It is a generally accepted fact that the 1978 reforms of Deng Xiaoping centered on intrinsic motivations have contributed greatly to the economic expansion of China and have secured the country’s legitimacy as an economic powerhouse. This shift has allowed for consumption be classified as the main driver of economic growth. But what seems to be lost in translation of this significant progress are the micro reforms and entities that contributed to the initial growth of China in the 1980s. One major reform mechanism utilized early on were the Township and Village Enterprises (TVES, 乡镇企业), which were market-oriented public enterprises under the purview of local governments based in townships and villages in the People’s Republic of China. It is important to remember that TVE refers to companies located in townships and villages, not owned by township and villages. This allows us to work under the framework of consumption and intrinsic motivations driving early growth (privatization), and contributes to why the TVEs were successful in China during the 1980s.
TVE have been hailed as one of the wonders of the reforms by Chinese and foreigners alike. There initial success came at a pivotal opportunity where farmers’ incomes by the mid 1980’s began to stagnate, and the best solution to increase income was to stimulate non-grain and non-agricultural production. In 1978 TVEs employed amount 28 million people, but between 1984 and 1997 they created nearly 100 million non-farm jobs. Local governments tended to and fostered the developments of these TVE’s for they saw these entities as regular sources of revenues in resource-constrained environments. The TVE reforms also allowed for the rural area’s labor forces to more efficiently engage in industrial outputs rather than agricultural outputs. Even Deng noted the unexpected results, “what took us by complete surprise was the development of TVEs.. All sorts of small enterprises boomed in the countryside, as if a strong army appeared suddenly from nowhere” (Renmin ribao, 13 June 1987). The results seem quite clear for it fuels individual incentives; the decision to relax the state purchasing monopoly on agricultural goods (a hallmark of Mao’s failed policies) to make them available to local rural industry allowed for the efficient usage of excess rural labor, processed agricultural products, and diversified production of a range of consumer goods and products for export. Statistically, the results are justified as the growth rate was exponential in its explosives, with rural industrial output growing at 21 per cent per annum from 1978 through the early 1990s.
The presence of a ready labor force that was relatively cheap compared to urban areas was crucial to the expansion of the TVEs. A tight budget constraint meant that there was greater incentive to produce things for the market that would produce a good rate of return on investment. The strengths of the TVEs also included their flexibility in production but also their organizational structure (some were ran by the government, but most were not). As Wong (1988, pp. 3-30) shows, through the 1980s most of the supposedly collective TVEs in practice operated as private enterprises (instead of as collective organizations). If one looks at ownership, of the 12 million TVEs in 1985, 10 million were private. Though TVEs maintained a presence in areas such as Southern Jiangsu and along the Pearl River Delta (Shanghai), TVEs were most vibrant in the poorest and most agricultural provinces of China. The role of the TVEs during the 1980s allows us to generalize that private enterprise has played a crucial role in China’s economic development. Why they are no longer as relevant in today’s Chinese society is another topic of its own.
Saich, Tony. “Governance and Politics of China”. 4th edition. Macmillan Education, Palgrave. UK. 2015.