The Miracle of China's Rural Enterprises A Comprehensive Analysis of Thirty Rural Enterprises

Yang Mu

In China rural enterprises usually refer to the enterprises in the rural areas, which statistically include enterprises run by township (town) and by village, rural co-operative enterprises and rural individual enterprises. The first three are collective enterprises, the last one private. According to the statistics in 1991, those collective rural enterprises, though only accounting for less than 20 per cent of rural enterprises, had approx. 70 per cent of the workers in rural enterprises and more than 80 per cent of their output.

Deng Xiaoping said in a talk with foreign guest an June 12, 1987 that, "In the rural reform one greatest success - and it is one we had by no means anticipated - has been the emergence of a large number of enterprises run by villages and townships."(1) From 1978 to 1992, China's rural enterprises increased from 1.5 million to 21 million; their gross output value increased from 49 billion to 1,760 billion, its percentage in the national gross product increased from 7 per cent to 32 per cent; their industrial output increased from 38 billion to 1,320 billion, its percentage in the national industrial output increased from 9 per cent to 36 per cent; the taxes they turned over to the state increased from 2.2 billion to 63.7 billion, the percentage increased from 4 per cent to 20 per cent.

During the recent years rural enterprises have become the most active sector in China's economy. According to the statistics, over more than 40 years the state Investment in the state- owned enterprises totaled 4 to 5 trillion, resulting in 1,7 trillion of fixed assets, 2 trillion of output value and the employment of more than 100 million workers. While without any state investment, the rural enterprises formed 530 billion of fixed assets, 1.7 trillion of output value and the employment of more than 100 million workers. It has taken 31 years for Chinas gross social production value to increase from 100 billion to 1.1 trillion, while it has taken only 7 years for rural enterprises' gross output value to increase from 160 billion (1984) to 1.1 trillion (1991).

It is hard to find such case as China's rural enterprises in other countries throughout the world. In some developing countries rural enterprises are usually small or medium-sized. With their small scale and relatively simple technology, they can hardly compete with urban enterprises.(2) But in China a number of large competitive rural enterprises, with advanced equipment and high market share, have cropped up. In 1991 the export volume of China's rural enterprises totaled 67 billion, accounting for one fourth of the national export volume. In India and other countries, large quantities of technology and qualified personnel flow from rural areas into cities every year.(3) Why can China's rural enterprises attract them to the countryside?

How have China's rural enterprises worked out such a miracle? Some Chinese scholars contribute it to the market-oriented reform.(4) It is almost incredible because in all the countries with market economy there is no such case. Market-oriented reform does not seem to be necessarily closely related to the flourishing rural enterprises.

The Institute of Sociology under Peking University and Singapore Institute of East-Asian Politics and Economy have organized an investigation an rural enterprises in 1992, which involved thirty rural enterprises in Shandong Province and south Jiangsu Province. Through the Chinas condition and the thirty cases(5) we see that: rural enterprises are the result of the resources' free flow being restricted; the reform in the 1980s has opened an immense market for rural enterprises' development; state-owned enterprises constitute the most important technological source of rural enterprises; finance responsibility and economic benefits have provoked the localities' initiative for establishing rural enterprises; rural enterprises have flexible operating System. The above is to be dealt with in the following five parts.

1. Rural Enterprises Are the Result of the

Free Flowing of Resources Being Restricted

In the classical market economy model which is subtracted from the Western market economy activities, resources can flow freely and, because of competition they will finally flow to where they can be used with highest proficiency. But in China, whose economy is being oriented to market economy, the free flow of resources is restricted by the bottleneck of labor demand and ownership.

1.1 Restriction of the Bottleneck of Labor Demand

The basic condition of China is that it has a population of 1.2 billion, among which 80 per cent live in the rural areas. With more than 400 million peasants farming 1,5 billion mu arable land, the average acreage under cultivation of each farm laborer is less than 4 mu. Calculated according to the current agricultural productive capacity, there is about 130 million of Surplus labor in rural areas, accounting for one third of the total rural labor.

Since the early 1980s when the household contracted responsibility system for production with remuneration linked to output (system of fixed output to households) was carried out in the rural areas, the peasants can make their own decision an production, thus their initiative was quickly heightened. At the same time, a problem of rural labor surplus cropped up, which had been overlooked under "eating from the same big-pot" system, or system of people's communes.

China's household register system, formed in the 1950s, strictly divides the residents into two categories, those with urban register and those with rural register. The former can enjoy various state subsidies for urban residents, the preferential Services in housing, education, insurance and etc. and the privilege of urban employment. The latter, without those preferences and privileges, will be subject to the strict control of public security organs once entering cities. In fact, rural residents are second-rate citizen in China. Therefore many peasants try their every means such as to join the army, to go to college, to be promoted into cadres or even to bribe, just to change their resident register from rural into urban.

The System has the advantage of reducing the pressure an urban employment and helping maintain social stability. But it has a basic problem that it deprives peasants of some their basic rights, thus forms the biggest obstacle for rural surplus labor to obtain employment in cities. In the 1980s, except in few industries needing high labor intensity such as building trade, coal evacuation industry, foundry and textile industry, most rural surplus labor have to find their jobs in the countryside. With rural surplus labor under such a condition as being pushed to the walk, rural enterprises were born.(6)

Among the thirty enterprises, four agricultural machinery plants, were founded in the 1950s initially for the purpose of realization of agricultural mechanization, most enterprises set up in the 1960s and 1970s took as their chief purpose to absorb rural surplus labor, and the twelve founded in the 1980s aimed to achieving profits. Though the twelve no more put in the first place to enlarge rural employment, as far as their employment policy is concerned, nearly all of them first of all engaged local workers. And, shortly after their establishment, the abundance of labor quickly turned into the scarcity of labor, and they began to recruit out-of-town workers. "H" Township Textile Plant is a typical example. In 1976 when it was not Set up yet, only 5 per cent of the labor in the village where it was seated undertook industrial production and, 93 per cent agricultural and sideline production. Eight years after its founding, the former figure raised to 50 per cent, and the latter dropped to 49 per cent. In the year of 1991, the plant cannot recruit workers from the village any more, and it had to go to north Jiangsu Province for further recruitment.

In the early 1980s the Chinese Government was very hesitant about developing rural enterprises (then called as enterprises run by people's commune and production brigade), afraid that they would "scramble for materials and markets with state owned enterprises so that the small and less-advanced would elbow out the big and advanced".(7) But soon the Government found that it was much better to develop rural enterprises so as to absorb rural surplus labor than to reform household register system that rural surplus labor would crowd into cities. In the No. 1 and No. 2 documents in 1984 issued by the CPC Central Committee, rural enterprises were affirmed as "one important sector of the national economy", which can facilitate "peasants to cast off the yoke of land without leaving the countryside and crowding into cities".(8) It is for the first time that in the official documents the Government has affirmed the position of rural enterprises in the national economic development, which laid a fundamentally solid foundation for rural enterprises to develop rapidly in the 1980s.

By the end of 1993 Chinese rural enterprises engaged 112 million workers. But their recruitment capacity has sprouted a tendency to decrease. For example, during the period from 1984 to 88, their annual employees amounted to 126 million, but during the period from 1984 to 1992, their annual employees reached only 2.6 million. In the recent two years, there are about 50 to 60 million long - term flowing peasants, for which z. 6 million is just a drop in the bucket. Such situation is worse in less developed areas. In 1993 the rural surplus labor ration in east China estimated 22 per cent, in central China 27 per cent,. and in west China 40 percent. At the National Rural Enterprise Work Conference held in Beijing in September 1993, the Chinese Government demanded that the rural enterprise shall have absorbed 50 million labor by 2000, (93 that is to say, 7 million each year. Although during the recent years China has started the reform of the household register system to lift the restriction an peasants obtaining employment in cities, due to the bottleneck of urban labor demand which is caused by the enormous rural surplus labor, in the coming ten years rural enterprises will still be the main form to absorb rural surplus labor.

