The Design of China’s Rural Credit Institutions
The Design of China’s Rural Credit Institutions
This chapter examines the institutional design of rural credit cooperatives (RCCs) and whether it influences patterns in their lending. Drawing on the results of a household survey, it considers the factors that shape loan officers' behavior and affect the loan allocation process. Although not part of the state bureaucracy, RCCs are subject to a dual accountability system similar to that of any subnational bureau in China. Comparison of RCCs' line of reporting and supervisory structure with that of state-owned banks such as the Agricultural Bank of China and the People's Bank of China further illustrates why credit cooperatives are more susceptible to local-government influence. This chapter first discusses existing explanations for the rural credit sector outcome, particularly bias in lending toward local government-owned enterprises. It then provides an overview of RCCs' corporate governance structure and explains why China's banking regulator cannot supervise RCCs effectively. Finally, it analyzes lending patterns by rural cooperative foundations.
Keywords: rural credit cooperatives, dual accountability, China, state-owned banks, Agricultural Bank of China, People's Bank of China, rural credit, bias, rural cooperative foundations, corporate governance
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