Cooperatives are making a comeback. Is China preparing for combat and famine?

While "supply and marketing cooperatives" is a familiar concept for many older Chinese, it is foreign to the younger generation. But once believed to be long gone, these cooperatives are now making a comeback and becoming popular again.

What are cooperatives? Why did they fade away and why are they regaining prominence today? Is this the return of the planned economy, or a new form of the market economy? Is the capital market building up the idea, or is the top leadership playing a larger game of chess?

After a long disappearance, the term "cooperatives" has reemerged in Chinese media this year, and in particular over the past month.

On 11 October, Hubei Daily reported on the project to rebuild grassroots organisations in Hubei, with more than 1,300 grassroots cooperatives rebuilt to cover the entire province with some 452,000 members. The person in charge of the cooperative association revealed a target of 1.5 million members in the province by 2025.

On 1 November, People.cn reported that since 2019, the Ningxia Supply and Marketing Cooperative Association has invested 29.9 million RMB (US$4.1 million) and mobilised 65.53 RMB in public funds to set up 249 grassroots-level cooperatives, including 179 at the town level and 70 at the village level. Geographical coverage of town-level cooperatives increased to 92.7% compared with 56% in 2017, with over 95% service coverage.

The Lanzhou Daily also reported on 30 October that during the pandemic, the company that owned the cooperative in Lanzhou stayed in service online around the clock and promptly fulfilled and delivered residents' orders.

The recruitment of civil servants by the All China Federation of Supply and Marketing Cooperatives (ACFSMC) has also drawn attention. The cooperative announced plans to conduct written exams and hire agency staff in 2023, and welcomes young people to join the sector.

Notably, the capital market has reacted positively to these developments. On 1 November, the value of the cooperatives in Shanghai and Shenzhen increased by 8%. The share prices of cooperative companies or related listed companies including Xinye Textile, China Resources, Huilong Group, Xinli Finance Co, ZJAMP Group Co Ltd, Swan Cotton, Sino-Agri Leading, Sino-Agri United, and Tianhe Agricultural all hit their limit up prices.

On 2 November, Securities Times reported on the developments of cooperatives with several listed companies. Snowman Group, which provides cold chain logistics products and services for cooperatives in some provinces and cities, is working with cooperatives to improve cold chain infrastructure. Wushang Group is developing a "state-owned enterprises village" and looking into effective ways to help farmers increase earnings and rejuvenate villages. Zhangjiagang Rural Commercial Bank is ramping up cooperation with village-level groups, continuing to deepen financial inclusion, and taking various measures to drive the development of farming and small businesses.

Netizens are divided about the "return" of cooperatives. Some are worried about a regression to the planned economy, while others believe that it is a good move that will improve the lives of the people and help farmers. There are also netizens that are trying to analyse the reasons for cooperatives' comeback from a bigger perspective.

A netizen said that the recent reports on cooperatives reminded him of his tough childhood, when supplies were short and cooperatives monopolised many daily necessities. One had to queue to purchase grain, meat and cloth with coupons. Going back to that state would be a step backwards.

Another netizen recalled the shopping experience at a cooperative, where the staff had a poor attitude with a "take it or leave it" demeanour. Only when the market economy developed later did he enjoy the idea that "the customer is king".

Some netizens are worried that the growing state-supported cooperatives could lead to a new monopoly, where privately run small supermarkets, neighbourhood stores and even large supermarkets would be squeezed out of the market.

Nonetheless, there are many netizens who support cooperatives. One noted that the people in his village are more dispersed and the investment cycle for agricultural products is long, so private capital is usually unwilling to go into such sinking markets with slow returns. But cooperatives help create a channel for locals.

Some urban dwellers are also supportive of cooperatives. A netizen recalled that during the pandemic lockdowns, local cooperatives kept supplies going at reasonable prices which would otherwise be short or at sky-high prices.

The online debate naturally also includes the "big chess" camp (大棋党), or those that look at big-picture geopolitical considerations. One netizen said domestic circulation, a unified national market and cooperatives are part of the national strategy, or "big chess" plan, to prepare for tough times in future. Simply put, it is the country preparing for combat and famine (备战备荒).

It would be an oversimplification to say that cooperatives are "returning" or "restarting", where in fact cooperatives never disappeared from China. Their influence and role in the national economy merely changed over time.

Let's start by looking at the official definition of cooperatives. The apex organisation of China's cooperatives is the ACFSMC, a ministerial-level department under the State Council. According to Chapter 1, Article 2 of the ACFSMC's constitution, "cooperatives" are defined as cooperative economic organisations of collective ownership with farmers as the main body.

