The long-awaited experimental reform plan for China's more than 30,000 rural credit cooperatives has finally won approval from the State Council.

 

The reform will have an impact both on the cooperatives' property right and regulatory schemes. It will be implemented immediately in eight pilot areas, the China Banking Regulatory Commission (CBRC) said yesterday.

 

The leading areas are Jilin, Shandong, Zhejiang, Guizhou, Jiangxi, Jiangsu and Shaanxi provinces and Chongqing Municipality.

 

The cooperatives in these regions will be able to reform their property right schemes according to regional conditions.

 

Instead of sticking to the traditional cooperative structure, they can choose to adopt one of the three property right schemes on offer -- a shareholding system, a market economy-based cooperative system or a combination of both.

 

That will enable some co-ops, especially those in regions where industry is more developed, to upgrade into shareholding commercial banks, analysts say.

 

But it also allows flexibility for those which are not able to grow into commercial banks.

 

By introducing the new shareholding structure, the co-ops will attract more diversified investors, said Qin Chijiang, a central bank consultant and deputy secretary-general of the Finance Society of China.

 

It will encourage rural residents and other investors to put more into the co-ops and take more initiatives to supervise the operation of the cooperatives.

 

Moreover, the regulatory system on the co-ops will also be revitalized, according to the reform plan.

 

Many of the co-ops' management and supervisory functions will be handed over from the financial authorities to local provincial governments. They will supervise the operation of the co-ops, deal with risk prevention and help them recover loans.

 

The CBRC will shoulder the financial supervision of the co-ops, which are still part of the overall rural financial system.

 

"The new regulatory scheme will give local governments more liabilities to oversee," said Qin.

 

Experts say the complicated reform will require better cooperation among various government departments.

 

Meanwhile, the authorities will also provide a series of preferential policies to help the co-ops get rid of long-accumulated bad loans. They include new loans and special bills issuance from the central bank, fiscal subsidies and tax exemptions. And the co-ops in the pilot regions will be able to further float their lending rates.

 

But to build a healthy rural financial system is not just about reform, said Qin.

 

It will also need more comprehensive reform by the overall rural financial institutions and repositioning.

 

(China Daily August 20, 2003)