Coopératives, communautés et État
- l'évolution récente des coopératives rurales chinoises dans une période de transition
Les nouvelles organisations coopératives, y compris les coopératives communautaires rurales, les fondations coopératives rurales, les entreprises coopératives rurales de mise en commun des exploitations et les associations spécialisées d'agriculteurs, qui se sont multipliées depuis la réforme dans les campagnes chinoises, ont joué un rôle essentiel et indispensable dans la promotion de l'économie rurale en Chine. Toutefois, lorsqu'on compare les coopératives rurales chinoises aux coopératives étrangères standardisées, il n'existe qu'un petit nombre de coopératives rurales fondées sur la mise en commun des exploitations et d'associations spécialisées d'agriculteurs qui leur sont semblables du point de vue du contrôle du pouvoir de décision et des droits résiduaires des demandeurs. Certaines des coopératives rurales chinoises peuvent être considérées comme des quasi-coopératives tandis que certains organismes ne sont en fait que des sociétés d'investissement. En l'absence de législation sur les coopératives, les gouvernements doivent à divers niveaux modifier leur comportement vis-à-vis de différents types de coopératives rurales. Or, le système national de distribution des revenus en place et l'environnement macroéconomique qui privilégient les zones urbaines et le secteur industriel des villes, de même que les insuffisances des marchés des produits et des facteurs de production, poussent les gouvernements à intervenir directement dans les activités économiques des coopératives rurales pour atteindre les objectifs macroéconomiques. Parallèlement, il arrive aux coopératives rurales, soucieuses de défendre leurs intérêts économiques propres, de rechercher activement la protection de l'État.
Las cooperativas, las comunidades y el Estado:
el desarrollo reciente de las cooperativas rurales chinas en transición
Las nuevas asociaciones cooperativas, incluidas las de la comunidad rural, las fundaciones cooperativas rurales, las empresas cooperativas de accionistas rurales y las asociaciones especializadas de agricultores, que desde la reforma se han multiplicado rápidamente en la China rural, han desempeñado una función muy importante a la hora de promover la economía rural del país. Sin embargo, cuando se comparan las cooperativas rurales chinas con las cooperativas extranjeras ordinarias, por lo que se refiere al control del poder decisorio y a los derechos de los solicitantes, sólo existe un pequeño número de empresas cooperativas y de asociaciones de carácter cooperativo que son similares a aquéllas. Además, algunas de las cooperativas rurales chinas pueden considerarse como cuasicooperativas y algunas de las así llamadas son en realidad empresas orientadas a los inversores. Dado que no existen actualmente leyes que las regulen, la actitud de las administraciones públicas puede variar respecto a los distintos tipos de cooperativas. El actual sistema nacional de distribución de los ingresos, que está sesgado a favor de las zonas urbanas y la industria, hace que las administraciones intervengan directamente en las actividades económicas de las cooperativas rurales para realizar los objetivos macroeconómicos. Entretanto, las cooperativas rurales, al margen de sus intereses económicos, piden en algunas ocasiones la protección activa del Estado.
Zhang Xiaoshan is Professor at the Rural Development Institute, Chinese Academy of Social Sciences
New cooperative organizations, including rural community cooperatives, rural cooperative foundations (RCFs), rural shareholding cooperative enterprises (RSCEs) and farmers' specialized associations (FSAs), have mushroomed since the reform in rural China and play a very important and indispensable role in promoting the Chinese rural economy. However, when comparing the Chinese rural cooperatives with standardized foreign cooperatives, in terms of the controlling decision-making power and residual claimant right, only a small number of cooperative-oriented RSCEs and FSAs are similiar to their foreign counterparts. Furthermore, some of the Chinese rural cooperatives could be regarded as quasi-cooperatives, while some so-called cooperatives are, in fact, investor-oriented firms (IOFs). Since there is no legislation that covers cooperatives in China, governments at different levels may vary in their attitudes and behaviours towards different types of rural cooperatives. In addition, the existing national income distribution system and macro-economic framework, which are biased towards urban areas and urban industry, together with the imperfect commodity and production factors market, make governments intervene directly in the economic activities of rural cooperatives in order to realize their macro-economic goals. Meanwhile, rural cooperatives, out of concern for their own economic interests, sometimes actively seek protection from the state.