II. (1) Restriction of Ownership

From the 1980s to the early 1990s, it was doubtful whether the private economy was legal or not. It is stipulated in the Constitution of the People's Republic of China (1982) that "The state protects the lawful rights and interests of the individual economy." and "The state protects the right of citizens to own lawfully-owned income, savings, houses and other lawful property."(10) , but in each political movements, Bither named as "anti-liberalization", "anti-ideological pollution" or "anti-peaceful evolution", private economy has always borne the brunt of the attack.

Furthermore, in the actual policies the state has imposed some restrictions an the operation of certain trades by private enterprises. Additionally, they are more heavily assessed than collective enterprises, and meet restrictions of state policy an land use, loan, overseas investigation or research, product export and etc. Some enterprises, private in reality, have to put an a "red cloak", that is to say, named enterprises run by township or by village" , so that they can get better conditions for surviving and developing

During the period of the National People's Congress in 1993, Mr. Zhao Zhangguang, known as "red capitalist", said that he was no more private enterprise owner, because among the assets of Beijing Zhangguang Hair Restorer General Plant he belonged to, his private assets only accounted for 10 per cent, the rest being state- or collective-owned. Several other heavy-purse private enterprise owners commented the like. Someone estimates that about 20 per cent of the registered collective enterprises in China belong to such kind of private enterprises wearing "red cloak". According to an investigation in Zhuzhou City, Hunan Province in the first half of 1993, it had about 2, 030 such kind of enterprises, accounting for 15 per cent of the total collective enterprises in the City.(11)

A typical example of our investigation is "K" Town Coating Material Plant. It was established by the current manager Mr. Yang himself in 1991. At the time, private enterprises were greatly restricted in Jiangsu Province. So Mr. Yang persuaded leaders of the town and village to register the plant as enterprise jointly run by the town and village. But actually the operating and administrative power of the plant fell into the hands of Mr. Yang and his kin. The capital for plant construction mainly came from bank loan. For the town and village, the plant was only responsible to each year turn over the taxes and management fees to the town government and 6 million of profits to the Villagers' Committee.

Because private enterprises were restricted ideologically by the state policy, the resource competition an the Chinese market in the 1980s and the early 1990s was mainly waged between state -owned enterprises and collective enterprises, that is to say, an important reason for rural enterprises got rapidly expanded in the 1980s is because no private enterprises took part in the competition.

Chinese scholars have pointed out some main differences between rural enterprises and state-owned enterprises (it will be dealt with in Part V.) as follows: the construction of rural enterprises was based an peasant investment, collective accumulation and bank loan by the means of step-by-step, while state-owned enterprises were set up through state financial allocation an lump-sum basis; rural enterprises got energy, raw materials, market and personnel by competition, while that of state-owned enterprises were arranged by the state; rural enterprises assumed sole responsibility for their own profits and losses, while state-owned enterprises were blessed the state allowance for loss and etc.(12)

But it must be noted that with the development of market economy and expansion of state enterprises' power of decision, the aforementioned differences will gradually be lessened and some similarities between collective-owned rural enterprises and state-owned enterprises will appear increasingly evident. We can see some of the similarities from our thirty investigation cases as follows: interference (appointments and removals of leading persons, the orientation of operation and decision an important investment) and assessment imposed by township (town) governments; restriction an income distribution of principal managerial personnel and workers; the control of township (town) governments and villagers' committees' over recruitment; enterprises' responsibilities and duties for community, and etc. From the view of these aspects, enterprises run by township (town) or by village are like small state -owned enterprises. The budge constraint an them is not totally hard. Once they are set up and have certain impact upon their community economy, towns and villages will try the utmost to keep them on. Compared with state-owned enterprises, the hard budge constraint an them lies in that, limited in finance, towns and villages cannot keep bad-operated enterprises an for long periods. For example, in 1991 "B" Town Diesel Parts Plant overstocked its chief product, wool planer, for more than 40 million, amounting for 3 million. With a heavy debt, the plant was doomed. But because it was the number - one veteran plant of the town, the town government would not let it go bankrupt, thus by administrative order moved Manager Xu to keep it on, despite his reluctance. This is what happens in some state-owned enterprises facing losses at present.

In other words, some major malpractices in state-owned enterprises, such as state hard interference, three iron-clad guarantees lifetime job, lifetime salary and lifetime position for cadres) and grandiose and all-inclusiveness caused by enterprises operating like society, exist in enterprises run by township (town) or by village to some extent. During the recent two years, these state-owned enterprise malpractices have been constantly pointed out that also in some rural enterprises. After Deng Xiaoping's talks given during his south tour and the Fourteenth National Congress of the CPC, China's rural enterprises, having experienced three years of fluctuation, ushered in a new stage of rapid development. With the multiplication of market subjects and more and more private enterprises entering market competition in the 1990s, rural enterprises composed mainly of collective enterprises, will encounter more and more difficulties in setting foot an market.(13) It is extremely urgent for them to carry out a further reform. During our investigation, many managers complained that, compared with private enterprise owners, their income did not conform to their contribution. Some administrative personnel in town governments held that if we did not quicken the pace of share-holding system reform, some rural entrepreneurs would say goodbye to rural enterprises and go to private enterprises. After 1993, in many places the implementation of share-holding system in rural enterprises has gained a great momentum.(14) II. Reform in the 1980s Has Provided an Immense Market for the Development of Rural Enterprises

Another difference between China's rural enterprises and most developing countries' is that the reform in the 1980s in China has provided an rapidly-expanding market for rural enterprises.

II. (2) In the 19806 China's Per Capita Income Grew and Market Expanded Rapidly

Before the reform, the basic line China's economy development followed is that the central government controlled the resources, invested in state-owned enterprises, the products were sold at high prices to low-earning urban residents and peasants (prices of agricultural products were controlled by the state), through the profits enterprises turned over the state concentrated the capital in its hands, keeping a high rate of accumulation, and reinvested them, thus speeded the process of industrialization. With the reform being carried on, the central government loosened the price and wage control, encouraged local governments, enterprises and individuals to increase their income by raising output ratio, through complete responsibility system of tax and finance, maintained certain amount of incomes for government expenditures, and main investors in economic development changed from the central government to local governments, enterprises and individuals.

With this change, the government began to encourage and stimulate the increase of individual income instead of checking it. In the period of the 1980s the per capita income grew fastest since 1949. From 1980 to 1990, accumulated in terms of the constant price in 1980, per capita GNP doubled, increasing from 482 to 989, and the growth rate of per capita consumption level was 8 per cent, quadruple of that during the twenty-six years before the reform, 2 per cent.(15)

Before reform, people's consumption was restrained to a low level by the Government , and many commodities such garments , cotton clothing , soap , sugar, cooking oil and grain were supplied through special ticket. With the system of special ticket for supply being gradually abolished during the reform, the consumption expanded, which manifested in the release of consuming capacity checked by the policy during the past several decades. Furthermore, in the early 1980s, the Government raised the purchase price of agricultural products, thus peasants' per capita income increased rapidly. Additionally, owning to the deficient supplying capacity of the state-owned enterprises, the release of consuming capacity created a great market demand for the development of rural enterprises. It is easy for rural enterprises to produce common staple commodities because of their simple technological requirement.

Among the thirty enterprises , 8 belong to machinery industry , 6 , garment and textile industry, 6, food industry and other light industry, 4, electrical appliance industry, 3, chemical industry and 3 others, that is, enterprises producing consumer goods account for 40 per cent. II.2 Consumption Change Expanded Market for Rural Enterprises

Three changes occurred in the Chinese people's consumption in the 1980s. First, the domestic market became opened. Many consumer goods never seen before gradually appeared. Second, the consumer orientation is constantly changing. The three best sellers in the early 1980s (watch, bicycle and sewing machine) quickly changed to color TV, refrigerator and washing machine, and then to air conditioner, stereo set, telephone and home decoration. Third, the ratio of necessities and housing in the consumption structure, which is composed mainly of food, raised. From 1980 to 1990 the percentage of food in the consumption structure ascended with 2 points in urban areas, and 7 points in rural areas. The percentage of necessities and housing in the consumption structure in rural areas increased with 2 points and 5 points respectively, and necessities' in urban rears 2 points. (16~ These changes expanded many markets for rural enterprises. Take the chance, rural enterprises will develop enormously.

