Productivity of China's Rural Industry in the 1980's

Rural industry in China in the 1980s grew at the high annual rate of 28 percent, contributing 34 percent to national industrial output growth. By the end of 1990, the output value of the rural industry and the employment in this sector accounted for 30 and 57 percent of China's total industrial sector, respectively, and its export volume maintained a share of 23.7 percent of the national total. As the "leading sector" in market-oriented reforms, rural industry has played a key role in China's economic growth. But how did the productivity performance of this sector change when it expanded rapidly? This paper reports a preliminary investigation of the productivity growth of the rural industry. New estimates of input indexes and factor income shares for rural industrial enterprises are presented. Rural industry productivity performance is estimated and compared with that of state and collective industrial sectors. The results show the convergence of the partial productivities of labour, capital and intermediate inputs among sectors in post-reform China, indicating a tendency toward equalisation of returns to factors and market integration of rural and urban industrial sectors. Also total factor productivity in the rural industry has grown much faster than comparable measures for state and urban collective industry. An accelerating trend of productivity growth in the rural industry is also found.