In this article, the term "Chinese rural cooperatives" is
used to refer to the new economic organizations that sprang up in rural China
after the reform and which, to a greater or lesser extent, have characteristics
that are similar to those of cooperatives.
The basic theoretical hypotheses of this study is that the economic behaviour and performances of Chinese rural cooperatives not only depend on the objectives and institutional characteristics of the organization, but are also constrained, to a large extent, by the external environment (regional economic development, degree of marketization, social and cultural background, and macroeconomic and administrative system) and affected by government behaviour resulting from external factors.
This study follows the methodology of positive analysis. Its theoretical hypotheses were tested through case studies of Chinese rural cooperatives, which were compared with standard cooperatives, and basic conclusions were drawn.
The aim of the study was not to find an ideal model that Chinese rural cooperatives should follow, but to illustrate the actual situation and institutional characteristics of Chinese rural cooperatives, within the context of the external environment and constraints.
The article is composed of five parts. The first part briefly introduces and defines the new cooperatives that have emerged in rural China since the reform. The second part analyses the internal institutional characteristics of those cooperatives. The third part explores how environmental factors have influenced and constrained the economic behaviours and performances of rural cooperatives. The fourth part illustrates the relationship between Chinese rural cooperatives and the state and the last part draws conclusions.
During the transition period from a centrally planned
economy to a socialist market-oriented one, no fundamental changes were made to
the structure of the national dual economy and the comparative advantage of
agricultural production remained low. Some form of economic organization of the
rural community, based on collectively owned land, is needed in order to provide
services to agricultural production, to redistribute income among the farmers
who are engaged in different occupations, and to manage and develop collectively
owned resources to promote local economies. During the commercialization,
specialization and marketization process that the rural economy and agricultural
production are currently undergoing, thousands of rural family households are
developing closer links with larger markets, which motivates them to cooperate
with one another in terms of credit, purchase of production materials, marketing
of agricultural products and application of new technology. At the same time,
there is a need for different kinds of township (town) and village enterprise
(TVE) to make better use of their own resources, through internal institutional
change and improved production factors, in order to achieve economies of scale.
It is against this macrobackground that the new economic organizations such as
rural community cooperatives, rural cooperative foundations (RCFs), rural
shareholding cooperative enterprises (RSCEs) and farmers' specialized
associations (FSAs) have come into being.
Since there is not yet any legislation to define the objectives and extent of these new rural cooperatives, they can best be explained with reference to the relevant documents issued by the central committee of the Communist Party of China (CPC), the state council or relevant ministries.
Document No.1 of 1983, issued by the central committee of CPC, mentions the functions that regional cooperatives should play, while Document No.1 of 1984 and Document No. 5 of 1987 emphasize the need to establish regional cooperatives as a way of improving the two-tier system that combines unified management with individual management, based on the collective ownership of rural land. These cooperatives are community-oriented and multipurpose and their functions are to provide services to the farmers, coordinate production activities, accumulate collective assets and, if possible, develop resources or set up new collective enterprises. In 1994, there were a total of 2.18 million community cooperatives throughout China, 670 000 of which were at the village level and the remaining 1.51 million at the community level (Research Group on Rural Cooperative Economy, 1996).
In 1991, the Ministry of Agriculture, which is in charge
of RCFs, stated that an RCF was a kind of fund-raising cooperative organization
that was established by the rural collective organization whose members joined
the RCF on a voluntary basis and according to the principle of mutual benefit.
RCFs are mainly engaged in collective assets management and financial
activities. In 1994, the Peoples' Bank of China, which is financially
responsible for supervising RCF activities, together with the Ministry of
Agriculture, clearly pointed out that RCFs are mutual-help fund-raising
organizations within the rural community.
By the end of 1995, there were 1.97 million RCFs at township or town level, representing 41.7 percent of the total number of townships and towns, and 134 000 RCFs at village level, representing 18.3 percent of the total number of villages. The funds raised by these RCFs were 72.3 billion yuan, having increased 8.1 times since 1990. In 1995, the funds invested in agriculture, the supporting system and TVE totalled 82.8 billion yuan, having increased 10.2 times since 1990 (Baorui, 1996).
In 1990, the Ministry of Agriculture issued a temporary
provision on RSCEs and, in December 1992, it promulgated a circular on
practising and perfecting the shareholding cooperative system of TVE. According
to the definition given in the 1992 circular, a shareholding cooperative
enterprise is a corporate legal person or economic entity organized voluntarily
by more than two labourers or investors, according to regulations or agreements,
to pool their capital, physical assets, technology, land tenure, etc. as shares
and to take up various kinds of production, management and service activities.
