Academic journal article Journal of Third World Studies

"One Country, Two Systems:" China's Economic Policies towards State & Township/village-Owned Enterprises, 1978-1992

Academic journal article Journal of Third World Studies

"One Country, Two Systems:" China's Economic Policies towards State & Township/village-Owned Enterprises, 1978-1992

Article excerpt


Reconstructing industrial enterprise was the central dimension of the Chinese economic reform from the late 1970s to early 1990s. The pace and result of reform varied across enterprises, depending upon the type of ownership. Township/village-owned enterprises (TVEs) grew very rapidly while state-owned enterprises (SOEs) experienced ongoing failures during the same period. The differences between how these two types of enterprise fared in China beg for some close investigation and scrutiny. I argue that governmental industrial policies are the institutional setting that determines the success of enterprise reform because it defines the legal parameters of the environment in which enterprises survive and develop. Thus, studying such policies provides not only the background for an understanding of the rationale, processes, consequences, and problems of the reform, but also a base from which to predict the future development of enterprise reform.

Several studies of Chinese economic policy in general and industrial policy in particular are available. (1) The present study builds on that body of work; however, there are several limitations of those studies. First, the existing literature focuses more on analyzing the policy-making process than on the policies themselves. Second, many authors discuss Chinese economic policies in general, including both agricultural and industrial policies, but do not provide sufficient explanation applicable to particular types of enterprises. In addition, policy variations relative to different types of enterprises, such as state-owned and township/village-owned enterprises, are often neglected. Furthermore, those analyses are basically descriptive rather than analytical in nature. The absence of a comprehensive and comparative analysis makes the current study of the content and effects of industrial policies both necessary and worthwhile. This article is intended to document and review the major reform policies toward SOEs and TVEs while analyzing their ramifications. In addition, the characteristics of SOEs and TVEs are compared and contrasted to illustrate the various institutional environments in which different enterprises operated.


The economic reform of SOEs from 1978 to 1992 went through several phases, according to my analysis of governmental policies. First, the government tried to stimulate enterprises by changing the distributional relationship between the state and the enterprises through financial incentives. More power was given to enterprises to decide on bonuses and the retention of profits. The second course of action was to expand SOEs' autonomy by expanding their decision-making power. The third dimension of the policy was to push the enterprises into organizational restructure by adopting some form of contract responsibility systems. (2)

Changing Distributional Relation between State and SOEs (1978-1984)

During this period, a number of important documents were issued, including Decision Concerning Problems of the Acceleration of Industrial Development; The Circular Concerning the Implementation of the Bonus and Piece-rate Wage System; The Regulation of Profit Retention in State-owned Enterprises; The Provisional Regulation of a Fixed-Asset Tax in State-owned Enterprises; The Regulation of an Increase in the Depreciation Rate and Improvement in the Use of Depreciation Fees in State-owned Enterprises; and The Provisional Regulation concerning the Use of Bank Loans for the Total Amount of Working Capital in State-owned Enterprises. Although the policies called for a broad reform, including offering more material incentives, rebuilding the management system, and emphasizing expertise and technology, the primary focus was on giving enterprises more material incentives by having them retain more profits, implement bonus and piece-wage systems, and acquiring more depreciation fees. Subsequently, various pilot experiments guided by those policies were carried out. …

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