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    Q & A

    A Key Plank of China’s Planned Economy Is Making a Comeback. Why?

    The revival of grassroots supply and marketing cooperatives has raised fears of a backslide. But the real reason for their return has gone largely ignored.

    Last October, the central province of Hubei caused a minor panic when it announced the resurrection of a once obscure relic of China’s high socialist period. Known as “grassroots supply and marketing cooperatives,” they were once a fixture of China’s planned economy, facilitating the trade of grain, cloth, and other necessities nationwide from the 1950s to the 1990s. In an era when private enterprises were all but nonexistent, the cooperatives played a central role in the purchase and distribution of rural goods around the country.

    The cooperatives faded away after the market reforms of the 1970s and ’80s, which forced them to compete with more nimble private enterprises, from supermarkets to digital platforms. So, many Chinese were taken off-guard when Hubei officials announced they had nearly doubled the total number of cooperatives in the province between 2014 and 2021. Old fears of an economic backslide resurfaced as nervous commentators wondered if the report signaled a return to a more planned economy.

    Missing from many of these discussions was a nuanced understanding of what grassroots supply and marketing cooperatives actually are and why local officials in rural areas might want to revive them. According to Zhang Wenxiao, a sociologist at Beijing City University and author of a recent book-length study of the chestnut trade in a northern Chinese county, supply and marketing cooperatives never fully disappeared from the countryside, even if they fell out of favor post-marketization. As for their current restoration, she draws a sharp line between the grassroots cooperatives that dominated rural life during the Mao era and their far more limited modern counterparts.

    Zhang’s book, “The Story of Chestnuts,” narrates the rise and fall of one such cooperative in the pseudonymous chestnut-producing village of Xiaodouzhuang. Although a handful of farmers began selling their produce independently as early as the late 1980s, Xiaodouzhuang’s cooperative remained dominant in local production until the mid-1990s, when a series of poor business decisions shook villager faith in its business model, causing more defections and eventually pushing the cooperative into liquidation proceedings in 2004.

    But the privatization of rural trade has not been an unmitigated boon to the countryside. Supply and marketing cooperatives may have monopolized agricultural trade under the planned economy system, yet the vacuum caused by their collapse has been filled, not by a diverse, competitive market, but by regional monopolies. In Zhang’s view, the resurrection of supply and marketing cooperatives since 2015 has been less about reviving the planned economy than giving farmers increased leverage in the marketplace.

    I recently sat down for an interview with Zhang on the complicated history of supply and marketing cooperative systems, their mixed legacy in rural communities, and the meaning of the current reforms. This interview has been edited for length and clarity.

    Cai Yineng: To start, what exactly were “grassroots supply and marketing cooperatives” and why were they formed in the first place?

    Zhang Wenxiao: That’s a complicated question, not least because of the different connotations the term “cooperative” has in China and other countries. Basically, they were institutions set up almost immediately after the founding of the People’s Republic in 1949 to facilitate the transfer of rural goods and other necessities around the country, and especially to cities. Because the cooperatives enjoyed a de facto monopoly on rural-urban trade, they were able to set prices in line with national priorities. For decades, the Chinese state used this power to help fund the country’s industrial development, which came at a cost to the countryside, and by extension farmers. In return for accepting this system, farmers gained access to a stable channel for selling their produce.

    After the market reforms, the cooperatives lost their monopoly and had to compete with alternative channels of rural-urban trade. But they were slow to adapt. The government attempted to reform them along market lines in 1995, but with the exception of a few richer cooperatives that diversified into other businesses like real estate, the vast majority were essentially defunct by the mid-2000s.

    Cai: In your book, “The Story of Chestnuts,” you talk about a turning point in 1995 and 1996, when villagers in Xiaodouzhuang suddenly realized that the cooperative no longer enjoyed an implicit government guarantee. What happened, and why were villagers caught off-guard?

    Zhang: The fuzziness of the nature of supply and marketing cooperatives is the product of their superposition between two very different eras. The cooperatives were established in a top-down initiative during the early years of the People’s Republic: Mao Zedong put forward the importance of the cooperative economy in the country in 1949. This was followed by the establishment of the Central Cooperative Administration in 1949 and the All-China Federation of Cooperatives in 1950, two bedrocks of the future supply and marketing system. Supply and marketing cooperatives operated according to national policies and directives, and guided production according to state preferences.

    Both the nature of their rise and the way they operated led many villagers to believe that the cooperatives represented the state. But most supply and marketing cooperatives at the grassroots level, including the one in Xiaodouzhuang, were not actually state-owned. Rather, they were collectively owned by villagers. Especially after the market reform period, Chinese policy dictated that cooperatives were responsible for their own profits and losses. Yet, they still retained some functions closely related to the state, such as purchasing and selling products on behalf of state-owned trading companies. Therefore, the status of supply and marketing cooperatives was contradictory.

