Township and village enterprises (TVEs) were businesses designated to operate in the countryside or in small and medium-size towns. These enterprises created a large number of jobs from the late 1970s to the 1990s, and are responsible for a huge proportion of China’s economic development. In recent years, their contribution has become more limited, and as more people move to urban areas the wealth gap between countryside and cities is increasing again.

The growth of township and village enterprises (TVEs) is linked to the first wave of China’s economic reforms from the late 1970s to the beginning of the 1980s. The implementation of the household responsibility system (HRS) and the decentralization program of the 1980s fueled the growth of TVEs and the industrialization of the countryside. The HRS revealed much underemployment in rural areas, possibly 100 to 150 million people, and part of this redundant labor force found jobs in TVEs.

The growth of TVEs can be divided into at least three phases. During the first phase (from 1978 to about the end of the 1980s) the scale of growth was unexpected, and academic and political debates emphasized the advantages of either the Wenzhou (city) model (i.e., the development of private enterprises) or the Jiangsu (Province) model (based on the importance of collective enterprises). During the second phase (from the end of the 1980s to the mid-1990s) growth accelerated further. Scholars then shifted to the debate over whether local governments or populations were more important in the course of local development. Finally, during the mid-1990s specialists began to question if the growth of rural enterprises was sustainable in the long term as the development of China became more urban driven.

Definition and Statistics

The amount of research generated by the growth of TVEs during the 1980s and 1990s has led to the proliferation of definitions of TVEs. Yet, the definition itself affects the interpretation one can have of this phenomenon (for example, whether or not individual enterprises are included). The most expedient solution is to refer to the official definition.

This definition has two major dimensions. The first is historical and geographical. Originally the term TVEs (in Chinese xiangzhen qiye ????, or literally “town and township enterprises”) applied only to enterprises that were under the ownership of the People’s Commune and the Brigade of Production. They were collective in nature and anchored in the countryside. The second dimension includes details of the mode of property. With the HRS individual activities were greatly stimulated and resulted in the creation of “individual businesses” (of fewer than eight workers) and, since 1988 (officially), private enterprises (of eight workers or more). When such enterprises are located at the county (xian) level or at any administrative unit under this level (towns and townships), they are also TVEs. Finally, TVEs also comprise enterprises created by several households, various forms of joint ventures, and so forth. In short, the official definition of a TVE incorporates any type of enterprise that is located at the county level or lower other than state-owned enterprises. This categorization had to be gradually adjusted since the end of the 1990s because of a multiplication of the types of property, but the theoretical differences between the collective and private sectors remain. This is an important point because most TVE scholars have ignored the private economy (especially individual enterprises).

Indeed, a large part of TVE growth can be attributed to the private sector, which in 1990 employed more workers than the collectives for the first time. All in all, this growth has been impressive: In 1978 only 28 million people were working for TVEs, all of which were in collective enterprises. By 1996 the number of TVE workers reached 135 million, but since then the growth has slowed, inching up to 142 million by 22.5 million enterprises by 2005. That year total net TVE profits were RMB¥1,069 billion (US$ 133.63 billion) and the taxes they paid were RMB¥518 billion (64.75 billion).

Wenzhou Model versus Jiangsu Model

The origins of the TVEs are twofold. The first dates back to the collective era at the time of the promotion of rural industries. Even though this experience was not successful (especially during the Great Leap Forward), it gave the local cadres the experience of managing industrial ventures (particularly after the development of the “five small industries” during the 1970s). With the 1980s decentralization policies that placed resources in their hands, these cadres were able to make use of their experience and develop collective enterprises—mostly for local taxation income. The second origin relates to the long existence of nonagricultural activities in the Chinese countryside, a phenomenon already noted by John Buck, the then- renowned specialist of China agriculture during the 1920s, but which were banned during the collectivization period. The HRS revived these activities, especially small commercial and industrial businesses that did not require a substantial amount of capital.