A typical example in this respect is the General Plant of High Polymer Products (GPHPP) , though its chief product, disposable infusion tube, strictly speaking, is not consumer goods. Originally the infusion tubes an China's market were multiple -time- used. After the Spring Festival of 1988, hepatitis prevailed in Shanghai. To prevent its spread, disposable infusion tubes became in high demand. Taking into consideration that such product can be manufactured easily just with simple technology, workers need few education which suited the local condition, and with people's increasing requirement for high hygienic standard, disposable medical appliances cherished a great market potential, the founder of the GPHPP, Manager Guo, decided to produce disposable infusion tubes. Within three years, the GPHPP became the largest producer of disposable infusion tubes and disposable injectors throughout the country. In 1991 its sales volume reached 29 million with 3.4 million of profits, it had set up 7 branches, employed more than 1, 800 workers, and its products were sold to more than 1, 300 hospitals all over the country.

Almost all the thirty enterprises investigated had one common phenomenon that managers paid great attention to seeking market. For instance, in the early 1987, when just taking his office, Manager Liu of "E" Town Milk Product Plant headed technicians to investigate the plants of the like in the northeast and east China. Afterwards he made up his mind to associate with Harbin Milk Product Technology Center to develop a new milk product which had already been popular an the international market. This decision represented the key step of its further development. Another example, with the system of contracted responsibility being carried out in rural areas in the early 1980s, individual carpenters increased rapidly in rural areas. Seeing that, the manager of a Wood Machinery Plant decisively shifted the chief product of the plant from wood planer serving medium - sized and small furniture plants to multi -function wood working machine serving individual carpenters. By the early 1990s it had established 1,200 fixed sale posts in 29 provinces throughout the country, controlling 40 per cent of the market of like product. In 1991 its sales volume reached 67 million with 6. 7 million of net profits.

II . (3) Export Opened Another Market for Rural Enterprises

China's reform and opening to the outside world supplement with each other. To reform is to change the closed economy into foreign-oriented economy. (17) Rural enterprises faced both international and domestic markets when just born in the 1980s, so they have shown a greater momentum of foreign - oriented development than state - owned enterprises.

In the 1980s, China's export volume had increased 3 times, and that of rural enterprises increased more rapidly. In 1993, their volume of export commodity purchase value accounted for 45 per cent of the total of the state, and their export commodity delivery volume increased more than 45 per cent than last year. There were over 60 , 000 rural enterprises producing export commodities, including 15 , 000 enterprises with foreign capital. 40 per cent of the products of the rural enterprises in Suzhou City, Jiangsu Province, were exported, and one third of these enterprises used foreign capital for their fixed assets. The total amount of foreign exchange gained through export by rural enterprises in Guangdong Province has increased with an average rate of 40 per cent. Their export output value accounts for per cent of the industrial output value. Now Chinese Government has granted the power to engage in export and import trade upon tens of rural enterprises, and more than 130 rural enterprises have invested overseas and undertook multinational operation. (18)

Among the thirty enterprises, 8 export their products and 9 have foreign Investment. For example, Fishing Tackle Group Cooperation (FTGC) , was originally a Farm Machinery Repair Plant founded in the period of Great Leap Forward. It began to develop fishing rods in 1988 and exported their products from 1989. In 1991 it associated with a South Korean enterprise to establish Shiguang [Time] Fishing Tackle Co. , Ltd. and set up five branch plants such as fishing rod plant and fishing tackle accessories plant. That year its sales volume reached 21 million with 2.01 million of net profits and 75 per cent of its products were exported to South Korea, U. S. , Japan and Southeast Asian countries. Another example, when founded in 1976, No. 2 Wood Fabric Garments Plant had only 30 workers, mainly processing garments for the local residents. In 1985 it associated with Dalian Garment Research Institute to produce export garments. In 1988 it pooled capital with Hong Kong Shiying Co. to establish Jinwei Garments Co. , Ltd. to further expanding export. In 1991 the plant had 1,102 workers with approx. 17 million of sales income and 1. 45 million of net profits, 90 per cent of its products were exported, and it was conferred the honorary title "State Foreign Exchange Gainer" by the state Ministry of Foreign Economic Relations and Trade.

11. (4) Rural Enterprises Captured Market from State-owned Enterprises

As mentioned in the Section I . 2 , because private enterprises were restricted , rural enterprises were the main competitor of state - owned enterprises in the 1980s. Compared with state - owned enterprises, rural enterprises have more decision - making power of management; have more incentive distribution system; they are more flexible in operating decision and totally act according to the market competition law , thus they are usually more competitive than state - owned enterprises. Rural enterprises started to develop from light industry to which there was few obstacles in the 1980s. Their market share is rising by degrees, while state - owned enterprises' dropping .

From 1978 to 1992 the ratio of rural enterprises' output value to the national industrial output value increased from 9 per cent to 48 per cent, and that of state -owned enterprises reduced from 78 per cent to 36 per cent. In 1992 the garments produced by rural enterprises accounted for 77 per cent of the total of the state, cotton clothing, 35 per cent, wood fabric, 35 per cent, mechanical paper, 46 per cent, alcoholic drink, 26 per cent, raw coal, 38 per cent, and cement, 34 per cent. One fourth of the output of food industry and one third of the output of machine - building industry were produced by rural enterprises. (19)

Generally speaking, market competition involves product quality, price, sale promotion and after - sale services. Because rural enterprises are later comers, with the market being occupied by state - owned enterprises, they usually take the advantage of their more flexible operating system to exploit more competition measures in price and other aspects. The case of "H" Township Chemical Plant is an example. The chief product of the plant was sodium chloride whose market was originally manipulated by a state - owned enterprise in Tianjin. The plant lowered the price of its product 2,000 each ton than the price of the enterprise in Tianjin, provided good Services, delivered goods to the customers and allowed consumers to return its products of , if , poor quality. Meanwhile it Set quota for each salesman with a bonus of 100 for each topping - quota ton. It also stipulated a It also stipulated a sliding unit (ton ) price with a range of 500 and a 20 % rebate commission. These measures vigorously promoted the sales of its products. Within two years its market share in east China roared from zero to 80 per cent. The enterprise in Tianjin was almost elbowed out of the market in east China.

Most rural enterprises investigated attached great importance to the training of salesman, flexible price and effective incentive system. The following example shows how they tried to exploit every means in competition to defeat their rivals. "K" Township Coating Material Plant mainly produced S865 Polyoxyester coating, which was actually modeled an the product of a Shanghai Coating Material P1ant,20 and the former used the latter's trademark, "Elephant" , because "Elephant" brand coating had a high market share. Manager Yang of "K" Township Coating Plant, after consulting the Administration of Industry and Commerce, found that only a Insulating Material Plant in the north Jiangsu Province had registered "Big Elephant" trade mark with the Administration of Industry and Commerce. At once he went to north Jiangsu Province, bought that trademark with 300 , 000 , and got it officially transferred through the Administration of Industry and Commerce. After returning back to the plant, he just added a simple modifier, "Big" , to his former trade mark, "Elephant" , and wrote a letter to the Shanghai Plant , saying , "Your trademark , ` Elephant` , has infringed our trademark, "Big Elephant", so you must stop the production of "Elephant" brand coating at once. " In this way, a new comer surpassed the old - timer.

