The Growth of Market Relations in Post-Reform Rural China: A Micro-Analysis of Peasants, Migrants and Peasant Entrepeneurs

The Growth of Market Relations in Post-reform Rural China

This book, based on in-depth field research at the local level, assesses the different factors that are contributing to the transition to a market economy and the growth of social networks in rural China. It analyses the different socio-economic factors – peasant households, out-migrants, family businesses and peasant entrepreneurs, uses the key concept of markets as a nexus of social networks, and identifies three different kinds of ‘social capital’ – human capital, that is skills and abilities, political capital/status, and network capital, that is the quality and quantity of social networks which socio-economic factors can mobilize. The book demonstrates the importance of socio-political networks, that is the social relationships developed through interaction with the party–state system, especially when peasants move from agricultural production to become peasant entrepreneurs. The book also points out significant regional differences. Hiroshi Sato is Professor of Chinese Economy and Society, the Graduate School of Economics, Hitotsubashi University, Tokyo. His research interests are the economic and social behaviour of the household, labour market formation, distribution of household income, and poverty alleviation.

RoutledgeCurzon Studies on the Chinese Economy 1

RoutledgeCurzon studies on the Chinese economy Series editors Peter Nolan, University of Cambridge Dong Fureng, Chinese Academy of Social Sciences

The aim of this series is to publish original, high-quality, research-level work by both new and established scholars in the West and the East, on all aspects of the Chinese economy, including studies of business and economic history. 1. The Growth of Market Relations in Post-reform Rural China A micro-analysis of peasants, migrants and peasant entrepreneurs Hiroshi Sato 2. The Chinese Coal Industry: An Economic History Elspeth Thomson 3. Sustaining China’s Economic Growth in the Twenty-first Century Shujie Yao and Xianning Liu

The Growth of Market Relations in Post-reform Rural China A micro-analysis of peasants, migrants and peasant entrepreneurs Hiroshi Sato

First published 2003 by RoutledgeCurzon 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by RoutledgeCurzon 29 West 35th Street, New York, NY 10001 This edition published in the Taylor & Francis e-Library, 2004. RoutledgeCurzon is an imprint of the Taylor & Francis Group © 2003 Hiroshi Sato All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. The publisher makes no representation, express or implied, with regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any errors or omissions that may be made. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Sato, Hiroshi. The growth of market relations in post-reform China: a micro-analysis of peasants, migrants and peasant entrepreneurs / Hiroshi Sato. p. cm. – (RoutledgeCurzon studies on the Chinese economy) Includes bibliographical references and index. 1. Agriculture – Economic aspects – China. 2. Rural development – Economic aspects – China. 3. Rural–urban migration – China. 4. Peasantry – china. 5. Entrepreneurship – China. 6. Infrastructure (Economics) – China. 7. Social networks – China. I. Title. II. Series. HD2097.S34 2002 330.951 – dc21 2002031606 ISBN 0-203-22119-2 Master e-book ISBN

ISBN 0-203-27584-5 (Adobe eReader Format) ISBN 0-7007-1726-9 (Print Edition)

Contents

List of figures List of tables List of maps Acknowledgements 1

Introduction and overview

viii ix xi xii 1

Introduction 1 Overview of the study 16 PART I

Case studies of markets and market actors 2

Network capital, political capital and the bazaar economy in rural Yunnan: a family business survey of a periodic market

23

25

Issues and survey areas 25 From peasant to merchant: the profile of family businesses in Shilin 28 Merchant and market: uncertainties, risks and trade relations 33 The enduring trade relations strategy and sociopolitical networks 40 Conclusion 47 3

TVE reform and patron–client networks between peasant entrepreneurs and the local government: the Sunan model versus the Wenzhou model reconsidered Issues, survey areas and data 51 Social characteristics of peasant entrepreneurs 63 Deepening of marketization and changes in behavioural patterns of peasant entrepreneurs 69

51

vi

Contents Conclusion 79 Appendix 3A: The regional economy of Wenzhou 81 Appendix 3B: Nonagricultural job history of peasant entrepreneurs in Wujiang and Wenzhou 82

4

Migration, the job search and social networks: three surveys of rural–urban migration

91

Issues and data 91 Entry barriers to the urban labour market 93 The significance of social networks on migration and its implications 103 Conclusion 110 Appendix 4A: The behavioural and attitudinal structure of migrant workers in firms with Japanese investment 111 5

How does local government mobilize social networks? The micro political economy of microfinance in rural Yunnan

116

Setting the agenda 116 The background to microfinance 123 Design of microfinance 131 Actual operations of microfinance and its implications 137 Conclusion 141 Appendix 5A: Community-based credit organization 143 PART II

Comparative village analyses 6

Income generation and access to economic opportunities: a comparative village analysis

145

147

Introduction 147 The level and structure of household income in survey villages 151 Access to economic opportunities 159 Conclusion 166 Appendix 6A: The cadre–peasant relationship 167 7

The continuity and vitality of small peasant households: a case study of household behaviour under the commune system Introduction 169 The collective distribution system and peasants’ response 177

169

Contents

vii

Private activities under the commune system 185 Conclusion 189 Appendix 7A: Demographic trends in HQ village (1950s–80s) 191 8

Concluding remarks: marketization and networks in post-reform rural China

193

Microstudy of marketization 193 The market as a nexus of social networks 194 Institutional change and informal institutional constraints 195 Two-fold network, two-fold tradition 196 The underdeveloped market and the relationships of market, state and society 196 Regional imbalances in market development 198 Drive of small peasant households 198 Agenda for further investigation 199 Appendix A Survey areas Appendix B Glossary of Chinese terms Notes Bibliography Index

200 207 214 223 234

Figures

1.1 Structure of the study 1.2 Basic framework of the study: socioeconomic actors’ access to economic opportunities 1.3 Human, political and network capital 4.1 Job ranks and barriers to entry 4.2 Process of entry into M Factory (case study of workers from Yingshan County, Sichuan Province, 1992) 4A Behavioural and attitudinal structure of migrant workers: framework for factor analysis 5A Development level and the types of financial institutions 7.1 Farm size and land utilization before the land reform 7.2 Per capita collective income in HQ village (1962–82) 7.3 Inequality in collective income among households (1962–82) 7.4 Structure of collective distribution 7.5 Household’s demographic structure and labour input (1975 and 1982) 7A Demographic trends in HQ village

2 2 11 97 106 112 143 173 178 179 181 184 191

Tables

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10

Economic indicators for Shilin County (1998) Development of periodic rural markets in Shilin County Comparison of entrepreneurs’ characteristics: B Township and the national trend Structure of family business in B Township Business category and price-formation principle method Factors influencing the choice of strategy for avoidance of risk (OLS estimation) Management characteristics and advantage of having enduring trade relations Network/political capital and types of enduring trading partners Logit estimation of factors influencing the accessibility to rural financial markets Profile of entrepreneurs with sociopolitical networks and political capital General characteristics of the sample firms Comparison of the Sunan Model and the Wenzhou model Ownership and management system reforms of collectiveowned TVEs in Jiangsu Province Ownership and management system reforms in Wujiang sample firms Personal attributes of high executives Employment channel, date of employment and educational level of high executives Previous careers of high executives Decision-making authority of enterprise management executives Managerial objectives of high executives (self-evaluation, importance level) Constraints on behaviours of high executives (self-evaluation, strength of constraint)

26 28 30 34 38 41 42 45 48 49 54 58 60 62 64 66 67 70 72 73

x

Tables

3.11

Constraints on managerial behaviour of high executives in Wujiang (OLS estimation) 3.12 How to improve status of peasant entrepreneurs 3A Changes in the economic structure of a household in Qiaotou Township, Yongjia County 3B Nonagricultural job history of entrepreneurs in Wujiang and Wenzhou 4.1 Profile of migrant peasants 4.2 Relationship between entry channel, job rank and educational level 4.3 Determinants of wage and income of out-migrants (OLS estimations) 4.4 Entry channels by firm 4A Behavioural and attitudinal structure of migrant workers: factor analysis 5.1 Economic indicators for townships studied 5.2 Problems of rural financial markets in developing economies 5.3 Comparison of microfinance programmes 5A Community-based credit organizations 6.1 Economic structure of survey villages 6.2 Employment structure of survey villages 6.3 Structure of household income 6.4 Household income function 6.5 Relationship between a peasant’s behavioural choices and semi-micro environments 6.6 Entry channels to nonagricultural employment opportunities 6.7 Determinants of access to nonagricultural employment opportunities (logit estimation) 6A Qualification of village cadres 7.1 Economic conditions in the survey area 7.2 Out-migration before the land reform 7.3 Partial list of out-migrants by household 7.4 Class status and landholding in HQ village 7.5 The distribution of collective income (Gini coefficient) 7.6 Determinants of collective income in HQ village (OLS estimation) 7.7 A household budget in the commune era (1971–82) 7.8 Decomposition of collective distribution 7.9 Nonagricultural employment during the commune era (1969–82) Appendix A Basic socioeconomic indicators for survey areas

74 77 80 83 94 100 104 105 114 118 121 124 142 148 150 154 156 160 162 164 168 170 174 175 176 180 182 186 188 190 201

Maps

2.1 Periodic rural markets in Shilin County Appendix A Map of survey areas

27 200

Acknowledgements

This book summarizes the field surveys I conducted in various locations in rural China throughout the 1990s. In carrying out this study, I received support from many people. Above all, I would like to express my gratitude from the bottom of my heart to many Chinese peasants, grassroots cadres and local government officials, who kindly cooperated in repeated interview surveys and took the time to fill out bulky questionnaires. Needless to say, this study could not have been accomplished without the cooperation of these people. All the rural surveys were conducted as joint research projects with researchers from both Japan and China. I would like to extend my thanks to the following Chinese scholars who cooperated in the joint research projects, although the list must necessarily be incomplete. First of all, in the work on the rural household surveys in the provinces of Shandong, Hunan, Anhui, and Guizhou I received substantial contributions from scholars at three Chinese research institutions: Professors Chen Xiwen, Xie Yang and Xu Xiaoqing, as well as Ms Ma Jianying of the Development Research Center of the State Council; Professors Du Ying, Song Hongyuan and Bai Nansheng of the Research Center for Rural Economy, the Ministry of Agriculture; and Professors Chen Jiyuan, Deng Yingtao, Zhu Gang and Sun Tanzhen of the Rural Development Institute of the Chinese Academy of Social Sciences (CASS). For the surveys in Yunnan, I received tremendous help from President He Yaohua, as well as Professors Fan Zuqi, Wang Zongli and Zuo Yasha of the Yunnan Academy of Social Sciences. In the urban and migrant household survey, Professors Zhao Renwei, Li Shi, Zhu Ling, Zhang Ping and Wei Zhong as well as Ms Xie Yanhong of the Institute of Economics, CASS provided me with great support. The village survey in Haining County, Zhejiang Province is the fruit of my long-term cooperation with Professors Zhang Letian (Fudan University) and Wu Baijun (East China University of Science and Technology). Professor Fan Conglai (Nanjing University) and Professor Ma Jinlong (Wenzhou City Policy Research Office and East China University of Science and Technology) provided their support for the firm surveys in Jiangsu Province and Zhejiang Province. Mr Ishi Jiro of Hong Kong Miyakawa Co. Ltd, a Hong Kong based Japanese businessman, gave me