During the 1980s the coexistence of these two forms of rural enterprise raised concerns among the Chinese leadership and academia alike. They perceived the growth of TVEs as a tool for keeping people in the countryside or in small and medium cities instead of having them move to large metropolises (in accordance with the strategy elaborated by Fei Xiaotong ???, the sociologist at the roots of the rural reforms in China). However, questions arose over the respective roles of the private and collective sectors within the national economy—sometimes over the very existence of the private sector itself. The debate converged on the mode of development of the two regions, which were especially successful in terms of TVE growth. The first mode one was in the Wenzhou area of Zhejiang Province, where the private economy was especially large; the other was in the Wuxi area of Jiangsu Province, which is famous for its collective sector. This debate was, of course, not only academic but also political because it questioned the role of the private sector in a socialist economy. Deng Xiaoping ??? definitively settled this matter in 1992 with his highly publicized tour in the south, during which he gave explicit support to the private sector.

Government Intervention or Private Initiative

Therefore, beginning at the end of the 1980s the previous debate had to shift. The reasons for this shift were not only the definitive acceptance of the private sector and the conceptualization of the “socialist market economy” but also the appearance of multiple property forms in which private and collective sectors were tightly intertwined—making the distinction between them somewhat blurred. An increase in foreign investment (in particular in the coastal provinces) also contributed to the confusion. Therefore, after ten years of TVE growth, an assessment of the various roles of the private and collective sectors in this growth was necessary. Similarly, the reasons for the evolution of the mode of property and their complexity had to be analyzed.

Private enterprise (mainly in the form of individual enterprises) started in 1978 or even earlier, usually by people with little social and financial capital: A large proportion of these genuine entrepreneurs was demobilized soldiers, “educated youth,” former political prisoners, people with a “bad” class origin, the unemployed, and so forth. They offered services that were no longer provided in the countryside (such as small restaurants, tailors, etc.) or made simple goods that the pla
nned economy did not provide. For example, in the Wenzhou area households started producing buttons for clothes. By the end of the 1980s Wenzhou’s button market became famous in China and beyond.

During the mid-1980s the economic success of these entrepreneurs stimulated a host of imitators, among them local cadres or their relatives. This second wave of entrepreneurs was much better connected and could access resources such as raw materials, information, technology, bank loans, and so forth. At the same time, to find enough financial resources for the development of their counties, local authorities also continued to stimulate the collective sector in order to reap the profits of and the taxes paid by these enterprises: Despite national regulations the separation between the budgets of the collective enterprises and the local budget was rather thin. Little by little the two waves of entrepreneurs started to merge into a single category while maintaining strong relationships with the local bureaucracies. Therefore, these enterprises were regarded, at the local and national levels, as a tool to promote the development of the local economy, not only through the employment they created but also through the taxes and the resources they generated.

In addition, the decentralization process put local authorities in control of major resources, such as raw materials, technological and marketing information, networks, and so forth, located in their areas. It was therefore necessary for private entrepreneurs to cultivate good relationships with the local authorities, who could either help them or ruin them (by refusing to issue the necessary authorizations or confiscating their ventures for example). Scholars such as Jean C. Oi described the phenomenon as “local state corporatism,” in which local governments act as corporate firms (Oi, 1996). Other scholars, such as Daniel Kelliher, emphasized the role of private initiative.

Whatever the position adopted, the collusion between private entrepreneurs and local authorities was patent and generated negative externalities (corruption, for example). On the other hand, the system generated confusion between the different modes of property, which stimulated growth: The collective made use of the flexibility of the private sector, while the private sector got protection from the collective. For example, during the economic downturn of 1988–1990 many private enterprises registered as collectives while keeping their original management structure because the private sector did not have much political momentum at the time. Similarly, many collective enterprises lost money because of poor management and were contracted to the private sector in order to be more competitive. Still others were sold to management teams or to the workers (under the so-called cooperative system) while officially remaining under the collective banner. In this last case the decisions might have rested with the local cadres.

This system shaped a development pattern that was controlled by the local authorities and in which a strong bond existed between the private and collective sectors, so it was difficult to draw a border between the two property modes. Whether or not this arrangement is still suitable for the future development of China’s economy and TVEs remains to be seen.

TVEs as a Factor for Development

In 2001 out of 21 million TVEs, 18.5 million were individual enterprises employing more than 60.2 million people (46 percent)—an average of three people per enterprise. Another 2 million private TVEs employed an average of eighteen people per enterprise. This meant that nearly all TVEs (20.5 million), totaling 97 million workers (or nearly 75 percent or the TVEs’ labor force), were small businesses. A more recent breakdown is unavailable, but partial statistics confirm the previous trend.

