Yixin Chen. Chinese Historical Review. Volume 13, Issue 1. Spring 2006.
In 1923, a rural credit cooperative movement, begun as a famine prevention policy, developed in Hebei province under the auspices of the China International Famine Relief Commission (CIFRC) headed by American missionaries. The movement soon turned into an economic policy that sought to resolve the problems of the Chinese peasantry. It spread to the whole of Hebei and the neighboring province of Shandong in the late 1920s and early 30s and attracted considerable attention. However, apart from a few contemporary references, the Hebei cooperative movement has been largely forgotten. Furthermore, modern scholars have often either thought that Chinese rural cooperativization in the 1950s followed the model of Soviet agricultural collectivization, or have remained unaware that the Hebei’s cooperative movement, which comprised modern China’s first rural cooperatives, influenced both the Nationalists’ and the Communists’ rural economic programs. This article argues that the CIFRC’s Hebei rural cooperative movement was an important step in the development of the twentieth-century Chinese agricultural economy. The movement not only set up the model of the Nationalist Government’s policy when the latter promoted rural cooperatives at the national level in the late 1920s and ’30s, but also established the foundation upon which China’s modern agricultural finance system began to develop. The movement allowed the Communists, by examining or participating in it, to acquire administrative experience and conceptualize a rural cooperative program of their own. However, Hebei’s cooperatives primarily helped peasants who were already relatively well off rather than the poor majority who needed immediate assistance, which presaged the Communist Government’s action to change its policy of cooperativization into a policy of collectivization in the 1950s when it faced the same kind of problem in its promotion a nationwide cooperative movement.
The Origin of the CIFRC
The CIFRC grew out of Western relief activities during China’s great famine of 1920-21. In these two years five northern provinces, Hebei, Shandong, Shanxi, Henan and Shaanxi, suffered from a terrible drought, which spread to 317 counties, affected 19,895,114 people out of the total population of 48,843,775, and caused the death of about 500,000 people. Westerners, especially American missionaries who saw the famine in the villages, initiated relief work. Since the Chinese government failed to react promptly and China lacked a famine relief system, the Westerners organized the Peking United International Famine Relief Committee (PUIFRC), the de facto headquarters of the relief work, and directed the entire relief policy at the local level. They formally brought Western governments and philanthropic organizations into Chinese famine relief work, with Western sources contributing some forty percent of the total relief fund. Their initiative also pressed the Chinese government to contribute money to the relief fund and make relief efforts of its own. The Westerners’ efforts, with the aid of the newly built railroads which allowed quick food distribution, prompted Dwight Edwards, a leader of the PUIFRC, to call the 1920-21 relief “a turning point in China famine relief work.”
When the relief work approached its end, the Westerners concluded that a permanent international famine relief organization was needed for China. From their first involvement in Chinese famine relief in 1876-79, Westerners’ contribution had been based on emergency need. Once a famine occurred, international committees would be organized to raise funds in Western countries, and then these committees dissolved when the need for relief ended. Considering their previous experiences with Chinese famines, the Western workers realized that in China “famine is almost a permanent condition,” as Dwight Edwards summarized in his report on behalf of the PUIFRC in 1921, and hence a permanent organization should be established for designing relief policies and preserving the progress made by the previous relief works. The Western workers understood that ending recurring famines was beyond their ability, but they realized that the Chinese government, as its actions in the famine of 1920-21 had demonstrated, was incapable of acting as a central agency for relief. These Westerners concluded that if they did not organize a permanent, centralized body, they would only waste energy and time repeatedly establishing relief committees to meet Chinese needs. Besides, the 1920-21 relief committees still had remaining funds, which, the Western workers reasoned, was best spent on a permanent organization for future famine relief.
In September 1921, the major international relief committees held a meeting at which they formed the CIFRC in Beijing, with a national trust fund. The CIFRC was a joint charitable organization run by prominent Westerners and Chinese. The Chinese presence rested on two considerations: first, the Chinese government contributed sixty percent of the relief fund of 1920-21; and second the CIFRC, being an international organization, needed cooperation from the Chinese authorities. However, Westerners had an overwhelming influence in the CIFRC by their representing eleven of the twenty-one voting members. Americans dominated the CIFRC’s leadership because the Americans had contributed more than seventy-five percent of the total foreign relief fund of 1920-21. Dwight Edwards, an American missionary, was elected executive secretary; when he was appointed to the CIFRC’s Treasury in 1922, another American missionary, Walter Mallory, succeeded him as secretary. The American leadership meant that Americans, either in China or in the United States, would have a great influence in the CIFRC’s policy-making. A Chinese, Zhang Yuanshan (Y.S. Djang), was appointed as the assistant executive secretary and responsible for implementation of the CIFRC’s policies in China. His appointment still demonstrated the American dominance of the CIFRC, because Zhang was a graduate of Cornell University and had worked together with American missionaries during the famine.
Seeking an Economic Policy of Famine Prevention
Immediately after its establishment, the CIFRC realized that its future policy programs ought to focus on famine prevention rather than on relief. There was pressure from the American public who wished to see their donations be used positively for famines in China instead of being simply distributed to the refugees under the traditional relief method. Americans had made donations for several Chinese famines from 1876 to 1921, but saw no sign that Chinese famines would end. While the CIFRC celebrated its success in coping with the north China famine of 1920-21, a large flood had already engulfed portions of Anhui province in late summer, 1921. Receiving only $100,000 from the CIFRC, an amount much smaller than requested, the Anhui American missionaries appealed to the Board of Foreign Mission of the Presbyterian Church in the United States. When the appeal reached home, the fundraisers had difficulties explaining to the public why more money was needed so soon. When Dwight Edwards went home on leave in 1921, he was asked in public meetings “How long is this [China’s famine] going to keep up?” and “When will it end?” American donors expressed the hope that “the funds be used in such way that the people are left with some constructive work which will be of permanent benefit and better enable them to face their ordinary problem of livelihood, to stand on their own feet and in self respect to solve their own problems.” To the CIFRC’s American leaders, the message from American public was clear: the CIFRC needed to work on a permanent prevention policy instead of expecting more funds from home.
