Research On China’s Rural Credit Cooperatives Corporate Governance Issue

The reason why China’s reform of rural credit cooperatives gets wide concern from all parties is that the reform itself does not only matter to the healthy development of the rural credit cooperative itself, but also is related to the overall situation of agricultural development, income increase of farmers and rural stability.Since the current round of reform of rural credit cooperatives rolled out from 2003, it has lasted for 8 years.Overall, with great efforts of all interested parties, the reform of rural credit cooperatives has achieved important milestone outcome.However, it should be noticed that since the reform, the improvement of rural credit cooperatives in asset quality and financial situation was mainly the result of policy support and loan expansion.Inadequate corporate governance and unhealthy internal and external constraint mechanism remain the most major reasons constraining sustainable development of rural credit cooperatives.And the rural credit cooperatives can not fulfill the function of serving the agriculture and realizing the ultimate goal of reform unless achieving healthy, sustainable development of itself.Meanwhile, the improvement of the rural credit cooperatives corporate governance have close ties with two key elements of this round of reform, i.e.reform of property right system and management system.It can be said that to improve the corporate governance is a major core issue mattering success or failure of this round of reform of rural credit cooperatives, which is of important theoretical and practical significance to further deepen reform of rural credit cooperatives, and contribute to the achievement of reform goals.Theoretically guided by monetary and financial theory, institutional economics, cooperative economic theory, and property rights economics, this paper uses methods of comparative analysis and empirical analysis, and analyzes the causes, problems, resulting in consequences of the corporate governance characteristics under the existing system conditions of property rights and management of rural credit cooperatives, refer to successful experiences of improving corporate governance of the foreign cooperative financial institutions, and put forward a path choice for improving the corporate governance of the Chinese rural credit cooperatives. With the regulatory authorities fully launching share-holding reform for the rural credit cooperatives, and provincial level credit cooperatives modifying the management for the rural credit cooperatives cording from the management according to the law to administrative management, the corporate governance of the rural credit cooperatives has begun to alienate.It is mainly demonstrated in the overall departure from the cooperative system nature, the government business of the private capital and reverse capital management.In 2010, the regulatory authorities announced that within five years the rural credit cooperatives will be comprehensively reformed into share-holding financial companies, which symbolizes the rural credit cooperatives under the guidance of the government will fully give up the cooperative system nature. According to the requirement for clear property relationship of this round of reform of rural credit cooperatives, the capital of rural credit cooperatives has fully become the private capital, and in accordance with the requirements of corporate governance, it should reflect "privately-owned capital privatization," but in practice, the provincial level cooperatives modified the management for the rural credit cooperatives from the management according to the law to administrative management, and made corporate governance of the rural credit cooperatives demonstrate strong "privately-owned capital to be run by government" and reverse governance features.Alienation of rural credit cooperatives has both policy reasons and institutional reasons.Policy reasons are expressed in the policy design flaws.Previous reforms mainly relied on policy document release, which was random, authoritative, lack of regulation.Policy implementation was often out of tune so that the function of rural cooperative financial positioning has always been ambiguous.Institutional reasons were reflected in mandatory system changes under the supply-led government control.No matter being a grass-root organization for state-owned banks or comprehensively promoting the shareholding system reform are all the results being forced execution of administration-led from top to bottom.Alienation of corporate governance of the rural credit cooperatives brought about series of negative effects.The most serious consequence was departure from the fundamental essence for rural credit cooperatives serving "San Nong".One, government operation of privately-owned capital deprived of the shareholders’rights, resulting in negative impact of lack of respect for the property rights of rural credit cooperatives. Second, the reverse governance resulted in severe asymmetry between rights and responsibilities, not helpful for rural credit cooperatives to establish the incentive and constraint mechanism for sustainable development.Third, direct appointment by the provincial level cooperatives of the senior management of rural credit cooperatives leads to multiple proxy - agent relationship, the longer the chain of agent, the lower of incentive constraint efficiency. Fourth, the ultimate consequence of departure from the cooperative system is the original intention of serious departure from the reform of rural credit cooperatives, which was the fundamental purpose of enhancing the function for serving "San Nong".It is of thinking that it is of necessity to selecting diversified property rights system suitable for different regions of varying economic development level in accordance with the principle of selection for different local conditions through comparative analysis for advantages and disadvantages of three kinds of property rights models of rural credit cooperatives.This Paper makes argumentation of necessity and feasibility of developing rural credit cooperatives of China from a system point of view, proposes rural cooperative finance is a system guarantee to meet the financing needs of vulnerable groups of "San Nong" which is able to adapt to the imbalance of multilevel nature of current production levels of China.From all over the present situation of uneven development, rural credit cooperative system stressing the provision of financial services for its members, is more suitable for less developed western regions; shareholding cooperative system able to achieve a certain profit and provide service for its members on parallel is more suitable for the central region of medium level of economic development; shareholding system model is only suitable for eastern developed regions of a higher degree of industrialization and less demand for "San Nong" credit.This Paper refers to successful experiences of corporate governance of the rural cooperative financial institutions from abroad, combines with China’s actual situation, and puts forward overall vision and path selection for improving China’s corporate governance of rural credit cooperatives.The overall vision is: to deepen the reform of property rights of rural credit cooperatives as basis, to build the common corporate governance of stakeholders as core, to rationalize the rural credit cooperatives management system as system guarantee, to establish support rural finacial system as external driving force, to promote corporate governance of rural credit cooperatives to set things right by "government-run privately-owned capital" to "privately-owned capital privatization," restoring reverse governance back to corporate governance, restoring full implementation of the shareholding system back to cooperative system nature in a suitable manner, thus contributing to the rural credit cooperatives to achieve the objective of corporate governance of strengthening the function of serving the farmers at the same time of increasing the sustainable growth capability.Paths of improving the corporate governance of the rural credit cooperatives include: First, deepen reform of property rights, in accordance with principle of respecting local conditions and guiding the actual selection for categorization, the rural credit cooperative system shall choose from cooperative system, shareholding cooperative system and shareholding system ownership organization form. Second is to establish common corporate system for stakeholders, to promote the balance mechanism of the stakeholders by improving relevant system arrangement, accordingly stakeholders would achive the goal of benefit-maximization. Third, improve the management system, free the provincial level cooperatives from the administrative functions, and return to whose industrial management functions, and maintain independence of corporate position of rural credit cooperatives in the county (city). Fourth is to establish policies to support rural financial system, promote rural credit cooperatives to improve their corporate governance, and achieve financial sustainable development.