Many regions send positive signals as rural credit cooperatives reform and expand

Reporter Zhong Yuan

As the 2026 local two sessions are held and provincial government work reports are released, the paths for deepening reforms in local rural credit systems are becoming clearer. The reporter found that many regions, including Yunnan, Gansu, and Ningxia, have listed the establishment of provincial rural commercial banks as one of their key tasks for 2026. So far, 13 provincial-level joint-stock associations have completed the formation of provincial legal entities, accelerating the expansion of rural credit cooperatives reform. Industry experts say that from pilot projects to nationwide rollout, the rural credit system is moving through institutional restructuring to bid farewell to the traditional fragmented and weak pattern. Future reforms of rural credit cooperatives will focus on risk mitigation, institutional integration, and continuous deepening.

Focused Implementation: Accelerating Rural Credit Reforms in Multiple Regions

The integration and reform of provincial rural credit cooperatives into risk management have entered a phase of concentrated implementation. On January 5, Yunnan Rural Credit Cooperative Union and 122 local rural commercial banks and credit cooperatives jointly issued a notice, announcing the approval to establish “Yunnan Rural Commercial Bank Co., Ltd.” (tentative name) through a new merger. This marks Yunnan’s rural credit system officially entering a new stage of provincial unified legal entities. In its 2026 New Year message, the Yunnan Provincial Union explicitly stated that it will focus on restructuring governance systems, improving management mechanisms, strengthening risk control, and activating development momentum to steadily advance reform tasks.

Similarly, this year’s Gansu provincial government work report proposed consolidating the reform and risk management achievements of small and medium financial institutions and establishing Gansu Rural Commercial Bank. This is a further confirmation of the province’s progress in rural credit reform. The 2023 Gansu government work report mentioned orderly risk management of high-risk institutions and cautious reform of rural credit cooperatives, including the establishment of Gansu Rural Commercial Bank. By 2025, Gansu plans to shift from a joint bank model to a unified legal entity model to establish Gansu Rural Commercial Bank.

Similar to Gansu, Ningxia Hui Autonomous Region’s government work report this year also outlined a timetable for rural credit reform. It explicitly states that completing the unified legal reform of rural commercial banks across the region is one of the key tasks for 2026. Previously, Ningxia Yellow River Rural Commercial Bank expressed in its 2026 New Year message that the reform plan for Ningxia rural commercial banks was approved in 2025. Additionally, Heilongjiang Provincial Union mentioned “using the establishment of provincial rural commercial banks as an opportunity” in its 2026 New Year message, indicating that reform of the province’s rural credit institutions is also on the agenda.

“From the perspective of reform models, the four provinces (autonomous regions) have all chosen a unified provincial legal entity model,” said a senior banking industry researcher. “At the start of 2026, the intensive deployment in these provinces signals a clear message: rural credit reform has moved from initial exploration and debate over models to a critical period of concentrated implementation and tackling difficulties. For example, in Yunnan, this round of reform was not achieved overnight but involved a gradual process from local pilots to provincial-wide promotion, from city-level integration to provincial coordination,” the expert explained.

Apart from provinces that have yet to establish provincial legal entities, many regions are building on earlier achievements in rural credit cooperative reforms and proposing further deepening of reforms. On January 6, the Jiangxi Financial Supervision Bureau approved Jiangxi Rural Commercial Bank to acquire shares in 15 city and county-level rural commercial banks, including Yushan Rural Commercial Bank and Yugan Rural Commercial Bank. Several rural commercial banks also received approval to increase registered capital on the same day. By December 2025, the bank had been approved for investments totaling no more than 2.205 billion yuan, holding stakes in 19 rural commercial banks such as Shangrao and Guangxin, with shareholding ratios of at least 5%. At the end of December 2025, the bank was also approved to acquire an 8.55% stake in Pingxiang Rural Commercial Bank, further clarifying its equity structure.

“Reform efforts this year are likely to focus on accelerating the establishment of city-level unified legal entities,” said Lou Feipeng, researcher at China Postal Savings Bank. “Enhancing capital replenishment mechanisms, building digital risk control platforms, strengthening shareholder transparency, and standardizing corporate governance will also become increasingly important.”

Dual Tracks: Significant Risk Reduction

The complexity of rural finance means that reform cannot follow a “one-size-fits-all” approach. Under the principle of “one province, one policy” guided by regulators, regions are exploring different reform paths based on their economic characteristics, financial foundations, and reform difficulties. Currently, the main models are the provincial rural commercial joint-stock bank and the unified legal entity provincial rural commercial bank.

