Party Branch-Led Cooperatives and the Political-Economic System in a Primary Stage of Socialism —The “Yantai Experience” as Case Study

Party Leadership and the Emergence of Party Branch-Led Cooperatives

The Communist Party of China (CPC) is a party entrusted with a special historical mission, consistently upholding the core value of placing the People at the center. It has always regarded as its fundamental goal the transformation of production relations and the superstructure to liberate and develop productive forces.

As early as the period of the New Democratic Revolution, Mao Zedong pointed out, “The most fundamental issue is the development of productive forces,” and emphasized that “The effectiveness and extent of the policies and practices of all political parties in China are ultimately determined by their impact on the development of productive forces among the Chinese people. This is also determined by whether they constrain or liberate productive forces.”

Here, Mao Zedong essentially defined the characteristics of the Communist Party of China as a party with a special mission.

From experiences in Yantai and other areas, we observe that the party's mission-oriented characteristics are tangibly evident in the behaviors and goal patterns of grassroots party organizations and cadres. The lofty mission and role of the party are ultimately personified through the dual political-economic roles undertaken by grassroots organizations and cadres.

A notable feature of the Yantai experience is the consistent implementation of a fundamental leadership system for socialism with Chinese characteristics. This is seen in the Yantai Municipal Party Committee and government, particularly the Organization Department of Yantai Municipal Party Committee, playing a role in top-level design and leadership in regional institutional changes. The party's leadership is also fully reflected in the governance of party branch-led cooperatives.

The Organization Department outlines the following: first, farmers' professional cooperatives should be registered and established by the shareholding economic cooperative or the village collective represented by the secretary of the village party branch. The village collective and the masses can invest in shares through contributions such as land, funds, and labor, and external societal capital can also be introduced for shares. Table 1 shows the proportion of collective shares held by Yantai party branch-led cooperatives.

Second, the chairman of the cooperative cooperates with the secretary of the village party branch, who is responsible for the overall work of the cooperative. The village party branch secretary serving as the chairman is a position-related behavior, and if the branch secretary loses in the village Dual-Committee election (the village committee and village party committee), they must resign from the position of chairman.

Third, as the representative of collective shares, the party branch has operational and distribution rights. In terms of income distribution, apart from the reserve funds and public welfare funds to be extracted by the cooperative at a self-determined ratio, the remaining income is to be distributed by the collective and the masses according to their shares.

These three regulations establish the leadership of the village party branch at the level of cooperative governance and explain the specific significance of the cooperative being led by the party branch.

The rise of party branch-led cooperatives not only aligns with the requirements of socialized large-scale production at the level of productive forces but also reflects the urgent need for grassroots party building. Following the reform of the household responsibility system, the development of collective economies in many rural areas has been weakened. The decline of collective economies has led to the weakness and dispersion of the leadership within grassroots party organizations, exacerbating the difficulty of rural grassroots governance.

In Yantai, the party branch-led cooperatives were initially promoted as part of party building efforts. This explains why it was the party committee’s organization department, rather than agricultural management departments such as the Agriculture Bureau, that became the driving force behind the party branch-led cooperatives. As outlined in the reporting documents by the Yantai Municipal Party Committee Organization Department, in villages grappling with feeble collective economies, grassroots party organizations are prone to losing influence and authority. Village party branches find it challenging to engage with the masses, and their words go unheard, making it difficult to effectively carry out their work.

In this context, in 2017, Yantai began implementing the establishment of party branch-led cooperatives. While the initial objective was to contribute to party building and the revitalization of the rural economy, from the perspective of its means and effects, it effectively translates to the successful implementation of an industrial policy at the grassroots level in rural areas. The establishment of party branch-led cooperatives is the result of the integration of party building efforts and industrial policies.

To promote the establishment of these cooperatives, Yantai consolidated resources from the organization department of the party committee, agricultural and rural affairs departments, and financial departments. They introduced more than 30 supportive policies and 22 guidelines, allocating a dedicated support fund of over 200 million yuan at the city and county levels. In conjunction with Shandong Province's “Strong Village Loan” program for rural areas, they provided loans totaling over 48 million yuan to 63 party branch-led cooperatives.

