National Sections of the L5I:

Restoring capitalism: Let a thousand enterprises bloom

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How is capitalism growing in China?

The Township and Village Enterprise sector (TVE), as it has come to be called, was a direct product of the agricultural reforms of the late 1970s and 1980s.

When the communes were formally dissolved, in 1994, the workshops and small scale industries which they had developed passed into the hands of the local authorities, de facto the party secretaries.

In keeping with central demands for initiative and economic growth, they were then developed to respond to increased farm incomes by supplying building materials, tools, transport, slaughterhouses, food processing plants and similar products.

From these humble origins, and often using the networks of contacts of the state and party officials, the TVEs grew rapidly in the 1980s to become not only an important source of manufactured goods (32 per cent of industrial production by 1992) but also the provider of employment for 130 million rural workers (30 per cent of all rural workers, 1996 figures).

According to official statistics for 1995, the TVE sector as a whole produced 44 per cent by value of total national industrial output.

The precise status of the TVEs has caused considerable confusion because they are listed as “collectively owned” in Chinese statistics. As a result, western commentators, particularly those who wish to deny the progress of capitalist restoration, have added them to the “state sector” to show that some 70 per cent of the economy is "not capitalist".

They make a double mistake. The first is terminological. Despite the characterisation as “collectively owned”, 90 per cent of the total number of TVEs in 1994 were owned by individuals, although these were very small scale and accounted for only 30 per cent of output by value.

More importantly, whether these enterprises are capitalist or not is not primarily a matter of legal definitions of property forms. The point is that these are all independent enterprises, not part of any planned system of production.

Two-thirds of output is produced by wage labour, all production is for the market and their investment funds originate either in retained profits or commercial credit. They are, in a word, capitalist.

Numerically, the majority are very small capital formations but the development of the sector as a whole follows a predictable pattern from small, local and labour intensive operations to increasingly larger, more highly capitalised firms which are capable of operating not only across the whole home market but even abroad on the world market.

As the TVE sector has grown and become more capital intensive, the sector has been unable to absorb labour at the same rate as it could in its early days and adds to mounting rural unemployment.

The importance of the TVE sector when assessing the character of the Chinese economy is not simply its percentage of total industrial output, significant as this is. Production is still in small units and the sector could not be said to dominate the national economy as a whole.

However, it does employ a growing percentage of the working class, it is a source of capital accumulation and it is the basis of a new industrial bourgeoisie and petit bourgeoisie able to take advantage of the privatisation drive of the state since the mid-1990s.

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