Before its fortunes waned in the '90s, the All China Federation of Supply and Marketing Cooperatives was long considered the link between the country's rural and urban economies.

And now that it is back in health, China's largest cooperative organization promises to relive its glory days by playing a major role in building a new countryside.

The All China Federation of Supply and Marketing Cooperatives saw its profits increase by 21 percent year-on-year last year to 7.95 billion yuan (US$1billion), according to Bai Lichen, president of the federation's board.

Ten years ago, it was swimming in red. Prior to that, back in the days of the planned economy, the federation was considered a pillar of the national economy, monopolizing the exchange of goods between the cities and countryside.

As the market economy developed, the supply and marketing cooperatives failed to adapt themselves to the competitive new environment, losing their luster. By 1998, they had had suffered eight consecutive years of losses. 

"We either kill our losses, or we'll be killed," Bai said late last month while describing the harsh situation the cooperatives faced in the late 1990s.

Thus battered, the cooperatives undertook a reform program, strengthening management, restructuring their enterprises and enhancing services. And by 2000, the federation stepped out of the red, Bai said.

This year has provided fresh opportunities for the federation to continue its return to the limelight: The rural cooperative law recognizes the legal status of rural cooperatives, and policymakers have done more to emphasize grassroots rural cooperatives, treating them as a channel to help build a new countryside.

But more work remains to be done. At the federation's third board meeting, which closed on Saturday in Beijing, Bai called on the federation's members to expand its network and develop more cooperatives.

"Besides organizing more cooperatives, we want to unite grassroots cooperatives to form cooperative alliances," said Liu Hui, head of the federation's cooperative guidance department. "In this way, the farmers will have greater bargaining power when they face large enterprises."

Engaged in small-scale, individual farming, Chinese farmers are buffered by the turbulent market and often find themselves at a disadvantage when dealing with enterprises.

A more pressing concern is the lack of financial resources many of them face. Neither the traditional rural credit cooperatives, nor the modern agricultural bank are willing to lend to individual farmers because few of them have property to offer as collateral for mortgages. And the small size of the loans they need push up the relative costs of financial institutions.

Liu said the federation would like to help develop rural finance to help farmers get more access to credit.

The federation has started experimenting with the credit market in certain localities, where rural mortgage companies have been established to provide mortgages for poor farmers. The local government shoulders part of the start-up funds, while various investors divide up the rest.

The China Banking Regulatory Commission issued a formal regulation late last year making it easier to set up financing-based rural cooperatives. The most recent national financial work conference supported the move.

Du Xiaoshan, deputy director of the Chinese Academy of Social Sciences' Rural Development Institute, welcomed the official move, but said the authorities should clarify how the rules should be implemented so they are easier to apply.

(China Daily January 25, 2007)