During the specific implementation process, Yantai adopted a strategy of piloting and exploring first: setting up models; then focusing on demonstrations, and finally, implementing comprehensively. In 2017, 11 villages were selected as pilot points; in 2018, a hundred villages were chosen for a demonstration initiative; in 2019, a project covering a thousand villages was implemented, and in 2020, the initiative was fully extended citywide.

The Economic Nature and Governance Structure of the Party Branch-Led Cooperatives

The party branch-led cooperatives represent a further development of mixed ownership in terms of ownership structure. Following the implementation of the land contracting policy, the ownership of agricultural land remained with the collective. Nevertheless, tools and other production materials utilized by farmers belong to the individual farmers. This resulted in the establishment of a mixed ownership structure during the early stages of reform.

The party branch-led cooperatives have adopted an approach where collectives and villagers contribute shares in the form of land, funds, and labor. This strategy signifies a continued development of mixed ownership, as illustrated by the proportions of collective shares outlined in Table 1. In terms of the distribution of cooperative shares, exclusive participation from the village collective and villagers represents a combination of collective and individual farmer ownership. However, with investment from external enterprises, the cooperative also incorporates other forms of ownership.

Regarding the distribution of operational rights, the village party branch typically possesses the operational rights of the cooperative. Yet, in specific instances, the operational rights of the cooperative may coexist with those of farmers or other lessees, creating a rational division of labor.

Table 1. Proportion of Collective Shares in Party Branch-Led Cooperatives in Yantai Villages (as of July 2021)

Proportion of Collective Shares	Below 10%	10-30% (Excluding 30%)	30-50% (Excluding 50%)	Above 50%
Number of Villages	0	1291	876	1098

Source: Yantai Municipal Committee Organization Department

Villagers contributing contracted land as shares is one of the fundamental methods for establishing cooperatives. However, the specific practices for valuating and incorporating land into shares vary among villages. After the author's review, three main approaches can be identified.

The first is based on the valuation of land operating income for share contribution. The second involves using land rent as a benchmark, which is then converted into cash and incorporated as shares. Although there are differences between these two approaches, both rely on purely economic principles, specifically the opportunity cost of land operation, to determine the price of transferring land.

Additionally, there is a third approach that not only considers economic principles but also emphasizes fairness. For example, in Xigou Village, located in Canzhuang Town of Zhaoyuan City, a method known locally as, “YES to shares and operational rights, but NO to land rights” is employed. It treats the average amount of land held per person in the entire village as one share, and each family has as many shares as there are members. This approach highlights the collective and indivisible nature of land ownership, ensuring a fair distribution of benefits among collective members.

The formation and governance structure of party branch-led cooperatives have generated some theoretical issues worthy of further consideration. Like other types of cooperatives initiated by rural collective economic organizations, party branch-led cooperatives are also categorized as joint-stock cooperatives.

In an article, Chen Xiwen raised questions about the concept of “shares” in the context of farmers contributing shares in the form of land. He stated, “In the reform of collective property rights, the concept of ‘joint-stock cooperative’ is endorsed, and the term ‘shares’ is thus frequently used. Therefore, it is essential to clarify the concept of ‘shares.’ In the general sense, ‘shares’ represent assets, and holders have the right to dispose of their 'shares' in accordance with the law. However, the so-called 'shares' that appear in the reform of collective property rights actually refer to the specific units of allocation to each member  despite the fact that collective assets cannot be individually divided. In the context of rural grassroots communities, the use of the term 'shares' in everyday speech poses no significant concerns. However, when formulating policies and laws, it is necessary to use accurate and standardized terminology; otherwise, there is a risk of misinterpreting the nature of rural collective economic organizations.”

From the perspective of villagers contributing shares in the form of discounted contracted land, Chen Xiwen's viewpoint is correct. The discounted land value upon joining the cooperative is not derived from the capitalization of land rental income; instead, it is determined based on the opportunity cost of land operation. This distinction is clearly illustrated in the concept known as guaranteed minimum income from land. The discounted land value is, in fact, equivalent to the rent paid for obtaining the right to operate the land. It is an economic realization of the land contract right and also serves as the embodiment of the rights of farmers as members of the community—specifically, their rights to the distribution of collective assets.

