Economists were not nonplussed when China opened its markets in the 1980s and its economy took off in double-digit annual growth rates. Free market capitalism at work, economists said. As reforms quickened in the early 1990s, annual GDP growth rose in double digits. Still, China watchers and scholars held that this was a historical trend. The USSR had collapsed, after all, and Eastern Europe was now posting strong growth under a free market economy.
China is not Eastern Europe, however. In fact, China is not even a free market economy, no matter how many special characteristics the country's leaders make up. Although the central government enacted economic reforms beginning in the late 1970s that were a step away from the centrally controlled economy imposed upon the entire country, the market was far from free. In fact it was coming under the control of local institutions that could vary widely in shape, size and power, from one end of the great country to the other. Because of the sometimes rigid control of these local institutions, which allowed them to be flexible to central policy in their own right, the local, and thus national, economy changed and grew. In particular, China's rural economy developed under a variety of local institutions.
The figures are enough to raise eyebrows. Gross value of industrial output of rural nonagricultural enterprises (township and village enterprises - TVEs) jumped from 9.8 percent of the country's total in 1980 to 47 percent in 2000. In the mid-1990s TVEs already employed 34 percent of the country, up from 9.4 percent in 1980, and accounted for nearly half of the country's exports (ZXQN 1997:3-9). This means that nearly half of China's economy was built on the industrialized countryside; an unprecedented phenomena in the history of modern economics.
How did China's countryside transform in such a monumental way? Central to the analysis and understanding of China's rural reforms lies the question of the types of institutions that have undergone changes and the ways in which they have changed. Village party secretaries, for example, who were once loyal communist party ideologues, have become profit driven capitalist bosses, who have affected, and will continue to affect