These enterprises were to implement the principles of democratic management,
distribute benefits according to a combination of labour and shares and
accumulate shared assets.
By the end of 1995, there were nearly 3 million RSCEs in China (Chinese Urban and Rural Finance, May 21 1996), among which 180 000 had been developed from township (town) and village collective enterprises, representing 11.11 percent of the total number of collective enterprises and 7.91 million employed people (The year book of Chinese TVE, 1996, p. 99).
FSAs are the most loosely defined of the four types of
rural cooperative in China. FSA is the general term for all kinds of rural
specialized technological associations, technical research societies and
specialized cooperatives. According to a circular on strengthening guidance and
support to FSAs, issued jointly by the Ministry of Agriculture and the China
Association for Science and Technology (CAST) in 1994, FSA refers to
non-governmental technical and economic cooperatives that are voluntarily
organized by farmers to achieve, on a farming household management basis, mutual
help in terms of capital, technology, production, supply and marketing in order
to increase members' incomes. The Ministry of Civil Affairs has stipulated that
many kinds of associations and research societies should be registered as mass
organizations and are not allowed to engage in profit-gaining activities.
According to statistics from the Ministry of Agriculture, by the end of 1996, there were 1.5 million FSAs in China. However, according to the statistics of the All-China Federation of Supply and Marketing Cooperatives, there were only 33 000, mainly focusing on the circulation areas and supported and organized by them, while according to CAST's statistics, there were 130 000 FSAs connected with the extension and development of agricultural technology (Jianfu, et al., 1996, p.12).
In this section, the four kinds of organizations will be analysed to reveal their organizational objectives, internal institutional characteristics and influences on economic behaviour.
Because of the particular characteristics of community cooperatives, a few key issues should first be clarified:
The objectives and economic behaviours of community cooperatives, and their relationships with the state, can be analysed on the basis of the three points mentioned above.
The multipurpose nature of the organization as determined by the characteristics of the village community. On one hand, since farmers' autonomous organizations (villagers' committees) overlap, to a large extent, with community cooperatives, the objectives of community cooperatives include not only raising efficiency and gaining maximum profit, but also promoting community development, such as improving community welfare and creating employment opportunities for local surplus labour. On the other hand, village communities are regarded as the outreach agents of government administration. They must follow instructions from higher up the administrative ladder and fulfil tasks demanded by government sectors. Thus, community cooperatives are a combination of government, community and economic organizations, and these three areas are not always coordinated with one another.
The internal institutional arrangement of the property rights of community cooperatives. Who can legitimately execute the controlling power over
rural collectively owned land during the decision-making process? This problem
has not yet been resolved in theory, legislation or policy. According to the
Constitution, rural land is owned by rural collectives. China's Land Management
Act stipulates that collectively owned land legally belongs to the village
farmers' collective and is managed by the agricultural collective's economic
organizations such as village agricultural production cooperatives or villagers'
committees. However, the Act does not define further the rights and obligations
that owners should possess, nor does it clarify the ownership structure, i.e.
the rights of issuing contracts, leasing, mortgaging, pooling, etc. In practice,
since village communities have become, to some extent, the outreach agents of
government units, local government could execute, through village communities,
the controlling right in decision-making on land and farmers enjoy only the
managing right of decision-making in daily production activities on land.
The residual claimant right to collectively owned land is shared among the state, collectives and farmers. "Residual" here refers to the remaining part of the total revenue from land after production and management costs have been deducted. The residual obtained by the state is derived from the following sources: agricultural taxes; the difference that sometimes exists between the lower state purchasing price of agricultural produce and the higher market price; price differences in the exchange of industrial products for agricultural products; funds collected by town and township governments through villages (a sort of disguised local tax); and other sources.
The residual obtained by village collectives is made up of public accumulation funds, social welfare funds and management fees which are used to maintain the operation of village communities and provide public goods for villagers. Obviously, the more the state and village collectives take out of the residual, the less farmers will get from it. Such a structure of property rights inevitably influences the economic behaviours of community organizations and farmer households.