In terms of income distribution, party branch-led cooperatives allocate the self-determined proportion to their self-accumulated reserve funds and a public welfare fund for community services. In most cases in Yantai, these two funds collectively constitute 10% of the net income, with each accounting for 5%. The remaining income is then distributed as dividends among the collective and the members based on their respective shares.

In adherence to the principle of common prosperity, cooperatives strive to reflect their social responsibility in their governance structures. For instance, in the equity allocation, it is explicitly stated that the village collective must hold a minimum of 10% of the total shares, while individual members are capped at a maximum of 20%. Simultaneously, through strategies such as land exchange, village collective stock donations, and the creation of public welfare positions, the cooperatives enlist the elderly, weak, sick, and impoverished households as members of the cooperative. This transforms the mindset of poverty alleviation from “waiting for help” to active “wealth creation.” This strategic shift aims to change the approach to poverty alleviation from a model resembling “blood transfusion” to one resembling “blood generation,” thereby achieving sustainable poverty alleviation.

In practice, among the party branch-led cooperatives, the ownership nature of some cooperatives lean more towards collective ownership, while others emphasize compatibility with other forms of ownership. This diversity mirrors a versatile spectrum, providing a practical interpretation the basic economic system in the primary stage of socialism and its rich implications.

When Yijia Village, located in Tingkou Town, Qixia City, established a cooperative, the collective contributed 30% through land shares, while the masses contributed 70% through labor shares. Each registered villager in the village holds an “original share.” Simultaneously, a system known as “work tickets,” akin to a work-point system, is employed. Work tickets are distributed based on the time members participate in collective labor. Male laborers receive 120 yuan per day, and female laborers receive 80 yuan per day. Work is conducted during the daytime, and the distribution of work tickets takes place at night. Upon accumulating work tickets worth 2000 yuan, it can be converted into a “venture share,” eligible for dividend distribution based on shares. Cooperatives members can also use work tickets to purchase production materials such as irrigation water, pipelines, and fruit tree seedlings, and saplings from the cooperative.

The initiation of the work ticket system was primarily for road construction. In Yijia Village, a mountainous and impoverished area, collective production couldn't commence without proper road infrastructure. Despite the cooperative's inability to immediately convert work tickets into currency, members showed no concern. Relying on manpower, they completed over 8000 work shifts in seven months, resulting in the opening of a 5.5-kilometer-long and 5.5-meter-wide mountainous road.

The work ticket system in Yijia Village is akin to a form of equity incentive, built on the premise of the masses' trust in the collective. This institutional arrangement bears some resemblance to the employee ownership system at the company Huawei.

Xiaoweizi Village in Longquan Town, Muping District, provides another example of promoting collective ownership. When the cooperative was established in 2018, limited investment capital led to the introduction of external funds totaling 2.7 million yuan. In the course of development, the party branch secretary recognized the importance of the party branch-led cooperative being publicly owned rather than private-oriented and that it was imperative to ensure the benefits extended to both the village collective and the individual villagers.

To address the issue of excessive inflow of foreign funds, the cooperative employed a strategy known as “three increases and one decrease.” The “three increases” consisted of the following steps: first, the continuous mobilization of villagers to join the cooperative, thereby increasing the proportion of villagers’ shares; second, the village collective contributed a portion of its annual surplus to the shares, thereby  increasing its share percentage; and third, the collective sought project subsidies from higher-level authorities and contributed to the shares of the collective and villagers through a reasonably quantitative investing method. Through these three approaches, the proportion of external funds gradually decreased from the initial 70% to 30%.

In the party branch-led cooperative, due to the dominant role of the village party branch in the governance structure, the goals and behavioral patterns of the cooperative differ from those of businesses in the market economy that solely aim for profit. The village party branch, acting like a command center, shoulders the responsibility for the economic development of its village. Simultaneously, it undertakes the complex tasks of party building and public governance, performing functions similar to those of local governments and state-owned enterprises. Once established, the cooperative typically prioritizes investment in rural infrastructure. As local officials state, “In order to develop the 270 acres of transferred land, it is necessary to construct roads, implement irrigation systems, and introduce the required equipment. Only then can we develop large-scale and mechanized fruit tree agriculture in the next steps.”

