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. Industry experts say that from pilot projects to nationwide rollout, the rural credit system is moving away from the traditional fragmented and weak structure through institutional restructuring. 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 are entering 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, marking Yunnan’s rural credit system officially entering a new stage of unified provincial legal entities. In its 2026 New Year message, Yunnan Provincial Union explicitly stated that it would focus on restructuring governance, improving management systems, strengthening operational mechanisms, enhancing risk control, and activating development momentum to steadily advance reform tasks.

Similarly, this year’s Gansu provincial government work report proposed that by 2026, the province would consolidate the reform and risk management results of small and medium financial institutions and establish Gansu Rural Commercial Bank. This confirms the province’s progress in rural credit reform. The 2023 Gansu government work report also proposed orderly risk management of high-risk institutions, cautious reform of rural credit cooperatives, and the establishment of Gansu Rural Commercial Union Bank. However, in 2025, Gansu plans to change its reform model from a joint bank to a unified legal entity, establishing 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, in its 2026 New Year message, Ningxia Yellow River Rural Commercial Bank announced that its deepening reform plan 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 rural credit institutions in the province is also on the agenda.

“From the reform models, the four provinces (autonomous regions) have all chosen a unified provincial legal entity model,” said a senior banking industry analyst. The intense deployment at the beginning of 2026 signals a clear message: rural credit reform has moved from exploratory phases and debate over models to a critical period of concentrated implementation and tackling difficulties. “Take Yunnan as an example, this round of rural credit 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 analyst explained.

Apart from provinces that have yet to establish provincial legal entities, many regions, based on previous achievements in rural credit cooperative reforms, have proposed new requirements for further deepening reforms. On January 6, the Jiangxi Financial Supervision Bureau approved Jiangxi Rural Commercial Union Bank’s acquisition of 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 no less than 5%. At the end of December 2025, it was further approved to acquire 8.55% of the shares of Pingxiang Rural Commercial Bank, further clarifying the equity structure.

“This year, the focus of rural credit cooperative reform may be on accelerating the establishment of city-level unified legal entities,” said Lou Feipeng, researcher at China Postal Savings Bank. He emphasized that improving capital replenishment mechanisms, building digital risk control platforms, strengthening shareholder transparency, and standardizing corporate governance will also become increasingly important.

Dual Tracks: Risk Reduction Is Evident

The complexity of rural finance means that reform cannot adopt 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 foundation, and reform difficulties. Currently, there are mainly two models: provincial rural commercial union banks and unified legal entities at the provincial level.

The unified legal entity model consolidates all rural credit institutions in a province into “one bank,” offering advantages in centralized management, unified risk handling, and efficient resource allocation, especially in resolving historical risks and strengthening capital. The union bank model emphasizes maintaining the independence of county-level legal entities, retaining two-tier legal structures, and using provincial union banks 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 National 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 union bank model, while Liaoning, Hainan, Henan, Inner Mongolia, Jilin, and Xinjiang have chosen 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 principles of “adapting 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 union bank model, implementation varies: Zhejiang’s rural commercial union bank is a “bottom-up” approach, while Guangxi’s is “top-down,” with completely different equity 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 union bank, while others have a “provincial union bank—county-level rural commercial banks” two-tier structure.

Industry experts agree that regardless of the model, after a series of reforms, China’s rural credit cooperatives have significantly reduced existing risks in recent years. 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 “red zone” of rural small and medium financial institutions accounts for less than 1% of total assessed bank assets.

A report by China Chengxin International suggests that recent efforts to reform, resolve risks, and merge 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 emphasizes strengthening early warning mechanisms for financial risks and steadily advancing the reduction and quality improvement of small and medium financial institutions. Jilin’s report supports the deepening reform and healthy development of Jilin Rural Commercial Bank. Henan’s report calls for reducing the number of high-risk institutions significantly. Shandong’s report advocates reform and restructuring of 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 and improving quality” will continue to be the core focus of small and medium bank 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 this situation, 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 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 reduction and quality improvement in small and medium financial institutions must adhere to market-oriented and rule-of-law principles, systematically implementing from institutional integration, risk resolution, governance enhancement, to service optimization.

Dong Ximiao views that “reducing quantity and improving quality” is a process of “treating the symptoms first, then the root causes,” ultimately moving toward 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.