Barriers to Efficiency and the Privatisation of Township-Village Enterprises

Qian (2000 Qian, Y. 2000. The process of China's market transition (1978–98): the evolutionary, historical, and comparative perspectives. Journal of Institutional and Theoretical Economics, 156(1): 151–171. [Web of Science ®] , [Google Scholar]) and others suggest that post-1994 tax and banking reforms in China, combined with the development of markets for allocating resources, influenced the economic performance of township-village enterprises (TVEs) and private enterprises (PEs). This paper uses Chinese provincial level data to search for evidence of advantages and/or disadvantages offered to TVEs and PEs before and after the 1994 reforms. We define a sectoral net income-based measure of overall efficiency and decompose the measure into components that highlight the existence of credit constraints, output target constraints and labour hiring constraints. The results offer empirical support for Qian and others explanation of why private enterprises eventually emerged as the dominant institution for allocating resources in post-1994 rural China.