As well as collectively owned land, some rural community collectives have already accumulated considerable amounts of collective assets, the controlling power in decision-making and the residual claimant rights for assets that are in the hands of community leaders. The leaders use these residuals to realize the objectives established by government, communities and cooperatives. Since community leaders are not only the representatives of villagers in autonomous organizations and cooperatives, but also the agents of government, whether the local farmers can effectively participate in the decision-making process will depend on whether the local democratic supervision mechanism is sound and on the orientation of local governments. In recent years, some highly developed village communities have reformed their community shareholding cooperative systems to allow community members to enjoy part of the residual claimant rights. The size of each member's share is usually calculated according to their past labour contribution.
RCFs operate a scarce resource - capital that is not
under the control of the macro-financial system. This means that state financial
monitoring departments must strictly control RCDs' economic activities, while
local governments, motivated by their own economic interests, are willing to
utilize and control those activities. Although RCFs are defined as farmers'
mutual-help fund-raising organizations within local communities, they not only
provide capital for local farmers, but also serve the economic ends of local
Depending on the goals of each individual RCF, the controlling decision-making power within RCFs is mainly in the hands of local governments. Many RCFs were initiated and completed by economic management departments at township or town level in response to calls from CPC and the leadership at different levels of the administration. The fund-raising capacity of RCFs also depends on the support of party and administrative sectors, sometimes through compulsory apportioning. Furthermore, most RCF leaders are also leaders in the local government departments concerned. This situation leads to RCFs being closely affiliated to the administration. Local governments have, to a large extent, the right to select the directors of RCF boards and the managing staff, and also directly influence the economic behaviour of RCFs. For example, local government can decide the purposes and amounts of loans issued and the distribution and utilization of surpluses. The managing decision-making power for the daily activities of RCFs is controlled by the managing staff but, at township or town level, most of the managing staff of RCFs are also the cadres of local economic management offices. This phenomenon of one servant serving two masters has definitely caused some lack of coordination in RCF activities.
Larger shareholders, including individual and collective shareholders at village or villagers' group levels, have incentives to care for and supervise the operation of RCFs and participate in their decision-making process. Villages and villagers' groups that own collective shares can have representatives on the RCF board of directors, and sometimes the larger shareholders can, ostensibly through election (although, in fact, it tends to happen by arrangement), become RCF directors. So, while both villagers' groups and larger shareholders share part of the controlling decision-making power, the ordinary RCF members - the farmer households - have very limited influence on the running of the RCF.
RCF surpluses, i.e. the revenue that remains after management fees and interest on shares and entrusted funds have been deducted, are usually distributed according to a ratio of four to six between the RCF and its members. That is, 40 percent of the surplus is used as accumulation, welfare and risk funds for the future of the RCF, while 60 percent is used as share dividends for the members. Obviously, since the ordinary shareholders have only limited shares and, therefore, limited dividends, they pay more attention to the use right of capital, i.e. access to the RCF's privileged loans for production and management needs, while larger shareholders, who enjoy more residual claimant rights, pay more attention to the returns on their capital.
People in China are now drawing lessons from the Asian financial crises and becoming more and more aware of financial risks. Because of the RCFs' strong affiliation to the administration, arbitrary decision-making and corruption have inevitably occurred and this has led to considerable bad and dead debt. Rectifying the RCF situation, while maintaining the stability of rural areas, is an important and difficult task for Chinese governments.
Basically, there are three channels through which RSCEs can come into being:
Since the objectives and range of RSCEs as defined in the circular are far broader than those defined in the temporary stipulation, there is much diversity in the organizational structures and institutional arrangements of enterprises described as RSCEs. One of the most outstanding characteristics of RSCEs is the heterogeneity and diversity of their property rights structures. RSCEs can be divided into the following major types:
Most RSCEs have a large shareholders and managing staff
holding pattern, with only a few operating under the even share pattern.
Obviously the large shareholders and managing staff holding pattern RSCEs are
stock company-oriented, not cooperative-oriented enterprises. In even shares
enterprises, shareholders' holdings are basically even, although some people may
join their shares together to create one larger shareholding; the controlling
decision-making power and residual claimant right are decided according to
shareholdings, and there are quite a number of non-shareholder workers. These
enterprises are also essentially stock company-oriented - truly worker-owned and
democratically managed enterprises are very rare at present.
