Town and village enterprises (TVEs) have rapidly emerged as a growing industrial force in China. TVEs -- a classification which includes rural, non-agricultural, non-State enterprises collectively or privately owned -- now account for almost a third of the country's industrial output, and nearly half of total industrial employment. Though the majority of the roughly 19 million TVEs currently in existence are small, family-run service businesses, the increasing numbers of export-oriented and joint-venture TVEs are having a strong impact on China's production and export levels.
For some foreign investors, the growing strength of China's TVEs raises interesting opportunities. In 1991, TVEs accounted for around $18 billion, or 25 percent, of China's total export earnings, a sharp increase over the $2.4 billion in exports registered by this sector in 1984-85 (see table). (Table omitted) Products ranging from textiles to complex electronics are now being produced by these ventures.
UNLEASHING RURAL ENTERPRISE
The TVE phenomenon is a fairly recent development in China. Until the 1980s, rural factories were viewed by Beijing as a cornerstone of the "self-reliant" development of the Chinese hinterland, and as a conduit for urban technology to filter down to the countryside. In the late 1970s, after Mao's death, local governments in many regions were encouraged by Beijing to invest in new, non-State industries as a means of soaking up excess rural labor. Increased loans and tax breaks for these nascent industries helped spur rapid growth in the number of enterprises and the types of goods produced. Between 1983-88 the number of TVEs tripled, as did the number of workers employed in them. TVE expansion was especially strong in the coastal regions, particularly in Jiangsu and Zhejiang provinces, and in the suburbs of major cities.
By the mid-1980s, TVE expansion was further aided by growing support at the highest government levels, especially from then-Parry Secretary Zhao Ziyang. In a 1987 speech outlining coastal development goals, Zhao called on TVEs to play a greater role in China's export drive, claiming that these enterprises had far more flexibility than State enterprises to respond to the demands of the global marketplace. Despite Zhao's ouster and temporary setbacks to economic reforms during the 1988-91 austerity campaign -- when 1 million TVEs reportedly were closed -- the renewed export drive of the past two years has meant a new burst in activity. Strong lobbying efforts from the coastal areas and fears of massive rural unemployment also have prompted Beijing to become more tolerant of non-State enterprises. These trends, coupled with Deng Xiaoping's call for greater market activity and decentralization of foreign trade in early 1992, have sent many investors -- both Chinese and foreign --looking for rural-based partners.
TVEs: A PROFILE
Little comprehensive national-level data exists either on TVEs or on foreign investment in these enterprises. Chinese press reports note only that by the end of 1991, rural enterprises had attracted $5.85 billion in overseas funds. In addition, 60,000 TVEs engaged in export activities that year, while 7,000 were involved in joint-venture projects. In Jiangsu, over 1,000 of the province's 2,500 joint ventures were with TVEs as of April 1992; an estimated 65 percent of the joint ventures established in 1991 had TVE partners. In some cities in Jiangsu, the percentage of foreign-TVE joint ventures was even higher; nearly 80 percent of the new joint ventures formed in Nantong in 1991, for example, involved TVEs.
Problems collecting data on TVEs are compounded by the fact that foreign investment trends in these enterprises vary widely from region to region. Interviews I recently conducted in Jiangsu Province, however, suggest that Hong Kong and Taiwan businesspeople supply the lion's share of foreign direct investment in TVEs. Of the 20 …