Cash flow problems frustrate users of rural capital co-op

Some 2,000 people in Yancheng, East China's Jiangsu province, were not able to withdraw their money from local rural capital cooperatives due to a breakdown in capital flow.

The amount of money involved might reach hundreds of millions of yuan, though the authorities didn't provide an exact figure, China National Radio (CNR) reported on Thursday.

Yu Longzhuang, head of the rural office of the Tinghu district government in Yancheng, told the media outlet that the flow of capital broke down because the cooperatives had illegally used the money for other investments and had been unable to recover the cash.

The rural capital cooperatives, which are different from banks and traditional rural credit cooperatives, are approved by local governments in order to boost local agriculture through investments of deposits and offering loans to local farmers - as long as they are members.

Since 2004, the local government of Tinghu district in Yancheng has approved 24 of these cooperatives.

A local farmer, surnamed Zhang, said that he invested 150,000 yuan ($24,780) into a cooperative in Yandong township of Yancheng in 2010, which he was supposed to be able to withdraw, with interest, in November 2013.

"The staff in the cooperative told me that they didn't have any money as there were so many members who wanted to withdraw the money, but the loans hadn't been recovered," Zhang said, adding that he is still waiting for his money but has received assurances from the local government.

According to CNR, some cooperatives use farmers' deposits to invest in real estate but these investments take time to recover the earnings, which led to the money shortage.

Yu said that some cooperatives used fake accounts to cover their tracks. He told CNR that the local government didn't have enough professional experience in supervising cooperatives. "The money will be returned to depositors by 2015 at the latest," Yu said.

Dang Guoying, a research fellow with the Rural Development Institute under the Chinese Academy of Social Sciences, suggested taking supervisory powers away from local governments.

"Such cooperatives should be approved by bank watchdogs instead, as they have better knowledge of supervision than local governments. Also, because bank watchdogs are relatively independent, corruption between cooperatives and local governments could be avoided," Dang added.