Acknowledgements

xiii

generous support for the Japanese-invested firm survey in Guangdong Province. In carrying out the field surveys and the analysis of the survey results, I received useful advice and criticism from the joint researchers on the Japanese side, although again the list is incomplete: Professors Nakagane Katsuji (University of Tokyo), Tajima Toshio (University of Tokyo), Du Jin (Peking University and Takushoku University), Ikegami Akihide (Meiji University), Oshima Kazutsugu (Tokyo University of Agriculture), Suganuma Keisuke (Fukushima University), Nie Lili (Tokyo Woman’s Christian University), Yan Shanping (Momoyama Gakuin University), Wang Leping (Meiji University), Tahara Fumiki (University of Tokyo), Kato Hiroyuki (Kobe University), Ueda Makoto (Rikkyo University), Amako Satoshi (Aoyama Gakuin University), and Kojima Tomoyuki (Keio University). Furthermore, in summarizing this study I received helpful advice from the following professors though we could not conduct the field surveys together: Mori Kazuko (Waseda University), Ishihara Kyoichi (Kobe University), Hishida Masaharu (University of Shizuoka), Uehara Kazuyoshi (Kyoto University), Marukawa Tomoo (University of Tokyo), Imai Ken-ichi (Institute of Developing Economies), Kizaki Midori (Yokohama National University), Huang Lin (Kobe University), Sonoda Shigeto (Chuo University), David Wank (Sophia University), John Knight (University of Oxford), Song Lina (University of Nottingham), Xia Qingjie (University of Nottingham), Simon Appleton (University of Nottingham), Sarah Cook (University of Sussex and the Ford Foundation), Yao Shujie (Middlesex University), Xue Jinjun (Oita University), Linda Yueh (University of Oxford), Gong Xiaodong (IZA, Germany), Dai Erbiao (ICSEAD, Japan), Wen Rui (Jiangxi Normal University), Zuo Xuejin (Shanghai Academy of Social Sciences), and Wang Zhen (Shanghai Academy of Social Sciences). The field surveys were made possible by the Grant in Aid for Scientific Research (GIASR) of the Ministry of Education, Culture, Sports, Science, and Technology, and the Japan Society of the Promotion of Science (JSPS), as well as financial support from several other non-governmental foundations. Here are the names of research grant programmes and the research principal, and I would like to express my deep gratitude to them for the funding and other help. In the following list, [ ] indicates research period and research principal: GIASR re. no. 06044039 [1994–6, Nakagane Katsuji] and GIASR re. no. 09044022 [1997–8; Nakagane Katsuji] for the rural periodic market survey and the day-labourer survey in Yunnan Province (Chapters 2, 3, and 4); the Sasakawa Japan–China Friendship Fund [1991–3, Nakagane Katsuji] and GIASR re. no. 06044039 [1994–6, Nakagane Katsuji] for the rural household surveys in Shandong, Hunan, Anhui, and Guizhou (Chapter 6); GIASR re. no. 07041049 [1995–7, Sato Hiroshi], the Toyota Foundation [1993, Ueda Makoto], and the Matsushita International Foundation [1993–4, Sato Hiroshi] for the village survey and collection of the historical statistics in Haining County (Chapters 6 and 7); GIASR re. no. 11691080 [1999–2000,

xiv

Acknowledgements

Kato Hiroyuki] for the firm surveys in Suzhou and Wenzhou (Chapter 3); the Ford Foundation [1999–2000, Li Shi] and the Masayoshi Ohira Memorial Foundation [1998, Sato Hiroshi] for the urban and migrant household survey (Chapter 3); GIASR re. no. 09490013 [1997–9, Taniguchi Shinkichi, Hitotsubashi University] and the Masayoshi Ohira Memorial Foundation [1998, Sato Hiroshi] for the microfinance survey in Yunnan Province (Chapter 5); GIASR re. no. 09041079 [1997–8, Oshima Kazutsugu] and the Japan Science Society [1990, Sato Hiroshi] for the Japanese-invested firm surveys in Guangdong Province (Chapter 4); the Seimei Kai [1996, Sato Hiroshi] and GIASR re. no. 08208103 [1996–8, Mori Kazuko] for collecting research materials and making data sets for each chapter; GIASR re. no. 13630043 [2001–, Sato Hiroshi] for putting each survey together and preparing manuscripts. I obtained the time to concentrate on putting this study together from the summer of 1999 to the summer of 2000. I visited the Institute of Applied Sociology, East China University of Science and Technology (ECUST) in Shanghai as a researcher of the JSPS from August 1999 to February 2000. There, I organized data related to this study and conducted the microfinance survey in Yunnan. The faculty members at ECUST, in particular Professors Zhang Letian, Wu Baijun and Fei Meiping with whom I have maintained a close friendship for many years, helped me both officially and privately during my stay in Shanghai. Afterwards, I visited the Asia Pacific Research Center, Stanford University (APARC), as a visiting scholar from March to September in 2000. Taking advantage of that opportunity, I wrote the earlier versions of each chapter. I wish to thank the faculty members of APARC and visiting scholars from various countries for giving me academic inspirations. The inspiration I received from professors Jean C. Oi and Andrew G. Walder at the seminars and informal discussions in particular was essential for putting this study together. I also thank the Ministry of Education, the People’s Republic of China, the JSPS, and the Josui Kai (Alumni Association of Hitotsubashi University) for financial support during my stay in Shanghai and Stanford. During the period of April 2000–March 2002, this study was incorporated as part of the Research Network of the Contemporary Economics Program (RNP) at the Graduate School of Economics, Hitotsubashi University. I would like to express my gratitude to the faculty members, especially professors Kato Hiroshi, Taniguchi Shinkichi, Enatsu Yoshiki, Yamamoto Taku, and Takahashi Hajime, as well as all the staff of the administrative office of the Graduate School of Economics for their generous supports. I also thank Ms Seto Harumi, the secretary of the Regional Economies Research Unit, for helping me with research and educational activities. I entered the world of Chinese study when I was an undergraduate student of Hitotsubashi University. During that period, I learned a lot from the late Professor Masubuchi Tatsuo, who specialized in Chinese ancient history, Professor Mitani Takashi who specializes in Chinese modern history and Professor Nakagane Katsuji who specializes in the Chinese economy, all of

Acknowledgements

xv

whom were my advisors at that time. Outside the university, I learned much from Mr Fujii Tadatoshi, Ms Fujii Yasue and Professor Uchida Tomoyuki (Daito Bunka University) in a small society of historians called the Gendai-shi no Kai (Association of Contemporary History). Looking back now, I realize that the most important thing I learned from them is the importance of collecting first-hand data, especially microscopic data, and reading it critically without depending on established ideas. When I was a graduate student aiming to study the history of China in the latter half of the 1980s, Professor Nakagane recommended me to broaden my horizons to the study of contemporary China, and allowed me to join his rural survey projects. Even today, with my slow writing, his constant urging me on has been very important to me. in putting this study together, the encouragement from Professor Nakagane was more reassuring than anything else. Preparing manuscripts in English was a task that required more time and effort than I expected. I would like to thank Ms Reiko Bendtsen, Ms Liliane McCarthy, Ms Koyama Hiroko, and Mr Thomas S. Gallione, who have helped me during the process of preparing English text. The publication of this study was made possible by the understanding and encouragement of Professor Peter H. Nolan (Sinyi Professor of Chinese Management, University of Cambridge). It is a great academic honour for me that this study is published as the first volume in the RoutledgeCurzon Studies on the Chinese Economy Series, edited by Professor Nolan. I also wish to thank Mr Peter Sowden, my editor at RoutledgeCurzon, for his elaborately crafted work throughout the editing process. Lastly, I want to thank from the bottom of my heart my family and friends, who have been encouraging me all the way from beginning to end. Hiroshi SATO Anqiu City, Shandong

1

Introduction and overview

Introduction Themes and framework of analysis Microanalysis of marketization The primary concern of this study is to clarify the interrelationship between marketization and socioeconomic actors – peasants, peasant households, out-migrants, family businesses (getihu), and peasant entrepreneurs (nongmin qiyejia) – in post-reform rural China by analysing microdata collected through the author’s field studies. This study approaches this prime issue from three angles (see Figure 1.1): (a) from an analysis of opportunity structure (by analysing the response of socioeconomic actors to changes in opportunity structure due to marketization); (b) from an analysis of market behaviour (by analysing the behaviours of socioeconomic actors and the local party–governmental apparatus in an underdeveloped market environment); and (c) from a comparative regional analysis (by analysing the regional differences in market development levels and patterns at the community level). Framework of the study The basic framework of this study is shown in Figure 1.2. Socioeconomic actors access and use economic opportunities based on individual and household (family) attributes in a given environment. Feedback regarding the outcomes of a socioeconomic actor’s behaviour – income formation, skill acquisition, accumulation of social networks, and so on – will at any given point affect his or her attributes and influence subsequent behaviour. Various types of individual/household attributes will then affect economic behaviours. As will be explained in detail later, this study focuses on the role of social capital. Three forms of social capital that overlap with each other – human, political and network – are introduced in quantitative analyses as factors that affect socioeconomic actors’ behavioural choices. Among the

2

The growth of market relations in post-reform rural China

Changes in the opportunity structure (Opportunity structure analysis)

Marketization

Behaviours of socioeconomic actors and the local party – governmental apparatus in an underdeveloped market environment

Socioeconomic actors

(Market behaviour analysis)

Regional differences in the level and pattern of market development (Comparative regional analysis)

Figure 1.1 Structure of the study Source: the author

Semi-micro environment (environment at the community level) Geographical conditions Level of economic development Economic structure Local power structure Historical characteristics Access to and use of economic opportunities and its outcomes Socioeconomic actors Individual/household attributes: Physical capital Social capital • Human capital • Political capital • Network capital

Choice of labour input Job search Migration Management of family business Acquistion of income and property Skill acquisition Accumulation of social networks

Macro environment (institutional framework for economic behaviour)

Figure 1.2 Basic framework of the study: socioeconomic actors’ access to economic opportunities Source: the author

Introduction and overview

3

three forms of social capital, network capital – the quantity and quality of social networks that the socioeconomic actors can mobilize – is used as the ‘focal variable’, that is, the key variable described as the space where different types of factors overlap. The key concept of ‘markets as a nexus of social networks’ (Hara 1996) underpins this framework. The study seeks to incorporate not only politicoeconomic but also sociocultural factors into empirical analyses of market development. It is consistent with the trend of recent works in development economics, which have attempted to clarify the triadic relationship of market, state and society (the community, the traditional economy) beyond the framework of bipolar opposition between market and state. Environments are divided into two layers in Figure 1.2. One is the semimicro environment – the environment at the community level – where socioeconomic actors interact with each other and share the same level of economic development, economic structure, local power structure, and historical characteristics. The aggregation of each socioeconomic actor’s behaviour gives feedback on the semi-micro environment. The other layer is the environment that exists at the macro level, which provides the basic institutional framework for the economic behaviour of socioeconomic actors.1 This study focuses on the semi-micro environments. This focus is important because in a large developing country like China, regional imbalances in market development must be addressed, not only at a wider level but also at a local and a community level. Marketization and social capitals – a review of previous studies Many studies have already been conducted on the role of social capital in post-reform rural China. Here, such previous studies are treated by classifying them broadly into three main streams. The first stream includes sociological/political studies on the market transition thesis. The studies in the second stream address personal/household income distribution and belong to the field of economic studies. Finally, in the third stream are sociological/political or anthropological studies of the economic implications of social networks. This study aims to draw these streams together by regarding the market as an institution that is the aggregation of social networks. In what follows, an overview of each stream is given first, and then the analytic framework of this study is described in detail. The market transition thesis Many previous studies of the relationship between peasants and economic opportunities focused on two forms of capital as major determinants of accessibility to profitable opportunities: human capital, such as abilities and skills, and political capital, such as political status and power. These earlier studies were based on the hypothesis that human capital is responsive to

4

The growth of market relations in post-reform rural China

market mechanisms and that political capital is responsive to bureaucratic allocation of resources (command economy). Thus, as marketization develops, the profitability of these two forms of capital changes: the profitability of the former increases, while that of the latter decreases. This hypothesis is called the market transition thesis. The market transition thesis arose from the analysis of the structure of social inequalities in Eastern European countries and the former Soviet Union. Since the mid-1980s, there have been many positive analyses of China, particularly of its rural areas.2 The market transition thesis consists of the following basic hypotheses: (a) the market power hypothesis, which claims that infiltration of market mechanisms changes the power structure (negotiating edge, positional advantage) surrounding the allocation of resources; (b) the market incentive hypothesis, which means that marketization changes the incentive structure of socioeconomic actors (for example, marketization becomes an incentive for investment in education and information); and (c) the market opportunity hypothesis, which claims that the accessibility to market opportunities an individual or household possesses depends on environmental factors (mainly geographical factors) as well as on their own attributes.3 The core hypothesis is the market power hypothesis. The various positions taken regarding this hypothesis can be summarized into two opposing approaches. One approach focuses on changes in opportunity structure due to marketization (hereafter referred to as the discontinuity approach). From this position, the following implications can be drawn. As marketization develops, the profitability of the political capital held by grassroots cadres and party members who previously controlled the redistribution system decreases;4 on the other hand, the profitability of individually accumulated human capital (such as educational level) rises; in addition, the positive correlation between the degree of a person’s involvement in market activities and his/her economic status increases. The other approach emphasizes the continuity of the party–state system, and contends that marketization does not simply weaken the significance of the party–state system in rural areas but instead restructures it (hereafter referred to as the continuity approach). This position has the implication that grassroots cadres and party members can gain an advantage in market access (and can become, for example, entrepreneurs) through their influence over the local community or by taking advantage of their social networks cultivated through their political/administrative activities (hereafter referred to as the power conversion hypothesis). Market transition debate Let us now review the debate concerning the market transition in rural China. Nee adopted the discontinuance approach and, through his survey conducted in Fujian Province, demonstrated that from the mid-1970s to the mid-1980s, grassroots cadre status had a rather negative correlation with household

