Chinese Peasant Entrepreneurs: An Examination of Township and Village Enterprises in Rural China
Fan, Y., Chen, N., Kirby, D. A., Journal of Small Business Management
Throughout the Western world, there has been a trend in recent years toward the development of rural enterprises (Townroe 1991; Curran and Storey 1993). In China, since the late 1970s the development of rural entrepreneurship has been closely associated with the emergence and development of rural township and village enterprises (TVEs). While considerable attention has been paid in recent years to aspects of entrepreneurship and small business development in China (Bruun 1990; Chau 1995; Siu 1995), hardly any attention has been paid to the nature and contribution of TVEs and the nature of rural entrepreneurs. Accordingly, this article examines the characteristics of Chinese peasant entrepreneurship as well as the environment in which it has been shaped. It starts with a brief review of the history and growth of TVEs before providing a definition of peasant entrepreneurs and a discussion of their characteristics.
Town and Village Enterprises
One of the most significant achievements in China's economic reform is the emergence and development of TVEs. "Appearing out of nowhere," as Deng Xiaoping was reported to have said in 1987 (Li 1993), TVEs have become an important force in China's national economy. By the end of 1993, TVEs are reported to have contributed two-thirds of the total value of rural social products, and one-third of the total value of national industrial production. TVEs accounted for nearly one-third of the employment in the agricultural sector and one-fifth of the total labor force nationwide. From 1979 to 1991, while China's total societal production grew at an average rate of 10.4 per cent, the total output from TVEs achieved a yearly average increase of 27.5 per cent, more than twice the rate of the total (Li 1993). Table 1 summarizes the development of TVEs between 1978 and 1993.
The term "township and village enterprises" first appeared in 1984 in a government document which announced the breakup of the people's communes and a name change from the former "commune and brigade enterprises" to TVEs. In so doing, the government was formally recognizing the individual and joint capital rural enterprises that succeeded the traditional commune and brigade industries. This recognition was hard-won. For a long period before they were recognized, TVEs were regarded as "illegal" and "non-standardized." Under the centrally-planned economy, only those enterprises within the state system were regarded as "legal," and previous efforts to put TVEs under such control had failed. It should be noted that it is not that TVEs chose to stay outside the state planning system, but that the State would not take them in. This "illegal" status later turned out to be the greatest advantage of TVEs, as it distinguished them from state-owned enterprises (SOEs). The market orientation that has guided TVEs from the outset has resulted in their unique characteristics. For example, TVEs enjoy a clear relationship between ownership and property rights, obtain all production factors (capital, raw materials, technology, personnel, and so on) from the market, use independent distribution and supply channels, [TABULAR DATA FOR TABLE 1 OMITTED] are solely responsible for profits and losses, enjoy complete business autonomy with little government interference, and operate under flexible management.
In short, whereas the state-owned enterprises constitute planning units under the corresponding state bureaus, TVEs are independent business entities accustomed to the rule of the market. It is in this freer business environment that a new generation of peasant entrepreneurs has grown up.
Peasant Entrepreneurs Defined
The great achievement of TVEs in the past 17 years has been mainly attributed to Chinese peasant entrepreneurs. But who are they? Before a definition is given of the peasant entrepreneur, it is necessary to consider who or what a peasant is. According to the Shorter Oxford English Dictionary a "peasant" is "one who lives in the country and works on the land; a countryman, a rustic . . . often connoting the lowest rank . . . serf, villain; a low fellow." In China, "peasants" are those people who live in the rural areas and work on the land which is assigned to them but officially owned by the State. Until very recently, China had practiced a strict domicile registration system controlling the movement of population. Peasants are not generally allowed to take up residence in cities, and it is not easy to shed the peasant. A peasant and his siblings were born as peasants and remain so unless they can gain admission to a polytechnic or university, join the army and hold the rank of platoon leader (or above) or are employed by a state-owned enterprise.
Ironically, the Communist revolution originated in the rural areas and relied on peasant support for its final success in the founding of the People's Republic. The Party has stressed on countless occasions that its intention is to raise the political, social, and economic status of peasants. Notwithstanding, the status of peasants has not changed much during the past forty years or so. Peasants are still regarded as a lower social class. Unlike city dwellers, who are cared for by the State, peasants in rural regions basically have to look after themselves. There is virtually no state-run social welfare system in existence - no health care, no pension, no guaranteed employment, and no social benefits.
Thus peasant entrepreneurs can be defined as those who have their roots in rural areas (working on the land) but are now managers in a TVE engaged in nonagricultural business operations. Typically, they have one of five types of background: (1) leaders of former commune and production brigades (equivalent to today's town and village) who have close contacts with the outside environment, local government agencies, banks, and SOEs; (2) "ableman" or craftsmen, that is, people who offer specialized skills and who form the core team for the development of a TVE; (3) a "specialized household" business which may have started as a non-agricultural side business and later evolved into a small family enterprise; (4) ex-servicemen who gained valuable training and/or built up key connections in the army; and (5) "home-returning" educated youths with middle school educations who have little difficulty accepting knowledge and learning new things.
To become a successful peasant entrepreneur, it would seem that it is necessary to have a combination of the following: (1) an above average level of education; (2) the ability to organize and lead; (3) close clan or family ties in the village, and (4) access to information, capital, supplies, and a market.