III. (1) State-owned Enterprises Constitute the Main Technological Source of Rural Enterprises

According to Neoclassical Economy, there are three sources of economic growth: labor growth, capital increase and technical advance. Historical statistics shows that the first two account for 50 to 70 per cent of the reasons for economic growth and the last, 30 to 50 per cent. In discussing the experience of the "Four Small Dragons"

Hong Kong , Singapore , South Korea and Taiwan ] , some experienced discussants pointed that "We cannot explain their success just by developing the export of low-cost labor intensive products because it fails to explain why other developing countries have not achieve such success. The point is how they obtained the technology and turned it into economic success. "(zt1

According to a research report issued in 1993 , the annual growth rate of output value of the rural industry of Jiangsu Province was 14 per cent. 70 per cent of the growth was brought out by the increase of factor input, and 30 per cent by the increase of the input - output - ratio of unit factor (technological progress) . In addition, the increase of capital investment accounted for 82 per cent of the factor increase, and the increase of labor input only accounted for 18 per cent. (ZZ3 Therefore, the rapid growth of Jiangsu rural industry in the 1980s was, to the great extent, brought about by high capital investment. It is the common knowledge that capital investment and technological reform always concur. In the final analysis, the rapid growth of Jiangsu rural industry was the result of technological progress.

When the several hundred million rural surplus labor found their jobs in the rural enterprises , and the enterprises' products found their market , the key to the enterprises' development was how they can obtain the technology. Fortunately, from the day when China's rural enterprises were born, they found a great technological source at their side , the state - owned enterprises.

III.1 Technological Reserve in China's State-owned Enterprises

Through the investigation of the thirty rural enterprises, we found that each enterprise had close connection with state - owned enterprises in the course of their establishment. Some of them started from the association with state - owned enterprises, manufacturing parts or products for state - owned enterprises; in some rural enterprises, their earliest technicians came from retired workers of state - owned enterprises and "Sunday engineers" ; some even directly engaged senior administrative personnel and technicians from country - famous state - owned enterprises. Some foreign scholars and entrepreneurs often feel puzzled that within only a few years, some China's rural enterprises had built up their international market. In fact, through the above - mentioned methods , these rural enterprises had remolded themselves , and their technicians and technologies had tempered themselves for tens of years in state -owned enterprises.

The high technological reserve in China's state - owned enterprises, first of all, manifests in the personnel resource. From 1949 to 1989, the graduates from China's institutions of high learning amounted to 6. 95 million, and the graduates from secondary vocational and technical schools reached 10. 84 million. Most of them worked in state - owned enterprises and research institutes after their graduation. By 1989 , China's scientific and technological personnel totaled 9.6 million, among which there were 4 million engineers and technicians including 500 thousand engaging research and development. The figure is not far less than that in developed countries. (See From I attached. )(23)

Second , in the more than 40 million workers in over 100 thousand state - owned enterprises in China , there are almost 2 . 5 million technological personnel , representing 6 per cent of the total. The figures in different trades are as follows: 14 per cent in electronics and communications industries; 8 per cent in energy industry; 7 per cent in chemical industry; 6 per cent in metallurgical industry; 4 per cent in building material industry; and 3 per cent in light industry. By 1988, in China's large and medium - sized state - owned enterprises, there were 5 , 525 technology development institutions, with 270 thousand workers, including 110 thousand scientists and engineers, representing 42 per cent of the total. L24)

Third, the state - owned enterprises have an important standing in the present technological trade between enterprises. During the recent years, China has basically formed a nationwide operating system of technology market with multi - layer, -ownership and - form. In 1990 , there were 20 , 711 technology trading institutions of various ownership , including 8 , 707 state - owned ones, or 42 per cent of the total, and other collective - owned and private ones. The former is the main part. In 1989 , the amount of signed technological contracts reached 8 billion Yuan. As far as buyers were concerned , large and medium - sized state - owned enterprises accounted for 67 per cent, and rural enterprises accounted for only 7 per cent. As for sellers, the state - owned research institutions accounted for 51 per cent , and state - owned enterprises, 19 per cent. The state - owned enterprises and institutions are the biggest buyers and sellers in the technology trade. (25)

After thirty to forty years of development, China's state - owned enterprises have formed various capital - intensive and technology -intensive industrial departments, including power, raw material, machinery, electronics, ship and aircraft. As mentioned in Part II , the opened market in the 1980s was in short of consumer commodities. For the technologies and technological personnel from the capital - intensive and technology-intensive industrial departments, to produce consumer commodities was just a piece of cake. A case deserving our attention is that among the thirty rural enterprises investigated, except that part of the sewing machines of No.2 Wool Fabric Garment Plant were imported from Japan, and the main equipments were basically made by domestic state - owned enterprises. Considering that the rural enterprises of Shandong and Jiangsu Provinces have comparatively high technology, the above fact can prove that in the 1980x, the technological reserve in China's state - owned enterprises was able to meet the demand for the development of rural enterprises.

111. (3) Reasons of Technological Personnel Flowing from State-owned Enterprises to Rural Enterprises

In China's rural enterprises, a very common phenomenon is that the technicians originally of other enterprises or of universities take charge of the key technical work in rural enterprises. For instance, the chief engineer of Fishing Tackle Group Cooperation, Mr. Liu, former professor of Changsha University of Science and Technology, now heads a research group, developing new fishing rod materials; manager in charge of technology of the General Factory of Medical High Polymer Product, Mr. Wang, was former chief of technology section of the City State - owned No. 1 Plastics Plant; chief engineer of "I" Township Oil Refinery, Mr. Ge, had worked in Shanghai Oil Refinery under China Petrochemical Cooperation for 30 years after graduating from Beijing Petroleum College in 1960, experienced in professional technology. The reason why "K" Township Coating Material Plant can copy the chief product of the Shanghai Coating Material Plant is because the former had engaged six major engineers from the latter, who were qualified personnel grasping the key technologies in prescription, laboratory test, equipment, production and operation, and let them to take charge of equipment purchase, installation, testing and production.

In market economy, the personnel flow is first directed by income. In China's state - owned enterprises and universities, salary of technical personnel is controlled by the state. Before the salary reform in October 1993 , technical personnel of highest rank such as senior engineers and university professors were paid monthly 300. (26) Rural Enterprises are more flexible in salary paying than state - owned enterprises. Though the average income of workers in rural enterprises is less than that of workers in state - owned enterprises , rural enterprises can pay much more to technical personnel than state - owned enterprises. The Fishing Tackle General Cooperation agreed to pay professor Liu with royalties from his new - developed products. The General Factory of High Polymer Products raised the salaries of the forty technicians engaged from state-owned enterprises by one more scale, and awarded them "allowance for coming to the countryside" and "job subsidies" . When "K" Town Coating Material Plant began to engage technicians for new product development in public, it offered the condition of monthly salary of 1, 000 , an apartment and a car.

Many rural enterprises also engage part - time engineers with high payment from state - owned enterprises. Before Mr. Ge was officially engaged by "I" Town Oil Refinery, he often solved technical problems for some rural enterprises an Sundays. Those enterprises paid him consultant fee. The six engineers "K" Town Coating Material Plant engaged from the Shanghai Coating Material Plant all worked part - time. When the former was just established, they came to work regularly there, paid with 1 per cent of the sales volume. Five months later when the production went regularly, they came there occasionally when problems cropped up, paid 500 monthly with 1, 000 of "December bonus" . (27)

In the developing countries, another reason why rural enterprises fail to absorb skilled personnel is that the living facilities there are far worse than that in cities. In fact, such facilities of working and living places can be regarded as a kind of hidden income. One of China's specific conditions lies in the disparity in living facilities between the east China, central China, and west China, which is much greater than the disparity between a region's urban and rural areas. With the economic development in the 1980s, the disparity between urban and rural areas of coastal areas is becoming smaller quickly. Therefore, the living conditions in rural areas of the coastal regions are usually better than that of state - owned enterprises in cities of central and west China. Especially before the reform, college graduates were assigned to their posts by the state, not an their own will. The technological personnel who were assigned to work in central and west China in the 1950s and 1960s, now are about to retire. Most of them want to return to the east China with their children. Our investigation shows that the main technological personnel of many rural enterprises were engaged from the state - owned enterprises in central and west China. In General Factory of High Polymer Products , such technicians included : former director of the Research Office of the Forestry Bureau of Mudanjiang City, Heilongjiang Province; former manager of Hubei Pharmaceutical General Plant in Xiangfan, Hubei Province; former engineer of Yunnan Heavy Machinery Plant; and former associate professor of pharmacy of a certain Hospital in Yunnan Province.

