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Township and village enterprises in China: Reform success or evolution of a traditional institution?

TERRA ECONOMICUS, , Vol. 18 (no. 4),

The paper explores the historical continuity of economic and social institutions. We use the example of township-village enterprises (TVE) in China to illustrate this continuity. In the 1980s township-village enterprises became the leaders of economic growth in rural China. We argue that TVEs were an evolution form of “baojia”, the traditional Chinese institution of frankpledge and rural defense. The article outlines a brief historical implementation of the baojia both by the Chinese authorities and Japanese administrators of the Chinese territory. Literature presents a popular theory claiming the TVEs were designed “from above”. We reject this theory. We claim that the TVEs were not created by the Chinese authorities at the beginning of “reform and opening up”. On the contrary, the basis for the TVE formation were informal agreements among Chinese peasants. When enterprises first appeared, authorities prohibited them, accusing of threatening the public sector. Due to political uncertainty in the initial period of reforms and the impossibility of effective official management, the peasants reproduced the economic practices familiar to the Chinese institutional environment. They relied on mutual trust customary for the traditional Chinese tax system. We conclude that it was a powerful institutional tradition which became the basis for the rapid development of the TVEs, strongly affected the Chinese economic growth in the early 80th. We also conclude that the baojia institution works effectively only among the Chinese population. The paper analyzes the interviews we conducted with the employees of three TVEs in Guangxi Zhuang Autonomous Region.
Citation: Kruglova, M. S. (2020). Township and village enterprises in China: Reform success or evolution of a traditional institution? Terra Economicus, 18(4), 111–125. DOI: 10.18522/2073-66062020-18-4-111-125 (In Russian)

Keywords: township-village enterprises; economic growth; institutional changes; baojia; reforms; China

JEL codes: D02, D19, O43, P32

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Publisher: Southern Federal University
Founder: Southern Federal University
ISSN: 2073-6606