Since one of the main features of the Chinese rural economy is the coexistence of capital scarcity and surplus labour, it is very difficult for ordinary workers to become owners of capital. Even when workers do own capital, the amount they own is often not enough to motivate them to take a great interest in the enterprises. Furthermore, the mobility of rural surplus labour makes it even more difficult for workers to become shareholders in enterprises since they also have to calculate the opportunity cost.
Equal property rights, which emerge from the even shares pattern, are the basis of democratic management, but such equality also creates obstacles for the development of an enterprise. In practice, if the number of shares owned by each worker is very limited and basically equal, and if the returns on shares represent only a small part of the worker's total income, an RSCE cannot mobilize the workers, give them a sense of ownership in the enterprise, or solve the problem of "free-riders". The results, instead, are more likely to be a new round of the "public pot".
What are the workers' basic needs? Investigations imply that the issues most likely to stimulate the ordinary workers' interest in an enterprise are: formulation of rational salary criteria; implementation of the principle of earning more for working more; payment of salaries on time; and improved workers' welfare. The simple labour that ordinary workers are engaged in is easy for managing staff to monitor and calculate so, from the perspective of the managers, whether ordinary workers own shares or not will have no major influence on the productivity of the enterprise.
The objective of creating RSCEs is, clearly, not to increase the incentives for ordinary workers, but to increase the incentives for entrepreneurs. Increases in productivity following RSCE establishment probably owe less to the strengthening of ordinary workers' sense of ownership in the enterprise than to the fact that managers, after they become large shareholders, have the incentive to supervise and monitor the ordinary workers and to use economic means to motivate them. If this is true, the tendency for managers or managing staff to hold large shareholdings in China's rural enterprises is likely to grow. In fact, during the establishment of RSCEs, entrepreneurship increased in China's rural areas and managers emerged as an independent group with their own ideas and economic interests, while mid-level and technical staff did not. This phenomenon of emerging entrepreneurship within the RSCE system may make sense economically, but it will inevitably reduce further the cooperative features of such enterprises.
The nature of FSAs needs to be clarified. According to a
document issued jointly by the Ministry of Agriculture and CAST, FSAs are
non-official economic and technical cooperative organizations. However,
according to the Regulation on the Registration of Social Organizations issued
by the Ministry of Civil Affairs, several kinds of associations and societies
must be registered as social organizations which are non-profitable and,
according to a document issued by the Central Committee of CCP and the State
Council, rural non-official specialized associations (societies) should
gradually be transformed into technical and economic entities to provide
services to the farmers. These various stipulations have led to a situation in
which some FSAs run economic enterprises, some economic enterprises run FSAs and
some FSAs registered as social organizations are, in fact, enterprises. Not
surprisingly, this has created confusion in terms of statistics and the typology
Another important issue is to establish the extent to which economic organizations are cooperatives, and this can only be analysed when their institutional features are fully known and understood.
FSAs were created during the process of specialization of production and commercialization activities within the rural economy. Their major purpose was to provide farmers with forward, backward and in-production services to reduce production and transaction costs. The concrete functions of FSAs are: joint purchase of production materials and joint marketing and transportation of agricultural products to reduce farmers' costs and achieve forward and backward economies of scale; coordinating farmers' productive activities to solve externality problems during the production process; offering technical guidance and market information to reduce the monopoly and asymmetry of information; and negotiating with the government sectors concerned on behalf of farmers.
In practice, most FSAs are not economic entities. In some cases, they were organized spontaneously by farmers - most of whom were in specialized households or experts in arable farming or breeding. In other cases, they were initiated or supported by government, a concerned department such as CAST or supply and marketing cooperatives. Most FSAs, therefore, are semi-officially run or farmer-run with official support.
Some FSAs are not economic entities, per se, but have some economic relationship with economic entities. Some economic entities (enterprises, companies), for example, have initiated and organized FSAs in order to form a contracting relationship with FSA members. In these cases, FSAs imply a mutually agreed deal through which farmers can reduce natural and market risks and economic entities can gain stable channels of inputs and establish production bases for raw materials. In other cases, the initiators first organized the FSA then, during its development process, formed the economic entities.
In recent years, the Chinese rural economy, like the national economy, has been transforming from a scarcity economy to a comparative surplus economy and from a sellers' market to a buyers' market. Farmers are therefore in an unfavourable bargaining position and have incentives to cooperate with one another in terms of marketing and purchasing. They also want to extend their economic activities into products' grading, wrapping, storage, transportation and processing in order to gain profits from secondary and tertiary industry. Some kind of forward and backward integration is coming into being in the agricultural sector. In this situation, some FSAs are developing into real cooperatives.
