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China's phenomenal economic growth since 1978 has been accompanied by a cascade of institutional innovation and experimentation. In at least this one sense a hundred flowers are blooming in the People's Republic. The range of institutional forms and their defiance of the conventions of economic organization in both capitalist and socialist societies are impressive.

The Chinese leadership calls the new order by the unfamiliar (and to some, oxymoronic) term "socialist market" economy. Its "market" dimensions include deregulation of most prices, decentralization of decision-making to the household in agriculture and to the enterprise in industry, incentive schemes for peasants, managers, and workers, and encouragement or tolerance of domestic private ownership in small business and various kinds of foreign investment. At the same time, the leadership considers the economy a "socialist" one in which "public ownership constitutes the mainstay." Despite the important growth of private enterprise and foreign investment, the great bulk of industrial production occurs under public ownership.

Public industrial production takes place in two distinct sectors. First, the State-Owned Enterprises (SOEs) are typically urban, large-scale, mostly capital-intensive industries controlled at the national, provincial, and county levels. Second, the collective sector consists of relatively labor intensive industries subject to local governments, and is in tum conventionally divided into urban and rural subsectors.

Each of these sectors has been transformed during the reform period, with varying degrees of success. From one-third to one-half of the SOEs have become self-sustaining in a competitive market environment, and the most successful have achieved formidable productivity and growth. On the other hand, at least one-third of these enterprises survive only through exorbitant government subsidies. In the rural part of the collective sector, the Township and Village Enterprises (TVEs), which get little subsidy, have, in the aggregate, achieved astounding success and have proved the most dynamic sector of the economy. From the early 1980s, while the annual growth rate for the economy as a whole has averaged a breath-taking nine percent, TVE production has grown at the rate of twenty-five percent. These developments, especially in the TVE sector, have prompted many (including some for whom the wish is not father to the thought) to question the neo-liberal dogma that privatization is necessary for successful reform of state socialist economies.


Comparative and Foreign Law | Law