Introduction and overview

5

income; he also found that peasants who entered family businesses increased their income (Nee 1989). Oi, on the other hand, took the position that the major driving engine for post-reform rural economic development was local government, who had strong incentives to become economic agents themselves or to function otherwise as coordinators vis-à-vis the township and village enterprise (xiangzhen qiye, TVE) and other economic agents. From the standpoint of the continuance approach, Oi claimed that there was no correlation between the reform and the degree of local power, and that the power of local officials could be enhanced through the process of marketization (Oi 1999, 11–14, 191–2). Studies of the social characteristics of entrepreneurs (high executives in enterprises), which the market transition debate tends to focus on, also support the continuance approach and the power conversion hypothesis. Based on a private enterprise survey that covered the entire nation, Li Lulu (1998, 60–6) revealed not only that approximately 37 per cent of the private enterprise operators had ‘cadre status’ before opening the business, but also that in the case of cities, the ratio of entrepreneurs with experience as ‘cadre’ is higher for the group that began business in the 1990s than for the group that started business in the 1980s.5 Nee also admitted in his later study that at the stage of ‘partial reform’ before the completion of system transition, the power conversion hypothesis becomes valid (Nee 1996). As can be seen, the gap between the two extreme approaches is narrowing. However, they focus on different aspects of the power conversion mechanism. While the discontinuance approach stresses the advantages of grassroots cadres and Communist party members in the accumulation of human capital, the continuance approach concentrates on the exercise of influence through the party–governmental apparatus or formal economic organizations as well as the building of social networks. The latest contribution made to the market transition debate is Walder’s income function estimate based on the national life history survey conducted in 1996 (Walder 2000). According to his estimate, the net effects of human and political capital (the former represents the years of education received by the head or main income contributor of a household, and the latter represents a dummy variable that indicates whether a household has a leading cadre at the township and administrative village level) are both positive and significant. Moreover, the profitability of both human and political capital in the mid1990s is even higher than those in the late-1980s. Previous debate on market transition tended simply to oppose human and political capital. However, Walder’s analysis, based on microdata of more than sufficient representativeness and robustness, demonstrates that both human and political capital benefit from the effect of the marketization process. The problems of the market transition thesis can be summarized in the following three points. The first one is the fundamental difficulty of defining an appropriate index for measuring human capital and political capital. Walder (2000) pointed out the weakness of the market transition thesis when it is reduced to the bipolar view of human capital versus political capital, a

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The growth of market relations in post-reform rural China

weakness that is deeply related to the fundamental problem of measurement. The second problem is that the interrelationship between human capital, political capital and informal social relations has not yet been fully analysed in the previous studies. This problem is also related to the measurement index issue. The third problem is how the regional differences in market development can be incorporated into the analysis. Of the three hypotheses, only the market opportunity hypothesis deals with regional factors. However, these factors are basically limited to the external effects of geographical advantages. In many cases, empirical analyses do not go beyond simple regional dummy variables or aggregate indicators of geographical advantages (such as distance from a large city and average educational level). Marketization and income distribution The empirical analysis of personal/household income distribution combines two streams of studies.6 One of these comprises studies from the standpoint of development economics, which began with the proposal of the so-called inverted-U hypothesis by Kuznets (1955) in the middle of the 1950s. The other comprises studies of economic inequality in transitional economies, which began to be developed after 1990. Many studies have been made of China after the reform, but three types can be pointed out as comprehensive analyses of income distribution using large-scale data. The first type makes necessary estimations based on the data of the official household survey by the National Bureau of Statistics (NBS, Guojia Tongjiju) (hereafter abbreviated as the NBS Household Survey). Typical examples include the studies based on a rural household panel data set (1985 to 1990) in four provinces (Guangdong, Guangxi, Guizhou, and Yunnan) gathered by the research group of the World Bank (World Bank 1997; Chen and Ravallion 1996; Ravallion and Chen 1997a; Ravallion and Chen 1997b; Jalan and Ravallion 1998a; Jalan and Ravallion 1998b) and a study of rural household income conducted by the research team of the Chinese University of Hong Kong (Tsui 1998a; Tsui 1998b). The second type of study supplements information that cannot be obtained from the NBS Household Survey by conducting independently designed surveys while using the sampling frame of the NBS. A representative example is the Chinese Household Income Project (the reference years are 1988 and 1995) conducted twice by an international team formed around the Institute of Economics, Chinese Academy of Social Sciences (hereafter abbreviated as the CASS survey). The results are summarized in the collected papers by Griffin and Zhao (1993), Zhao and Griffin (1994), Zhao, Li, and Riskin (1999), Riskin, Zhao, and Li (2001), and Khan and Riskin (2001). In addition, many books and papers by researchers who participated in the project, including Knight and Song (1999), Li Shi (1999a; 1999b), Zhang Ping (1999a), and Zhu (1999) have been published on the subject. The third type of study collects data using a sampling frame completely different from that of the NBS. One example is a collaboration

Introduction and overview

7

survey by the Ministry of Agriculture and Adelaide University (Wu 1996; Wu and Meng 1996).7 One of the issues on which studies of income distribution focus is the interrelationship between educational attainment and income. It is important to verify the hypothesis that the rate of return on education has increased after reform, from a development economics point of view as well as from an economics of transition point of view. Development economics deals with the relationship between the accumulation of human capital and economic development, whereas the economics of transition describe the transformation from egalitarianism under a planned economy (with the disparities due to political status hidden in the background) to a merit system. The estimates of the rate of return on education using the CASS Survey8 revealed that: the rate of return on education among urban workers was positive and statistically significant at the end of the 1980s but remained at a low value (3.8 per cent per year of education) at the international level (Li Shi and Li Wenbin 1994). However, from the end of the 1980s to the middle of the 1990s the rate of return on education increased among urban workers (5.7 per cent per year of education) (Lai 1999). On the other hand, the rate of return on education measured among peasants with wage income was very low at the end of the 1980s compared to that of urban workers at the same period (2 per cent per year of education). Moreover, the rate of return on education was negative in the measurement related to agricultural income (Li Shi and Li Wenbin 1994). Regarding the effect of political capital, some interesting studies were made by Khan and Riskin using the rural household data of the CASS Survey (1988). Estimates of the rural household income function by Khan revealed the following relationships. First, when total income is employed as a dependent variable, both human capital and political capital have a significant and positive effect. Here, the human capital is obtained by representing academic background by six index levels and calculating the average for all members of the labour force in a household, whereas the political capital is a dummy variable that indicates whether or not there is a party member or grassroots cadre in the household. On the other hand, when nonagricultural wage is employed as a dependent variable, the effect of political capital is still significant, but the effect of human capital becomes insignificant (Khan 1993,101–7). Riskin (1993) studied the effects of interactive variables operating between political status (party member dummy) and other variables that indicate household characteristics. According to his measurements, the interactive variable operating between commercialization of agricultural production, as measured by the ratio of agricultural output sold to total agricultural output, and the party member dummy is positive and statistically significant. This implies that the presence of a party member enhances the effect that commercialization of agricultural production has on the increase of the household income. Riskin did not analyse the reason for this, but pointed out the possibility that households with a party member are ‘more

8

The growth of market relations in post-reform rural China

energetic, talented or ambitious, on average’ compared to households without a party member. He also mentioned the possibility that the party network of a member is exploited when purchasing fertilizers and selling agricultural products (Riskin 1993, 156). Another important fact shown by the income distribution study is the significance of regional disparity. By incorporating a provincial dummy into the rural household income function, Khan (1993) showed that the geographical factors have significant influence on the peasants’ access to economic opportunities. Zhang Ping (1999b) measured the determining factors of regional disparity in rural household income and concluded that the most important factor is the amount of nonagricultural employment opportunities. On the other hand, Tsui (1998a) argues that the disparity of agricultural income continues to have a large effect on the overall regional disparities in rural household income, based on a comparative analysis of Guangdong and Sichuan.9 Analysing from an economic point of view relationships such as those described above sheds light on the present study. First, the disparity in the rate of return on education between cities and rural areas suggests that the forms of human capital that cannot be fully measured by educational level play important roles in rural areas. Second, the conclusion drawn by Riskin on the interaction between commercialization of agricultural production and political status focuses on the possibility that political status encompasses possession of human capital and social networks. Some problems with such studies on income distribution may now be pointed out. First, they generally concentrate on educational attainment. As with the discontinuity approach in the market transition debate, many studies explicitly or implicitly consider political factors and social factors to be transient factors whose effects decrease as marketization deepens. Studies by Riskin and Khan that place importance on political factors are exceptions rather than the norm. Also, Riskin and Khan have not examined the environmental conditions under which political factors function effectively. Second, in the regional comparative analysis too, the focus is on simple regional comparisons based on the level of economic development (e.g. GDP per capita). The point of view in which regional disparity is seen as a complex phenomenon that includes noneconomic factors and historical factors as well is not as popular. Market and social networks Social networks or social connections (guanxi, guanxiwang) also serve as a powerful means of accessing useful information and better economic opportunities. However, from the point of view of the discontinuity approach, they are regarded as a factor whose significance will reduce as the marketization deepens. From the point of view of the continuity approach, they are understood mainly as vertical relationships – the patron–client ties – between

Introduction and overview

9

the local party–governmental apparatus and the socioeconomic actors. Therefore, they are dealt with as a political factor. For this reason, empirical studies of social networks in rural China and empirical studies concerning the market transition debate have not been well integrated.10 A considerable number of empirical studies on the economic significance of social networks in post-reform China have already accumulated. To begin with, regarding rural areas, a series of studies has established that social networks play an important role in the development of TVEs and family businesses (e.g. procuring management resources, cultivating the market and obtaining support from the local government) (Cao, Zhang, and Chen 1995; Chen Junjie 1998; Herrmann-Pillath 1996; Wang and Zhu 1996; Zhang Jijiao 1999). Many interesting studies have been published for cities as well, starting with Walder (1986), who analysed the significance of ‘instrumental–personal ties’ inside the state-owned enterprises (SOEs). Other examples include Bian (1994), who quantitatively analysed the role of social networks as ‘social resources’ in the job mobility of urban residents, and Wank (1999), who discussed the development of clientelist ties between private enterprises and the local government in Xiamen. Moreover, there are many empirical studies of the role of social networks in rural–urban migration (mutual aid in peasants’ job searches and adaptation to city life, trade networks among peddlers of rural origin, and so on) (Zhao Shukai 1998; Solinger 1999a; Shi 1993; Lingdian Diaocha Gongsi et al. 1997; Wang Chunguang 1995; Wang and Zhu 1996). One of the problems with studies of social networks is that they sometimes tend to take the formation mechanism and function of personal connections as an unchanging sociocultural characteristic of Chinese society. This is the exact opposite to the approach taken by many studies of income distribution; these tend to connect economic development and accumulation of human capital in a mechanistic manner. In other words, both tend to regard market mechanisms and informal social factors as bipolar opposites. Among these studies, Wank takes a dynamic view of the interrelationship between marketization and social networks. Wank concludes that what occurs in the process of marketization is not a unilateral reduction of the role of political capital and social capital. Rather, it is a reconfiguration of these forms of capital, that is, a ‘commodification of the state monopoly’ and a development of the ‘clientelist ties for commercial ends’ (Wank 1999, 29–40). This shift is due to markets being neither more nor less than ‘socially embedded exchange networks’, according to Wank. The present study shares Wank’s basic viewpoint in regarding markets as constituting numerous networks.11 It supplements and expands Wank’s study in the following ways. First, the subject of Wank’s study was the relationship between local government and private enterprise in cities, whereas the subject of this study is rural areas. Second, this study covers various socioeconomic actors, not only entrepreneurs but also small family businesses and migrants. Third, this study uses more quantitative analysis methods.