So far, the basically urban- and industry-oriented strategy of the Chinese macroeconomic structure and distribution system of national income has not changed, and unified markets for commodities and production factors have not been fully developed. This is the basic background to the institutional arrangements and constraints that influence the development of Chinese rural cooperatives and will induce direct government intervention in those cooperatives.
Experts estimate that in recent years, during the period of the Eighth Five-Year Plan, the net capital outflow from rural China through financial channels was 255.7 billion yuan. This means that savings in the Agricultural Bank and rural credit cooperatives exceeded loans issued for use in rural areas. So, every year, 51.1 billion yuan of farmers' savings were used by cities and urban industry (Economic Green Book,
1996). It is recognized that collecting debts and managing and using collective
assets effectively might be the primary objectives of some rural collectives
when first establishing an RCF but, following the modernization of agriculture
and the acceleration of rural industrialization, solving the capital shortage
problem that the agricultural and rural non-agricultural sectors face, and
providing loans to those sectors, have become the main tasks of RCFs. Such a
situation has changed the attitudes of central and local governments towards
As has already been mentioned, according to the statistics, the total sum of the funds raised by RCFs and the accumulated loans issued by them are far too low to disturb the national macrofinancial order. From the perspective of the central government departments concerned, however, it is absolutely necessary that management of this particular type of capital be strengthened in order to provide against possible financial trouble, because it is not under the control of the formal national financial system. The documents issued by the central government departments concerned therefore have strict regulations on the purposes, tasks, fund-raising activities, operations and even internal surplus distribution of RCFs. The core of these regulations is to restrict the activities of RCFs. More specifically, there are three principles of prohibition: RCFs are not allowed to conduct transregional activities; absorb savings from and issue loans to people or institutions outside the community; or establish their own funds. By setting up this institutional framework, central government aims at regulating the economic activities of RCFs, which can only exist as mutual-aid fund-raising organizations within local communities.
The attitudes of local governments towards RCFs reflect a mixture of control and protection. By forming and developing RCFs, local governments may be able to control part of the scarce capital resource and develop the local economy through extra-budgetary investment, thus local governments have incentives to develop RCFs and, to a large extent, already hold the controlling decision-making power within them. Furthermore, government documents clearly state that RCFs are administrated by the departments of economic management at different levels, and that these departments are responsible for guiding, managing, supervising and coordinating the activities of RCFs and providing services to them.
In practice, at township or town level, the economic management departments and the RCFs are, in fact, two entities controlled by one set of people, and such a phenomenon inevitably causes a lack of coordination between the economic interests of both. The management fees and rewards that economic management departments get from RCFs for their participation in RCF activities promote their development, help to solve their overstaffing problems and become an important source of income. Furthermore, some RCFs even manage to attain individual shares in the cadres of local economic management departments, leading to a triple-linkage of cadres, RCF employees and shareholders. Government departments interfering in the economic activities of rural mutual-aid organizations causes a series of problems and, occasionally, the cadres of economic management departments have also been RCF managers.
At present, fiscal revenue in China comes from diverse
sources, including budgetary, extra-budgetary and self-raising revenues.
Budgetary fiscal revenue usually covers the salaries of government employees and
the expenses for routine work although, in some regions, it is has proved
difficult to cover even these, let alone to support proper government functions.
Such cases lead to the separation of financial power and administrative
functions. Organizations at village level, have only administrative functions,
i.e. fulfilling the tasks entrusted by local governments and implementing some
social functions, and no financial power, i.e. no budget from government.
Consequently, since government units at different levels and from different
channels always collect fees from farmers, the social functions of village
communities and their roles as government agents are strengthened, while their
economic functions as farmers' cooperatives are weakened. Such a distorted
system enhances the strong economic dependence of township (town) governments
and village community organizations on township (town) and village collective
enterprises and, in turn, leads to the strong administrative affiliation of
these enterprises with the township (town) government and village community
At township and town level, the profits turned over to the township or town government from the collective enterprises are an important source of self-raised revenue for local government. At village level, the profits turned over from the village-run collective enterprises to the village community organizations are important economic bases for the implementation of those organizations' functions. The township (town) and village leaders will, therefore, inevitably control and protect the collective enterprises, as well as promoting their development. When the costs of intervention (blind command, incorrect decisions, etc.) exceed the benefit of protection (reduced transaction costs for enterprises), reform of the township and village collective enterprises' shareholding cooperative systems will become a priority. Township cadres and village leaders will be less resistant to institutional change if, during reform, the township government and village leaders can acquire shares from the residual of the enterprises which will enable them to cover expenses and fulfil their tasks.