Another reason for technological personnel flowing from state - owned enterprises to rural enterprises is that state - owned enterprises cannot give full play to their professional knowledge and skills. Chief engineer of "I" Township Oil Refinery, Mr. Ge said that , "The technological personnel in state - owned enterprises have nothing to do, are given no opportunity to show their talent, or just slack their work. " But once they entered rural enterprises, pressed by competitiveness, they would have more chance to fully play their talent. An engineer of the General Factory of High Polymer Products, former chief of the Technology Section of a certain state - owned enterprises, within one year after he entered the Factory, developing new products, achieved three major scientific results which equaled to what he achieved during a dozen years in the said state-owned enterprises. "I" Township Electric Heater Plant divided the fifteen engineers engaged from state - owned enterprises into two categories: those who came with project and those without project. The former were paid 300 to 500 monthly with December bonus, and the latter were paid 1 to 10 per cent of the sales income of their products. Before their products were sold out, the plant paid them monthly 300 as living wage, which was to be deducted form their income after their product were sold out. Because the salary was closely connected with the sales of their products, these engineers voluntarily worked for more than 10 hours every day.

III.3 Reasons For Technology Flowing from State-owned Enterprises to Rural Enterprises

Technology, as a kind of resource, when flowing from state - owned enterprises to rural enterprises, always accompanies some interest exchange.

In the 1980s, with the reform and opening up to the outside world and increase of per capital income, the urban state - owned enterprises faced two kinds of Pressure. One is that urban labor became more and more reluctant to work in state -owned enterprises, especially in those with hard working conditions, such as foundry, textile and building industries. Second is that land use charge in urban areas became higher and higher. Under the Pressure , state - owned enterprises went to the countryside to associate with rural enterprises, thus at the same time, they brought technology to rural enterprises. "I" Township Casting Plant got developed through casting for Shanghai Municipal Electric Machine Plant. Its main equipments and technology came from the Shanghai Plant, and its deputy manager in charge of production, Mr. Zhang, was the former technician of the Shanghai Plant. "K" Town Down - filled Garment Plant, through joint operation with Shanghai General Down -filled Garment Plant, learned technology and experience. As for the Shanghai General Down-filled Garment Plant, because of its inadequate site for production, undercapacity and workers' low initiative for production, it had to rely an the association with some rural enterprises to reach its production target.

In the 1980s' China, a case deserving our attention is that because the property right of state - owned enterprises was not so definite, technology transfer from state - owned enterprises to rural enterprises was seldom an open transaction. Mostly the former provided technology for the latter unconditionally, while the latter gave the former's relevant workers or administrative staff various personal benefits. An example is No. 3 Branch Factory under the Polytechnic School of "X" City. The school had invested more than 300 thousand in the factory, provided the technology and wholly undertook the sale of the factory's products. But it never asked the factory to share profits with it, or to pay it for technological service. "The factory often gave relevant leaders of the school some personal benefits, including honorary posts, welfare, gifts in disguised form and helping solve problems for their dependents, so as to meet the personal requirements of the leaders. " Such kind of benefits given to the relevant leaders and workers of state - owned enterprises also included: to establish sanitariums for state - owned enterprises use in tourist attractions; to imburse state - owned enterprises' expenses of daily necessities upon invoice; to present agricultural and sideline produce and aquatic products to rural enterprises; and etc. Certainly our investigation can hardly show how much benefit the administrative staff and workers of state - owned enterprises can gain from each "sanction" . But undoubtedly , rural enterprises spend not too much for an technology transfer from rural enterprises, because they need not pay technology transfer charge.

A typical example that state - owned enterprises gained benefits through cooperation with rural enterprises is the cooperation between the General Factory of High Polymer Products and the Provincial Medical Apparatus Research Institute. The former helped the latter develop new products and pass the assessment by the Provincial Pharmaceutical Administration. The latter gave some 20 per cent of its net profits to the former, including foodstuff such as fruits and aquatic products and bearing the latter's costs for meeting in tourist attractions, and afforded 300 thousand of the annual expenses of board, accommodation and transportation, salary, bonuses and welfare of an institute jointly operated by them (with the fixed staff of 14 persons).

Some state - owned enterprises transferred technology to rural enterprises for their own development. For instance, the Petrochemical Company of a certain interior province pooled capital with "I" Town Oil Refinery for setting up a petrochemical plant producing polyenoid and polyamine products, a petrochemical machinery plant and other a dozen projects. In this way, "I" Town would gradually develop into a base of the Company in the coastal area of south Jiangsu Province, and this interior company can turn into a multi - province petrochemical company run jointly by interior and coastal enterprises.

IV . Localities' Benefit Drive Under Finance Responsibility System

In market economy, main investor is private enterprises, and in planned economy, main investor is the central government. In the course of China's planned economy turned to market economy in the 1980s, investment from the Central Government decreased gradually, while investment from private enterprises remained meager, so local governments became the main investor. The reason for the change is that Chinese Government carried out finance responsibility system(28) in the 1980s. While expanding local finance, the Government asked localities to undertake more finance responsibility. Because localities had definite scope of revenues and expenditures, and their percentage of retained revenues or financial aid amount would remain unchanged for five years, their incentive and capacity to develop economy was aroused. Furthermore, because private enterprises' development was restricted to some extent and the operating system of state - owned enterprises was more and more defective, some provinces which had developed smoothly in the 1980s, such as Zhejiang, Shandong and Guangdong Provinces, all took rural enterprises as "a breakthrough in vitalizing their economy. "(29)

Township (town) governments are the grassroots governments in China. The financial relation between them and county governments is usually defined through the finance responsibility in certain form. (3°) Township (town) finance system was established around 1984. Township governments usually had low contract basis sum to turn over to the state which was easy to accomplish, thus the excess financial revenue will belong to them. This was a great impulse of township governments to develop rural enterprises. After the mid - 1980s, in Guangdong Province and south Jiangsu Province where rural industry had developed comparatively smoothly, cadres of township governments received more pay and living conditions than cadres of interior cities and counties. This demonstrative effect further aroused the initiative of the township (town) governments to develop rural enterprises.

IV . (1) Township (Town) Governments' Important Role in the Key Links of Rural Enterprises' Development

Our investigation shows that township (town) governments have a great impact an rural enterprises, especially those run by township (town) governments themselves. See Chart I attached.

First of all , the appointments and removals of all the managers of rural enterprises are decided by township (town) governments. The key reason for the success of some rural enterprises is that their township (town) governments appointed a number of excellent managers to them. The General Factory of High Polymer Products was formerly the Welfare House of the Town, a heavy burden for the finance of the Town Government. When Mr. Chen was appointed as head of the Welfare House in 1988, with the support of the Town Government, he transformed the Welfare House to the General Factory of High Polymer Products. By 1991, the Factory had achieved 30 million of sales income, with 7. 5 million of profit tax, thus became an important fiscal resource of the Town Government. Also, after new initiative managers were appointed, the Fishing Tackle Corporation, Down - filled Garment General Plant and Wool Machinery Plant became vitalized and got out of fiscal jam.

