On the past and future of China's township and village-owned enterprises

This paper proposes an explanation of the historical success of industrial enterprises owned by township and village governments in China. I argue that conditions peculiar to China's prereform economy fostered the growth of a skilled workforce and high savings, created unusual market niches, and encouraged entrepreneurial undertakings by local political elites, especially in areas adjacent to certain cities. I then discuss the allocative and technical efficiency of local public enterprises in China from a theoretical standpoint, and review some relevant econometric findings. Finally, I consider proposals for reform of town and village enterprise (TVE) ownership, and discuss the possible advantages of cooperative forms. (C) 1997 Elsevier Science Ltd.