Chapter 3: Enterprises and Agriculture
INTRODUCTION In many respects, the evolution of enterprises was intertwined with agriculture in China’s transition and economic development. China achieved industrialisation through the use of ‘price scissors’ that kept agricultural goods prices low and manufactured goods prices high in order to fuel the urban economy (Knight 1995). This ‘urban bias’ continued in the reform period and is evident in policies such as the household registration system (hukou), which allocates urban and rural residents to their respective geographical domiciles. On the eve of reforms in 1978, some 80% of China’s population dwelled in rural areas and were employed in agriculture, despite the country having only some 6–7% arable land, less than the world average. Industrialisation in urban areas should have exerted strong pressure on the rural populace to migrate to better wages and the generous benefits system provided to urban residents through SOEs when such a social safety net was absent in the rural areas. However, the hukou system forbids such migration. When reforms were introduced in 1978 in rural areas, not only was agriculture reformed but rural industry was also created. Township and village enterprises (TVEs) helped to absorb surplus labour from China’s low productivity agricultural sector, which also deterred rural-urban migration until much later on in the reform process. Therefore, the development of TVEs during the reform period is particularly related to the reform of agriculture. In the first two sections of this chapter, both will be discussed. Then, the chapter will turn to SOEs and the final...
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