Poverty of the Chinese peasantry even more significantly called for a famine prevention policy. Upon his field survey of the 1920-21 famine, Dwight Edwards realized that in the rural areas of north China, “times of the most intense suffering are different from normal only in degree.” Poverty in normal years had depleted peasants’ resources for famine resistance, and when a natural disaster occurred, they had no reserve on which to draw. Edwards observed five factors that he believed had contributed to rural poverty: first, the overcrowding of the land; second, the lack of a means of livelihood other than agriculture; third, the neglect of technological improvements in the country; fourth, the lack of communications; and fifth, the inability of peasants to get credit at a reasonable interest rate. As Edwards later pointed out, “Famine in China is fundamentally a matter of the economic standards of the livelihood of our [Chinese] people.” If a famine was to be prevented, Edwards argued, “[The] income of the farmer must be improved.” Yet, to improve Chinese farmers’ income, China apparently required broad-ranging economic modernization. The China Relief Committee of the American Red Cross, another major organization in the famine relief of 1920-21, reached a similar conclusion. In order to solve China’s famine problem, the Red Cross people pointed out, “the ideas and practices of its villages must be modernized.”
In January 1922, with the aforementioned understandings, the CIFRC decided to establish an engineering department and a subcommittee on credit and economic improvement. The former, which was headed from 1923 by an American engineer, Oliver Todd, was responsible for building and repairing highways, waterways, and irrigation projects. In other words, its task was to build and consolidate a technological infrastructure for famine prevention. The latter aimed at a model economic program that the CIFRC hoped to promote in rural China once it proved an effective means to improve the living standards of the peasants. For this program, the CIFRC members spent half a year studying various theories, and cooperative experiences in India, Japan and Burma, and organized sixty-one students from major Chinese universities to conduct a field survey of 7,097 peasant households in five provinces. In March 2003, the CIFRC finally decided that its economic policy be a movement of rural cooperatives, to follow the Raiffeisen credit cooperative model, a model that was first established in 1860 by Friedrich Raiffeisen, the mayor of Flammersfeld, Germany, to help the farmers in his town to maintain their production during famines by enabling them to borrow loans at a low interest rate from a money pool to which the farmers themselves had made contributions.
Two facts revealed why the CIFRC adopted the policy of credit cooperatives. One was that the CIFRC had limited funds that allowed it to address only the problem of rural credit. The CIFRC by itself was incapable of solving the problem of overcrowding population or creating alternative employment opportunities for the peasants, the first two of five factors Edwards had cited. After the problems of technology and communication had been assigned to the engineering department, the only area left for reform was credit. In addition, the CIFRC was only able to earmark 300,000 yuan to its rural economic program after engineering projects had taken out large sums of fund, and credit cooperatives did not need large sums of money to start. The other fact was that a lack of “the facilities of a proper banking system” had indeed been an important problem. As the CIFRC’s survey team pointed out, the lack of credit facilities had made the Chinese peasants unable to maintain their farmsteads on an efficient basis and to devote needed sums of money to undertakings which tend to increase production. Without alternative sources of credit the peasants had become “easy prey for money lenders.” To improve these conditions, the team concluded, “the provision of credit to average farmer was a fundamental need”; as a device for this rural cooperatives should be developed.
An Experiment with Rural Cooperatives, 1923-1926
THE CIFRC’S experiment with rural cooperatives formally began with the arrival of Yu Shude in mid November 1923. In June, with the assistance of E. K. Shaw, an American missionary, the CIFRC had helped a group of peasants, whom Shaw had got acquainted with during the famine relief of 1920-21, to organize the Xianghe First Credit Cooperative Society, China’s first rural cooperative, in a church in the Xianghe county seat, Hebei. However, the CIFRC did not provide any loan to the Xianghe First, because it had not yet completed its administrative arrangements for the cooperative project, nor had it had any expert on the matters of cooperatives. The coming of Yu Shude allowed the CIFRC to have a resident expert, significantly, a native of Hebei, to contact Hebei peasants. Born in Hebei, Yu had studied cooperative economics at Waseda University between 1917 and 1921 and published a series articles emphasizing the need for rural cooperatives. After returning to China in 1921, Yu not only established his reputation as a leading writer on rural credit cooperatives, but also secretly worked as a leader of the Communist Party in its northern China branch. Because of his reputation, the CIFRC invited him by an appointment as the “Advisor on Rural Cooperation” working on the Committee on Credit and Economic Improvement (CCEI).
As Zhang Yuanshan pointed out, Yu Shude sowed the seeds of the cooperative enterprise in Hebei. After taking the advisor position, Yu soon invited village leaders from six counties to Beijing for a discussion of the organization of cooperatives. The meeting raised considerable interest and inspired the village leaders to organize local cooperatives. In January 1924 the CIFRC sent Yang Xingcun, Yu’s assistant and a worker at CCEI, to these villages to conduct a survey of the cooperatives, after which the CIFRC made loans to two of them. These first loans initiated the experimental stage of the CIFRC’s rural cooperative movement. By the end of 1926, the CIFRC was sponsoring 371 cooperatives that had a total of 45,769 yuan of capital in circulation as loans. However, by this time Yu had left the CIFRC. In 1924, Yu had become a standing member in the central committee of the Nationalist Party when the Nationalists and the Communists formed a coalition, working secretly at the Beijing headquarters of the Nationalist Party. Afraid that his political activities would lead to troubles in the CIFRC, in May 1926, Yu resigned. His assistant Yang succeeded him and later even received an appointment as the director of the CCEI. Under Yang’s leadership, the CIFRC continued using all Yu’s lectures for its cooperative enterprise and supporting these early cooperatives Yu had organized and supervised.
