Township, village, and private industry in China's economic reform

Next to the decollectivization of agriculture, the most striking economic transformation in China since 1978 has been the rapid growth of rural nonstate industry. Firms in this sector (referred to as TVPs) are owned by a hierarchy of local government units below the county level: towns, villages, and production teams. TVPs owned by township or village governments (that is, not privately owned) are termed TVCEs. Important both to industry and the rural economy, TVPs have been at the forefront of economic reform. They are market-oriented in terms of output and input and, because of their tiny home markets, outward-oriented. There appears to be a close relationship between individual incomesand firm/community economic performance. Most individuals expect to stay in their firms for relatively long periods. Community incentives for promoting TVPs are strong, but their community orientation leads to certain problems. Even if resources are used efficiently within rural communities, the immobility of factors of production can lead to increasingly serious misallocations and inequalities between communities. A gradual opening of capital and labor markets is a priority task in the next stage of reform. National government policy should be to minimize discrimination by government, legal, and regulatory apparatus against TVPs and, within the TVP sector, against private enterprise. The long-term goal should be elimination of differential treatment.