[MUSIC] One of the more amazing components of China's rural reform and political economy has really been the development of township and village industries which boomed in China really between 1984 and 1994. Now the TVEs benefited from decollectivization as more and more peasants were not needed once the farming began to be divided up and people weren't farming together. The surplus labor became more obvious and people were able. Many peasants were able to go off farm and get jobs in factories. And so millions, in fact, millions of people left agriculture for higher value added work. And the majority of them went to work in rural enterprises. Some of them would be factories, but some of them could also be different kinds of restaurants, all kinds of different kinds of rural industries, shipping companies, things like that. And this really became as I said a remarkable component to China's political economy. So that by 1990 rural enterprises actually employed a 140 million laborers. And that's really quite remarkable. And that the TVEs, these village enterprises, really became the driving force, of export lead growth, which has been a key component of China's economic reforms and economic development through into still till today. Now, part of the unique thing about the TVEs, was that they were not part of the state plan and that much of the money for them actually came form local governments or from local credit cooperatives. Where peasants who had made lots of extra money then put their money into these local credit co-ops and then local government officials borrowed that money from the villagers and then started enterprises and then started to employ many of the villagers. Now, the relationship between TVEs and the state-owned enterprises was quite complex. On the one hand the SOEs, the state-owned enterprises, were very supportive of the TVEs but on the other hand there was a serious level of competition between them. So in terms of the positive things, the TVEs often worked with contracts. Sub-contracted from the state-owned enterprises, the urban SOEs. The urban SOEs as the economy started to expand in the late 70s early 80s, they were looking for opportunities to expand their own enterprises, to expand their own production, maybe even more after 1984. But they didn't have the physical space to do it. I mean, if you were a big factory in Shanghai you might not have had any space, couldn't get land next door to your factory. So it actually became much easier to go out to the countryside and contract this out to the suburbs. And so as I'll show you in a second, a lot of this growth was actually suburban rather than necessarily really the distant, distant countryside. And in southern Jiangsu province, and in northern Zhejiang provinces, which are on both sides, or sort of near south of the Yangtze River, again, I'll show you this map, that engineers from state-owned enterprises would go for the weekend. They would be hired by villagers or by local rural officials to come out to these factories and help upgrade the production. And in 1984, when the urban reform began, the government tried to push the state owned enterprises to go into the global market, because China had a comparative advantage in labor. But these urban factories were stable enterprises were just unwilling to respond to foreign expectations what the foreigners really wanted from them. But the TVEs were hungry. The rural factories, the rural managers, these guys were hungry. They wanted to improve the quality of people's lives. They wanted to strengthen their own local political economy so they tried very hard to fill that. Export gap and so the TVEs competed very effectively. And here's the negative side for the state on enterprises, the TVEs competed very effectively with the state on enterprises. And largely because they had many, many fewer welfare costs. Where urban factories had to give housing, villagers lived in their own housing, where urban factories had to give medical benefits, wasn't such a big problem. The rural people got some benefits but not the same. Meals, schooling, retirement benefits, all those things that I talked about about the industrial sector on the eve of urban reform. The eve of the reforms, these were still burdens, all right? The state owned enterprises were saddled, they were really heavily burdened with these kinds of commitments, welfare commitments. While the TVEs, didn't have to worry about these things. And so their products were just much more cheaper. Now, I do want to show you that the suburban nature of the collective industry of the TVEs. It wasn't so much a distant suburb, right? So here is a map borrowed from an article by Dwight Perkins where these are the large circles are the major centers of TVEs over 2 billion RMB in terms of output. The smaller circles would be 1 billion to 2 billion RMB and the black dots are actually 500 million to 1 billion. RMB, but you can see if you know the map of China, you can go along these maps and sort of there's Beijing, there's Tianjin, there's Shenyang, there's Changchun, there's Harbin. So these are all the cities. Here's Wuhan here's Chongqing, here's Chengdu. So, all of these major cities you can see that in fact these were suburban even though they are rural industries they really were a suburban phenomena largely because the state owned enterprises were sending that production out to the countryside. But as I mentioned also the TVEs then began to move into the export economy and the 1980s it's really the TVEs more than the urban factories that had a comparative advantage in cheap labor relative to Taiwan, relative to Hong Kong, and the developing regions of East Asia. The state also gave very strong incentives in 1987 under it's coastal development strategy, gave very strong incentives to TVEs to sell over seas. And one of the key Incentives that they gave them was the right to keep more of the foreign currency that they earned through exports. That would mean that they could then go out and buy some new technology, buy some new production lines, or the local officials might be able to go and take a trip overseas, or buy some foreign car. So some of these were not such great incentives, in terms of being good for production. They were more good incentives for the local leaders, but nonetheless they were also good incentives for the manufacturing sector in the countryside. And by 1994 an amazing number is that 50% of the products, right? Here we see 50% of the products purchased by state-run foreign trade companies, those foreign trade companies that I mentioned were manufactured for TVEs. So, the exports that they were doing, these came from TVEs and rural joint ventures boomed. And here again, if we go back to this map, we can see here the Pearl River Delta, right? Here's Guangzhou and major manufacturing down here. The map doesn't show it so much, but here, the Min River Delta, across from Taiwan, the Taiwanese factories, Taiwanese owners moved into this area as well. But the big boom area was really the Yangtze River delta, and this is where an enormous amount of exports then were coming out of these areas in particular. Sending the goods out to Hong Kong, out to Taiwan, where there were Businessmen who then could sell the goods overseas, who had the connections in western markets. And by the mid-1990s, TVEs were the fastest growing sector of the economy, expanding by 30% a year. And more than two thirds of the exports were being manufactured. Two thirds of the growth sorry, in the export sector were actually coming from the TVEs so the TVEs were really driving this forward. Now, all good things maybe must come to an end. And they heyday of the TVEs began to decline in the 1990s, early 1990s. And the TVEs started to carry heavy welfare burdens. They started to have community responsibilities. They were employing more people than they really needed to because the local officials really wanted to make sure that the children of villagers were able to go and work in factories, rather than have to go and work in the fields. And so the efficiency of the TVEs started to decline. And what we found is that around 1994 and 1995 in Jiangsu Province, again, that sector we're here, right, this is all Jiangsu Province, in this area what we find is that the enterprises start to become Privatized. And the village and township leaders start to run, start to privatize the factories, the enterprise managers start to take over, and we start to see a shift from collectively owned enterprises in the countryside to privately owned enterprises. Now many of these collectives, I remember going to southern Jiangsu, doing interviews in 1992. And I went to a factory that had the name, that it was a collective factory. And that it belonged to the collective. But the truth was that it was owned by a private individual who paid a fee to the local government for the right to use the collective's name. I went to visit his home, he had a piano, his child was taking piano lessons so that this was quite a remarkable guide to a lot of business with Beijing. But, I don't think he was the only case. So we believe that in many cases, some of these rural factories were actually names, they were public only, or collective in name, but actually, privately owned. So it was actually very easy to get this kind of transition over to private from collective enterprises. And so here in terms of the number of workers being employed. Here the number of enterprises is the blue. And the number of the employees is the purple. And here you can see beginning in 1993 here would be the peak. The first boom actually was 1984, here the first boom. This is when the impact of the collectivization, more people free to go and work in factories. So here's a big jump right in there, 83, 84. Government policy was also very supportive then and peaks again in 92. And then, from 93, 94, 95 going down, and then later on is just about wiped out.