The most important thing the CIFRC did at the experimental stage was the initiation of a modern agricultural financial system. The traditional financial institutions of rural China—granaries, pawnshops, or monetary societies—existed essentially to meet the emergent needs of the peasants due to famine, death, and weddings, whereas the modern agricultural financial mechanisms served mainly to assist agricultural production, management, and marketing by making loans to farmers at low interest rates and for relatively longer periods in correspondence with agricultural cycles. In practice, as Walter Mallory pointed out, the CIFRC functioned “as a central bank,” providing loans to cooperatives at six percent annual interest with the loan period restricted to one year. A cooperative would lend to its members at up to twelve percent annual interest in order to make a profit which would then be retained by the cooperative in its reserve fund to increase its capital. With the transactions between the CIFRC and cooperatives and between the cooperatives and their members, the CIFRC in effect organized a modern agricultural financial system upon which a cooperative could grow through a gradual increase in its capital and volume of business. The system appeared to work well. The CIFRC reported in 1925 that all loans had been repaid on time with the exception of a few cases in which repayment had been delayed when warlords’ fighting had cut off communications.
The CIFRC also established itself as the instructional center for all cooperatives. It helped peasants organize cooperatives on the basis of unlimited liability, but in order to make the cooperatives work and to adapt the Raiffeisen model to Chinese conditions, the CIFRC required that each cooperative member be the head of a household and that each membership cost not less than two yuan. The CIFRC only loaned money for agricultural production, management and marketing, and required a written statement of borrowing purpose from each recipient. It also established an instructor system and regularly sent instructors into the villages to survey the operation of a cooperative, and to ensure the loans were used properly. The CIFRC understood that the concept of the cooperative was unfamiliar to a Chinese peasantry that was normally conservative and suspicious of new ideas. Therefore, it decided to divide cooperatives into two categories: the “recognized” and the “unrecognized.” The former denoted well organized and managed cooperatives; the latter indicated unsatisfactorily organized cooperatives in which the peasants were not initially allowed credit—in order to give them more time to study and understand the meaning of the cooperative. These aforementioned rules suggested that CIFRC organizers were aware of what they might do to assist Chinese rural development. The CIFRC wanted to promote a cooperative movement for improving the living standards of Chinese peasants but hoped to leave the economic reform to the peasants themselves.
For a well-manned development of its cooperative movement, the CIFRC made a series of regulations for cooperatives. From 1923 to 1927 the CIFRC published detailed regulations that defined the responsibilities of cooperative members and their leaders, the organizational methods, and the principles of business management. Based upon these regulations, the peasants were able to organize new economic networks at the village level. Perhaps the most important regulations concerned accounting. The CIFRC required all cooperatives to use standard forms of bookkeeping, in which all capital investments, profits, and transaction costs had to be itemized, accounted, balanced, and audited. Through such bookkeeping regulations, the CIFRC hoped to impose concepts of capital costs, agriculture as a business enterprise, and cooperative management. These regulations were important for the development of Chinese rural cooperatives. Even the Communist leader Mao Zedong acknowledged that such practices were needed. In commenting on one of the “fourteen great achievements” that the peasant movement in Hunan had accomplished in the winter of 1926, Mao pointed out:
A major problem [of the cooperative movement] is the absence of detailed and proper rules of organization. As these spontaneously organized peasant cooperatives often fail to conform to cooperative principles, the comrades working among the peasants are always eagerly enquiring about ‘rules of organization.’ Given proper guidance, the cooperative movement can spread everywhere.
Developments of the Rural Cooperative Movement in Hebei, 1927-1934
1927 Marked the end of the experimental stage of the CIFRC’s program and the beginning of the development of the Hebei rural cooperative movement. By 1927, Hebei had 561 cooperatives in fifty-four counties, with a membership of over 13,000—and it seemed likely to gain more. As the cooperative movement had developed its own momentum, the CIFRC believed that the time was right for local leadership of the movement to be passed to the peasants. Using the Raiffeisen system as a model, the CIFRC decided to encourage peasants to organize regional cooperative unions, hoping these unions could supervise the credit cooperatives and act as intermediary between the CIFRC and the villages. In June 1927, the CIFRC helped the founding of the first union in Laishui county. In fact the CIFRC had little choice but to develop local leadership. When cooperatives increased rapidly in 1926 and 1927, the CIFRC had too few instructors to carry out the inspections while its regulations required that cooperatives be inspected by an instructor. To help the peasants create their own leadership, the CIFRC held a three-month training session in Beijing in late 1927, with forty students selected from 132 candidates from twenty-eight counties to receive training from professors of Yenching and Tsinghua universities and CIFRC’s experts. The CIFRC hoped that in a few years the peasants would be able to take control of the cooperative movement.
Table I reveals a steady development of the Hebei cooperative movement between 1927 and 1934. During these years the organization of cooperative unions had also grown, and by 1933 the number of the unions had increased to twenty-eight in sixteen counties.
