Sustaining Growth and Performance in East Asia
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Sustaining Growth and Performance in East Asia

The Role of Small and Medium Sized Enterprises

Edited by Charles Harvie and Boon-Chye Lee

This third book in the series focuses on how small and medium sized enterprises (SMEs) contribute to achieving and sustaining growth and performance in their economies, as well as the ways in which governments can assist and enhance that contribution. This is of particular concern given the trauma suffered by East Asian economies in the wake of the financial and economic crisis of 1997–98.
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Chapter 14: The Changing Role of Local Government in Promoting China’s Collective Township and Village Enterprises

Russell Smyth


Russell Smyth1 14.1 INTRODUCTION Collective township and village enterprises (CTVEs) have been the driving force behind China’s high rate of economic growth over a sustained period. In most East Asian countries central governments have implemented industrial policies designed to foster small and medium-sized enterprise development. An unusual feature of China’s industrial development is that local governments have performed this role. Various authors have described the close relationship between local governments – or township-village governments (TVGs) – and CTVEs as a form of ‘corporatism’ or have likened TVGs to economic corporations (see for example Oi, 1988, 1992; Che and Qian, 1998; Walder, 1998). However, in recent times the economic relationship between TVGs and CTVEs has undergone significant change. An important feature of the changing relationship concerns the role of TVGs in arranging financing for CTVEs under their control. The aim of this chapter is to review these recent developments. The main argument will be that as monitoring costs have increased, local governments have adopted indirect forms of governance over CTVEs, such as leasing and shareholding cooperative reform as vehicles to raise capital, while retaining direct control over the most profitable firms. The chapter is set out as follows. The next section provides a brief overview of the historical evolution of CTVEs in China and outlines their distinguishing characteristics. Section 14.3 describes the traditional role of TVGs in financing CTVEs under their control. The advantages and disadvantages of this approach are discussed in section 14.4. Section 14.5 evaluates recent reforms, which are...

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