The unified legal entity model consolidates all rural credit institutions into “one bank,” offering advantages in centralized management, unified risk handling, and efficient resource allocation, especially in resolving historical risks and strengthening capital. The joint-stock bank model emphasizes maintaining the independence of county-level legal entities, retaining a two-tier legal structure, and using a provincial joint-stock bank for capital supplementation, technological empowerment, and business coordination. This reduces reform resistance and better aligns with the goal of supporting agriculture, supporting small businesses, and deepening local roots.

According to data from the State Financial Regulatory Administration, as of now, 13 provincial-level associations have completed the formation of provincial legal entities. Among them, Zhejiang, Shanxi, Sichuan, Guangxi, Jiangsu, Jiangxi, and Guizhou have adopted the joint-stock bank model, while Liaoning, Hainan, Henan, Inner Mongolia, Jilin, and Xinjiang have adopted the unified legal entity model.

Dong Ximiao, chief economist at Zhaolian and deputy director of the Shanghai Financial and Development Laboratory, believes that China’s rural credit system reform generally adheres to the principles of “adapting measures to local conditions” and “one province, one policy.” Due to regional economic disparities, the history, scale, risks, and capabilities of rural credit institutions vary widely, making a uniform approach impossible. Even within the same model, implementation varies; for example, Zhejiang’s joint-stock rural commercial bank is a “bottom-up” approach, while Guangxi’s is “top-down,” with completely different shareholding structures. In establishing provincial rural commercial banks, Hainan adopted a “one-step” approach, whereas Liaoning took a “two-step” approach. Some provinces have established city-level rural commercial banks under the provincial joint-stock bank, while others have a “provincial joint-stock bank—county-level rural commercial banks” two-tier structure.

Industry experts agree that regardless of the model, recent reforms have significantly reduced the stock risks of China’s rural credit cooperatives. According to the “China Financial Stability Report (2025)” issued by the People’s Bank of China, in the first half of 2025, the PBOC rated 3,529 banking institutions. The results show that the majority of provinces have seen a clear reduction in existing risks, and the regional financial ecosystem continues to improve. The proportion of “red zone” banks among rural small and medium financial institutions is less than 1% of total assessed bank assets.

A report by China Chengxin International suggests that ongoing reforms, risk mitigation, and mergers of regional small and medium banks are expected to improve asset quality and capital adequacy. Additionally, post-integration, these banks’ comprehensive financial service capabilities, customer resources, and brand effects will be enhanced, laying a foundation for future growth and profitability.

Reducing Quantity and Improving Quality: Serving the Real Economy

The 2026 local government work reports frequently mention “deepening reform” and “reducing quantity and improving quality.” For example, Yunnan’s government report emphasized strengthening early warning mechanisms for financial risks and steadily promoting the reduction and quality improvement of small and medium financial institutions. Jilin’s report supported the deepening reform and healthy development of Jilin Rural Commercial Bank. Henan’s report called for reducing the number of high-risk institutions and improving the quality of small and medium financial institutions. Shandong’s report focused on reforming and restructuring rural commercial banks and village banks, and deepening internal control and risk management in urban commercial banks.

Industry insiders believe that “serving the real economy and reducing quantity while improving quality” will remain the core approach for small and medium banks’ reforms this year. “Some rural credit institutions previously faced issues like ‘detachment from agriculture and small businesses,’ ‘superficial corporate governance,’ and weak risk resistance. Reform aims to reverse these problems, guiding them back to their original purpose of serving local agriculture, supporting small and micro enterprises, and achieving stable development,” said a senior banking researcher.

Zeng Gang, chief expert at Shanghai’s Financial and Development Laboratory, states that “the overall approach to reform and risk mitigation for small and medium banks is becoming clearer, with ‘mergers and restructuring, reducing quantity, and improving quality’ as the main models.” He emphasizes that promoting these reforms must adhere to market-oriented and rule-of-law principles, systematically implementing in areas such as institutional integration, risk resolution, governance improvement, and service optimization.

Dong Ximiao views that “reducing quantity and improving quality” is a process of “treating symptoms first, then addressing root causes,” ultimately aiming for high-quality development. The significant reduction in high-risk institutions has laid a solid foundation for further deepening reform and risk mitigation. Future policies should shift from quantity adjustments to a focus on quality enhancement. The success of reforms depends on whether governance can be improved to stimulate the internal motivation of small and medium banks, and whether resource integration and stable development can meet the diverse financial needs of the real economy accurately and effectively.