Township and Village Enterprises

Township and Village Enterprises (TVEs) are market-oriented public enterprises under the purview of local governments based in townships and villages in the People's Republic of China. They initially built on commune- and brigade-run industries that had been set up to serve the rural areas during the Great Leap Forward. During that time, TVEs had a limited role and were restricted to the production of iron, steel, cement, chemical fertilizer, hydroelectric power, and farm tools. [Saich, Tony. (2001). Governance and Politics of China. New York: Palgrave.] However, the reforms of 1978 changed this and TVEs became the most vibrant part of the Chinese economy as they experienced significant expansion in the 1980s and early 1990s. Farmer income was stagnating by the mid-1980s, and TVEs provided an excellent means to stimulate non-grain and non-agricultural production. The development of these enterprises also meshed with the political requirements of local governments, which saw TVEs as a regular source of revenue in an environment of constrained resources. TVE employment grew from 28 million in 1978 to a peak of 135 million in 1996. [Naughton, Barry. (2007). The Chinese Economy: Transitions and Growth. Cambridge: MIT Press.] In provinces such as Jiangsu and Shandong they employed some 30 percent of the rural workforce. [Saich, Tony. (2001). Governance and Politics of China. New York: Palgrave.]

TVEs were notable for their unique ownership and corporate governance setup. [Naughton, Barry. (2007). The Chinese Economy: Transitions and Growth. Cambridge: MIT Press.] Many of these firms were “collectively owned” in the sense that theoretical ownership rested with the collectives, either as a legacy of earlier sponsorship, or because township and village governments took the lead in establishing new TVEs after the breakup of the agricultural collectives. Ultimate “ownership rights” stayed with the collective, while “use rights” were delegated to managers. The complexity of this arrangement led to the labeling of TVE property rights as “fuzzy.” This system of property rights was able to accommodate numerous stakeholders, adapt to a wide range of situations, and produce effective organizations.

TVEs were very flexible in terms of organizational structure. While some were run by local governments, others were more genuinely independent in nature. Wong has shown that through the 1980s most of the supposedly collective TVEs operated as private enterprises in practice. [Wong, C.P.W. (1988). Interpreting Rural Industrial Growth in the Post-Mao Period. Modern China 14(1).] In this sense, the use of the term collective masked the privatization of rural enterprise at a time when it was ideologically subversive.

TVEs thrived from 1978 to 1996 and scholars have given a number of reasons for their success. [Kung & Lin. (2007). The Decline of Township-and-Village Enterprises in China’s Economic Transition. World Development 35(4).] The political institutional environment favored these “public” enterprises during the early years of reform, since private businesses faced severe restrictions and discrimination in terms of resources and regulations. Also, the fiscal decentralization of the early 1980s gave greater decision-making power to local governments and linked fiscal revenue to the career potential of local officials, creating strong incentives for them to promote these enterprises. [Oi, Jean. (1992). Fiscal Reform and the Economic Foundations of Local State Corporatism. World Politics 45.] The pent-up demand in China for a host of products provided ample profit-making opportunities for enterprises operating at this early juncture. Moreover, TVEs were helped by massive loans from the state banking system.

The TVE sector experienced dramatic changes in 1995-1996. The retrenchment of the economy caused many to go out of business, with some estimates suggesting that about 30 percent have gone bankrupt. [Saich, Tony. (2001). Governance and Politics of China. New York: Palgrave.] In addition, there has been a massive trend toward privatization. [Park, A. and Shen, Minggao. (2003). Joint Liability Lending and the Rise and fall of China’s Township and Village Enterprises. Journal of Development Economics 71(2).] After the mid-1990s, TVEs were forced to restructure substantially. With increased market integration and competition, TVEs lost their protected position; the changes in the economic environment gradually reduced the benefits of public ownership and increased its costs. As competition intensified and credit became harder to obtain, the collectively owned TVE sector shrank. Rural industries today are less tied to their local government and community and have taken on new forms and roles. One of the most striking developments has been the rise of “industrial clusters” of small firms both competing with one another and cooperating to form a relatively complete industrial chain. [Naughton, Barry. (2007). The Chinese Economy: Transitions and Growth. Cambridge: MIT Press.] Industrial clusters have also emerged in places such as Brazil and Italy.

References

ee also

* Provinces of China (for a discussion of townships and villages).

External links

* [http://news.xinhuanet.com/english/2005-12/06/content_3883231.htm First book on rural enterprises published] - Xinhuanet. 6 Dec. 2005.
* [http://www.eldis.org/static/DOC7017.htm State-Owned versus Township and Village Enterprises in China]
* [http://ideas.repec.org/a/taf/jdevst/v39y2003i4p27-46.html Township and Village Enterprises in China]