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The growth of market relations in post-reform rural China

A method to advance the study of marketization The above-mentioned problems with previous studies come down to two central issues. The first is identifying the main variables that determine access to economic opportunities and devising methods by which they can be measured. The other issue is analysing the interrelationships among the main variables. This study analyses the original microdata using a method designed to resolve the problems associated with the previous studies and seeks to draw together the findings of those studies. First, as described in the next section, in addition to human and political capital, the concept of network capital – the quantity and quality of social networks that the socioeconomic actors can mobilize – is introduced into the quantitative analysis as the ‘focal variable’, a concept borrowed from Sen. According to Sen, a focal variable is the variable on which the analysis focuses when comparing different people. A focal variable can have internal plurality, that is, it may involve a combination of different factors, or it may be described as a space where different types of factors overlap (Sen 1992, 2). Second, as described in the section after next, a regional comparative analysis at the community level examines how these three forms of capital – especially human and political capital – function differently, depending on the semi-micro environment in which the peasants operate. Social capital: human, political and network Overlap among the three forms of social capital It is difficult to select an indicator (variable) to measure each form of social capital. For example, human capital is typically measured by educational level. However, the skills and abilities necessary for peasants’ economic activities are not only those taught in school. It can be said that educational level represents human capital only in a narrow sense. What is more important is a broader human capital, namely, skills and abilities that cannot be acquired through formal education. Similar difficulties are encountered when attempting to measure political and network capital. Another problem is that, in reality, human, political and network capital overlap. For example, although political capital is usually measured by political status (party membership or grassroots cadre status), the true significance of such external indicators is not readily apparent. For instance, field studies commonly find that capable (nenggan) peasants often belong to the grassroots party–governmental apparatus. At the same time, however, the fact that cadres improve their skills and abilities – broader human capital – through office experience is also important. In this sense, political capital can be seen as part of human capital in the broader sense. Keeping in mind the difficulties raised above, this study seeks to describe the relationships of

Introduction and overview

11

Human capital in the broad sense (a) Educational level (human capital in the narrow sense) (b) Skills and abilities acquired through work and other kinds of social experience

Political capital

(2) Skills and ability acquired through activities as a party member /grassroots cadre (c) Ability to mobilize social networks in order to obtain necessary information and skills

(3) Social networks cultivated through activities as a party member/grassroots cadre ( ii ) Sociopolitical networks (networks developed through interaction with the party – state system)

(1) Exertion of influence based on political status

(i) Primary social networks (networks based on informal social ties such as kinship and neighborhood Network capital

Figure 1.3 Human, political and network capital Source: the author

human, political, and network capital by using the framework depicted in Figure 1.3. First, human capital in the broad sense is the sum of: (a) educational level, that is, human capital in the narrow sense; (b) skills and abilities acquired through work and other kinds of social experience (skills and abilities that cannot be acquired through formal education); and (c) ability to mobilize social networks in order to obtain necessary information and skills. Second, political capital can be understood as the sum of: (1) exertion of influence based on political power and administrative authority; (2) skills and abilities acquired through activities as a party member/grassroots cadre; and (3) social networks cultivated through activities as a party member/grassroots cadre. Third, network capital as the focal variable is largely divided into two layers: (i) the primary social networks; and (ii) the sociopolitical networks. The primary social network (the lower layer) is a network based on informal social ties such as kinship and neighbourhood. Many peasants benefit from this network regardless of educational level or political status. The sociopolitical networks (the higher layer) refer to social relationships developed

12

The growth of market relations in post-reform rural China

through interaction with the party–state system. This kind of network is accumulated through experience as a party member and grassroots cadre and remains an important component of political capital. Particular kinds of job experience, such as working in formal economic organizations – as a manager or a person in a TVE in charge of purchasing/marketing (caigouyuan, tuixiaoyuan) or as an employee of state-owned marketing enterprises or the Supply and Marketing Cooperatives (gongxiaoshe, SMC) – also enable a peasant to create sociopolitical networks. Note that these jobs are important components of human capital in the broad sense because they help peasants acquire useful market information and skills relating to nonagricultural activities. This study will analyse these forms of capital separately and then gather them into a synthesis using network capital as the focal variable. An objection may be raised that this analytical framework does not include physical capital. This study focuses on social capital on the premise that the role of social capital is essential in an underdeveloped market environment. For example, social networks enable peasants to raise the necessary capital to start family businesses. So it can be said that social capital is prior to and underpins physical capital. Community: semi-micro environments Definition of community In this study, the definition of community is not based on a specific theoretical assumption because, for the purpose of microanalysis of economic behaviour, community is better understood as a multilevel and dynamic concept. In this study, ‘community’ is a collective name for geographical ranges where socioeconomic actors in rural areas engage in economic activities and, through such activities, build continuous economic and social relationships with each other. Over which geographical range a certain economic activity takes place depends on the type of activity as well as the regional circumstance. The same two activities in the same region can be performed over different ranges according to the stage of historical development in which they are carried out. For example, in the case of agriculture, the unit of collective land ownership and allocation of land holding rights – whether it is a village small group (cunmin xiaozu), a natural village (zirancun) or an administrative village (xingzhengcun) – is a very important determinant of a community’s entrepreneurial range.12 If the marketing of agricultural products is included, depending on the distribution of periodic rural markets ( jishi) and the status of the formal economic organization, the range of a community may expand beyond the township (xiang, zhen) level. The range of nonagricultural activities is determined by diverse regional factors (such as characteristics of TVEs and their geographical distribution, the distribution of periodic rural markets and proximity to an urban labour market) as well as individual/

Introduction and overview

13

household attributes. Therefore, for the purposes of this study, a community is an area where many concentric circles representing a range of activities performed by socioeconomic actors heavily overlap. In the survey areas of this study, communities were seen as two-layer structures, with an administrative village as an inner circle and a township as an outer circle. Administrative framework This structure overlaps with an administrative framework. Administrative villages, the lowest governance units of the party–state system, include a party branch (dang zhibu) and a village committee (cunmin weiyuanhui). A township has a township government and a people’s congress as well as a party committee. A village committee is not an official, legal administrative apparatus but a voluntary organization of peasants. However, in reality it serves as the lowest administrative apparatus.13 It should be noted that the administrative system used in the survey areas in Yunnan Province is different from that of other regions. Since many hamlets are scattered in mountainous areas, an intermediate apparatus called an administrative office (banshichu) is maintained between the township and the village committee, which can consist of either a single natural village or multiple natural villages. An administrative office can be understood as a branch of the township government, equivalent to an administrative village in other regions. The party branch is established at this level. Underdevelopment of market: macroenvironments This section addresses macroenvironments, that is, the basic institutional arrangements for economic activities, macroeconomic policies and macroeconomic conditions shown in Figure 1.2. They will be analysed in terms of two aspects: the institutional legacy of the Mao era and the process of the economic reform. From the analysis, it is possible to derive underdevelopment of the market as another key concept in this study, as important as markets, conceived as the nexus of social networks. Institutional legacy of the Mao Era The conditions of the Chinese economy when the People’s Republic of China was established in 1949 basically met the requirements of dualistic development theory. The economy was underdeveloped and focused on agriculture; furthermore, there was high population pressure in rural areas. During the Mao era, however, economic development in China did not conform to the typical process described in the Lewis–Fei–Ranis dual-sector model. Rather, throughout the Mao era, the urban industrial sector was basically separated from the rural sector in terms of labour supply and demand and made progress within itself only. The intersectoral transformation of the rural

14

The growth of market relations in post-reform rural China

labour force in the 1980s did not take place as a transfer from rural areas to urban areas, but as a transfer within rural areas, namely, from the agricultural sector to the TVE sector. It was not until the 1990s that a significant increase in rural–urban migration was seen. Behind this characteristic path of economic development are the powerful institutional arrangements built up during the Mao era. Knight and Song characterized this structure as the ‘rural–urban divide’ (Knight and Song 1999). The framework of the rural–urban divide refers to the institutional devices, established over the period from the 1950s to the mid-1960s in order to allow the state to fully mobilize the human and material resources that would promote the rapid development of heavy industry. First, in the urban industrial sector, through the process of socialization (collectivization), the following systems were developed: (a) administrative distribution of employment opportunities and the lifetime employment system; (b) the so-called rational low-wage system based on the rationing of wage goods (food grains and other necessities); and (c) social security and welfare programs maintained by each work unit (danwei).14 Additionally in rural areas, in order to supply maximum material resources to cities several institutional arrangements were introduced. First, agriculture was collectivized and peasants’ private economic activities were severely restricted. Second, the state instituted a compulsory purchasing system for major agricultural products. Third, the household registration (hukou) system was introduced to fully control rural populations and to maintain full employment in cities through a capital-intensive industrialization strategy. Under the household registration system, the movement of people from rural areas to cities was strictly regulated, so that the socialist state could protect the urban sector from an influx of workers from the rural sector.15 Although the rural–urban divide has become less clear-cut in the 1990s, it still is a basic institutional barrier to market development. The process of reform Naughton divides the post-reform era broadly into two periods: from the end of the 1970s to the beginning of the 1990s, and from the beginning of the 1990s to the recent past (Naughton 1999, 31–44). The first is the period of ‘the dual-track’ (shuanggui) transition. ‘Dualtrack’ refers to a situation where, in terms of resource allocation, both redistribution mechanisms and market mechanisms co-exist. One characteristic of this dual-track arrangement is that a comprehensive transition from a planned system to a market system is not the primary goal; rather, in an attempt to overcome economic crises, including rural poverty, pockets or niches are created in which a market mechanism is allowed to develop within a larger planned system. Those who entered these pockets earlier than others were able to enjoy enormous profits, and many others tried to follow in their footsteps. Areas where a market mechanism was working within the planned

Introduction and overview

15

system expanded, growth which authorities came to accept after the fact, and advancing marketization began to creep in (‘growing out of the plan’). In this way, by the beginning of the 1990s, the planned system existed in name only, and the pockets where market mechanisms worked came to virtually dominate most of the economy (leading to a ‘Swiss cheese’ economy). In other words, the market mechanism snowballed without forming an institutional infrastructure to support it. Once the planned system had lost its meaning, an institutional framework was needed to guarantee smooth market functioning; without the benefits of an institutional infrastructure, long-term development of a market economy could not be expected. Naughton regarded economic reform since the beginning of the 1990s as the period in which ‘general rules’ began to be established. It was also in the 1990s that underlying or unresolved structural problems within the Chinese economy, such as co-existence of overemployment in the urban state sector and surplus labour in the rural sector, inefficiency in the state-owned industrial sector, and difficulties in the adjustments of agricultural production structures, became apparent. Today, changing the current institutional framework of the rural–urban divide to respond to the increasing rural–urban migration is becoming an economically and politically critical issue. Facing keen competition from the non-state sector, the urban state sector, which has been the nucleus of the vested interest structure, must drastically reform its ownership (property rights) structure, corporate governance structure and employment/wage systems in order to survive. In this way, according to Naughton, the second stage of economic reform is also a stage in the structural transformation of the entire economy. This second stage, of making ‘general rules’, has just begun, and the process of institution building will take time. Underdevelopment of market-supporting institutions The macroenvironments mentioned above encapsulate Ishikawa’s problem of the ‘underdevelopment of the market’ (Ishikawa 1990, 6–8, 233–41). ‘Underdevelopment of the market’ here refers to the immaturity of institutional arrangements that support market transactions, including a lack of established customs and norms shared by market agents as well as weak legal enforcement of contracts. In the absence of such arrangements and norms, market agents still face significant information problems, uncertainty and risk. In the context of post-reform China, the underdevelopment of the market has two aspects. The first, as Ishikawa (1990) emphasizes, is the fact that China is still a developing economy. In this sense, underdevelopment of the market is more clearly seen in rural than in urban areas. In rural areas, lack of stable market-supporting institutional infrastructures, in combination with poor physical infrastructures constrains the potential of market agents such as family businesses and rural enterprises.

16

The growth of market relations in post-reform rural China

The second aspect is that China is a transitional economy emerging from a socialist planned economy. While the former Soviet Union had a highly centralized bureaucrat–industrial complex, one of the characteristics of the Chinese planned economy during the Mao era was a decentralized bureaucrat–industrial complex that was substantially diffused into provincial and semiprovincial levels (Ishihara 1993; Tajima 2000). Such a decentralized economic system eroded the central planning set-up and constrained the power of the central bureaucrats. Described by Nakagane as a ‘slackly centralized system’ (Nakagane 1979, 297–309; Nakagane 1999, 200–3), the economic framework during the Mao era included a good deal of ‘space’ in which peasants as well as rural cadres could act beyond the direct control of the central planning system. The post-reform economic system has inherited this characteristic, underinstitutionalization, which is the underlying cause of the ‘underdevelopment of the market’ problem.16 Given this macroenvironmental background to post-reform rural China, the microanalytical framework (Figure 1.2) can be explored by asking the following questions. First, how are socioeconomic actors in rural areas seeking to decrease market uncertainty and risks? And second, what factors operate to compensate for the underdevelopment of market-supporting institutions?

