Institutions, State Activism, and Economic Development: A Comparison of State‐Owned and Township‐Village Enterprises in China
Institutions, State Activism, and Economic Development: A Comparison of State‐Owned and Township‐Village Enterprises in China
This chapter examines why township-village enterprises (TVEs) are more efficient than state-owned enterprises (SOEs) in China. It is shown that China’s special form of decentralization — ‘market-preserving federalism, Chinese style’ — accounts for positive incentives at the lowest level of government. Local governments’ independent authority over their economies combines with the fiscal incentives, leading these governments to foster and maintain hospital economic environments. Governments at the lowest level in the hierarchy, townships and villages, do not have the means to insulate their firms from competition via trade barriers or to bail out ailing firms via macroeconomic tools. Given the structure of federalism, these governments can grow only if their economies grow.
Keywords: incentives, government control, decentralization, federalism, local government
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