Second, when new rural enterprises start or old rural enterprises expand, they need help from state - owned enterprises in marketing, technology and even capital. From the investigation, we see that township (town) governments actively provided information for rural enterprises, built bridges between rural enterprises and stateowned enterprises, or even offered concrete help. Usually, when rural enterprises wanted to transfer engineers and technicians from state - owned enterprises, it is township (town) governments that acted actively to level the obstacles to the personnel transfer between enterprises of two different ownership. For example, deputy manager in charge of technology of General Factory of High Polymer Products was former Chief of Technology Section of the City Plastics Plant. In order to get approval of his transfer from the City Plastics Plant and Plastic Company, Town Head and Secretary of the Town Party Committee went to the City for nine times.

Third, the capital source of rural enterprises in the 1980s changed from self -raising to bank loan. According to the statistics in Jiangsu Province, the bank loans for rural enterprises in Jiangsu Province amounted to only 800 million in 1980. The figure increased to 1. 53 billion in 1990, 19 times of the 1980 figure. [313 Two financial institutions mainly lending loans to rural enterprises, Agricultural Bank of China and Rural Credit Cooperative, lent 5. 54 billion of loans to rural enterprises in 1985 and, 15. 73 billion in 1991, or 280 per cent of 1985 figure. (3z) Our investigation shows that the main capital source of the thirty rural enterprises was bank loan. "I" Town Oil Refinery used capital of 19. 73 million in 1991, among which 28 per cent came from bank loan. Borrowing bank loan, rural enterprises should usually secure the guarantee of the industrial companies under township (town) governments, that is to say, township (town) governments constitute the main guarantee for rural enterprises to get bank loan. And the major criterion for loan lending by banks (mainly Agricultural Bank of China and Rural Credit Cooperative) was "Loans accord to deposits" , that is , the more developed rural enterprises got and more deposits rural enterprises and their workers had, the easier rural enterprises can get bank loan with the help of township (town) governments.

Fourth, as for medium - sized and small rural enterprises, they need no high technology and advanced equipments, so the land use charge were the most part of rural enterprises' expenses at their early stage. In the 1980s, with the help of township (town) governments, rural enterprises usually paid a little for land use. For example, before 1985, "H" Township Mercery Plant only need to employ a local peasant for using a mu land as required by the Township Government and Villager's Committee. The No.3 Branch Factory under "C" Town Polytechnic School had enjoyed free land use until 1987. "A" Town Fishing Tackle Group Corporation bought 30 -thousand - m2 - land at a price of 60 thousand per mu in 1992 , while then the land price an market was 100 to 200 thousand per mu. Low land use charge is the main reason for the low establishment expenses of rural enterprises in Shandong and Jiangsu Provinces in the 1980s.

Fifth, according to the finance responsibility system, township (town) governments are responsible for turning over the set finance only to their superior governments, so localities managed to help rural enterprises obtain tax deduction and exemption. Our investigation shows how they did that as follows: (1) to engage a certain number of disabled workers to apply for welfare enterprises, which can be exempted from income tax and part of industrial and commercial tax; (2) to transform the workshops to branch plants so as to enjoy the preference for new - established enterprises of deduction of income tax for one to two years; (3) to introduce foreign capital so as to enjoy the preferences for joint ventures; (4) to introduce new products so as to enjoy deduction of industrial and commercial tax; (5 ) to associate with local

IV . (2) The Role of Community Interests in the Development of Rural Enterprises

Because of grassroots nature of rural enterprises, they have dual status representing government as well as community. The role of community interests in the development of rural enterprises is , to great extent , played by township (town) governments. In some cases, for community interests, township (town) governments even do against the orders from superior governments though in disguised form. One example is the fore - mentioned association between rural enterprises and state - owned enterprises in Jiangsu Province in 1990 against the central government's policy of austerity. Another example is "K" Town Coating Material Plant. With the interference of County Government, the County Light Industrial Company was to take over the Coating Material Plant. The Town Government leaked it to Manager Yang of the Coating Material Plant, after discussion with Manager Yang and leaders of the village , changed the ownership of the Plant into town (village) - owned , and at the same time, organized some villagers to quarrel with managers of the County Light Industrial Company. Eventually, the County Light Industrial Company had to give up its ownership of the Plant.

The role of community clearly demonstrates itself in employment. In the thirty rural enterprises investigated, the first priority of employment was given to one's own community. Only after the employment problem of one's community had been settled, did rural enterprises begin to recruit out - of - town workers. For this reason, in Jiangsu, Guangdong and Zhejiang Provinces, where there are few arable land, a high population density and rural excess labor, rural enterprises have developed earliest and most smoothly.

The role of community interests also manifest in the common ground reached in taxation by township (town) governments and rural enterprises. In market economy, entrepreneurs often employ some skillful accountants to dodge taxes. But it never happens that local governments allow enterprises to have two accountant books in Order to pay less taxes. According to the statistics, at present in China, the annual tax evasions amount to 100 billion, accounting for one fourth of the annual tax revenues. It had something to do with its legitimacy recognized by the local governments. However, it goes without saying that it greatly impulsed the development of rural enterprises and provincial economy. Also community interests are the main incentive of rural enterprises in the 1980s. As the investigation shows, the incentive comes from six aspects: personal income, sense of accomplishment, community status, favorable working condition (such as cars, etc. ) , children's employment and hidden personal income. But by 1991 personal incomes of managers, 6,000 in Shandong Province and 10,000 in Jiangsu Province, were no higher than that of private enterprise owners and self - employed persons. And in the 1980s, their incomes were far less. We can say that the most powerful incentive of rural enterprises comes from sense of accomplishment and their status in community, which are connected with community interests. (34) Mr. Gu, manager of "J" Town Communications Cable Plant, assumed the post of deputy manager of Town Agriculture - Industry - Commerce Company after his success, and even was granted upon such honorary titles as "Provincial Model Worker" , "Provincial Excellent Enterprises" and "City Excellent Party Member" . Mr. Cong, manager of the No. 3 Branch Factory under "C" Town Polytechnic School, said that, "I was born here, and my offspring will also live here, so I should build up a good reputation for them. " We investigators think that his early motivation for business was to shake off poverty, and later it turned into to maintain his vested interests and raise his social status.

V . Rural Enterprises Have More Flexible Operating System

The principal school of Western economics thinks that the proficiency of enterprises depends an competition, having nothing to do with to whom they belong. (3s) But the economic practice in China in the 1980s showed that ownership has something to do with resource allocation. As soon as non - state - owned enterprises entered the market competition, the traditional ruling position of state - owned enterprises in economy was shaken. (36) In the recent years Chinese scholars have occasionally written articles, comparing the operating system of state - owned enterprises with that of rural enterprises. Our investigation shows that the operating system of rural enterprises is more flexible than state - owned enterprises in the following aspects

V . (1) More Flexible Wage System

Except that "E" Town Wood Fabric Garment Plant adopted strict rate wage system, the thirty enterprises took fixed - wage system plus bonus, like most state -owned enterprises at the time. (37) In 1991, the average wage of the workers in the twenty - nine enterprises was 1, 600 to 2 , 400 , lower than that of state - owned enterprises, 2,627. (3g)

The flexibility of rural enterprises' wage system lies in the incomes of managers and technological personnel . As mentioned in Part I II , rural enterprises can pay more to technological personnel than state - owned enterprises, and attract key technicians through high award. Here we mainly deal with managers' wage. According to the Interim Regulations of the People's Republic of China Concerning Contract Operation Responsibility System of All - people - owned Industrial Enterprises issued by the State Council in 1988 , the income of managers of contracted enterprises shall not exceed the three times of the average worker's income. The contracted rural enterprises should also act in accordance with the Regulations. But in fact, they took more flexible measures. According to the Incentive Regulation as provided in the Contract of "J" Town Communications Cable Plant, the manager would be paid 37 , 035 in 1991, eleven times of the average worker's pay, 3,378. When the Town Government submitted it to the County Government for approval, the latter agreed to adjust the manager's pay down to 20 , 000 with an adjustment rate of 46 per cent , still more than five times of the average worker's wage.

