, Susan, Power and Wealth in Rural China: The Political Economy of Institutional Change (New York: Cambridge University Press, 2001); and Tsai, Kellee S., Back-Alley Banking: Private Entrepreneurs in China (Ithaca: Cornell University Press, 2002). Some anthropologists have also ventured into explaining why rural finance has failed to meet the credit demands of the poor. For example, see Robinson, , The Microfinance Revolution. CrossRefGoogle Scholar

59. Here I refer to the China specialists, and the studies conducted by the China specialists are usually empirical and free of theoretical jargon or models, the merits (demerits) of which are, of course, a point of contention, which is beyond the scope of this article.Google Scholar