1. Choice of Ownership and the Reform of Rural Credit Cooperatives of China Rongrong Weng April 4th, 2006 Agriculture, Food and Resource Policy AGEC 630B

3. Introduction ■ Rural Financial Market of China ►Formal ●Agricultural Bank of China ● Agricultural Development Bank of China ● Rural Credit Cooperatives (RCCs): providing 84% of formal agricultural loans ►Informal ■ Performance of RCCs ● Targeting: reaching the farmers meet only 25% of credit demand ● Sustainability Governance and Ownership

4. Previous Research: Debate On Ownership  Shareholding Commercial Banks: ►Economic development in rural areas of China (Ho,2004) ► Diminishing role of credit cooperatives as economy proceeds (Besley, Coate, and Loury,1993)  Cooperative Financial Institutions

5. Reasons for the Choice of Cooperatives ● Argument against diminishing role of cooperatives ►Empirical evidence in Germany ► Theoretical analysis of change in cooperatives to adapt financial competition ● Characteristic of Rural Financial Market of China ► Interregional Inequality within Rural Sector of China ► Land Ownership ● Economic features of Credit Cooperative ► targeting: reducing impact of market failures

6. RMB 5389 = CAN $ 786 RMB 1565 = CAN $ 228

7. Targeting: Market Failure and Credit Cooperatives  market failure asymmetric information & lack of collateral transaction cost : auditing cost & enforcement cost  Joint Liability Definition: The legal liability of two or more people for claims against or debts incurred by them jointly. Mutual Screening and Monitoring

8. Conclusion and Policy Implications  Credit cooperatives  Legal Framework  Nationwide supporting infrastructure

9. Thank You