As Table I shows, there was a slight decline of the number of the cooperatives between 1930 and 1931. In 1930, the Hebei government organized a provincial committee for the promotion of rural cooperatives and appointed Zhang Yuanshan and Yang Xingcun as its members. The committee required all cooperatives, most of which were under the auspices of the CIFRC, to register with the government. When it recognized the intention of the government to develop and to control Hebei cooperatives, the CIFRC decided to halt its organizing work and wait for the government to take over. Believing that it had completed its work in Hebei, the CIFRC turned its attention to Shandong province and organized fifty-nine cooperatives there by the end of 1930. However, the Hebei provincial government soon showed that it was administratively and financially unable to take over the CIFRC’s cooperative project; hence the CIFRC continued working on the cooperative movement in Hebei.
The other slight decline in the number of cooperatives between 1931 and 1932, as shown in Table I, was caused by a sudden shortage of CIFRC’s workers. In 1931, about one hundred million people in eight provinces in southern and southeastern China suffered from the famine of the Yangtze River Flood of 1930-1931. Since the Nationalist Government had neither the experience nor the workers to cope with a disaster of this magnitude, it requested help from the CIFRC. At the Government’s invitation, the CIFRC’s executive secretary Zhang Yuanshan left for Shanghai in 1931 to head the relief work. Zhang proposed rural cooperative as his major policy of famine relief and recruited seven CIFRC instructors and thirty-eight experienced cooperative peasants to accompany him to the south. Due to this sudden loss of workers, CIFRC decided to delay its cooperative program in Hebei and transferred its Shangdong cooperatives to the Shandong government. Only until the completion of the famine relief work in the south did the cooperatives in Hebei begin to develop again, under the leadership of Yu Shude, the new director of the CCEI.
1934 marked the end of the CIFRC’s sponsorship of the Hebei rural cooperative movement. When the CIFRC’s project gained national visibility in the late 1920s and early ’30s, many official and private institutions, following the CIFRC’s model, began organizing cooperatives in many provinces. Seeing the emergence of a nationwide cooperative movement, in 1934 the Nationalist Government attempted to centralize the leadership of the cooperatives under its own control. Aware of the Government’s intention, the CIFRC decided to turn over all the cooperatives under its supervision in Hebei and in the Yangtze River famine regions to the Government. The CIFRC was glad to see that its cause had been followed by the Government and many institutions, as it had originally hoped. It understood that as “a social organization,” the CIFRC by itself was unable to administer a national movement that required large financial support, and that with the establishment of a national leadership, its cooperative project would eventually be taken over by the Government. Since so many institutions and the Government had participated in developing rural cooperatives, the CIFRC saw no need to continue its cooperative project. Thus, in 1934 the CIFRC declared that it would begin to search for new programs of famine prevention, and practically ended its cooperative enterprise.
The Spreading Influence of the CIFRC’s Cooperative Project
As a new measure to reform the peasant economy and society, the rural cooperative from its very beginning proved to be a larger cause than simply a project of the CIFRC. The Communists were among the first groups influenced by the CIFRC’s cooperative project. In May 1926, Yu Shude went to southern China, lecturing on “rural cooperation” at the Guangzhou Institution for the Peasant Movement, which was under the directorship of Mao Zedong. Before Yu’s arrival, the Communists had wanted to promote cooperatives among the peasants, but had never known how to get it started. After Yu lectured at the Institution and published his lectures in Chinese Peasants, the official journal of the Department of Peasantry under the Nationalist-Communist coalition, the peasant associations in several southern provinces all decided to start a cooperative movement. As far as financial resources were concerned, Mao asserted clearly that “The unscrupulous rich landlords are made to contribute for poor relief, for the organization of cooperatives or peasant credit societies.” Yu Yong-Tae’s research shows that in 1926-27 a rural cooperative movement emerged in these provinces under the leadership of the Communist Party, obtaining capital through confiscation of the property of exploitative landlords and usurious moneylenders. Although this movement did not last long, it provided the original models for the future Communist cooperative movements in revolutionary bases. These models, however, were first introduced to the Communists by Yu Shude through the CIFRC’s experiences with the Hebei rural cooperatives.
The CIFRC’s accomplishments also influenced many institutions and individuals who were trying to achieve social reform in China. In 1923, CIFRC decided to extend its cooperative program to southern China and requested John Lossing Buck, a professor of agricultural economics at the University of Nanjing and a member of the CCEI, to begin a cooperative experiment. Buck soon turned to his colleague, Xu Cheng (Paul Hsu), a Cornell-educated agricultural economist, for help. By 1926, Xu had already organized twenty cooperatives in Jiangsu and Anhui, which received financial sponsorship by the CIFRC and instruction from Nanjing’s Agricultural School. Inspired by Xu’s success, in 1927 the Agricultural School decided to independently sponsor a rural cooperative movement, and from 1928 it even started a series of programs to train peasant leaders for a broad reform of rural China. Apart from the University of Nanjing, the rural reconstruction movement, which had started in the late 1920s, was under the influence of the CIFRC’s cooperative project. In 1933, when the First National Workshop for Rural Reconstruction was held in Zouping, almost all the reconstruction organizations that participated in the workshop had already collaborated with the CIFRC or had imitated the CIFRC’s experience in promotion of cooperatives in their regions. Whether it followed Yan Yangchu’s (James Yen’s) approach, using mass education, or Liang Shuming’s approach, which used a village contract, the rural reconstruction would ultimately have to improve the living standards of the peasants. However, only the CIFRC’s cooperatives, through their credit system, had provided a means that could materially benefit the peasants and thus make rural reconstruction attractive.