Ensuring the effective supply of agricultural products
means ensuring the supply of commodity grain for urban residents and of raw
materials for industry. Since the comparative advantage of agriculture is still
low and the state is unable to offer effective protection to agriculture, the
collection and purchase of major agricultural products, such as grain and
cotton, are monopolized through such means as state purchase at fixed price and
negotiated price. This has had a twofold effect: on one hand, the state must
have, to a large extent, the controlling decision-making power on the
collectively owned land and, on the other hand, village community organizations
have to regard fulfilling state procurements as one of their important
functions. Furthermore, providing services to production, which is one of the
four major functions of village community cooperatives stipulated in documents
of the central committee of CCP, is also centred around farming activities that
meet state purchase demands; services to support other agricultural activities
are inadequate to satisfy the various needs of market-oriented agricultural and
sideline production. This situation has led to the rise of a variety of FSAs.
One of the major functions of FSAs is to develop cooperation for supply and
marketing. In the fields of major agricultural products such as grain and
cotton, the activities of FSAs are mostly limited to technical extension and
information exchange and it is difficult for them to expand into commodity
circulation, while in the fields of aquaculture, forestry and cash crops such as
fruit and vegetable farming, which are less regulated by the state, FSAs are
more often engaged in marketing.
At present, the supply of major agricultural production materials such as seeds, fertilizers and pesticides is exclusively in the hands of appointed institutions including supply and marketing cooperatives. This is necessary because a market order has not yet been set up and also because it is difficult for FSAs to obtain the agricultural production materials allocated by the state plan, leaving them in an uncompetitive position in the agricultural inputs supply market compared with supply and marketing cooperatives and other semi-official organizations. It is clear that the existing system of agricultural products marketing and agricultural inputs supply has directly hindered the development of FSAs.
In theory, cooperatives should be spontaneously initiated
and organized by the people from the bottom up. However, as they can only be
developed within a given external institutional framework, the relationship
between Chinese government at different levels and rural cooperatives has become
one of intervenor and intervened, protector and protected. It should be noted
that rural cooperatives are not always in a passive position of intervened and
protected; economic interests (e.g. reducing transaction costs) have led some
rural cooperatives actively to search the patronage of local governments. This
is for several reasons.
In terms of the legal framework, there is no cooperative law in China and, in company law or legislation concerning other economic organizations, there are no articles or chapters specifically about cooperatives. Since the regulations or charters issued by the ministries concerned do not have the authority of law, cooperatives cannot be formed and operated under the law, nor can they be protected by law. To a large extent, the survival and development of rural cooperatives depends on the policies issued and implemented by local governments, i.e. they are dependent on people, not law. As the terms and positions of local leaders are limited and changeable, and the perspectives and priorities of leaders differ from person to person, it is difficult to ensure the stability and continuity of policies. It was probably for this reason that rural cooperatives used to invite local leaders to take the position of director-general or chairman, and such a phenomenon is now often seen in FSAs and RCFs. This inevitably has a great influence on the independence of cooperatives.
In terms of developing the production factors market, when there is a sound market mechanism there will also be capital, land, labour, technology and other markets, and various production factors can enter the market freely. Changes in the pattern of resource allocation may then occur, and people will have the chance to select the mode of allocation, such as cooperatives. However, in China in the past, the centrally planned economic system, together with a household registration system that separated urban from rural residents, hindered the free movement of production factors. In addition, the markets for these factors are not yet mature, the foundation on which to build free combination of resources is still weak and it would be unfavourable for cooperatives to grow independently. For instance, since there is no sound market for land transactions, if a cooperative wants to purchase the use right to rural collectively owned land, it has to obtain permission from the many government institutions concerned. In the absence of a coordinating government institution, such projects are unlikely to succeed if they follow the normal channels. Another case regards the credit supply. In China, the financial system, including policy, commercial and cooperative banks and a sound capital market, has not yet been fully developed; banks and credit cooperatives, to a certain extent, are still affiliated to government and have not become independent financial organizations, and government still needs to intervene for cooperatives with weak economic bases to obtain capital.
