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An Analysis of and Suggestions on the Reform of Rural Credit Cooperatives(No. 110, 2017)

By Zheng Xingchen, Research Team on “Chinese Finance Reform Strategy”, Research Institute of Finance, DRC

Research Report No. 110, 2017 (Total. 5185) 2017-9-6

Abstract: This paper gives a comparative analysis of the governance mechanism of the rural credit cooperatives and an illustration of agricultural support to rural credit cooperatives reform and relevant systematic risks focusing on agricultural support and the prevention of systematic risks. It holds that the reform of rural credit cooperatives needs to move forward steadily, and maintain the essential features and basic advantages of cooperative mechanism. The reasons are as follows. The cooperative financial organizations need to conduct effective management for the prevention of risks, a mutual aid mechanism between the grassroots cooperative financial organizations needs to be established for liquidity support and cross-subsidization, and a professional audit team needs to be formed within the financial sector, which are the guarantees to effectively prevent, control and resolve all kinds of risks. If the reform of the rural credit cooperatives cannot maintain the integrity of the system, and cannot maintain the essential characteristics and basic advantages of the cooperative mechanism, it will be difficult to achieve these objectives, and it will even weaken the support to agriculture services. We need to pay high attention to this problem. Therefore, this paper has accordingly raised four suggestions. First, we need to stabilize the core role of the provincial rural credit cooperative association in the joint mechanism. Second, we need to promote the grassroots legal reform according to the local conditions. Third, we need to promote the coordinated development of rural credit cooperatives with other rural cooperative organizations. Fourth, we need to flesh out the supporting laws in a timely manner, and avoid mechanically copying others’ experience to push forward the reform.

Key words: rural credit cooperatives, rural commercial bank, reform, supporting measures to agriculture, systematic risks