The CIFRC’s most important influence was on the Nationalist Government. In 1927, after establishing the Government of Republican China in Nanjing, the Nationalists began to examine their own agricultural programs, one of which was the rural cooperative movement. The CIFRC’s success in conducting the loan business made cooperatives very attractive to the Nationalist leadership, and helped convince the Nationalist Government to send its workers to the CIFRC to gain experience in 1927-28. Lou Tongsun was one of these workers, and he would later become one of the writers of the Cooperative Laws in 1933-34, into which he incorporated many of the CIFRC’s regulations. In 1931, the Nationalist Government adopted the CIFRC’s model on a larger scale when it requested the CIFRC’s services in the famine relief work for the Yangtze River Flood. Entrusted by the Government, the CIFRC introduced the rural cooperative as a relief measure, brought the Hebei cooperative experiences to the Yangtze River provinces and, as Zhang Yuanshan later pointed out, paved the way for an extension of rural cooperatives to the whole nation. In 1932, noticing what the CIFRC had been doing with the flood relief, Nationalist leader Chiang Kai-shek, then commanding a “bandit suppression” war against the Communists, decided to adopt the rural cooperative, not only a relief measure to help the war refugees but also as a major economic policy to counterbalance the influence of the Communist land reform program in southern China.
With the favorable views from the Nationalist leaders, the rural cooperatives turned out a national movement led by the Government in 1935. In March, the Nationalist Government held a conference on cooperatives in Nanjing, during which the delegates from all over the country discussed cooperative policies in detail and decided to organize a national commission to direct the nationwide cooperative movement. In September 1935, the Nationalists established the Office of Cooperatives under the Ministry of Economy by borrowing Zhang Yuanshan from the CIFRC as the director of this highest administrative office for all the cooperatives. In doing so, the Nationalist Government inherited CIFRC’s experiences and workers, and as He Lian (Franklin Ho) later pointed out, established the rural cooperative as the Government’s “main line” for the development of agricultural economy in the 1930s. And the “second line” was cooperative finance, the other face of a coin.
The Making of Modern Agricultural Finance
The CIFRC’s most significant achievement through the rural cooperative movement was the creation of a modern agricultural financial system in China. In 1927, the CIFRC had already realized that many of the so-called “unrecognized” cooperatives in Hebei had been organized on “highly efficient lines.” Had it not been for the small amount of funds at its disposal, the CIFRC might have extended financial assistance to most of them. In 1930, the CIFRC loaned a total of 172,273 yuan to Hebei rural cooperatives, but that amount was far from satisfying the needs of a rapidly growing cooperative movement. Since China did not have agricultural or land banks, the CIFRC hoped to obtain agricultural financial resources from commercial banks. Chinese commercial banks were concentrated in urban areas, particularly in Shanghai, and according to the research of Chinese scholars in the mid-1930s, none of these banks had been interested in opening branches in rural areas. Commercial banks probably reasoned that direct investment in agriculture was a long term but low profit investment, that the borrowing and saving ability of individual peasants was too small, and that to do business with peasants without a sound credit organization at the grassroots level would only lead to high transaction costs, since the banks would have to hire more workers and build up local facilities. Economist Fu Zhiku’ complained that, consequent upon decline in Chinese urban economic activity after 1930, commercial banks relied on bonds, real estate, and to a lesser extent, on gold and silver trade, and did not seriously consider agriculture an attractive investment opportunity. However, there were some bankers willing to invest in agriculture, such as Chen Guangfu, the president of Shanghai Commerce and Savings Bank (Shanghai Bank). Aware of scholars’ criticism of the banking industry and seeing the necessity of saving Chinese agriculture, a few modern bankers had looked into the possibilities of investment in rural areas. However, the bankers remained unsure about the possibility of profits and saw no easy way to do business with the peasants.
The CIFRC’s cooperative movement offered a practicable way for modern banks to invest in rural China. First, a cooperative, as a collective borrowing power, was capable of dealing with reasonably large amounts of money. Furthermore, in Hebei, cooperatives repaid their loans responsibly except in the few instances when fighting had cut communication routes. Given these realities, the CIFRC believed that investment by banks in rural areas was both possible and profitable. Given the peasants’ excellent credit records, according to the CIFRC, banks faced little danger of losing their capital. From the earliest development of the Hebei cooperatives in the 1920s, the CIFRC had hoped to bring banks and peasants together. The CIFRC understood that it could not long perform the role of a central bank for peasants and that the shortage of agricultural capital ought to be resolved by modern banks. In spring 1931, while the CIFRC was looking for opportunities, and after being informed of the good reputation of the CIFRC’s cooperative movement, Chen Guangfu instructed the Beijing branch of his bank to contact Zhang Yuanshan on the issue of cooperative loans. Chen had probably also identified the profit potential for cooperative lending due to the huge number of small transactions it would entail. After the manager of his Beijing branch met Zhang, Chen agreed to lend 20,000 yuan to Hebei cooperatives through a loan contract with the CIFRC, in effect making the CIFRC the guarantor. The Shanghai Bank would charge an interest rate at seven percent over its loans, but allow the real rates to follow the CIFRC’s regulations when a cooperative lent the money to its members. As none of the cooperatives had defaulted by the end of 1931, Chen decided to increase the Shanghai Bank’s sum of cooperative loans for 1932 to 50,000 yuan. In the meantime, Chen organized the Department of Agricultural Loans in the Shanghai Bank, inviting Zou Bingwen, a Cornell graduate, to head the department; he intended to make agricultural finance a significant part of Shanghai Bank’s business.