The party branch-led cooperative aligns with the trends of large-scale planting and socialized mass production. The development from isolated individual farmers to cooperatives, and further to cooperative unions, vividly reflects the process of replacing market coordination with corporate coordination. In a market economy, enterprises and markets represent two different modes of coordinating division of labor; the former relies on internal commands and planning, while the latter relies on the spontaneous price mechanism.

Since the implementation of land contracting policy, farmers have become the primary actors in production and business transactions within the market economy. However, because of the restricted scale of their operations, along with limited capital and a weak capacity to bear risks and uncertainties, decentralized farmer economies often find it challenging to leverage the advantages of market competition. Instead, they find themselves at a disadvantaged position in the face of fluctuating market price mechanisms and the dominant market power of large capital. The party branch-led cooperative thus plays a beneficial role in addressing this contradiction.

Through the establishment of the party branch-led cooperative, the transition from market coordination to corporate coordination is achieved, although it deviates from a singular model. Instead, it embraces a diverse and distinctive range of corporate systems. Tianjia Village, located in Laizhou City of Yantai, Dahu Chenjia Village, located in Jinling Town of Zhaoyuan City, and Zhutuan Village located in Qishan Town of Zhaoyuan City are several typical examples, highlighting the diversity in the formation of enterprises.

For instance, after the establishment of the cooperative in Tianjia Village, it does not organize collective production, but instead leverages the strengths of collective operation to provide services for the production of farmers, centralizes the purchase of agricultural production materials, conducts uniform sales, and engages in unified product research and development. Similarly, Dahu Chenjia Village refrained from organizing collective production but chose to sublease the land that had been transferred to the cooperative. Following investments and improvements to the land, the village then leased it to over 100 tenants for cultivation at a rate of 1500-2000 yuan per mu. This particular approach differs from that of Tianjia Village.

On the other hand, the cooperative in Dahu Chenjia Village, like Tianjia Village, is not directly responsible for production but is involved in various productive “services.” This includes the adoption of Israeli technology to transform the land and achieve integrated water and fertilizer drip systems. The cooperative also invests in storage and food processing production while consolidating various sales channels such as e-commerce, product picking, and sales order processing.

Unlike Tianjia Village and Dahu Chenjia Village, the cooperative union in Qishan Town proposes establishing its own seedling base to overcome the drawbacks of a single and high-risk revenue channel from sweet potato cultivation. This not only helps mitigate risks and save costs but also improves the quality of seedlings. From this point onwards, they embark on the path of enterprise expansion relying on vertical integration.

In the development process of the party branch-led cooperatives, there is yet another noteworthy phenomenon: the rise of cooperatives has driven the formation and growth of a “micro” innovation system centered around these cooperatives. While it is possible to establish an innovation system based on farmers in the absence of cooperatives, the latter, when compared to individual farmers, tend to favor large-scale production. They have greater capacity to bear the risks and uncertainties associated with technological advancements, are more adept at tackling financing challenges, and possess social capital that individual farmers may lack. Therefore, cooperatives are better positioned to propel technological progress with the necessary conditions and inherent motivation.

It's worth noting that in May 2019, the National Peanut Engineering and Technology Research Center established Muping District Science and Technology Achievements Transformation Base in Shuidao Town. In August of the same year, the Fenglin Peanut Ph.D. Research Station at the Shandong Academy of Agricultural Sciences was also officially inaugurated there.

 

Conclusion

The party branch-led cooperatives, as a new form of rural collective economic structure has, on one hand, promoted the socialization of agricultural production and the industrialization of rural areas. On the other hand, at the grassroots level in rural areas, it has creatively implemented and exercised a political-economic system in the primary stage of socialism, empowering it with tremendous vitality and vigor.

The rise of party branch-led cooperatives is associated with several crucial experiences. For instance, firstly, it embodies the fundamental leadership system of socialism with Chinese characteristics, which is the party's central leadership. Secondly, as an evolved form of mixed ownership, party branch-led cooperatives are conducive to consolidating and developing the basic economic system in the primary stage of socialism at the grassroots level in rural areas. Thirdly, party branch-led cooperatives contribute to promoting common prosperity in rural areas. Fourthly, party branch-led cooperatives, at a higher level, facilitate the integration of an effective market with an active and capable government in rural areas.

