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Prosper or Perish

Credit and Fiscal Systems in Rural China

by Lynette H. Ong

Publication Year: 2012

The official banking institutions for rural China are Rural Credit Cooperatives (RCCs). Although these co-ops are mandated to support agricultural development among farm households, since 1980 half of RCC loans have gone to small and medium-sized industrial enterprises located in, and managed by, townships and villages. These township and village enterprises have experienced highly uneven levels of success, and by the end of the 1990s, half of all RCC loans were in or close to default, forcing China's central bank to bail out RCCs. In Prosper or Perish, Lynette H. Ong examines the bias in RCC lending patterns, focusing on why the mobilization of rural savings has contributed to successful industrial development in some locales but not in others.

Interweaving insightful and theoretically informed discussions of rural credit, development, governance, and bank bailouts, Ong identifies various sources for China's uneven development. In the highly decentralized fiscal environment of the People's Republic, successful industrialization has significant implications for rural governance. Local governments depend on revenue from industrial output to provide public goods and services; unsuccessful enterprises starve local governments of revenue and result in radical cutbacks in services. High peasant burdens, land takings without adequate compensation by local governments, and other poor governance practices tend to be associated with unsuccessful industrialization. In light of the recent liberalization of the rural credit sector in China, Prosper or Perish makes a significant contribution to debates within political science, economic development, and international banking.

Published by: Cornell University Press


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p. 1-1

Title Page, Copyright

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pp. 2-7


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pp. vii-viii

List of Figures

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pp. ix-xii

List of Tables

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pp. xiii-xiv

List of Abbreviations

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pp. xv-xvi

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pp. xvii-xviii

I have accumulated numerous intellectual debts in the writing of this book. The idea for this project was first conceptualized while I was at the Contemporary China Centre at the Australian National University (ANU). I benefited tremendously from the expertise and guidance of Jon Unger, who was a co-editor of the China Journal at that time. ...

Part I. Overview and Research Questions

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1. Local Governments, Rural Credit, and Regional Development in China

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pp. 3-23

In September 2008 a riot broke out in Jishou, a rather undeveloped city in rural Hunan province. More than ten thousand peasants who had lost their savings in an underground financing scheme took to the streets. By promising high rates of return, real-estate developers and other local companies in need of working capital had lured thousands of farmers to take out bank loans, ...

Appendix: Case Study Indicators, Household Survey, and Sources

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pp. 24-26

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2. The Rural Financial System and Rural Development in China

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pp. 27-48

Drawing on secondary and some primary data, this chapter situates rural credit cooperatives (RCCs) in the context of China’s rural financial landscape in order to highlight their significance to the rural economy and households. China’s rural financial system serves roughly 800 million people, constituting 70 percent of the population. ...

Part II. The Design of China’s Economic and Political Institutions

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3. The Design of China’s Rural Credit Institutions

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pp. 51-75

Does the institutional design of rural credit cooperatives (RCCs) explain patterns in their lending? In this chapter I illuminate the factors that shape loan officers’ behavior and affect the loan allocation process by analyzing the findings of my household survey. ...

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4. The Implications of Cadre Evaluation and Fiscal System for Local-Government Behavior

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pp. 76-92

Local-government interference in lending operations can be explained through an analysis of political institutional design. Specifically, the Chinese Communist Party (CCP)’s cadre evaluation system and the fiscal system combine to create overpowering individual and collective incentives for local government to pursue local industrialization and to maximize revenue at all costs. ...

Appendix: Township Cadre Evaluation Criteria in Wenling County, Zhejiang Province

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pp. 93-98

Part III. Case Studies: Blind Men and the Elephant

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5. Diverging Pathways to Prosperity: Privately Led vs. Local Government–Led Industrialization

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pp. 101-125

On a bitterly cold winter day in 2006, I was riding a coach to Taizhou, Zhejiang province, for some fieldwork. When I reached the city, I was greeted by a giant poster captioned “the first shareholding cooperative (gufen hezuozhi) in China.” The ad was for a company called Baolite (pronounced bao-li-te) priding itself as a national pioneer of private enterprise. ...

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6. The Local Government–Led Path to Rural Decay

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pp. 126-149

I had been in this village in Sichuan province for a week now, but there was still no sign of any working-age adults. There were plenty of children and old folks, but no healthy young men or women. It was an “hourglass population pyramid” village, in which the population pyramid is hollowed out at the center. ...

Appendix: Revenue and Expenditures of the Perished Townships

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pp. 150-153

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pp. 154-170

I start these conclusions by updating the RCC reform in the late 2000s, analyzing the costs of soft budget constraint and bailout by the central government. I then compare the political-economic dynamics of the rural credit sector with the surge in local-government borrowing and debt as a result of the 2008–9 fiscal stimulus program. ...

Appendix: List of Non-Survey Field Interviews, 2003–6

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pp. 171-176


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pp. 177-200

Glossary of Chinese Terms

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pp. 201-202


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pp. 203-212

E-ISBN-13: 9780801465956
E-ISBN-10: 0801465958
Print-ISBN-13: 9780801450624
Print-ISBN-10: 0801450624

Page Count: 224
Publication Year: 2012

Edition: 1