The Shanghai Bank’s cooperative loans marked the beginning of the modern banks’ intervention in agriculture, and probably offered banks an opportunity to improve their badly tarnished image. In 1933, when the Shanghai Bank increased its cooperative loans to 100,000 yuan, Jincheng Bank and the Bank of China had also each entrusted to the CIFRC cooperative loans of 50,000 yuan. In 1934 there were more banks participating in the CIFRC’s cooperative loan programs and many more engaging in larger agricultural finance. As the CIFRC had always been conservative in its approaches to the development of rural cooperatives and loan programs, many banks were independently sponsoring rural cooperatives in other provinces as well as Hebei and looking for new areas and projects to expand their agricultural finance business. Their total sum of agricultural loans was far larger than the amount of cooperative capital that the CIFRC possessed. By the end of 1934, the total sum of agricultural loans from private commercial banks and the state’s financial institutions had reached 18,786,222 yuan, of which the Shanghai Bank alone contributed 4.4 million yuan In 1936, the Bank of China alone made a total sum of 51.63 million yuan in loans to the agricultural sector in three forms: loans to rural cooperatives, mortgage loans on agricultural products, and small mortgage loans to peasant households. This sum was equal to the total capital of 1,244 pawnshops, or one third of the capital of the Chinese pawn industry. Although these agricultural loans made up only an insignificant percentage of the total loans made by commercial banks and state financial institutions, that percentage increased dramatically every year since the Shanghai Bank had led the way. In a very real way the Shanghai Bank in these years was reversing the drain of financial resources from the Chinese countryside into cities.
Upon the participation of multiple banks and provision of agricultural loans to rural areas in large sums, China’s modern agricultural financial system began to take shape. In April 1935, to avoid the competition between banks and possible chaos in agricultural loans, ten banks decided to form the Chinese Banking Group for Rural Cooperatives, headed by Zou Bingwen, with a total capital of 2.5 million yuan collected proportionally from each bank in accordance with their capital sizes. The Group decided to organize branch offices in provinces, whose workers would coordinate agricultural loan programs under a set of policies made at the headquarters. The Group in effect started institutionalization of agricultural loans at the national level and brought the state officially into the loan business. In September 1936, in order to prevent commercial banks from competing for the loan business only in prosperous regions and taking control of agricultural finance, the Nationalist Government decided to put an end to the Banking Group and replace it with the Agricultural Credit Administration (ACA, nong ben ju). The AC A sat on a capital of 60 million yuan, provided equally by the private commercial banks and the state banks. The ACA considered rural cooperatives its basic units, upon which it hoped to build county and provincial cooperative treasuries and finally a central treasury functioning as the central bank of agricultural finance.
The founding of the ACA signified the establishment of a modern agricultural financial system in China, with the system exhibiting from the outset a tendency towards centralization. The Japanese invasion of China in July 1937 interrupted the ACA’s work. After it moved to southwest China’s rear provinces in 1939, under the leadership of its director He Lian, the ACA quickly restarted its work and built over 400 county cooperative treasuries within four years. While simultaneously building a network of financial institutions, the ACA organized a series of programs including credit cooperatives, granaries, agricultural loans, cooperative marketing, and distribution of improved seed varieties, and stopped intervention in the loan business from “the people of vested interests” of the rural society, by which He Lian probably meant the local moneylenders and corrupt officials and landlords. In 1942, Chiang Kai-shek abolished the ACA owing probably to a need to recentralize the Nationalist financial system and reassigned the ACA’s duties to the China Farmers’ Bank. In the Fanners’ Bank, the state-controlled modern agricultural finance continued functioning until the Communists took it over in 1949 and reformed it thereafter. In retrospect, the CIFRC played a key role in the creation of China’s modern agricultural financial system. The system grew from the CIFRC’s philanthropic funds joined by private commercial capital, and was finally directed by governmental institutions.
The Effects of the CIFRC’s Cooperative Loans on the Peasant Economy
IN the final analysis, the CIFRC’s cooperative project needs to be understood in terms of its effects on the peasant economy at the village level. To be sure, as He Lian pointed out, in China the credit cooperatives accounted for over four-fifths of all cooperatives and the rapid growth of these cooperatives “tended mostly to be for the purpose of obtaining the privilege of borrowing from banks in the name of the [cooperative] society.” However, there seems nothing wrong with obtaining such borrowing privilege since the peasants indeed needed assistance from outside financial agencies. The issues really were how the cooperative loans were made to the peasants, how the peasants used the loans, and who could afford to benefit from the loans.
The CIFRC, a philanthropic organization that fostered rural cooperatives more carefully than did any other institutions, provided loans to the peasants on fair terms. Rural pawnshops and moneylenders in Hebei customarily charged thirty-six percent interest on their loans, while the CIFRC’s interest on cooperative loans did not exceed twelve percent. The individual CIFRC loans were of modest size. On average a member could borrow 25 yuan at a time from his cooperative, and he was allowed to take out several loans if circumstances merited. In the 1920s, 25 yuan was equal to one quarter of the annual income of a peasant household with a land property of twenty mu (1 acre = 6.07 mu), or 300 jin (1 jin = 0.5 kilogram) of wheat flour or 600 jin of cornmeal (in terms of prices at Beijing’s food market in 1931). Such sums were therefore of considerable potential benefit to a peasant household in improving its economic circumstances. The timing of the loans also made the loan amount important. Wu Baosan’s research showed that between 1924 and 1931 more than thirty percent of the borrowing took place in winter and another thirty percent in later spring, which meant that peasants got these low interest loans during the most difficult seasons. Later spring was the time of food shortage and the time when seeds and fertilizers were urgently needed. Winter at the Chinese New Year was the traditional time for paying old debts. The CIFRC also quickly realized the nature of agricultural production, with its low rates of profit, and from 1928 it decided to extend the maximum cycle of repayment to three years so that peasants had a sufficient amount of time to generate some profits through utilization of each loan.