In terms of the supply and demand of production factors, at the present stage of economic development, there is a shortage of, and a great demand for, capital while the labour supply is relatively abundant. As a scarce resource, capital has high marginal productivity and, therefore, demands high returns. Thus, the cooperative principles of limited returns on, and labour control of, capital will be difficult to implement.
With regard to external factors, it should be noted that the low educational and cultural level of the rural population, together with defects in cooperative leadership inherited from the old system, are also important factors which have become obstacles to the spontaneous and healthy development of rural cooperatives. As well as the educational and cultural level of the 900 million Chinese farmers, their sense of cooperation also needs to be strengthened. In addition, experiences in many other countries show that a group of devoted pioneers usually play an important role in establishing and developing cooperatives, but in China an administrative system that emphasizes the superiority of official government authorities (inherited from the previous centrally planned economic system) has made it difficult for highly qualified people to work anywhere other than within the government apparatus. Only since a market-oriented economy has emerged have highly qualified people been able to leave their jobs in government sectors or state enterprises to go into business, and talented people are now found in many areas outside government. However, while many of these people are chasing their own fame and profit, few devote themselves to the development of cooperatives. In some rural areas, the economy has developed quickly over recent years, but no democratic supervising mechanism has been established, leaving some leaders of local community cooperatives to form their own patterns of control, based on kinship. Such a situation arises out of a combination of the drawbacks of a feudal society and those of a primitive market-oriented economy, and it directly hinders the healthy development of rural cooperatives from the bottom up.
For these reasons, at this stage of Chinese development, while a sound market system has not yet been established, the production factors market is still imperfect and the legal foundation defective, it is a rational decision for cooperatives to seek support and protection from government. Cooperatives that are completely self-organized and have no government support have to pay high transaction costs and spend a lot of time and effort doing business on their own. From the point of view of the different levels of government and their agencies, stimulating and supporting the development of cooperatives, or even running cooperative-like rural economic organizations themselves, is not merely an ideological action, but also driven by economic interests. Involvement in cooperatives allows governments to obtain a share in scarce resources, dispense with redundant staff and/or create revenue for their tight fiscal budgets. The protector-protected relationship is useful and beneficial to both sides. The current nature of the relationship between rural cooperatives and the state is rather that of a rational trade-off of economic interests between both sides than an ideological action.
As the market-oriented economy develops and cooperatives grow, the costs of direct transactions between cooperatives and the market will decline. When the costs of government protection (the loss of a degree of independence) equal, or even exceed, the benefits of being protected (reduced transaction costs), the protector-protected relationship between rural cooperatives and the state might come to an end. The question then will be whether or not governments are willing to retreat.
The new cooperative organizations that have mushroomed
since the reform in rural China have played very important and indispensable
roles in promoting the market-oriented economy, developing rural communities,
protecting the economic interests of farmers and carrying out various tasks
assigned by government agencies. However, when Chinese rural cooperatives are
compared with their standardized foreign counterparts, only a small number of
cooperative-oriented RSCEs and FSAs are similar to them in terms of the
controlling decision-making power and residual claimant rights. Furthermore,
some Chinese rural cooperatives could be regarded as quasi-cooperatives and some
so-called cooperatives are, in fact, investor-oriented firms (IOFs).
As regards the relationship between rural cooperatives and the state, as no existing legislation covers cooperatives, government at different levels may vary in its attitudes and actions towards different types of rural cooperatives. This again is different from the practice of cooperatives in developed countries. The existing national income distribution system and a macroeconomic framework that is biased to urban areas and industry, together with the imperfect commodity and production factors market, encourage Chinese government to intervene directly in the economic activities of rural cooperatives in order to realize its own macroeconomic goals. Meanwhile, rural cooperatives, motivated by their own economic interests, sometimes actively seek protection from the state.
It should also be pointed out that, unless the urban- and industry-oriented macroeconomic framework is completely restructured, the national income distribution system adjusted and the market of commodity and production factors developed, it will be difficult to regulate the government's relationship with cooperatives, and a cooperative law would not function, even were it to come into being. Only when China's macroeconomic system and correspondent policies are tilted towards agriculture, rural areas and farmers will the real and dynamic rural cooperatives flourish.
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