Supply and marketing cooperatives (SMCs) are products of the 1950s’ collective economy that never went away. The government is reanmating them to play new roles in the rural economy.
A supply and marketing cooperative in Suzhou, Jiangsu Province. Photo from CFP
By CHENG Dafa
State-run cooperatives were set up in the 1950s to distribute food, consumer goods and farm supplies in rural areas. Prices and rations were tightly controlled as a result of widespread shortages. In October, news came out that Hubei Province was bringing back supply and marketing cooperatives.
In fact, the institution never went away, but was reshaped as the economy opened up. SMCs, now operate locally with central oversight, helping farmers negotiate with suppliers, find buyers, transport goods and get loans.
In Hubei, membership has grown steadily in the past five years and now includes 335,000 people, according to a local newspaper, and is expected to reach 1.5 million by 2025. The story went unnoticed for weeks until investors picked it up a few days ago and SMC concept stocks became the hottest assets in the market. The institution is not only alive and well, but to almost universal surprise, thriving.
“SMCs once dictated supply and demand in the planned economy, now they are working with the market to help farmers buy and sell goods. They are different animals,” said WU Changhai, of China University of Political Science and Law.
In 2020, over 37,600 cooperatives sold goods worth a total of 5.3 trillion yuan (US$700 billion) nationwide, which rose to 6.2 billion yuan, last year.
SMCs organize and incentivize farmers, and step in when the market fails. In remote, sparsely populated areas, they are essential to bringing in goods and services. They have played a key role in popularizing e-commerce by handling the complicated “last kilometer.”
When food prices shot up in Wuhan during the early stages of the pandemic, SMCs bought vegetables and sold them to Wuhan residents at subsidized prices.
Efforts to marketize SMCs have met with mixed success. These special market entities are not purely profit driven. They have a public service mission, including helping farms modernize, building infrastructure, and taking care of the young and the elderly.
All the cooperatives are under the umbrella of All-China Federation of Supply and Marketing Cooperatives, but each cooperative has its own structure, business model and governance. Some own publicly traded subsidiaries or are listed on the stock market themselves.
“The responsibilities of different levels of SMCs are not clearly defined or separated, which creates many loopholes,” said Wu. Governance and public oversight are often lacking – over 40 SMC officials have been convicted of embezzlement or corruption in the past five years – and their balance sheets, after decades of restructuring, partial privatization, and merging with one another, are a mess.
The government has been working on regulations to codify the operation and governance of SMCs since 2014. A draft law was issued in 2019 to solicit comments, but it is still waiting to be finalized.