These enterprises have been instrumental in creating employment, lowering the revenue gap between rural and urban areas, and offering a partial solution to unemployment. Nevertheless, despite their overwhelming statistical importance, these enterprises do not constitute a solution for China’s long-term development because most have not increased in size or provoked organizational or technological changes. Their contribution to investment, for example, remains extremely limited. This is why most TVE scholars mistakenly omit them in their analysis.

In fact, few TVEs have played a major role in transforming the countryside, apart from those in selected rural areas (the Pearl River delta in Guangdong Province, for example). These enterprises have built connections with local authorities, as described earlier. Nevertheless, their functioning mode has also cast a shadow on their potential for sustainable development because the opportunities to benefit from both the collective and private systems in the short term are offset by the confusion over the property system. To give one example, enterprises that have been contracted to private hands have to return to collective management at the end of the contract (typically five years). However, in practice contractors and local governments have held endless debates over this setup, especially when the contractors have invested a significant amount of money (which is usually the case) in the venture. Signs indicate that the mode of development based on local government control of their resources has provoked waste and duplicated infrastructure, while corruption feeds growing discontent in the countryside. This is why Beijing now aims, with difficulty, to recentralize.

China’s development based on TVEs has lost momentum since the end of the 1990s. The wealth gap between rural and urban areas has increased again, showing that the full potential of TVEs to provide jobs and be a tool for development has been reached. In recent years urban areas have generated most of China’s economic growth, which has provoked a shift in the interest of researchers. The development of TVEs, however, remains an important experience and demonstrates to the developing world the potential of the countryside.

Further Reading

Ahmad, E., et al. (2002). Recentralization in China? (IMF Working Paper WP/02/168), New York, International Monetary Fund.

Augustin-Jean, L. (1997, June 1). Rural enterprises and the law. China News Analysis 1586, 1–10.

Augustin-Jean, L. (2006). The local economy in the context of globalization: Local organization versus WTO principles: An overview from Zhangpu and Yong’an Districts, Fujian Province. In K. Y. Chen, A. Androuais, & L. Augustin-Jean (Eds.), Asian economies in the age of globalization (pp. 165–179). Hong Kong: Centre for Asian Pacific Studies.

Buck, J. L. (1937). Land utilization in China. Nanjing, China: University of Nanking.

Byrd, W. A., & Lin, Q. S. (Ed.). (1990). China’s rural industry: Structure, development and reform. Washington, DC: World Bank.

Fei, X. T. (1989). Rural development in China: Prospect and retrospect. Chicago: University of Chicago Press.

Kelliher, D. (1992). Peasant power in China: The era of reform (1979–1989). New Haven, CT: Yale University Press.

Nolan, P., & Dong, F. R. (Eds.). (1990). Market forces in China, competition and small business: The Wenzhou debate. London: Zed Books.

Odgaard, O. (1992). Entrepreneurs and elite formation in ru
ral China. The Australian Journal of Chinese Affairs 28, 89–108.

Oi, J. C. (1989). State and peasant in contemporary China: The political economy of village government. Berkeley and Los Angeles: University of California Press.

Oi, J. C. (1992). Fiscal reform and the economic foundations of local state corporatism in China. World Politics 45, 99–126.

Oi, J. C. (1999). Rural china takeoff: Institutional foundations of economic reforms. Berkeley and Los Angeles: University of California Press.

Walder, A. (Ed.). (1996). China’s transitional economy. Oxford, U.K.: Oxford University Press.

Whiting, S. H. (2001). Power and wealth in rural China: The political economy of institutional change. New York: Cambridge University Press.

Wong, P. W. C. (1988). Interpreting rural industrial growth in the post-Mao period. Modern China, 14(1), 3–30.

Young, S. (1995). Private business and economic reform in China. New York: M. E. Sharpe.

Source: Augustin-Jean, Louis. (2009). Township and Village Enterprises. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 2301–2304. Great Barrington, MA: Berkshire Publishing.

Township and Village Enterprises (Xi?ngzhèn q?yè ????)|Xi?ngzhèn q?yè ???? (Township and Village Enterprises)

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