The Dual-Committee, or the village party branch, acting as the administrative body, serves as the executor of grassroots government. As the operating rights of cooperatives belong to the party branch, party branch-led cooperatives not only blur the line between “politics and business” but also “party and government.” However, this integrated organization, blending political and economic aspects, is advantageous for overcoming the institutional constraints inherent in the scattered operation of individual farmers. It changes the weak position of farmers in the market, promotes large-scale production and technological progress, enhances the added value of agricultural products, and enables the market to better serve farmers. As a form of institutional embedding in the market, the practice of such integration in places like Yantai’sparty branch-led cooperative are a prerequisite for transforming the market into an “effective market” at a higher level.

The rise of party branch-led cooperatives as a new form of collective enterprise also prompts a critical reassessment of the economic academia's understanding of township collective enterprises over the past two decades, leading to new conclusions. In the late 1990s, township collective enterprises underwent widespread restructuring, transitioning into private enterprises. Since then, a deeply ingrained perception has taken hold in decision-making and theoretical circles, asserting that collective economic organizations will no longer be involved in enterprise operations. The legal and policy provisions encouraging collective economic organizations to establish township enterprises have been deemed virtually ineffective. In some developed regions, even when joint-stock cooperatives are established, they essentially lease land to external enterprises and no longer participate in value-creating production activities.

It is worth contemplating that the governance structure of the party branch-led cooperative in Yantai, as a collective enterprise, encompasses not only micro-level aspects but also broader political, economic, legal, and ideological factors in the primary stage of socialism. This characteristic, similar to state-owned enterprises, represents the commonality of public ownership enterprises in the primary stage of socialism. To effectively manage public-owned enterprises, attention should be given not only to the internal micro-governance structure but also to the external “embedding” of national economic governance with the governance structure of public-owned enterprises, the latter functioning as an institutional system with the party's leadership at its core.

In fact, the blending of the lines between politics and business, and party and government is, in a certain sense, not a weakness of public-owned enterprises. On the contrary, it is precisely a characteristic and advantage inherent in the governance structure of public-owned enterprises. The decline of township enterprises in the late 1990s is primarily not due to the inefficiency of the enterprises themselves but is a result of the misguidance of national economic governance (also of the corresponding ideology) during a specific period. In the Yantai case, the Organization Department of the Provincial Party Committee has effectively integrated itself into the governance structure of the cooperative through various institutional constructions and proactive initiatives. A more conscious and institutionalized representation of the party's leadership role in enterprise governance is a key difference between party branch-led cooperatives and other types of collective cooperatives, and it is one of the main reasons for their success.

The rise of party branch-led cooperatives, as a process of institutional transformation, reflects the general laws of contemporary Chinese institutional changes in the transformation of production relations and the liberation and advancement of productive forces. In this process, the contradiction between productive forces and production relations transforms into the contradiction between two types of production relations. On one hand, there is the dispersed operation of farmers, which is unable to effectively represent and adapt to socialized production and division of labor. On the other hand, there is the emergence of new collective economic organizations that align with the needs of socialized production and contribute to achieving common prosperity.

The resolution of this contradiction through the formation of party branch-led cooperatives has contributed to a common “progressive” institutional evolution frequently observed in Chinese reforms. Here, “progressive” implies that party branch-led cooperatives do not negate the widely adopted land contracting system since the beginning of the reform; instead, they are built upon this system. Moreover, when the new system emerges, existing systems will be influenced and undergo changes.

Looking at a broader historical span, the emergence of party branch-led cooperatives represents a dialectical spiral ascent, embodying the negation of the negation process: beginning with the collective economy before the reform, navigating the era of the land contracting system, and progressing toward a new form of collective economy firmly rooted in the market economy, all while recognizing farmers’ contracting rights. Experiences in places like Yantai suggest that this path of institutional transformation is a crucial route for achieving rural revitalization and common prosperity in rural areas.