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The earliest Chinese cooperatives emerged in the 1920s, with the goal of supplying and marketing agricultural goods and offering credit to farmers. These initial efforts were largely experimental and were initiated by various groups: local grassroots movements, the GMD government (though they only provided credit to landlords and rich peasants), and the CCP.
The primary function of these Supply and Marketing Cooperatives (SMCs) was to connect rural supply and demand. They did this through a network of general stores that would purchase members' farm products or handicrafts and, in turn, sell them essential goods from rural and urban workshops. In addition to these SMCs, Credit Cooperatives and Mutual Aid teams were also established.
The CCP had two differing interpretations of Lenin's 1923 "Cooperative Plan" at its disposal. Mao Zedong championed Stalin's interpretation, which stressed collective farms as the appropriate model for rural socialism. For Mao, this meant organizing mutual aid teams that would eventually evolve into Soviet-style collective farms. Conversely, Liu Shaoqi in 1948 adopted a different reading of Lenin, proposing that socialism would be achieved through supply and marketing cooperatives (SMCs). These SMCs would serve to connect individual peasants with the urban-socialist sector.
In 1949, the CCP officially adopted Liu Shaoqi's interpretation. However, they soon abandoned it, instead largely adhering to Stalin's collectivization model. By 1951, the path of collective farms had definitively triumphed over the SMCs, with Stalin's approach to collectivization prevailing. Ironically, despite this, Stalin himself advised the Chinese during those years to pursue a more moderate course and proceed very slowly with socialist transformation. 09-09-1951 - 30-09-1951: 1st conference on mutual aid and cooperation

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Supply and Marketing Cooperatives were designed to integrate rural production and demand. They created a tiered network of general stores that purchased farm goods and handicrafts from members while selling them essential goods from both rural and urban workshops. Unlike the often-exploitative practices of private rural merchants—who would offer early cash payments for later crop deliveries at unfavorable prices—SMCs operated as reliable buyers and sellers, dealing at current market rates. While many SMCs offered generous credit to members, their primary focus was on trade. They connected with a new network of national-scale Specialized Trading Corporations (STCs) for key goods like grain, cloth, and lumber.
Initially, SMCs competed with private merchants. However, by the mid-1950s, they had largely replaced them, a process accelerated by stricter regulations on agricultural marketing. By 1949, around 20,000 SMCs were operating in "older liberated areas," a number that grew to 33,000 by 1952. Membership skyrocketed from 10 million to nearly 140 million, and their 99,000 stores accounted for one-fifth of all rural retail sales. Fig. 38.1: China’s rural SMCs 1949–52

Despite strict rules from Beijing, local cadres often took shortcuts. To raise capital, they set share prices so high that poor families were excluded, and they allowed wealthier individuals to buy more than the single share limit. Credit managers, much like their capitalist counterparts, favored those least likely to default, overlooking members in dire need of funds for essentials like seed and fertilizer. Rules about management committee elections and personnel rotation were frequently ignored. SMC buyers were also risk-averse. They were reluctant to update inventory or stock new products, fearing they would accumulate unwanted goods. They also hesitated to finalize agreements with trading companies to supply specific quantities of local crops. This was due to their inability to predict how much of a household's harvest they could purchase versus what would be sold through private channels. To resolve these uncertainties, the central government drastically reformed market relations in late 1953. Fig. 38.2: Cooperative supply consumer goods 1952-1954

By the close of 1953, the majority of villagers still favored traditional markets and private merchants over SMCs. Many peasants were hesitant to exchange their surplus grain for the limited or low-quality goods offered by the SMCs. Additionally, some wealthier peasants, recognizing the shrinking opportunities for investment or quick profits, chose to hold onto their surplus grain.
This resulted in sporadic grain shortages in both cities and rural areas, leading to significant price fluctuations. With the marketed grain surplus unpredictable and consistently below the levels needed for the first five-year plan for national construction and industrialization, central leaders decided on a new course of action. They mandated that peasants would have to sell more of their grain to the state through a system of compulsory sales at fixed prices.

Despite being established extensively across all administrative levels, from provinces down to villages, the SMCs failed to fulfill their intended role. Instead of linking peasants to urban markets or regulating the rural economy, they functioned merely as ordinary retail shops.
This failure echoed the problems seen in the Soviet Union during the 1920s, where similar cooperatives primarily served the interests of wealthier peasants. Widespread mismanagement and corruption plagued the SMCs, leaving the majority of peasants to rely on themselves. Ultimately, most peasants preferred this self-reliance, wanting to prosper as independent farmers and maintain the freedom to sell their produce as they chose.

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The foundation of China's state rural finance system was laid in 1951. The People's Bank of China (PBOC) spearheaded this initiative by mandating the establishment of a dual-track structure: a top-down creation of state bank organizations across rural areas, complemented by the bottom-up organization of Rural Credit Cooperatives (RCCs). These organizations were intended to function under the state bank's leadership, mutually assisting one another to significantly advance rural finance. This included a broad effort to develop diverse credit cooperative forms, such as credit teams and departments, throughout the countryside. Fig. 38.3: China’s RCCs at the end of June 1953 (ten thousand persons)