Another phenomenon is that more and more enterprises calculate part of managers' income out of the managers' "total income". For example, according to the approved responsibility contract draft of "K" Town Down - filled Garment Plant, manager's income in 1991 amounted to 4 , 395 , representing 2 . 9 times of the average worker's income. In fact his income not calculated in "total income" was far more than that in the contract draft, including monthly floating bonus of 400 odd, award for gaining foreign exchange of 2 , 500 , special award offered by the Board of 2 , 000 , and etc. All his income totaled over 14 , 000 , ten times of the average worker's income. In this way, though the average worker's income in rural enterprises are lower than that in state - owned enterprises, managers' income in the former is far more than managers' income in the latter.

V . (2) Flexible Operating Decision System

In the 1980s, all the rural enterprises were clearly market - oriented , while state - owned enterprises , especially part of large and medium - sized state - owned enterprises were partially going with planned system. An investigation in 1991 of 898 large and medium - sized state - owned enterprises showed that about 80 per cent of them had the right of production planning and product scale, and only 40 per cent had pricing right(39) .

In the thirty enterprises investigated, managers had overall decision - making power of production, sales, pricing and investment. Most cases show that the managers concentrated an sales, marketing and product development, and income of the salesmen was higher than other workers. The No. 3 Branch Factory under "C" Town Polytechnic School was a typical example. Manager Cong almost never concerned about routine production, busy with taking various means outside to seek new export opportunity and new technology.

Some research reports point out that large and medium - sized state - owned enterprises adopted such means for market competition as follows: product price, trade mark, advertisement, services and etc. Except the above means, rural enterprises often took the method of cash settlement plus favorable rebate. A Plastic Color Printing Plant in Dalian which had Chinas highest technology, failed in the competition with a rural enterprise, just because the latter agreed to offer the subscriber a rebate of 0. 20 per piece of picture. (4°) As for aforementioned "K" Town Coating Material Plant , it elbowed its rival , a large plant , out of market by means of trade mark.

V . (3) Few Interference From Superior Authority

As discussed in Part IV, township (town) governments and villagers' committees mostly interfered with rural enterprises favorably. Generally speaking, only when rural enterprises met problems in capital, land use, and transfer of technological personnel, will township (town) governments and village leaders came to give a hand. Otherwise, they seldom did so. It was a sharp contrast to state-owned enterprises. State - owned enterprises were always put in charge of various competent authorities, including relevant bureaus, economic commissions, trade union, Youth League, Women's Federation and etc. These authorities, instead of helping state-owned enterprises solve problems, tried to embarrass them. For example, it is stipulated that an investment in enterprises amounting to over 5 million, must be approved by relevant authority, and for such an investment , a certain state - owned enterprises had to cut the red tapes of begging 101 official seals. (°l)

The main reason for such contrast is that township (town) governments and villagers' committees share some common interests with rural enterprises, while there is no direct common economic interests between state - owned enterprises and their competent authorities. Now a general phenomenon in China is, where rural enterprises developed smoothly , cadres of township (town) governments and villagers' committees enjoy well - off living conditions. In 1991, the average worker's income of "H" Township Mercery Plant was 1, 800 , and managers' income was 2 , 500 , while income of secretary of the Villager Party committee was 5 , 900 and income of other principal villager leaders amounted to 4, 500. Their pay was mainly extracted from revenues of the enterprises run by the village. Booming enterprises would bring them high pay, and vice versa. This relationship of interest made village leaders support rural enterprises. While cadres of the competent authorities of state - owned enterprises were paid the fixed wage by the state. Whether state - owned enterprises operated well or not had nothing to do with them. So these cadres tried every means to make things difficult for state - owned enterprises to boast their authority and even to force state - owned enterprises to give them some personal benefits, exchanging their power with interests.

V . (4) Light Burden of Taxes and Retired Persons

As pointed in Part IV, with finance responsibility system, rural enterprises often shelter in the support of local governments, paying little or no taxes, and, state -owned enterprises not only have high tax rate, but also have to pay many kinds of taxes. According to an investigation made in a county in north Jiangsu Province in 1992 , the state - owned enterprises under the county had to pay 99 taxes and charges. (42) As for the thirty enterprises investigated, some enjoying tax deductions, the others all need to pay only 14 taxes and charges. Among them, 5 were turned over to the central and provincial governments including sales tax, urban construction tax, business income tax, energy and transportation fund and budget adjustment fund and, 9 were turned over to township (town) governments including management fee, education additional tax, agriculture development fund, social expenditures, price adjustment fund, fund for the construction of water conservancy works, flood prevention safety fund, allowance to servicemen family and part of net profits.

The other heavy burden of state - owned enterprises is large numbers of retirees and plenty of pensions. According to the statistics in 1991, the 14 general industrial companies of Beijing had 670, 000 worker, which included 210, 000 retirees, accounting for almost one third of the total, and the companies should pay 350 million as retire pension each year. (43) Most rural enterprises set up or got developed in the 1980s and most of their workers came from young peasants. According to the investigation, rural enterprises had nearly no burden of retirees, and retire fund system had been carried out in most rural enterprises that part of workers' wage was extracted for their later pension.

V1. Concluding Remarks

The writer holds that, from the macroeconomic data of rural enterprises and the investigation of the thirty rural enterprises in Shandong and Jiangsu Provinces, the miracle of China's rural enterprises in the 1980s was achieved for the following reasons: rural enterprises are the result of the resources' free flow being restricted; the reform in the 1980s has opened an immense market for rural enterprises' development ; state - owned enterprises constitute the most important technological source of rural enterprises; finance responsibility and economic benefits have provoked the localities' initiative for establishing rural enterprises; rural enterprises have flexible operating system. These specific conditions do not exist in other market economy.

Through the 1980s, China had passed beyond the first stage of transforming planned system to market system and private economy started to rapidly develop, the restriction an rural residents flowing to cities has been gradually relaxed; market competition tends to be more bitter; it is harder and harder to expand market; with market playing more and more important role and state - owned enterprises being converted to stock - holding enterprises, charge for technology transfer roars quickly; and with the reform of the system of tax distribution from 1994 , the preferences rural enterprises enjoyed are to be lost; and etc. All these will make more difficult for rural enterprises to develop in the 1990s. We can say the peak stage of rural enterprises has gone by.

However, from the other side, as far as peasants are concerned, to develop rural enterprises aims to solve the problem of their employment and income. In the 1990s, at least dozens million peasants will stop agricultural production to undertake other trades. Now one third of peasants' income or half of their newly - increased income are paid by rural enterprises. But as far, in China the average peasant's annual income is just 600 to 900 , far lower than the average annual income of coastal urban residents , 2 , 000 to 3 , 000. Whether rural enterprises can further develop or not has an impact an whether peasants' living standard can greatly improve, whether the gap between urban residents and rural residents will further expand, and whether China will remain stable. We can say, after more than ten years of reform, China's basis problem is still about peasants. So rural enterprises are still the key to the problem within several years.

Therefore, though the peak stage of rural enterprises' development has gone by, they will continue to develop , especially those in the central and west China will develop with increasing speed. It can be predicted that after certain years, rural enterprises will top the list in China's industrial output, while state - owned enterprises have to come off under them.

NOTES

(1) Gao Yinuo, "A New Force Coming to the Fore for the Second Time Rural Enterprises" , Economic Daily , June 13 , 1993.

(2) OECD, Business and Jobs in the Rural World , Paris: OECD, 1992, pp. 17 - 21.

(3) B. Ghosh, "Political Economy of Skill Drain from Rural India," Journal of Contemporary Asia, Manila , Vol. 23 , No. 3 , 1993 , pp. 327 - 353.