    In Xiaodouzhuang, this came to a head in 1996. The previous year, demand for chestnuts outstripped supply, causing prices to rise. In 1996, the local supply and marketing cooperative went to its members to raise funds and shares in order to expand production. The business failed within a year, however. The cooperative lost about 3.8 million yuan (then about $450,000). All told, more than 300 families were affected. Pretty soon, more and more chestnut farmers began to operate independently. By 2004, the supply and marketing cooperative was bankrupt. The government stepped in and its assets were liquidated, but this only covered about a quarter of the losses suffered by investors — that is, the village chestnut farmers.

    Crucially, the ambiguity of the cooperative’s status — was it a state organ or not? — aggravated the villagers’ confusion. As they saw it, the cooperative came to them and asked to increase production. They just did what they were told. But as far as the government is concerned, the cooperative was engaged in normal business activity. Even today, many residents have only a vague understanding of the nature of supply and marketing cooperatives.

    Cai: How did villagers’ views on rural commerce change after the business failure?

    Zhang: Supply and marketing cooperatives had been embedded in rural life for decades, and local chestnut farmers had formed certain beliefs around their role in the trade and circulation of agricultural products. Even though market-oriented reforms had been carried out for years prior to 1996, most chestnut farmers were still accustomed to past ways of thinking. For example, in 1996, the leaders of the Xiaodouzhuang supply and marketing cooperative eventually realized the risk of a crash and tried to stop buying chestnuts — but how could the chestnut farmers accept that? Many chestnut farmers simply tossed their chestnuts into the courtyard of the acquisition site.

    After 1996, the risk awareness of chestnut farmers improved rapidly. Over the years, new sales channels also became available, including rural e-commerce. Interestingly, in Xiaodouzhuang, the loss of 1996 made some farmers wary of working with online platforms. They worried that rural e-commerce seemed too similar to the old cooperative system, as platforms wanted to purchase agricultural products comprehensively, just like the cooperatives had. Would that model cause too much risk exposure? What’s more, some e-commerce platforms, as startups, seemed less prepared organizationally than the cooperatives were. Therefore, many villagers adopted a wait-and-see attitude toward e-commerce.

    Of course, outside Xiaodouzhuang, some villages went all-in on e-commerce, sometimes to the point where a whole village was supplying goods for a single e-commerce platform. E-commerce provides convenient circulation channels for some agricultural products, but as e-commerce companies established regional monopolies, farmers found themselves atomized and without bargaining power. It’s fair to say that, from the era of the planned economy to the era of marketization, farmers have always lacked a say in the marketing of their produce.

    Cai: In recent years, the Chinese government has sought to revive cooperative agriculture in some regions. What role could supply and marketing cooperatives play in the future?

    Zhang: The views of two Renmin University sociologists are enlightening: Guo Xinghua believes they can help rebalance the market, promote the current “internal circulation” campaign, and mitigate risks posed by the uncertainty of the international market. Zhao Xudong believes the cooperatives have symbolic implications that will allow farmers to feel that they are “united” in the face of the market.

    I think we’ll see a mix of these two ideas: The ongoing transformation of supply and marketing cooperatives is not only about improving the distribution of agricultural goods, but also about forming new cooperative relations among farmers. This cooperative relationship is not purely nostalgic; it effectively improves farmers’ ability to resist risk, negotiate prices, and make choices in the market. The Chinese government has been taking aim at the “three rural issues” (agriculture, rural areas, and farmers) for more than two decades. Now it’s also emphasizing “rural revitalization.” These agendas exist not only to make farmers rich, but also to unite farmers. The two goals should promote each other, and supply and marketing cooperatives can play a role in both.

    In addition, I think there is an implicit motivation for reform, which is to rebalance the urban-rural relationship. In both the planned economy and the market period, rural and urban areas have been separated from each other in many ways, and rural areas have often had to make sacrifices for the cities. Although e-commerce companies have tried to connect urban and rural areas, I found that these companies do not necessarily understand the actual situation in rural areas and have little patience for unprofitable situations. In contrast, supply and marketing cooperatives do not emphasize profit so much. They could serve as a rural commercial infrastructure that promotes the integration of urban and rural development through trade.

    Cai: In an interview with the business publication Yicai, you were quoted as saying “A completely planned (system) is not conducive to the vitality of farmers, but completely following the logic of the market will render farmers powerless in the face of business giants.” Can the rural economy navigate between these two extremes?

    Zhang: The most important thing is to learn from history. Neither the planned economy nor the market-oriented period has given farmers full play. In the future, we should first of all empower farmers by giving them the opportunity to receive better education and skills training, and by improving our own understanding of the agricultural produce market.

    The revived cooperatives should also draw lessons from the past. On the one hand, they shouldn’t and can’t monopolize agricultural products like in the planned economy era. On the other hand, they need to be strengthened so that they can survive in a competitive market while playing a role different from for-profit businesses, all while guaranteeing farmers’ livelihoods. For example, in a pandemic or an extreme weather event, cooperatives can actively purchase agricultural products and ship them to cities, to avoid a situation where vegetables are rotting in the fields and can’t be bought at the grocery. This is particularly important because what farmers need most is confidence in the market and the circulation system. If this confidence is shaken, it can take a long time to recover.

    Translator: Matt Turner; editor: Kilian O’Donnell.

    (Header image: A kid looks at a chestnut in Yichang, Hubei province, 2019. VCG)