To ensure their viability, the PBOC provided substantial support to the RCCs: assigning specialists, offering manpower and financial aid, establishing sound accounting systems, and providing training to improve management. It implemented favorable deposit and loan policies. When an RCC's deposits grew, it could redeposit the funds with the state bank at a premium interest rate (up to 10% higher than personal deposits). Conversely, to facilitate lending, the state bank provided loans to the RCCs at a subsidized rate (up to 10% lower than personal loans). The PBOC commissioned the RCCs to handle bank business (like deposits and loans) and compensated them with handling charges.
Credit cooperatives derived their capital from three sources: shares acquired by members, member deposits, and loans from state banks. The majority of the capitalization was attributed to the first two sources. The deposits and loans obtained by credit cooperatives can be seen as an organized method to stimulate surpluses in rural private capital. Surveys suggested that cooperative loans were not as narrowly restricted to a specific purpose as state agricultural loans. The instructions of the Central Committee stated: "In carrying out the spring ploughing production campaign, the distribution of agricultural loans and the supply and marketing of rural commodities must be well organized. Agricultural loans must be distributed rationally between organized farmers and individual farmers, as stated in the Central Committee's Resolution on Mutual Aid and Cooperation in Agricultural Production. It would be wrong to concentrate agricultural loans only on a small number of mutual aid groups and agricultural production cooperatives instead of lending to independent farmers, so as to separate the few advanced groups from the general mutual aid groups and the majority of farmers. Agricultural loans must be issued in a timely manner according to the production seasons in various places. "

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On October 10, 1953, the CCP promulgated the resolution implementing planned purchase and planned supply of grain. See also Article 40. Following the unified purchase and marketing policy, a political campaign was launched to promote the new system. The new regime presented this radical policy as an essential step for the nation's future, justifying it with three key arguments. Primarily, the measure was touted to guarantee the availability of grain needed for both public consumption and national construction projects. Secondly, it was claimed that the policy would stabilize grain prices across the country and eliminate harmful speculation. More importantly, however, the new policy had a deeper ideological goal: it was explicitly designed to steer the peasantry onto the path of socialism, which the regime promoted as the only true way to secure prosperity and well-being for all farmers. Situation of regional net grain flows in the 1950s in China

The campaign first targeted party officials before reaching peasants. For example, at its Sixth Congress in October 1953, the Henan Provincial Party Committee not only announced the Central Committee's new policy but also asked cadres for their opinions. Some voiced doubts and objections. In response, the Provincial Party Committee criticized these views as reflecting "capitalist ideology" and instructed local party committees to lead criticism and self-criticism sessions.
From the winter of 1953 to the autumn of 1954, 2 campaigns run. The first one, was the development of cooperatives, the other one to achieve the unified purchase. The entire movement was split into two phases. The first phase, until the unified grain procurement task was largely complete (winter 1953 and spring 1954), focused on two things: educating the public on the new policies and preparing for the development of mutual aid and cooperation. The second phase, from the end of grain procurement until the wheat planting season (between spring and autumn 1954), aimed to solidify, expand, and develop these cooperatives and mutual aid groups.
By the end of January 1954, as the spring plowing season approached and the unified purchase and marketing mission neared completion in most regions, the Central-South Bureau shifted the focus of rural leadership to agricultural production. To boost productivity, local committees were instructed to continue developing the collectivization movement, leveraging the enthusiasm farmers showed during the previous campaigns of the General Line education and establishing cooperatives.
While the unified purchase and marketing campaign largely concluded in March 1954, it didn't stop entirely; instead, it entered a new, less intense phase. The campaign had to operate year-round to account for different crops coming to market at various times. For example, after the main unified marketing drive ended in March, the Central Finance Commission immediately issued instructions to buy rapeseed and rapeseed oil. This easing was also a direct response to issues that arose during the initial implementation. The CCP acknowledged that some cadres had used coercive and drastic measures, which led to widespread farmer dissatisfaction and public unrest. In response, the CCP Central Committee issued a directive at the end of March, instructing local party officials who had committed serious errors to publicly admit their mistakes and adopt more appropriate methods.
To alleviate public dissatisfaction and rural food shortages caused by the unified purchase and marketing system, the CCP issued directives in April and May 1954 to establish local grain markets. These markets allowed farmers to trade their surplus grain within specific quotas and at state-designated prices, marking a temporary relaxation of government control. The CCP instructed local authorities to avoid excessive restrictions on these markets to prevent further stalemate. By allowing farmers to trade and by demanding that officials apologize for their coercive tactics, the CCP signaled a less rigid approach to the unified purchase and marketing system after March 1954. Different crops come to market throughout the year, the unified purchase and marketing campaign had to be promoted intermittently throughout the year, adapting to the arrival of each crop.
The unified system of purchase and sale marked the beginning of the socialist transformation of agriculture, significantly strengthening the state's control over the peasants' economic lives. This process immediately stripped villagers of several fundamental freedoms that had been legally protected since the PRC's founding in 1949 to aid economic recovery. Foremost among these lost liberties was the freedom to trade their own products. Other freedoms—such as buying and renting land, hiring labor, and lending or borrowing money—were also curtailed.
With the introduction of a state monopoly on grain trade, the peasants could no longer operate as individual entrepreneurs seeking the best market price. Their economic lives were now entirely dependent on a new and complex state mechanism, fundamentally changing their role from independent actors to cogs in a planned system.
Furthermore, the state monopoly on the purchase and sale of grain had a detrimental effect on sideline rural occupations. These supplementary activities had long served as a crucial "safety valve" against poor harvests and an indispensable source of income, being fundamental to both peasant livelihood and the broader rural economy. In the early 1950s, some estimates suggested that these subsidiary occupations accounted for nearly a third of the total value of national rural production, with approximately a fifth of all families relying on them as a primary source of income.
However, once the system of planned purchase was established, the freedom to engage in these sideline activities was severely curtailed. To guarantee the success of the grain production and purchase programs, central authorities found it necessary to impose strict controls over the peasant workforce and the cultivated area, which directly limited the time and resources available for other rural endeavors.

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Chapter 4 of Common Program

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