Communist Party and Financial Institutions: Institutional Design of China's Post-Reform Rural Credit Cooperatives

Lynette H. Ong, University of Toronto

Abstract

Although the Rural Credit Cooperatives are the only formal credit providers to millions of households in rural China, empirical evidence suggests that they do not serve the interests of member households very effectively. This study examines how far the recent institutional reforms have addressed the problems of insider control and collective action in corporate governance and reduced local political influence on their operations. It contributes to the currently scant literature on the reasons for the persistence in China of local political interference in loan allocations. This study’s findings suggest that the role of the local states in the country’s economic development is far less positive than is perceived by the conventional wisdom.