More significant was the timing with which the cooperative loans were introduced to rural China by the CIFRC. In the early twentieth century, the shortage of rural capital and financial apparatuses was a fundamental problem of the Chinese peasant economy. The development of modern commerce and banks attracted money to urban centers, leaving the countryside barren of financial resources. The rural pawn industry declined significantly from this period. When the global depression from the early 1930s deepened the financial crisis of rural society, the peasants were in desperate need of outside assistance. Peasants of the Zhonghua village in Li county told the CIFRC that “the rural economy has fallen to desperation, and even the middle-level families have no place from which to borrow.” The CIFRC’s financial resources were able to penetrate into some rural areas and forced a reduction in usurious private lending. For instance, in the villages Xinankou and Libai located in Feixiang county, the “usurious interest rates gradually tumbled” after the advent of the CIFRC’s loans and “the villagers all appreciated the cooperatives as peasants’ self-rescuing financial apparatuses.”
As most of the CIFRC’s loans were used in agricultural production, management and marking, these loans increased the income of the peasants. From the beginning, the CIFRC had required cooperative members to use the loans for productive purposes, but it soon reluctantly allowed them to use the loans to pay off the old debt that plagued many peasants. However, based on the CIFRC’s survey of the loan usage in all its cooperatives between 1924 and 1932, the percentage of the loans used for seeds, fertilizer, working animals, and irrigation construction grew each succeeding year, growing from seventy percent to eighty percent. To assure proper use of the loans, the CIFRC sometimes made loans in the forms of prearranged materials. For instance, from 1931 the CIFRC bought copper carbonate (to cure smut) and distributed it in lieu of cash; it also bought American cottonseeds from the Agricultural School of the University of Nanjing for distribution among the Hebei peasants. It is difficult to accurately assess the extent which the CIFRC’s loans had improved agriculture, because agriculture is a complicated and long-term enterprise, affected by weather and other unpredictable conditions. Still, it seems reasonable to assume that the cooperative loans in Hebei made some contribution to agricultural production and improvement of the rural economy.
The increase in the income of the peasants was demonstrated in cooperative marketing of agricultural products, which the CIFRC first promoted in 1927. Fang Xianting’s (H. D. Fong’s) research on the Hebei cooperative cotton marketing provides the best example. In 1932, Fang showed, ten cooperatives participated in the cooperative marketing of cotton, which the CIFRC organized and provided loans. These cooperatives pooled together their members’ cotton, to a total weight of 11,579 jin, transported it to Tianjin and sold it directly to a British cotton firm there. Bypassing the cotton merchants who were the traditional middlemen, these peasants gained a net profit ten percent higher than they would have obtained selling the cotton at the local market. Such results attracted more peasants. By 1934, the number of cooperatives participating in cotton marketing increased to 406, selling a total of over 0.7 million jin of cotton. Li Luxian, a peasant of Chengan county, began cooperative cotton marketing in 1934. In that year Li earned a handsome 3.2 yuan more per hundred jin of cotton than he could get at the local market, and he told people he had been “happy enough to faint.”
However, the people who benefited from the CIFRC’s cooperative policy were essentially the “middle peasants,” a term loosely used in the Chinese countryside to mean the people with a living standard in the middle range, but usually indicating the owner-cultivators who attained self-sufficiency in Maoist terms. In Hebei, the landownership of a middle peasant roughly fell into the range of 10-100 mu. The CIFRC’s reports suggest that peasants commonly considered a household at 100 mu or above a landlord’s household and one with less than 10 mu a poor peasant’s. This general bifurcation is confirmed by Japanese Mantetsu’s field investigations in Hebei in the 1930s and by Philip Huang’s field survey of Hebei in the 1980s. In 1932, the CIFRC conducted a survey of the landownership by 2,908 cooperative members in 119 villages of eight counties, showing that “the cooperative members are overall the relatively well-off peasants.” Among these members eighty-five percent were owner-cultivators, fifteen percent semi-owner-cultivators, and one percent tenant farmers. The individual landownership of these members averaged thirty-seven mu—ten mu more than the ownership of the average peasant household in the eight counties; and in the light of the amount of land properties they owned, only fifteen percent of them had less than ten mu. In reality, even these members who owned less than ten mu were still the relatively well-off peasants. At Hejiaying village in Li county, 47.5% of the households owned less than ten mu, but only one of these, who had 9.5 mu, was a member of the village’s cooperative. At Donbeixiang village in Feicheng county, forty-eight households held land less than ten mu, but only one, with nine mu, became a member of the village cooperative.
It is apparent that the CIFRC’s rural cooperative movement was a socioeconomic movement dominated by the middle peasants, and the CIFRC’s loan policy perhaps best explains this phenomenon. In order to protect its limited funds, the CIFRC made two types of loans: personal credit loans and mortgage loans. The former required the borrower to find a guarantor who would, by using his reputation or property, guarantee a cooperative that the loan would be repaid; the latter required the borrower to provide collateral, almost always a land deed, to his cooperative in order to obtain a loan. Although the CIFRC intentionally excluded the landlords and rich peasants from its loan program, it did not actually benefit the poorest peasants. As a result of the CIFRC’s loan policy, the guarantor and the land deed became the two practical preconditions for admitting new cooperative members. Poor peasants who could seldom find a plausible guarantor and who owned insufficient land to guarantee a loan had no opportunity to join. In the end, however, dominance by the middle peasants guaranteed the success of the rural cooperatives. It helped prevent the financial difficulties that might have occurred had too many poor members taken out loans they could not repay. From 1924 to 1931, mortgage loans declined from 70.17% to 28.64% while personal credit loans increased from 20.53% to 69.35%. This shift was a result of the increase in the credibility of the cooperative members who, as the middle peasants, could afford repayments and enabled the rapid circulation of the CIFRC’s capital. In 1934, the CIFRC surveyed sixty-four excellent cooperatives; it is clear they were deemed “excellent” precisely because they had few poor members.
