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COPYRIGHT 2004 The Institute Inc.
Growth as Prologue
Since China entered the post-Mao Reform Era in the late 1970s and early 1980s, the Chinese economy has taken off as few economies ever have. A decade later, double-digit economic growth figures were taken as a matter of course, and since 1979 China has averaged a 9.5% per-year increase in its gross domestic product (GDP) and per-capita output has been doubling every 10 years, up 800% between 1981 and 2003 (Kristof and WuDunn 2000; He 2004; Watts 2004). While the long-industrialized economies of Japan, the United States, and Europe were optimistically hoping for growth rates of 4-5% (and achieving only 2.5% on average), China's foreign reserves were steadily building (US$70 billion, the world's fifth highest, by 1995, and $121 billion by mid-1997). Inflation, a major headache of planners and consumers alike in the early 1990s (when prices were increasing 24% per year in 1994), fell to less than 2% by 1997 (Faison 1997; Xu 1997). Of course, China's refusal to allow its currency to fluctuate on the international market has something to do with inflation control. Some predict that by 2010, this robust economy will become the world's second largest, behind only that of the United States and, within the following decade or even earlier, become the world's largest (Mittelman and Pasha 1997: 154; Yu 1994: 96).
Once a Cold War-blockaded, self-reliant, iconoclastic economy and society, China has emerged rapidly since the 1980s as an increasingly globally engaged society. Foreign investment in China soared to US $81.4 billion in 1994 from US $2.9 billion only a decade earlier. Earlier development policies based on import substitution shifted to export-led strategies led by the forces of international globalization. The once all-powerful center has loosened the reins of control, and decentralization has increased the impact of outside forces on China. As the capacity of the center in Beijing to organize the country decreases, and as provinces have become increasingly financially independent (Guangdong Province, for example, relied on Beijing for only 2% of its investment capital by the early 1990s, down from 80% in 1979), the once-vaunted machinery of the Chinese communist state now only oversees rather than actively runs the economy and society (NEW YORK TIMES MAGAZINE 1996; Yu 1994). This is not true for poorer provinces and the interior provinces, however, which continue to lag behind their richer coastal cousins.
Clearly, life has been changing in China. The decollectivization of agriculture, the dismantling of the commune structures, and the move to a "socialist market economy" in the early 1980s, have proceeded apace and transformed much of the givens of the economy and of daily life. Dramatic increases in productivity during this reform era seem to have shattered the old ceiling imposed by both the pre-Revolutionary society and the pre-reform collectivist economy wherein labor supply was inflexible. Production innovations, such as mixing private and collective, and distribution readjustments utilizing market and planning enabled China's rural output to soar 250% during the 1980s while population increased only 15% (Huang 1991: 631-632).
In 1980, four-fifths of Chinese were still tied economically and administratively to the land, but these forces of reform and globalization have succeeded in dramatically reducing that proportion. In only two decades, agriculture's hold on the majority of the population has weakened greatly: between 1978 and 1989 alone, agriculture dropped from employing 70.7% of the labor force to 60.2%, and then to only 57% by 1993. The pace has continued unabated and within a few years, there will be as many non-farmers in China as farmers, for the first time since China entered the Neolithic era ten millennia ago (Chen and Parish 1996: 63; Guldin 1992: 229-230; Hook 1996: 122).
Key to this transformation has been the growth of the township and village enterprises (TVEs), those former agricultural cooperative manufacturing and processing industries, which were taken over by the town and village governments in the early reform era. They have absorbed much of the agricultural surplus labor released from the land as communes were dismantled, expanding their labor force at an annual rate of 13% per year during the 1980s and employing 135 million workers by 1997. They have become a crucial element of China's expanding industrial production, contributing 26% of GDP, 44% of gross value of industrial output (GVIO), and 35% of export earnings and growing at an annual increase in production of 15% per year in the mid-1990s (CND 1997; Huang 1991: 632; Vinje 1997: 3-4). Their place in a changing China was reaffirmed with the implementation of the nation's Eighth Five-Year Plan (1991-1995) which emphasized TVEs linking up with the international market. Export-oriented TVEs constituted one of the most dynamic sectors of the entire Chinese economy (Aggarwal 1997: 1-2), although their spectacular growth rate slowed considerably since the late 1990s (Becket 2000).
TVEs also are the main source of revenue of local towns and villages, particularly in the country's more prosperous coastal zones, supplying between 60 and 80% of their operating funds. As the state-owned sector of the economy continues to shrink, the TVEs are taking up the slack in providing revenue for local governments, employing local laborers, and undertaking local social welfare responsibilities. Reforms announced in the first years of the new century, however, signal a new turn for the TVEs. The relentless marketization of the Chinese socio-economy has led to efforts to privatize some of the more successful TVEs, giving birth to the rise of "dragonhead" enterprises in many a rural district as local government and Communist Party officials (taking a leaf out of the privatization playbook of their counterparts in the Former Soviet Union) "retire" from public service to go on to more lucrative management/ownership of privatized TVEs. Often these assets are the very enterprises they managed previously for the public good, and frequently with as little competition tolerated in the 1990s and 2000s as during the old collectivist days of the 1960s and 1970s.
Yet even where the most significant TVEs remain in the public arena, it is painfully true that not everyone falls neatly onto their social welfare safety net when state enterprises fold or when there is not enough work on the farm. Rural unemployment is still a significant problem and tens of millions have migrated to look for employment outside their home districts (CND 1998a; Tyson and Tyson 1992: 9; Vinje 1997: 6). A shortfall of fully 290 million rural jobs is foreseen in the coming decades (Guo 2000).
These migrants have formed the most important strands in the new ties connecting rural to urban areas. With more than 100 million estimated to be living or seeking employment in urban areas, these migrants are sending home remittances which often exceed the local government's budgets, thus making their financial impact on local areas quite significant. The funds that flow home fuel new businesses and new homes, and their experiences in the more worldly and wealthier coastal districts and cities yields new skills and ideas which they transfer to their rural home districts (FINANCIAL TIMES 2003, AFP 2004). Nationwide, the percentage that migrant remittances contribute to rural income exceeded 40% by 2003, dropping the share that agriculture provides to below 60% (Kynge 2004).
Labor migration, rural enterprises, rising production, and globalization have thus all combined to end the isolation of the Chinese countryside. For most of the country, former commune peasants have become farmers, workers, and entrepreneurs, as they engage in...
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