Beijing claims it has pulled off yet another economic miracle, with the People's Daily reporting yesterday that supply and marketing co-operatives posted a net profit of 1.38 billion yuan (about HK$1.28 billion) last year after eight straight years of losses. China's supply and marketing co-operatives employ a total of 4.3 million staff and operate 480,000 outlets in both rural and urban areas. Grouped under the All China Federation of Supply and Marketing Co-operatives, they act as intermediaries between farmers and urban markets. They sell fertilisers and other supplies on to farmers and in turn buy agricultural products such as cotton for resale in urban markets. From 1992 to 1999, the supply and marketing co-operative sector consistently reported net losses, which peaked at 15.64 billion yuan in 1998. That year, in an effort to staunch the haemorrhaging, the State Council ordered that turning the co-operatives around was 'a matter of prime importance'. The All China Federation of Supply and Marketing Co-operatives was given a three-year turnaround target. According to the People's Daily, the sector's losses fell 2.7 billion yuan to 12.94 billion yuan in 1999. The newspaper credited a new sense of urgency, increased responsibility, more competition, and the establishment of 'dragon-head' units for the sector's turnaround. But Bai Lichen, head of All China Federation of Supply and Marketing Co-operatives and a Chinese People's Political Consultative Conference vice-chairman, warned that the sector was not out of the woods yet. Mr Bai, formerly chairman of the Ningxia Autonomous Region, was appointed head of the federation, a ministerial-level position, in 1997, just one year before the reform push began. Even if reports of the sector's sudden recovery are not exaggerated, they are a reminder of the fragile state of the rural economy. Farmers' incomes have stagnated in recent years, resulting in an ever-widening disparity between rural and urban residents. Widespread debts also plague the country's rural credit co-operatives. In Guangdong, a 40 billion yuan bail-out loan granted by the central government in December 1999, widely reported to have been earmarked for the province's struggling international trust and investment corporations, was in fact used primarily to bolster the province's rural credit co-operatives. The agricultural sector will also be one of the biggest losers from China's entry into the World Trade Organisation. Much lower tariffs on imported agricultural products will put great pressure on the country's inefficient family farmers. Supply and marketing co-operatives will be caught awkwardly in the middle of this coming crunch.