Conclusion: The Dilemma of Modern Chinese Agricultural Finance
BY adopting the Raiffeisen model for preventing famine and promoting cooperatives in the Chinese countryside, the CIFRC created a strategy for reforming the Chinese peasant economy by building the local elements of a modern agricultural financial system. This approach in effect organized individual, petty peasants into a collective borrowing entity that enabled interaction between the peasants and banks and lowered the transaction costs of loans. The banks were willing to lend money to the peasants at low interest rates because these loans generated bank profits, helped the peasants, and improved the banking industry’s tarnished image. As the cooperative marketing of cotton has demonstrated, these loans did help revitalize the rural economy. However, credit restrictions, which the CIFRC imposed on cooperative loans in order to protect its funds, prevented the CIFRC from giving practical assistance to the poorest portion of rural society because these peasants were incapable of repaying borrowed sums. Beyond that important limitation the CIFRC’s cooperative movement was instrumental in improving the lot of the middle peasantry, which had languished in the preceding decades. The CIFRC’s 1923 survey of the rural economy showed that in Hebei province over eighty percent of the peasantry lived below the poverty line, and the majority of the “middle” peasants no doubt belonged to this segment of the population. In this way the CIFRC made a positive impact disproportionate to its limited funds.
The success of the CIFRC’s project inspired Nationalist rural reformers to such an extent that the latter adopted the rural cooperative as a key element of the Nationalist strategy to modernize Chinese agricultural society. However, when the Nationalist Government imitated the CIFRC’s activities and made peasant loans a central component of state policy, the rural cooperative movement revealed a fundamental internal contradiction that forced this attempt at modern agricultural finance to end in failure. As a modern state responsible for the welfare of all citizens, the Nationalist Government had to make agricultural loans to all levels of the peasantry, but providing loans to the enormous peasant population was a task for which the government’s financial resources were obviously insufficient. To maximize the impact of its limited capital the Nationalist Government imposed loan conditions similar to those adopted by the CIFRC, and the result was the middle peasants’ dominance of the rural cooperatives. By 1947, the Nationalists claimed that during the War of Resistance Against Japan and the Civil War they had established 167,387 cooperatives with a total of 22,133,697 members. These cooperatives relied entirely on state financial support and their loans went chiefly to the middle peasants, a practice that inspired extensive criticism from radical intellectuals. By its inability or unwillingness to extend badly-needed loans to poor peasants, the Nationalist Government effectively alienated the majority of the Chinese rural population. As a charitable organization the CIFRC could restrict loans to only the “middle” peasantry even if this meant a partial failure of its cooperative policy. But popular expectations were higher for the Nationalist Government which found itself caught between its political obligation to offer assistance to the whole of the rural population and its financial obligation to restrict lending to only those groups that could realistically be expected to repay the loans. The Nationalists would realize, painfully, that their policy of restrictions with regard to agricultural loans and credit could hardly command the support of the rural masses.
Nor had the Communists fully understood the essential flaw in the CIFRC’s rural cooperative movement or learned the lessons from the Nationalist cooperative policy. By 1955, the Communist Government had organized 1.9 million cooperatives with seventy million members. But the Communists now imposed their own restrictive conditions on loans to the peasants in order to protect the state’s capital, with the predictable result that in many of these communist-organized societies the better-off peasants dominated, not the poor peasants, as Mao Zedong had imagined would be the case. Mao was compelled to speak in favor of “removing well-to-do middle peasants from leading positions in the cooperatives” and to state a preference for “relying on the poor peasants or establishing their dominant position” in the cooperatives. For Mao, the exclusion of the poor peasants from the cooperative leadership was primarily a political rather than an economic matter. If the Communists allowed the poor peasants to remain powerless and mired in poverty, Mao said, “[They] will complain that we are doing nothing to save them from ruin or to help them out of their difficulties.” In Mao’s view, those unhappy peasant sentiments would shake the foundations of Communist power. The solution to this problem, Mao believed, was to give preference to the poor peasants “so that all the rural people will become increasingly well off together.”
Yet loan preference for poor peasants only led back again to the central dilemma of modern China’s agricultural finance: the inability of the poor peasants to repay even the very modest loans they desperately needed for any attempts to boost their productivity. In 1956, the Central Government provided a total of 2.6 billion yuan in agricultural loans but was able to collect only between thirty and forty percent of the capital in repayments. This discouraging balance sheet, plus the previously unpaid bad loans, increased the total amount of non-performing agricultural loans to 2.5-2.8 billion yuan. The situation was so unsatisfactory that the central government told the provincial governments not to expect agricultural loans on such a large scale every year. The Communist cooperatives, like their counterparts during the Nationalist era, relied completely on the state’s financial support. But the Chinese state, whether Nationalist or Communist, could not shoulder this enormous burden. In 1956 the Communist Government decided to change the basic principle of the cooperative movement from cooperativization to Soviet-style collectivization, no longer allowing the peasants to join a cooperative voluntarily but instead forcing the entire rural population and their property into collectives in order to realize Mao’s idea of becoming “increasingly well off together.” Establishing the poor peasants’ dominance of the rural cooperatives and stopping the drain on state resources caused by non-performing loans to poor peasants were probably major motives in this change in agricultural policy. Mao and his supporters believed that the change signified the coming of a “socialist upsurge in China’s countryside.” This change in agricultural organization did make Communist rural cooperative policy different from that of the CIFRC, but, more ominously, the state’s strong intervention in rural economy sowed the seeds of China’s agricultural disaster in the following decade.