China's Monetary Reform: The counterrevolution from the countryside

Until the late 1990s, the rapid development of rural cooperative funds as semi-formal financial institutions in the countryside attracted little attention. In many provinces, these funds took over large swathes of rural finance, before the State Council in March 1999 issued a secret decree requesting that they be immediately dissolved. This paper explores the reasons for the rapid development of rural cooperative funds in many localities, examines why this has been an issue of contention, and explains why it has taken the central government such a long time to come up with a coherent—and, furthermore, drastic—response. Although rural cooperative funds are now being dissolved across the country, they may already have achieved their purpose of revolutionizing financial intermediation in the countryside.