Overview of the study Structure This book comprises six case studies, divided into two parts. Part I consists of case studies focusing on markets and market actors. Part II is a comparative regional analysis focusing on the administrative village level, using microdata on five administrative villages in five different provinces. The structure of the case studies is as follows. Opportunity structure analysis The opportunity structure is analysed with regard to three main issues. 1 The role of primary social networks. Chapter 4 clarifies the influence and limitations of primary social networks through analysis of the entry barriers to the urban labour market faced by migrant peasant workers. In Chapters 2 and 5, it is found that primary social networks play a critical role in the rural financial market. 2 The significance of sociopolitical networks. Through an analysis of management behaviour of family businesses, Chapter 2 will discuss the significance of sociopolitical networks in the building of stable trade relations. Chapter 2 also examines the role of sociopolitical networks when family businesses have access to the organized financial market. In Chapter 3, the

Introduction and overview

17

transformation of peasants with connections to sociopolitical networks into entrepreneurs is described. Through a case study of the labour market for construction, Chapter 4 shows that the most important factor distinguishing the labour-boss, the gatekeeper in the market, from ordinary labourers is their connections to sociopolitical networks. 3 The space where network capital and human capital overlap. In Chapters 2 and 3, the social characteristics of family businesses and peasant entrepreneurs (executives of TVEs) are analysed. It is found that experience and social connections built up by working and living outside the village – the space where network capital and human capital in the broad sense overlap – is important when peasants enter into commerce and industry. Market behaviour analysis Market behaviour is analysed with regard to the following issues. 1 Management behaviour of family businesses. Chapter 2 investigates the risk-avoidance strategies of family businesses in an underdeveloped market environment, and shows that the choice of connections differs according to engagement in sociopolitical networks. 2 Social networks as a market-supporting institution. Chapter 4 describes the role of primary social networks among out-migrants as an informal institution for information exchange and mutual help, which can reduce the cost of migration. 3 Interrelationships among peasant entrepreneurs, local party–governmental apparatus, and the local community. In Chapter 3, changes in the patron–client network between peasant entrepreneurs and local party–governmental apparatus are described, using data on the behavioural choices of peasant entrepreneurs. Chapter 3 also examines the constraints of the local community on the behavioural choices of entrepreneurs. 4 Relationships between local governments and social networks. Using a case study of a microfinance programme, an experiment by a local government to utilize social networks for its policy objective, chapter 5 discusses the relationship between local government and rural society. Comparative regional analysis Regional diversity is analysed with regard to the following issues. 1 Interrelationships between the semi-micro environment, behavioural choices of socioeconomic actors and the distribution of income. Chapter 6 compares the influence of human capital and political capital on the labour allocation of peasants in five administrative villages in different semi-micro politicoeconomic and sociocultural environments. 2 Regional disparities at the community level. Chapter 4 shows how outmigration through social networks brings about disparities in labour mobility and uneven distribution of information, not only at a regional level but also

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The growth of market relations in post-reform rural China

at local and community levels. Such disparities are an important factor in generating income inequality in post-reform rural China. 3 Regional comparisons of the characteristics of peasant entrepreneurs. In Chapter 3, the social backgrounds, job histories and behavioural patterns of peasant entrepreneurs in Sunan and Wenzhou are compared, and differences and similarities noted. Further, the Sunan and Wenzhou models, two contrasting patterns of rural industrialization, are reconsidered in the context of the ownership and management system reforms after the mid-1990s. Continuity and vitality of small peasant household The discussions in each of the case studies implicitly assume that China’s peasants lead their lives in active pursuit of their own economic interest under the given environmental conditions. Chapter 7 explicitly addresses this point: the behavioural choices of peasant households from the preliberation era to the beginning of the 1980s are examined, using a village in Zhejiang Province as the subject. Outline of each chapter Chapter 2 examines the profile and behaviour of family businesses in a periodic rural market in Shilin County, Yunnan Province. The focus is on the risk-avoidance strategies adopted by family businesses. Geertz’s study of the bazaar economy in Java is used to provide a reference framework. From the profile of family business owners, it is found that experience and social connections built up by working and living outside the village – the space where network capital and human capital in the broad sense overlap – are an important source of entrepreneurship. From the analysis of factors influencing the choice of risk-avoidance strategies, that is, the risk-spreading strategy or the enduring trade relations strategy, family businesses with connections to sociopolitical networks (those run by entrepreneurs who have either been members of the Communist party or a grassroots cadre, or who have experience working in formal economic organizations) are identified as a group that adopts the enduring trade relations strategy. These entrepreneurs strive to reduce risks by building stable trade relations with suppliers (mostly formal economic organizations such as SMC and state-owned marketing enterprises), with whom they have cultivated connections. Moreover, family businesses with political capital can be singled out as a group that characteristically demonstrates an active management attitude and entrepreneurial zeal. They also have easier access to the organized financial market. The pathdependent characteristics of China’s marketization clearly show that one of the important driving forces of entrepreneurship at the bottom end of the rural market arises from within the institutional/organizational framework of the party–state system, the legacy of the Mao era. Chapter 3 compares social characteristics and behavioural patterns of

Introduction and overview

19

peasant entrepreneurs in Wujiang (Sunan) and Wenzhou, two regions of contrasting rural industrialization. First, both differences and similarities are found in the social characteristics of the entrepreneurs. The entrepreneurs in Wujiang are of the cadre-origin type and have strong patron–client ties with the local party–governmental apparatus. By contrast, the entrepreneurs in Wenzhou are of the owner-operator type and are highly independent of local authorities. However, despite the differences, important similarities exist as well. In both areas, human capital in the broad sense and network capital have significant meaning when peasants become entrepreneurs. Second, a trend of convergence toward more independent and market-oriented behavioural choices is apparent. Behind this trend of convergence, an evolutionary process in the local government’s role in economic development can be observed. Schematically speaking, the local government in Wujiang became directly involved in the market as well as enterprises themselves in the 1980s at a stage when the market was noticeably underdeveloped. However, as marketization deepened, the relationships between the local government, enterprises and market became more indirect. At the same time, the entrepreneurs in Wenzhou began to take an interest in local government as the supplier of infrastructure for market development. Chapter 4 compares the roles of human, political and network capital in the job search methods and income generation of migrant peasants. In addition, the implications of the social network role in out-migration are described in two respects: regional disparities in the mobility of the rural labour force, and the characteristics of gatekeepers at the bottom end of the urban labour market. The main points of this chapter can be summarized as follows. First, the primary social networks can be substituted for a higher educational level (human capital in the narrow sense), although the substitutional effect differs depending on the job rank (rank by skill/ability prerequisites) and sector (state or non-state). Second, the effects of social capital on out-migrants’ income vary according to employment status. For example, in the case of those employed by others, human capital in the narrow sense has a positive influence on their wage level, while network capital has no significant influence. In contrast to those employed by others, self-employed migrants with connections to social networks in the cities where they work earn higher incomes. Such network capital supports self-employed migrants who can obtain little assistance from local authorities and urban communities. Third, migration enabled by a worker’s social network brings about regional disparities in labour mobility, not only at a higher level but also at local and community levels. Such disparities are an important factor contributing to income inequality in rural China. Fourth, a case study of a construction labour market suggests that the most important factor distinguishing the labour-boss, the gatekeeper in the market, from day-labourers is his/her connection with local authorities. This study calls these connections sociopolitical networks, whereas Solinger (1999a) calls them ‘bureaucrat-migrant connections.’

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The growth of market relations in post-reform rural China

In Chapter 5, experiments in microfinance in Yunnan Province are analysed, based on interviews conducted in 1999. Microfinance is a financial programme that seeks to overcome problems arising from the underdevelopment of the financial market (such as information and enforcement problems) by exploiting the social networks in rural areas. In terms of long-term institution building, microfinance has the potential to create a new relationship between the state and peasants, as well as between the state and markets. This possibility arises because under microfinance, the state encourages voluntary institution-building through economic incentives, rather than using the conventional approach of directly organizing and mobilizing the peasants. However, at present, microfinance still permits a conventional policy enforcement pattern in which peasants are formally organized in a top–down manner via grassroots cadres. This pattern continues because the existence of competitive financial schemes, weak linkage between loans and technology extension, and an underdeveloped marketing system for agricultural products dilute the incentives for peasants to build voluntary groups for microfinance. Chapter 6 provides a comparative regional analysis based on a household sampling survey of five administrative villages located in five provinces (Shandong, Zhejiang, Anhui, Hunan, and Guizhou). In this chapter, the structure and distribution of household income in each village and the determinants of peasants’ access to income opportunities are analysed. The main conclusions of the analysis are as follows. Although the levels of economic development and household income structure vary among villages, they share one similarity; their household income distribution is mainly determined by nonagricultural income. Meanwhile, when an individual peasant tries to obtain access to nonagricultural income opportunities, the roles played by human and political capital are determined by the semi-micro environment of each subject village, particularly the type of market development: the characteristics of the TVE sector; the degree of development of family businesses; and the degree of intervention by the grassroots party– governmental apparatus in the local economy. The marketization processes in Chinese rural areas encompass diverse types of market development whose nature is determined by the community-level environment. In other words, there is no simple correlation between the level of market development and the effect of social capital. In Chapter 7, a natural village surveyed in Chapter 6 is analysed with respect to the long-term change in household income generation from the preliberation era to the early reform era. The discussion is based on microdata taken from various first-hand sources, such as the documents prepared for land reform, the accounting books of the production brigades (shengchan dadui) and production teams (shengchan dui) during the commune era, and the household survey conducted by the author in 1994. In the survey village, even in the period of agrarian radicalism during the 1960s and 1970s, private plots and periodic markets were consistently maintained. In other words,

Introduction and overview

21

although the range of choices was very narrow, peasant households could choose how to divide their labour allocation between the collective sector and private activities. Indeed, a substantial portion of the cash incomes of each household was derived from private activity. In other words, private activities were indispensable to sustaining the commune system, rather than being merely a supplement or residual of that system. The dynamic peasant economy that had endured from the Mao era was the driving force behind the rapid economic growth in rural areas during the beginning of the economic reforms. Chapter 8 describes the results of the analyses in each of the previous chapters and suggests how this work can be applied in Asian studies, development studies, and studies on economic transition.

Part I

Case studies of markets and market actors

2

Network capital, political capital and the bazaar economy in rural Yunnan: a family business survey of a periodic market

Issues and survey areas Issues and survey method Issues This chapter examines activities of family businesses (getihu) operating in periodic rural markets (jishi). Based on field surveys conducted in Shilin County, a rural suburb in Kunming, Yunnan Province, from 1997 to 1998, the study addresses two major issues.1 The first involves clarification of the characteristics of peasants who enter nonagricultural family businesses: what kind of individual/family attributes does a peasant need to begin a family business? The second is the behaviour of family business entrepreneurs in an underdeveloped market environment. The analysis focuses on the attempts of these entrepreneurs to reduce management risks caused by the underdevelopment of market-supporting institutions. The discussion by Geertz of the bazaar economy of Java (Indonesia) serves as the point of reference for the analysis. The results of the analysis show that sociopolitical networks play an important role in the market. Survey method Bearing these two issues in mind, in December of 1997 and 1998, the author carried out field work in two townships in Shilin County, B Township and G Township. A number of interviews were conducted with officials of administrative agencies, such as the Business Administration Bureau (gongshang xingzheng guanliju), as well as with peasants and family business entrepreneurs. In addition, interview surveys were conducted at wholesale markets (important purchasing locations for family businesses) at the county seats of Shilin and Yiliang Counties, which are adjacent to each other. Moreover, a sampling survey of the family businesses in B Township was carried out to use in the quantitative analysis. This survey (hereafter referred to as the Shilin

26

The growth of market relations in post-reform rural China

Table 2.1 Economic indicators for Shilin County (1998)

Total population (year-end) (1,000 people) Population with rural household registration status (1,000 people) GDP per capita (yuan) Structure of GDP (%) Primary industry Secondary industry Tertiary industry Per capita annual net income of rural households (yuan) Retail sales of consumer goods per capita (yuan)

Shilin County

Kunming City

Yunnan Province

National

219

3,895

41,438

199 3,593

2,210 14,619

35,380 4,355

6,307

40.7 26.4 33.0

7.8 49.0 43.2

22.8 46.2 31.1

18.6 49.3 32.1

1,508

2,322

1,387

2,162

1,226

4,808

1,207

2,336

Sources: Guojia Tongjiju Guomin Jingji Zonghe Tongjisi (1999), 1, 3, 57, Yunnan Sheng Tongjiju (1999), 429–516 Note: Data in value terms in this table are calculated at current prices

family business survey) was designed and conducted in collaboration with the Yunnan Academy of Social Sciences (YASS) in March 1998. One hundred samples were selected from 347 family businesses in the periodic market of B Township, using the family business register of the local business administration bureau. The samples were distributed according to the proportion of the business categories (retailing 56 per cent, manufacturing 14 per cent, restaurant and foodstuffs 17 per cent, other services 13 per cent). General conditions of the survey areas Survey areas Shilin County is an agricultural/stock raising area whose economic level is in the lower middle range in Kunming (see Table 2.1). The basis of the rural economy is goat raising, together with grain cropping and tobacco growing. Principal roads go through B Township, which is situated in a basin to the south of the county seat (see Map 2.1). The periodic market in B Township is the second largest in the county, the market in the county seat being the largest. Because the county’s commerce has substantially developed since reform, B Township enjoys relative affluence. G Township, on the other hand, situated in the mountains at the eastern extreme of the county, is a relatively poor township that receives financial support from Yunnan Province and Kunming City. G Township serves as the distribution centre for agricultural and handicraft products from surrounding village.