The roles of the ACFSMC include promoting the guidelines of the "three rural issues" (三农, referring to agriculture, rural areas and farmers); guiding the development of the country's cooperatives; and organising, coordinating and managing agricultural production information and agricultural by-products operations.

China's cooperatives have been around for over a century and can be traced back to the first consumers' cooperative formed by the Anyuan Railway and Mining Workers' Club in September 1922 - the Anyuan railway and mining workers' consumer cooperative.

Cooperatives became an important part of the Chinese economy during the planned economy era after the Chinese Communist Party (CCP) came to power in 1949. In 1953, China adopted a "unified purchase and sale" policy for grain, oilseeds, cotton and other important products, purchasing agricultural products from rural areas and rationing them to the urban areas.

The policy brought important resources under state control and assimilated the dispersed peasant economy into the planned economy, improving its efficiency. However, the planned economy also brought about many problems: cooperatives have long been criticised for their monopoly of the market, poor service attitudes, shortage of products and lack of variety.

After reform and opening up, China adopted market economy policies and the cooperatives lost their monopoly and gradually faded out of the national economy. Nonetheless, instead of disappearing, cooperatives transformed and were absorbed into the market economy.

In recent years, Chinese officials have issued several documents proposing to deepen the reforms of cooperatives.

China News Service's Economic View (中新经纬) said that the No.1 Central Document for 2013 encouraged cooperatives to support agriculture product circulation and play a role in commercialising rural service.

The No. 1 Central Document for 2018 laid out the plan for rural revitalisation, encouraging enterprises to extend their services, including supply and sales, and post, into the rural areas to create a stabilised system for production and sales. In 2021, a cooperative pilot project combining production, supply and sales, and credit was proposed to improve farmers' production and daily life.

Beijing Business Today reported that in the current market economy, apart from the initial role of ensuring goods supply and stabilising prices in rural areas, cooperatives have also become centres that manage material flow, provide technical services and offer farmland trust. Notably, China's cooperatives achieved agricultural sales of 2.76 trillion RMB and daily necessities sales of 1.49 trillion RMB in 2021, an increase of 24.3% and 17.1% year-on-year respectively.

Ma Tong, an official working at the cooperative office in Hubei's Xiangyang, told Beijing Business Today that cooperatives would most likely become a last-mile services centre. He said that while a cold chain is needed for both the upward and downward movement of agricultural products, there is little social capital to set them up in rural areas due to the high cost and low return of agricultural products. But cooperatives can make use of central funds to build cold storage and cold chain transportation networks in the countryside.

Ma said that cooperatives are also becoming "fourth-party" logistics providers. He explained that many logistics companies do not provide doorstep delivery services in mountainous rural areas. Cooperatives, on the other hand, can directly manage the logistics of the area.

He added, "Various courier services would send their parcels to our warehouse, where we would sort and distribute to residents or arrange for pick-up at a centralised location. This not only saves on labour for the logistics company but also makes it more convenient for residents living in remote areas."

Simply put, unlike general stores and supermarkets, cooperatives are more deeply entrenched in the rural market, and have a wider variety of businesses, as well as a political function.

Objectively speaking, present-day cooperatives are more of a means for the Chinese government to advance rural revitalisation under a market economy. It would be an overthought to consider the rebuilding of cooperatives as a return to a planned economy.

However, it is also necessary to consider why such concepts always spark concerns whenever they are proposed - when the Two Sessions in May 2020 proposed a new "dual circulation" development strategy with a focus on China's domestic market for the first time, people were worried that China would be turning inwards; similarly, when the CCP's Central Committee and State Council decided to accelerate the construction of a "unified national market" in April 2022, people were worried that it would mean the reimplementation of the "unified purchase and sale" policy.

Perhaps people are concerned that the current Chinese leadership team is overconfident about the government's grip on economic development. Maybe they are also worried that the leadership team is already convinced that China will be contained, sanctioned and decoupled from the outside world or even at war in the future, and is thus planning ahead. These worries are unlikely to be eased in the short term.

This article was first published in Lianhe Zaobao as "下午察：供销社重出江湖？".

Related: Pandemic could stymie China's poverty alleviation and rural revitalisation efforts | Agricultural technology companies: A new highlight of China's economic growth | Governing modern Chinese villages is a big challenge | China needs to raise personal income to achieve common prosperity | Ten years of political intervention: China's economy at a crossroads