[4) Wu Xiang, Lu Wenqiang, "Rural Enterprises: Result and Incentive of Market - Oriented Reform" , Reform , No. 2 , 1993 , pp. 23 - 24. Xu Fengxian, \ ! New Development of South Jiangsu Model" , Economic Research , No. 2 , 1993 , pp. 49 - 55. Li Bingkun, "Retrospect and Prospect of Rural Enterprises in the Fifteen Years of Reform and Opening to the Outside World", Management World , No. 5 , 1993 , pp. 156 - 165.

(5) The following two books that is to be published carry the thirty cases. Research an Rural Enterprises in the 1990s, compiled by Ma Rong, Yang Mu and Wang Hansheng, Hong Kong: Oxford University Press, 1994; Historical Development and Operating System of China's Rural Enterprises , compiled by Ma Rong, Wang Hansheng and Liu Shiding, Beijing: Peking University Press, 1994.

(6) This has been pointed out in many early works and papers an rural enterprises as follows. Development Institute, "On Development of Non - agriculture Industry" , Economic Research , No. 8 , 1986 , pp. 9 - 24. China's Rural Industry : Structure , Development and Reform , compiled by Lin Qingsong and Bode, Beijing: Publishing House of Economic Sciences, 1989. He Baoshan, Research an Non - Agriculture Development in the Rural Areas of Jiangsu Province, Shanghai: Shanghai People's Publishing House, 1991.

(7)China's Rural Enterprises Yearbook (1978-87), Beijing: Agriculture Press, 1981, p. 1.

(8) Ibid . pp. 422 - 427 .

(9) People's Daily , September 22 , 1993 .

(10) The Constitution of the People's Republic of China (1982) , Article 11 and 12. China's Foreign Legislation (1949 - 1990) , compiled by the Bureau of Legislation of the State Council , Beijing: China Legality Press, 1991, p. 6.

(11) Financial Times , September 19 , 1993 .

[12)Wu Xiang, Lu Wenqiang, "Rural Enterprises: Result and Incentive of Market-Oriented Reform" .

(13) China Information Journal , July 26 , 1993.

(14) Industry and Commerce Times , April 1, 1994.

(15) China Economy Statistics Yearbook (1993) , Beijing: 1993. Owing to the lack of the statistics of China's GNP before the reform, we cannot make comparison between the growth rate of per capita GNP in the 1980s with that during the 30 years before the reform.

(16) China Economy Statistics Yearbook (1981) and China Economy Statistics Yearbook (1991) .

(17)Ji Chongwei, Yang Mu, "Comprehensively and Correctly Understand and Carry out Foreign-oriented Developing Strategy",

People's Daily, July 18, 1988.

(18) Financial Times, January 23, 1994.

(19) China's Rural Enterprises Yearbook (1993), Beijing: Agriculture Press, 1993. China Industrial Economy Statistics Yearbook

(1993), Beijing.

(20) The said Shanghai Coating Material Plant is an urban collective enterprise founded in the 1970s. The collective enterprises like it have very similar operating System with state-owned enterprises, and are called "quasi-state-owned enterprises" in China.

(21) Goh Keng Swee, "How Taiwan, South Korea, Singapore and Hong Kong obtained knowledge and turned it into economic success?", Asia Business, Hong Kong: July, 1992.

(22) Shen Kunrong, "Research an Growth Factors of the Development of Rural Enterprises in Jiangsu Province", China Industrial Economy Research, No. 5, 1993.

(23) Wang Husheng, Su Guangyu, Research an Chinas Scientific and Technological Structure, Taiyuan: Shanxi Economic Publishing House, 1992, pp. 108, 89.

(24) Ibid. pp. 159, 191.

(25) Ibid. pp. 267-275.

(26) After the salary reform in October 1993, monthly wage of senior engineers and professors raised to 800 to 1,000.

(27) When making investigation in Zhangjiagang City in 1992, this writer learned that because a engineer of a certain state-owned enterprise in Tianjin helped a rural enterprise of Zhangjiagang to solve its key technological problems, the layer agreed to build an apartment in Tianjin for the engineer who would own the apartment.

(28) There were six different forms of the finance responsibility System in 1988. The method of rationing system according to income increase rate was adopted in ten provinces and municipalities directly under the Central Government. It was, taking the local payment in balance budget as base, according to the income increase of localities during recent years, the increase rate of local income (link-ratio) and increase rate of retention were Set. The local income will, according to the set increase rate of retention, be shared between the Central Government and the locality; if the income increase rate is higher than the Set rate, all the excess income will belong to the local government; if the income increase rate is lower than the Set rate, the unfinished share will be complemented through the local financial resource. Obviously this method is regress, that is, the more local economy develops, the higher income local government will get and the less they will turn over, and vice versa. This method immensely stimulated the development of local economy. Encyclopedia of China Reform: Financial System Volume, Dalian: Dalian Publishing House, 1992, pp. 135 137.

(29) "Report of the Investigation an the Rural Enterprises Throughout the Country in 1986", Chinas Rural Enterprises Yearbook (1978-87) , Beijing: Agriculture Press, 1989, pp. 219 224.

(30) Sun Tanzhen , Zhu Gang, "Financial Analysis Out of China's Rural System", Economic Research, No. 9, 1993, pp. 38-44.

(31) Jiangsu Statistics Yearbook (1991), Nanjing: Jiangsu People's Publishing House, 1991, p. 115.

(32) China Finance Yearbook (1987), China Finance Yearbook (1991), Beijing: China Finance Press, 1987 and 1991.

(33) China's Rural Enterprises Yearbook (1990), Beijing: Agriculture Press, 1991, p.19.

(34) People's Daily , August 21, 1993 .

(35) Lohn Vickers and George Yarrow, Privatization ; An Economic Analysis , Cambridge: The MIT Press, 1988 , pp. 7 -121.

(36) Wu Xiang, Lu Wenqiang, "Rural Enterprises: Result and Incentive of Market-Oriented Reform". Li Bingkun, "Retrospect and Prospect of Rural Enterprises in the Fifteen Years of Reform and Opening to the Outside World". Chen Xiaoqiang, "Comparison of the Competition Conditions of State - owned Enterprises, Rural Enterprises and Foreign - funded Enterprises [ Sino - foreign joint ventures, Sino- foreign cooperative enterprises and exclusively foreign - funded enterprisesj" , China Industrial Economy Research , No. 11, 1993 , pp. 36 - 38 .

(37) In the period from the end of the 1980s to the early 1990x, most rural enterprises in China undertook contract operation responsibility system. The distribution inside enterprises was basically fixed wage plus piece rate wage system. Improve Contract Operation Responsibility System and Vitalize the Distribution Inside Enterprises , compiled by the Administration of Enterprises of the State Economic Commission, Beijing: Enterprise Management Publishing House, 1988.

(38) China Economy Statistics Yearbook , Beijing : 1992 , p.134.

(39) "Report of the Research Concerning Changing the Way Large and Medium - sized State - owned Enterprises Operate", compiled by the Project Research Group of the State Commission for Restructuring of Economy, Reform , No. 2, 1993 , pp. 35 - 45.

(40) Chen Xiaoqiang, "Comparison of the Competition Conditions of State-owned Enterprises, Rural Enterprises and Foreign - funded Enterprises [ Sino - foreign joint ventures, Sino - foreign cooperative enterprises and exclusively foreign-funded enterprises".

(41) Ibid .

(42) China Information Journal , August 20 , 1993 .

(43) Guo Xiaowei, "The Historic Burden of Enterprises Remains to be Lifted", Enterprise Management, No.4, 1993, pp.7-10.

Form I.

Scientific and Technological Personnel of

Several Major Countries and Areas of the World

 

Source: Wang Husheng, Research an China's Scientific and Technological Structure, Taiyuan: Shanxi Economic Publishing House, 1992, p.89.

Note: (i) refers to the number of scientists and engineers. (19) refers to the 1990s.

Yang Mu: research professor of Singapore Institute of East-Asia Politics and Economy.The Miracle of China's Rural Enterprises