Network capital, political capital and the bazaar economy 27

Map 2.1 Periodic rural markets in Shilin County Source: Lunan Xianzhi Bianji Weiyuanhui (1996) and the author’s field study

Periodic markets in Shilin Twenty-two periodic markets operated in Shilin County at the beginning of the 1940s, but the number dramatically decreased after collectivization in the 1950s (ten in 1956 and six in 1964). During the Cultural Revolution, the

28

The growth of market relations in post-reform rural China

Table 2.2 Development of periodic rural markets in Shilin County Number of periodic markets

1941 1956 1964 1978 1980 1985 1990 1995 1998

22 10 6 6 8 9 11 12 12

Participants per market day

Annual transactions

(1,000 people)

(million yuan)

Number of family business entrepreneurs (households)

– – – 3.2 4.5 9.1 22.7 37.7 50.0

– – – 1.1 2.9 15.2 27.1 151.4 196.9

– – – 8 11 2,573 2,920 3,925 5,206

Source: Wang Zongli (1999)

market was limited to operating only one day in ten, and the variety of goods allowed to be traded was very small. In the Deng era, however, the periodic markets once again began to develop, taking advantage of the removal of an embargo on market transactions of grains in 1979. The number of rural family businesses in Shilin has increased rapidly since reform, increasing from just eight in 1978 to 5,206 in 1998 (see Table 2.2). As the market trade expanded, the frequency of market activities increased from once a week to twice, sometimes three times a week. At present, the periodic market in B Township is held every Tuesday and Friday, and the periodic market in G Township every Friday and Sunday (see Map 2.1).

From peasant to merchant: the profile of family businesses in Shilin Characteristics of entrepreneurs Self-employment and peasant-origin characteristics Next, the profile of family businesses active in the periodic market is described, based on the Shilin family business survey. Family businesses in B Township are very small in size and have strong self-employment characteristics. The number of employed persons (including the owner) is distributed as follows: 31 family businesses have only one employed person, 39 family businesses have two, and 30 family businesses have three or more. Only 13 family business owners hire workers other than household members: five owners hire relatives, six owners hire nonrelatives, and two owners hire both relatives and nonrelatives. The great majority of the family businesses are of peasant origin. Out of

Network capital, political capital and the bazaar economy 29 the 100 family businesses surveyed, 88 family business owners hold rural household registration status (67 within B Township, 21 belonging to other townships).2 However, the degree to which they depend on agriculture varies. The net agricultural income ratio (the ratio of the income from agricultural activities out of the total cash-based net household income) of the family businesses with rural household registrations is distributed as follows: 28 households have a net agricultural income ratio of less than 24 per cent, nine households have a ratio of 25 to 49 per cent, 28 households have a ratio of 50 to 74 per cent, and seven households have a ratio of 75 per cent or more (unknown for 16 households). Comparison with the national survey The national survey by the National Committee on Economic System Reform (Guojia Jingji Tizhi Gaige Weiyuanhui) and the National Bureau of Business Administration (Guojia Gongshang Xingzheng Guanliju), conducted from November 1991 to February 1992, provides valuable data for comparing the profile of family business entrepreneurs in B Township with the nationwide characteristics. This survey (hereafter referred to as the national business survey) analysed family businesses and private enterprises (siying qiye) over the entire country; it was based on the business registry. Table 2.3 extracts the basic characteristics of family businesses with rural household registration status from the national business survey and compares these with the results of the Shilin family business survey. The level of educational background (human capital in the narrow sense) among family business owners in B Township is lower than the national average, a reflection of the regional educational level in general. Regarding political status (political capital), the ratio of those who have experience as a grassroots cadre is almost the same, and it is safe to assume that the ratio is higher than the general standard for rural areas.3 The ratios of Communist youth league members are approximately the same, but the ratio of party members in B Township is lower than that of the national survey. What is interesting here is the level of work experience outside the home village before entering into family business. According to the national business survey, 9.2 per cent of family business entrepreneurs have worked away from their home villages. A survey by the Rural Development Institute, Chinese Academy of Social Sciences, estimates that the ratio of the rural labour force working away from home villages was approximately 15 per cent in 1993 (Knight and Song 1999, 263). Thus, the proportion of family business entrepreneurs who have worked outside their home village is not particularly high in the national business survey. On the other hand, in the Shilin family business survey, the proportion of family business entrepreneurs with longterm (more than one year) experience living outside home townships reaches 25 per cent among all samples, and around 28 per cent of those who have rural household registration status. These statistics imply that working and living

Gender Male

Educational level Primary school or less Junior high school level Senior high school level Higher education

Age 35 years old or less 36–45 years old 46–55 years old 56 years old or more

51.0 (100)

49.5 38.4 12.1 0.0 (99)

46.0 25.0 18.0 11.0 (100)

All the samples

B Township

52.3 (88)

47.1 41.4 11.5 0.0 (87)

51.1 22.7 18.2 8.0 (88)

Samples with rural household registration

73.6 (25,415)

[Samples who conduct business in rural area]

37.8 48.2 13.8 0.2 (30,225)

[Samples with rural household registration]

47.7 30.7 13.7 7.9 (30,134)

[Samples with rural household registration]

National business survey

Table 2.3 Comparison of entrepreneurs’ characteristics: B Township and national trend (per cent, numbers in parenthesis are numbers of samples)

4.5 – 3.4 28.4 – (88)

25.0 – (99)

3.5 16.3 (86)

10.2 – (88)

4.0 – 3.0

4.1 14.3 (98)

9.0 – (99)

– 9.2 (30,361)

– 4.3 3.6

[Samples with rural household registration]

– 10.7 (30,361) [Samples who conduct business in rural area] 9.6 13.1 (23,831)

[Samples with rural household registration]

Sources: Shilin Family Business Survey, Guojia Jingji Tizhi Gaige Weiyuanhui and Guojia Gongshang Xingzheng Guanliju (1993), 120, 122–3, 127

Career before opening business Formal economic organization (a manager or a person in charge of supply/marketing in TVE, an employee of a state-owned marketing enterprise or Supply and Marketing Cooperative) Employee of TVEs Military service Long-term (more than one year) experience in living outside the home township Working away from home

Communist Party member Communist youth league member

Political status Having experience as a township/village cadre Having experience as a village cadre

32

The growth of market relations in post-reform rural China

away from home is an important source of entrepreneurship in inland areas such as Shilin. In other words, experience and connections that are not easily obtained by leading an ordinary farming life – the space where network capital and human capital in the broad sense overlap – play significant roles when a peasant enters nonagricultural family businesses. Economic activities and business category The majority of the family businesses in B Township were opened after the 1990s,4 reflecting the rapid expansion of commerce after the establishment of the General Retail Market of B Township (zonghe nongmao shichang), a publicly financed marketplace, in the early 1990s.5 A relatively high percentage of businesses dealing with the processing/sales of agricultural and stock farm products opened in the 1980s, and businesses selling general merchandise and small hardware (xiao baihuo, xiao wujin) opened in the first half of the 1990s. The majority of apparel/shoe sales and restaurant/service businesses opened in the latter half of the 1990s. The periodic market of B Township has diversified away from a conventional rural marketplace of agricultural products. The majority of the survey subjects carry out activities concentrated in B Township. Among the 100 households surveyed, the majority – 77 households – conduct business every time or almost every time the periodic market is held in B Township (or conduct business in B Township every day). The rotations of the market activities are distributed as follows: 57 households do business only in B Township; 12 households circulate among the markets in B Township and the county seat, seven households circulate among B Township, the county seat, and G Township; and one household circulates among B Township, the county seat, and Luliang County (neighbouring county of Shilin). The rotation of the remaining 23 households is unknown (however, most of them are thought to do business only in B Township).6 Looking at the classification of year-round versus seasonal business reveals that 70 households conduct business year-round and 30 households conduct business only seasonally; the year-round businesses form the majority. However, at the same time, 53 households, 76 per cent of the entrepreneurs conducting year-round business, answered that large seasonal fluctuations occur. The busy season takes place during the agricultural off-season, from October to February, which is a good indicator of the characteristics of a periodic rural market. Table 2.4 summarizes the relationship between items traded and management form/business size; it also describes the basic characteristics of the entrepreneurs.7 It is evident from the relationship between size of business and business category that turnover among processing/sales of agricultural and stock farm products and general merchandise/small hardware is relatively large, and that by contrast the turnover among sales/repair of apparel/shoes is small.

Network capital, political capital and the bazaar economy 33

Merchant and market: uncertainties, risk and trade relations Viewpoint of the bazaar economy ‘Disorganized’ markets Family businesses in rural areas exhibit both vulnerability and strength/ flexibility. Although they are vulnerable due to their small size, they are also strong and flexible because they are part-time farm households supported by family solidarity. In this section, the common factors contributing to the vulnerability of family businesses in dwarf economies in general – such as lack of preparedness for market fluctuations and low fund-raising capacity – are described. In addition, management risks due to underdevelopment of the institutional infrastructure of the market, which jeopardize family businesses in rural China, are considered. Here, the phrase ‘underdevelopment of the institutional infrastructure of the market’ refers to immature rules and norms of trade, significant information problems and uncertainties in the market, difficulties in enforcing rules and norms of trade, and underdevelopment of the financial market. This underdevelopment, which is referred to in Chinese as the market being buguifan (‘disorganized’), is also seen in major coastal cities where the market economy is relatively well developed. For example, in Shanghai the problem of ‘disorganized’ wholesale/retail markets was taken up by the People’s Congress of Shanghai in February 2000. Specifically, the congress addressed the issue that cheating with materials and quantities as well as with ‘me-too’ products and rapid spreading of poor-quality products prevent the development of trade (Baixing Shidian, Shanghai Cable TV, 23 February 2000). This vicious cycle, in which lack of trust in the trading rules induces shortsighted and opportunistic behaviour by both seller and buyer, in turn promotes further mutual mistrust. Moreover, a ‘disorganized’ market tends not to remove asymmetry of information regarding the quality of traded goods and services; or, in other words, the problem is that collecting sufficient information about the quality requires a disproportionate investment of resources. The bazaar economy In the survey area, this problem of ‘disorganized’ markets is considered to be very serious. This severity is due not only to the low level of economic development, but also to the fact that the volume of market trading has been expanding rapidly in recent years, and the structure of the business categories has been diversified, as mentioned earlier. So how do the family businesses in the survey area deal with the management risks caused by a ‘disorganized’ or under-institutionalized market? When considering this problem, the discussion by Geertz concerning the

Processing/sales of agricultural and stock farm products General merchandise/small hardware (including sales of alcoholic beverages, and tobacco) Sales/repair of apparel/shoes Restaurant/service Sales of materials for agricultural production Processing, sales and repair of wood/metal products Others Total

Items traded

43.5

14.3 22.7 23.5 33.3 54.5 33.3 30.0 (30) Pr ⫽ 0.201

21.0 22.0 17.0 3.0 11.0 3.0 100.0 (100)

45.5 66.7 70.0 (70)

85.7 77.3 76.5 66.7

56.5

18.2 33.3 38.1 (37) Pr ⫽ 0.017

28.6 60.0 35.3 66.7

36.4

72.7 66.7 33.0 (32)

19.0 30.0 41.2 0.0

22.7

3,000 to less than 6,000

9.1 0.0 28.9 (28)

52.4 10.0 23.5 33.3

40.9

6,000 or more

Less than 3,000

Seasonal

Year-round

Business size (monthly sales volume, yuan)

Management form

23.0

All samples

Table 2.4 Structure of family businesses in B Township (per cent, numbers in parenthesis are numbers of samples)

Source: Shilin Family Business Survey

Processing/sales of agricultural and stock farm products General merchandise/small hardware Sales/repair of apparel/shoes Restaurant/service Sales of materials for agricultural production Processing, sales and repair of wood/metal products Others Total

Items traded

34.8 50.0 45.5 64.7 66.7 72.7 33.3 50.5 (50)

65.2 50.0 54.5 35.3 33.3 27.3 66.7 49.5 (49) Pr ⫽ 0.348

72.7 66.7 51.0 (51) Pr ⫽ 0.308

60.9 52.4 36.4 35.3 66.7

Male

Primary or less

Junior high or more

Gender

Educational level

27.3 33.3 49.0 (49)

39.1 47.6 63.6 64.7 33.3

Female

81.8 33.3 46.0 (46) Pr ⫽ 0.070

43.5 33.3 36.4 47.1 100.0

35 years or younger

Age

18.2 66.7 54.0 (54)