Characteristics of Peasant Entrepreneurs
In 1992 and 1994, the Ministry of Agriculture organized two nationwide competitions for the identification of top peasant entrepreneurs. To be so identified, candidates had to: be a managing director or board chairman of a TVE; have held his post for at least three years; be the manager of the best enterprise within its sector; be of good moral character; have the respect of the masses (that is, fellow employees in the enterprise and fellow citizens in the village); and be recognized for excellent management performance. In 1994 the honors list included 1,000 "Chinese Peasant Entrepreneurs." Among them 100 were ranked as "Excellent Peasant Entrepreneurs," and the top ten were honored with the title of "Meritorious Entrepreneurs of Chinese TVEs."
It is difficult, if not impossible, to make generalizations about the characteristics of Chinese peasant entrepreneurs. There is no published study of the subject; it is notoriously difficult to conduct empirical research in China (Shenkar 1994); and even if data were available, their interpretation in a Western framework is still a huge challenge. Nevertheless, some common characteristics of peasant entrepreneurs can be summarized from the reports describing the ten Meritorious Entrepreneurs. The entrepreneur is the founder of the enterprise, is a member of the Chinese Communist Party, has strong belief in "the cause," possesses total commitment to the business, is hard working, is determined and a self-achiever, has a strong sense of responsibility, is able to identify and grasp opportunities, is flexible, has the ability to learn and improve him/her self, and is a leader. These entrepreneurial attributes produce a sharp contrast to the stereotype of Chinese peasants, which characterizes them as being, on the one hand, benighted, impoverished, lowly, short-sighted, and conservative; and simple, honest, persevering, thrifty, and industrious on the other. While the characteristics in the second group may represent desirable entrepreneurial qualities, those in the first group do not. Compared with city dwellers, Chinese peasants are perhaps more influenced by the traditional culture and less by Western values. However, traditional Chinese culture belittles the importance of commerce in society and does not seem to nurture entrepreneurship as Kirby and Fan (1995) have demonstrated, while the link between Chinese cultural values (mainly Confucianism) and entrepreneurial attributes has been found to be highly tenuous.
If traditional culture does not contribute to peasant entrepreneurship, other environmental factors must be responsible. Table 2 provides an interesting comparison between peasant entrepreneurs and managers in SOEs. Peasant entrepreneurs compare favorably in almost all aspects except education - they are market-oriented, motivated by achieving business success, enjoy high autonomy, and take high initiative. The fundamental difference lies in the fact that peasant entrepreneurs are the masters of their TVEs, while managers in SOEs, so-called state cadres, are still fettered by the State bureaus. Entrepreneurship has been able to play a full role in TVEs, but has been largely smothered in SOEs under the command economy.
Problems and Challenges
Despite their great achievements during the past fifteen years, TVEs are still facing a number of problems, particularly in the ever-changing Chinese environment. Some problems are universal to rural enterprises in many developing countries, including, for example, the remoteness, the lack of infrastructure, the low level of education, and the lack of qualified technical and managerial personnel. Other problems are unique to the Chinese context. Political instability and volatile government policies towards TVEs have always been major concerns. As a market-oriented economic system gradually takes shape, TVEs will confront competition, mainly from the freed or freer SOEs. Major differences exist between TVEs and SOEs in terms of their size, technology, capital, and personnel. [TABULAR DATA FOR TABLE 2 OMITTED] The dominant position of SOEs in the marketplace will not change in the short term. Competition will also come from rapidly growing private and foreign-funded enterprises (Kaiser, Kirby, and Fan, forthcoming). At the same time, certain competitive advantages and preferential policies enjoyed by TVEs in the early years (for example tax and credit) have either disappeared or been abolished. Already every year sees several tens of thousands of TVEs going out of business, while ten times more new ventures appear in the market (Li 1993).
Perhaps the biggest challenge faced by peasant entrepreneurs is self-improvement, as one of the ten Meritorious Entrepreneurs has recognized (Lu 1994). Peasant entrepreneurs should not be content with their achievements and need to rid themselves of the "petty peasant values" referred to previously. As most peasant entrepreneurs have only a limited formal education, the competitive marketplace renders their existing knowledge and skills increasingly inadequate. There is an urgent need for them to learn about modern production and management techniques if they are to continue to compete effectively.
The development of TVEs has resulted in a new generation of Chinese peasant entrepreneurs. They possess some outstanding characteristics which distinguish them from both traditional peasants and managers of state-owned enterprises. It is under the leadership of these peasant entrepreneurs that TVEs have made significant contributions to the Chinese economy. Two developments may eventually change the nature of peasant entrepreneurs. First, with increasing economic and social reforms, China has begun to change the domicile registration system. Peasant entrepreneurs are now allowed to enter cities, to invest, and to set up businesses. Eventually they may give up their roots in ths rural areas completely. Second, in many regions where successful TVEs and industrial development have transformed former rural villages into new towns or "urban areas," the demarcation between countryside and city has become blurred. Thus, managers in these TVEs may be termed only entrepreneurs not "peasant" entrepreneurs.
TVEs are an important sector of the modern Chinese economy and an important seedbed for the new breed of entrepreneurs emerging in the People's Republic. As such, they are worthy of considerably more attention than has been paid to them to date by either Western or Chinese scholars. While it is still not easy to conduct research in China, particularly for Western researchers, the results of this study suggest that not only are Chinese peasant entrepreneurs worthy of further and more detailed investigation.
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Y. Fan Durham University Business School Durham, England
N. Chen Institute of Industrial Economics Chinese Academy of Social Sciences Peking, China
D. A. Kirby Durham University Business School Durham, England…