Cooperatives 're-emergence' not revival of planned economy

The term gongxiaoshe, or supply and marketing cooperatives, has attracted wide attention since a report by Hubei Daily in late October said Hubei province has restored and reconstructed 1,373 local gongxiaoshe in almost every county and town.

Since such cooperatives used to be very common during the planned economy era, some people are claiming their "re-emergence" is an indication of planned economy making a comeback in China.

However, this is nothing but overreaction to a normal development. The 20th National Congress of the Communist Party of China, which concluded on Oct 22, once again pledged to build a high-level socialist market economy system, which shows China is on course to build a stronger, more efficient and more resilient socialist market economy.

Apart from Hubei province, the coverage rate of township-level supply and marketing cooperatives has reached 92.7 percent in the Ningxia Hui autonomous region, and the number of rural service cooperatives in Chongqing municipality has increased to 6,120, with a coverage rate of 76 percent.

In fact, the No 1 Central Document for 2021 — the first policy statement released by the central authorities every year which gives an idea of the policy tools to be used in rural areas — proposed to comprehensively reform the supply and marketing cooperatives, carry out pilot projects for "three-in-one" cooperation among production, supply and marketing, and credit, as well as improve the quality of internet platform services for farmers. This year's No 1 Central Document, too, says supply and marketing cooperatives should establish county-level service networks, as well as centers for centralized procurement and distribution.

During the planned economy era, the governments controlled the purchase, sale, production and supply of social materials through administrative planning because of the shortage of agricultural commodities and supplies. As a result, people could purchase agricultural and supplementary products from supply and marketing cooperatives.

Supply and marketing cooperatives were the only channels providing commodities for people in medium-sized and small cities, especially in rural areas. Although the cooperatives protected the farmers by preventing them from buying substandard and sterile seeds and low-grade fertilizers, the poor quality of service and high price restricted their development.

After the launch of reform and opening-up in the late 1970s, China slowly opened up different sectors of the economy, invited foreign investment and allowed private businesses to prosper, which caused supply and marketing cooperatives to fade over time. But in recent years cooperatives have started making profits again thanks to deepening reform and innovation-driven development. For example, the total sales of supply and marketing cooperatives in China reached 6.26 trillion yuan ($860 billion) in 2021, up 18.9 percent year-on-year.

Therefore, it is wrong to connect the emergence of cooperatives with planned economy, because they have become market players and operate like supermarket chains. In a socialist market economy, supply and marketing cooperatives can function in three areas.

First, supply and marketing cooperatives can thrive in the national commodity flow network, because they are its main sales channels. Such cooperatives are still a very important part of the supply channels of a large number of farm and related products as they can stabilize prices and ensure smooth supply.

For example, the All China Federation of Supply and Marketing Cooperatives, which functions under the State Council, China's Cabinet, owns more than 10 conglomerates and is a leading player in the country's cotton market. And some local cooperatives have built successful companies while others have huge amounts of fixed assets in counties and towns.

Second, such cooperatives are playing a bigger role in rural vitalization. True, some have expanded their services to increase profits, but that does not mean the government is planning to revert to the planned economy. Actually, cooperatives started making profits in the late 1990s thanks to reforms and the changing market mechanisms.

Third, these cooperatives can ensure the safety of the supply chain at the grassroots level and thus secure the supply of goods and services to the people, especially in remote rural areas where normal market players may not be active or are reluctant to venture due to the lack of profitability. In fact, the rural logistics network, which is made up mainly of cooperatives, plays a significant role in safeguarding the safety of the supply chain at the grassroots level by providing a smooth channel to sell and buy farmers' products.

Supply and marketing cooperatives complement normal market entities in providing guidance and services for farmers in remote areas instead of replacing them. There is no possibility of China reverting to the planned economy after more than 40 years of relentless reform and opening-up, and given the irreversible trend of the socialist market economy-driven high-quality development.

Still, local governments need to focus on quality rather than the number of cooperatives functional within their jurisdiction. Also, they should carefully allocate resources to develop the rural cooperative economy and reduce administrative intervention, while ensuring that the executive council of cooperatives is elected by farmers in order to boost the rural economy and promote rural vitalization.

The author is a professor of economics at the Party School of the Communist Party of China Central Committee. The views don't necessarily represent those of China Daily.

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