56.5 66.7 63.6 52.9 0.0

36 years or older

36

The growth of market relations in post-reform rural China

bazaar economy in Java proves useful. Geertz’s account can be summarized as follows (Geertz 1963, 32–47). Bazaars look very chaotic at first view as ‘colourful and often aggressive bargaining’ dominate the scene. However, behind the scene three regulating mechanisms are at work. The first is the sliding price mechanism. This system provides the flexibility needed in a market institution where economic conditions are unstable and the distribution of economic information is asymmetric. The second mechanism is the credit relationship binding the traders. This understanding gives the primary integrative or vertical vector in the bazaar economy, because it leads to a hierarchic ranking of traders in which larger traders (for example, wholesalers) give credit to smaller traders (for example, small retail dealers). These credit ties stabilize more or less enduring commercial relationships among traders. The third mechanism is the fractionating of risks. Alongside efforts to maximize trading activities, there is also a tendency to spread trading risk over a wide range of deals rather than to rely heavily on one partner. By contrast with the credit relationship mechanism, the mechanism of spreading the risks provides a disintegrative or horizontal vector in the bazaar economy. The present author shares Geertz’s view that small family businesses in the bazaar face great uncertainties. What kinds of mechanisms are found in the periodic market of the survey area? This question will be examined with regard to two aspects of family businesses: sales activities and purchasing activities. Sales activities – price-formation Theoretical frameworks Among the family businesses surveyed, 22 households answered that they had regular customers (clients), and 76 households that they did not have regular customers. This indicates that the proportion of households having persistent trade relations in their sales activities is low. It can be said that the sales activities of the majority of the family businesses are generated by a large number of unspecified customers that gather at the periodic market. In fact, at the time of the field survey, plenty of very lively ‘face-to-face bargaining’ (taojiahuanjia) was observed between small-trade merchants and peasants. This type of interaction is closely akin to what took place at the bazaar in Java observed by Geertz. How can a price-formation process operate behind the temporizing aggressive bargaining in the periodic market of the survey area? Before the data is examined, it may be useful to review the theoretical frameworks regarding price-formation, organized into three principal points by Hara, who re-evaluated Geertz’s account from the standpoint of economic theory (Hara 1985, 106–20). First, two principles underpin price-formation theory. One is the principle of the Walrasian auctioneer (prices are flexible but converge to a single equilibrium price either by an auction through

Network capital, political capital and the bazaar economy 37 auctioneers or through the mutually repeated process of contract, recontract and alliance among actors in the market). The other principle is full-cost pricing (cost plus constant margin equals fixed price; supply and demand are adjusted through fluctuation of stock and production levels, rather than price changes). Second, the principle of the Walrasian auctioneer postulates perfect information, but a certain constant price level can be formed even under imperfect information conditions through stabilizing allocation via arbitration, that is, actors with large amounts of information repeating arbitration. Third, price-formation in a bazaar is a contract/recontract process under imperfect information conditions and closer to this arbitration processes than to the Walrasian auction process. Sharp distinctions between the two price-formation principles pointed out by Hara may be valid at the theoretical level, but in actual periodic market trading, it is safe to assume that more than one principle can operate at once. That is, the degree of asymmetry of information about quality differs greatly depending on the types of goods and services that are being negotiated. Hence, the following hypothesis can be proposed: the price-formation mechanism is influenced by the differences in the degree of asymmetry of quality information for each business category (or trading item). In the periodic market in the survey area, given the fact that no regular trade relations have been formed between the merchants of peasant origin and the peasants who are their customers, the greater the asymmetry of information about the goods, the longer becomes the process of face-to-face bargaining and the more flexible the price is. Conversely, in the case of items where information about quality is widely shared, the bargaining process is short and the price converges easily to the ‘market rate’. Behind the face-to-face bargaining To test this hypothesis, Table 2.5 shows the relationship between business category and price formulation method. It can be seen from this table that the price-formation mechanism differs depending on the business category. In sales/processing of agricultural and farm stock products, the massive majority determines the price based on ‘pricing by confrère’ and ‘cost and purchase price’, while scarcely anyone chose face-to-face bargaining with customers as an answer. On the other hand, face-to-face bargaining with customers was chosen frequently for industrial products, not as often as cost and purchase price, but more often than pricing by confrère. This result is consistent with the hypothesis and can be interpreted as follows. In the case of agricultural and farm stock products that the peasants know inside out, there is relatively little room for face-to-face bargaining, so the price quickly converges to pricing by confrère, that is, the market rate. In other words, a pricing formation mechanism relatively close to the Walrasian auctioneer principle is employed. On the other hand, if goods/services originated in industries whose information concerning quality is very asymmetrical, the

38

The growth of market relations in post-reform rural China

Table 2.5 Business category and price-formation method (per cent, numbers in parenthesis are numbers of samples) Price formation method

Cost/purchase price Recent sales price Pricing by confrère Face-to-face bargaining with customers Regular customer’s wish Others

Total

Business category Sales/ processing of agricultural and farm stock products

Sales/ processing (and repair) of industrial products

Restaurant/ service and others

90.7 6.2 58.8

95.7 0.0 100.0

93.0 10.5 36.8

76.5 0.0 76.5

30.9 1.0 5.2 (97)

4.3 0.0 0.0 (23)

42.1 0.0 7.0 (57)

29.4 5.9 5.9 (17)

Source: Shilin Family Business Survey Note: Multiple answers (up to two)

price is flexibly formed through the face-to-face bargaining process even though the amount is limited by the cost and purchase price and the market rate. It is safe to say that Geertz’s ‘antagonistic interaction’, that is, opportunistic/selfish behaviours of merchants, is seen even stronger in this case. Purchasing activities: strategies for avoidance of risks Family businesses as petty customers Out of the 100 family businesses surveyed, 82 households purchase goods and raw materials, and 18 households do not. That is to say, the vast majority of family businesses buy at the place of purchasing activities (e.g. wholesale markets). The most representative buying place is the Luosiwan wholesale market (Luosiwan riyongpin pifa shichang) in Kunming. This is the second largest apparel and convenience goods wholesale market in the country with 150,000–200,000 visitors per day. Of the 82 households with purchasing activities, 28 said this market is their main purchasing place. Other purchasing locations included other markets in Kunming, such as the Shuanglongqiao wholesale market, as well as markets in the Shilin county seat and the Yiliang county seat. In such large-scale markets, the family businesses in B Township are merely petty customers without market information or enough power to negotiate prices. In that case, how do they reduce their management risk? For instance, how do they avoid purchasing poor-quality or high-priced goods? Drawing on the regulating mechanisms operating at bazaars in Java, the following hypothesis can be formed. Efforts by small family businesses to reduce management risk

Network capital, political capital and the bazaar economy 39 can be broadly divided into two strategies. The first is risk-spreading, in other words, trading with a wide range of partners (hereafter referred to as the riskspreading strategy). By using this tactic, a small business trader can cover the loss caused by being cheated by one wholesaler by trading with other wholesalers. The second strategy is to establish enduring trade relations with a small number of trading partners (hereafter referred to as the enduring trade relations strategy). Through this strategy, opportunistic behaviour of traders on both sides is suppressed by their expectation that avoiding such behaviour will provide the steady development of their businesses. In Java’s bazaars, the former strategy was the main one used, if any was used at all. Geertz pointed out that there is a tendency, even in the credit relationships among merchants that are the integrative factor in a bazaar economy, to restrict the total amount of credit given to one partner to the range of ‘large enough, but not too large’ (Geertz 1963, 37–8). According to Geertz, spreading risks (and profits) is a ‘habitual reaction’ of small traders who have significant information problems (Geertz 1963, 42). Two example cases What strategy is employed in the survey area? Before answering this question, two cases from interviews conducted by the author at the periodic market in G Township will be presented. Case 1. This shoe retailer opened her business in early 1996 by renting a room (approximately 15 square metres) on the first floor of a two-storey cement building. The entrepreneur is a 20-year-old female peasant from G Township, who graduated from junior high school. Because she keeps a fixed store, she does not circulate around other periodic markets. Monthly sales are around 3,000 yuan on average. Her parents are full-time farmers and her elder brother runs a chemist’s shop next door. She purchases goods, made mainly in Wenzhou, Zhejiang, at the Luosiwan wholesale market in Kunming. She visits many wholesalers on a case-by-case basis, for she does not have any regular suppliers (December 1997). Case 2. This apparel retailer sells underwear, socks, shirts, blouses, and other items of clothing. She rents one block of tanwei (selling space) and runs her business there. The entrepreneur is a 34-year-old female peasant from another township in Shilin County, who also graduated from junior high school. Her husband is a full-time farmer. In the agricultural off-season she circulates round several periodic markets within Shilin County, but in the busy tobacco-growing season, she closes the business or runs it only in the periodic market of G Township. Once every two weeks, she purchases goods at the Luosiwan wholesale market. She has enduring trade relations with seven to eight wholesalers (suppliers from Sichuan, Hunan, and Zhejiang). The main advantages of having regular suppliers are that the quality of the goods can

40

The growth of market relations in post-reform rural China

be guaranteed (if there are problems with the quality, the suppliers with whom she has a close relationship will allow her to return the goods) and that they can sell wholesale at relatively low prices (December 1997). Two distinct groups As can be seen from these cases, differences may be seen in trade relations even among traders who purchase goods from the same wholesale market. It seems that the former trader employs the risk-spreading strategy while the latter uses the enduring trade relations strategy. Now let us examine whether or not the 82 households that carry out purchasing activities have enduring trade relations with their suppliers. Of these, 22 households (27 per cent of the total) purchase 50 per cent or more of their gross purchase from regular suppliers, 10 (12 per cent) purchase less than 50 per cent, and 50 households (61 per cent) have no regular suppliers at all. From this observation, two points can be made. First, unlike the case with sales activities, a little under 40 per cent of family businesses have persistent trade relations with suppliers. Second, as a whole family businesses can be divided into two distinct groups: a group without any regular suppliers, and a group that substantially depends on regular suppliers. In that case, what factors influence family business entrepreneurs in their choice of strategy for risk avoidance?

The enduring trade relations strategy and sociopolitical networks Choice of risk avoidance strategy One model Let us examine a model based on the hypothesis that management characteristics of family businesses and individual entrepreneurial characteristics determine the strategy for avoiding management risk. The dependent variable is the tendency to adopt the enduring trade relations strategy, or more specifically, the volume of goods purchased from regular suppliers in the gross purchase. The greater the volume, the stronger the tendency to adopt the enduring trade relations strategy. Conversely, the smaller the volume, the stronger the tendency to adopt the risk-spreading strategy. First, as explanatory variables (independent variables) that represent the management characteristics that lead to risk avoidance strategies, three variables are deployed, namely business size (average monthly sales volume, thousands of yuan), years in business and business category. In accord with Geertz’s discussion of the bazaar economy, the smaller the business size, the stronger should be the tendency to adopt the risk-spreading strategy. If that is the case, the coefficient of business size is expected to be positive. Regarding

Network capital, political capital and the bazaar economy 41 years in business, the more experience one has in the market, the more personal relations accumulate, thus the higher the possibility that the enduring trade relations strategy is adopted. If that is true, the coefficient of years in business is expected to be positive. Finally, regarding business category, a dummy variable that sets traders engaged in sales or processing of industrial products to 1 and others to 0 is used. Because the information problem for family businesses of peasant origin is larger when dealing in industrial products as opposed to agricultural or farm stock products, the sign of this dummy variable is expected to be negative. Second, with respect to the individual characteristics – accumulation of human, political, and network capital – of the entrepreneurs, four variables are incorporated in the model: (a) educational level (1 ⫽ primary school or below, 2 ⫽ junior high school, 3 ⫽ senior high school, 4 ⫽ higher education); (b) political status (1 ⫽ party member or those who have experience as a grassroots cadre, 0 ⫽ others); (c) experience working in formal economic organizations, that is, as a manager or a person in charge of purchasing/ marketing in TVEs, an employee at state-owned marketing enterprises or SMC (1 ⫽ yes, 0 ⫽ no); and (d) urban household registration status (1 ⫽ urban, 0 ⫽ rural). Outcomes Table 2.6 shows the multiple regression estimates obtained from the above assumptions. From this table, the following points can be made. First, the Table 2.6 Factors influencing the choice of strategy for avoidance of risk (OLS estimation)

Management characteristics Monthly sales volume (1,000 yuan) Years in business (years) Industrial products dummy Individual characteristics Educational level Party member/grassroots cadre status Experience in formal economic organizations Household registration status Constant Adjusted R-squared n

Coefficient

t-statistics

5.204 0.700 ⫺16.706

3.98** 0.82 ⫺2.39*

0.402 68.166 44.232 18.234 ⫺0.037 0.466 74

0.08 6.22** 2.76** 1.71 0.00

The dependent variable is weight of amount of goods purchased from regular suppliers out of gross purchase. The respondents answered on a five-point scale: 5 ⫽ 75% or more, 4 ⫽ 50%–less than 75%, 3 ⫽ 25%–less than 50%; 2 ⫽ less than 25%, 1 ⫽ zero. In this estimation, the weights are converted into the median of each scale, that is, 5 ⫽ 87.5%, 4 ⫽ 62.5%, 3 ⫽ 37.5%, 2 ⫽ 12.5%, 1 ⫽ 0%. ** indicates statistical significance at the 1% level, * at the 5% level. Source: Shilin Family Business Survey

Source: Shilin Family Business Survey

Advantage of having regular suppliers (multiple answers, up to two) Lowering purchase price Guarantee of goods quantity Avoiding trouble of face-to-face bargaining Guarantee of goods quality Possibility of purchasing on credit Access to market information Others

Percentage of traders whose purchase amount from regular suppliers is 50% or more of the gross purchase

40.6 50.0 31.3 46.9 15.6 6.3 6.3 (32)

26.8 (82)

Total

31.6 42.1 36.8 52.6 15.8 5.3 10.5 (19)

20.7 (58)

53.8 61.5 23.1 38.5 15.4 7.7 0.0 (13)

47.6 (21)

75.0 75.0 25.0 12.5 0.0 12.5 0.0 (8)

53.8 (13)

Sales or processing of agricultural, and farm stock products

Less than 6,000 yuan

6,000 yuan or more

Business category

Business size (monthly sales volume)

23.5 47.1 29.4 58.8 17.6 5.9 11.8 (17)

16.7 (54)

Sales or processing (and repair) of industrial products

60.0 20.0 40.0 60.0 20.0 0.0 0.0 (5)

30.8 (13)

Restaurant/ service and others

Table 2.7 Management characteristics and advantage of having enduring trade relations (per cent, figures in parenthesis are numbers of samples)

Network capital, political capital and the bazaar economy 43 effects of business size and business categories are consistent with the assumptions of the model. Smaller businesses or businesses dealing with industrial products have a greater tendency to adopt the risk-spreading strategy. Years in business, however, had no significant relationship with the choice of strategy for avoiding management risk. Second, regarding the individual characteristics of the entrepreneurs, those entrepreneurs who are party members, who have experience as grassroots cadres and who have experience working in a formal economic organization tend to adopt the enduring trade relations strategy. This implies that the social networks built up through activities in the party–governmental apparatus and/or formal economic organizations enabled these entrepreneurs to develop reliable, regular buyer–supplier relationships. This is a case in point of the sociopolitical networks affecting socioeconomic actors’ behavioural choices. Although the level of significance is less than 5 per cent, the entrepreneurs with urban household registrations tend to adopt the enduring trade relations strategy. This implies network connections with wholesale merchants in cities. Based on these findings, let us elaborate further on the implications of the enduring trade relations strategy. Questions to be considered include: What are the economic benefits of this strategy? Do entrepreneurs with strong sociopolitical networks have an advantage in the markets? Advantages and formation mechanism of the enduring trade relations strategy Advantages of having regular suppliers To begin with, let us identify the economic advantages of the enduring trade relations strategy. The trader in Case 2 above mentioned not only guaranteed quality of goods but also lower purchase prices as advantages of dealing with regular suppliers. Do the advantages of the enduring trade relations strategy differ according to business size and category? This question can be investigated by examining Table 2.7, which shows the advantages (reasons for) enduring trade relations. Though the table does not reveal statistically significant differences, some tendencies can be discerned. Small-size family businesses tend to employ the enduring trade relations strategy in order to obtain quality goods and to avoid price negotiations, whereas the large-scale family businesses regard the lower purchase price and ability to secure sufficient purchase quantities as the main advantages. In other words, it seems that the former group is motivated more by defensive reasons, needing to save on transaction costs incurred by asymmetry of information, while the latter is motivated more by aggressive reasons, wishing to lower the purchase price by taking advantage of bargaining power backed by their larger size.

44

The growth of market relations in post-reform rural China

For those who sell industrial products, the major advantage of (reason for) having regular suppliers is the ‘guarantee of goods quality’. In contrast, for those who deal in agricultural or farm stock products, the major reasons are ‘lowering purchase price’ and ‘guarantee of goods quantity’. This implies there is some relationship between the asymmetry of information regarding quality and the formation of enduring trade relations. That is to say, in a sector of industrial production where the degree of uncertainty regarding quality is high, it seems that family businesses who adopt the enduring trade relations strategy are seeking to alleviate the risks through relationships of mutual trust with regular suppliers. Within or outside the market The formation of enduring trade relations in itself is a common phenomenon regardless of differences in region and level of economic development. However, the formation mechanisms of these trade relations do vary according to region and level of economic development, and also social structure and so on. According to Hara (1985, 120–1), two theories provide explanations for the mechanism of establishing enduring trade relations. The first explains the mechanism as purely economic behaviour of traders within the marketplace. The other contends that social relations already existing outside the marketplace are brought into the trade relationships. Geertz himself adopts the former line of argument and emphasizes the fact that in Java’s bazaar economy large-scale merchants form networks of trade relations with small traders through credit accommodations. By contrast, the study by Davis of periodic markets in Baguio (Philippines) points out that important trade relations there have commonly been stabilized by conversion to a social relationship called compadrazgo, the ritual kinship which is a common feature of Philippine social structure (Davis 1973, 234).8 How are trade relations formed in the survey area? If we first look at credit accommodation among merchants, we find that the majority of the family businesses in B Township trade on a cash basis; only a few of them have credit transaction relations with suppliers. Among the 32 traders who said they have regular suppliers, only five chose ‘purchasing on credit is possible’ as an advantage of having regular suppliers.9 The formation mechanism of enduring trade relations through credit accommodation is not common in the survey area. Looking again at Table 2.7, which shows the ratio of traders who adopt the enduring trade relations strategy by business category, it can be seen that sales or processing of agricultural and farm stock product businesses have a higher ratio compared to other business categories (Pr ⫽ 0.018). This seems to suggest that social relations are utilized in trading products of rural origin. However, social relations based on kinship or local territorial groupings, called the primary social network in this study, are scarcely involved there. Out of the 32 households with regular suppliers, 28 said their trading partners were nether kin nor peasants sharing the same territorial

Network capital, political capital and the bazaar economy 45 Table 2.8 Network/political capital and types of enduring trading partners (per cent, numbers in parenthesis are numbers of samples) Types of regular suppliers

Individuals Non-individuals Total

Total

75.0 25.0 100.0 (32)

Sociopolitical networks

Political status

Experience as a party member/grassroots cadre or working in formal economic organizations

Experience as a party member/grassroots cadre

Yes

Yes

No

50.0 86.4 50.0 13.6 100.0 100.0 (10) (22) Pr ⫽ 0.028 Fisher’s exact ⫽ 0.042

No

42.9 84.0 57.1 16.0 100.0 100.0 (7) (25) PR ⫽ 0.026 Fisher’s exact ⫽ 0.047

Sources: Shilin Family Business Survey Note: Individuals mean peasants and family businesses. Non-individuals mean stateowned marketing enterprises, TVEs and other collective economic entities at the township/village level

grouping. Consequently it seems that neither Geertz’s nor Davis’s interpretation can be fully applied in the survey area, because lineage ties are loose and weak.10 Sociopolitical networking It can be understood from Table 2.8 that entrepreneurs connected to sociopolitical networks form a higher percentage of regular trade relations with non-individuals. More specifically, they have trade relations with formal economic organizations such as the state-owned marketing enterprises, TVEs and other collective economic entities at the township or village level (shequxing hezuo jingji zuzhi). Sociopolitical networking helps entrepreneurs establish stable trade relations with formal economic organizations and enables them to expand their portfolio of risk avoidance strategies. To what degree then does the chosen strategy give the entrepreneurs better management performance? Unfortunately, it is not possible to conduct quantitative analysis of management performance in this study because, in order to obtain the cooperation and trust of the subjects, detailed data on cost and profit was not requested. A quantitative analysis on the relationship between the choice of risk avoidance strategy and management performance is left for future work.

46

The growth of market relations in post-reform rural China

Sociopolitical networks and accessibility to financial markets Difficulty in raising capital Here, the advantage of developing sociopolitical networks is examined with regard to another important management activity, raising capital. As in other parts of China, the rural financial markets in the survey area are structured in two tiers, the organized (formal) financial market and the unorganized (informal) financial market. The organized financial market is composed of formal financial institutions, such as banks, the Rural Credit Cooperatives (RCC) (xinyongshe) and the community-based credit organizations. An often-noted problem for rural financial markets in China is that the rigidity of the organized financial market restricts the development of family businesses. Banks and RCCs are willing to finance collective-owned TVE and large private enterprises but are reluctant to finance peasant households and small family businesses. Consequently, a large proportion of family businesses rely on the unorganized financial market. In the case of the survey area, the unorganized financial market mainly consists of money loans among blood relatives. Among the 100 samples, 53 entrepreneurs had loans at the time of the survey, while 25 entrepreneurs had loans from the organized financial market.11 The majority borrowed capital from the unorganized financial market: 27 borrowed from blood relatives, eight from friends or neighbours, and three from both blood relatives and individuals other than blood relatives. The unorganized financial market, however, has drawbacks, such as a limited financing scale and unsuitability for continuous fund procurement. The results of the B Township survey also indicate that blood relatives finance no more than 6000 yuan and that financing exceeding 10,000 yuan is almost completely limited to banks and RCCs. Moreover, borrowing through social ties seems to apply particularly to the start-up capital. As years in business increase, the ratio of entrepreneurs with personal loans tends to decrease. An estimation Based on the findings above, accessibility to the organized financial market can be considered as an index measuring the advantage an entrepreneur has in the market. Accordingly, it was put to the test in a Logit model. The dependent variable is whether or not there are loans from the organized financial market. Four categories of explanatory variable are distinguished: (a) management characteristics related to capital needs (business size, years in business and entrepreneur’s desire to expand business); (b) management characteristics related to credit rating (business size and years in business); (c) individual characteristics of entrepreneur (educational level, political status, experience with working in formal economic organizations); and (d) business category dummy variable (restaurant or service business dummy).12

Network capital, political capital and the bazaar economy 47 Moreover, for comparison, a model of accessibility to unorganized financial market is estimated at the same time. The results, shown in Table 2.9, indicate that entrepreneurs who are party members or who have experience as grassroots cadres have easier access to the organized financial market. In the case of entrepreneurs with political status, or political capital, their personal connections with formal financial institutions and related government agencies, in combination with a credit rating backed by their political status, provide access to the organized financial market. What is interesting here is that political capital offers accessibility to the unorganized financial market as well. It seems that entrepreneurs with political capital can be singled out as a distinguished group. Entrepreneurship and political capital Is it possible to describe entrepreneurs with political capital as a group that can be distinguished from others with regard to individual and management characteristics? Table 2.10 examines this question. When entrepreneurs with political capital are compared with entrepreneurs without political capital, the former group is seen to be slightly older, but otherwise there is no statistically significant difference in individual and management characteristics. However, a difference can be seen in their management attitudes. In particular, many of the entrepreneurs with political capital list pull factors leading to better economic opportunities as a motive for starting a business, and they have a stronger desire to expand the business. On the other hand, a large proportion of entrepreneurs without political capital started their business because they wanted to ‘balance their income’ and wished to keep the business size as it was or reduce it. It is safe to characterize the business owners with political capital as a group that is more active and entrepreneurial.

Conclusion The findings in this chapter can be summarized as follows. First, comparison with the national survey shows that experience and social connections built up by working and living outside the village – the space where network capital and human capital in the broad sense overlap – is an important source of entrepreneurship in inland mountainous areas. Second, regarding the price-formation strategy of family business entrepreneurs, the study confirmed that the sliding price mechanism, which Geertz distinguished as one of the regulating mechanisms of a bazaar economy, works in the marketplace of B Township. Third, the analysis examined choice of risk avoidance strategy and found that entrepreneurs with connections to sociopolitical networks tend to adopt the enduring trade relations strategy. They seek to reduce management risk by taking advantage of stable trade relationship with suppliers, with whom they

0.138 0.015 1.900 2.354 2.581 1.638 0.256 ⫺7.547 0.295 83

1.00 0.18 2.36* 3.07** 2.61** 1.13 0.50 ⫺3.10**

z-statistics

z-statistics ⫺0.30 ⫺2.79* ⫺1.15

0.86 2.15* 0.50 ⫺0.70 1.41

Coefficient ⫺0.035 ⫺0.220 ⫺0.626

0.569 1.841 0.751 ⫺0.284 2.055 0.156 83

Unorganized (informal) market

Notes: 1 Desire to expand business: 3 ⫽ wish to expand, 2 ⫽ keep status quo, 1 ⫽ wish to scale down. 2 1 ⫽ restaurant/service business, 0 ⫽ other business categories. 3 1 ⫽ party member or those who have experience as a grassroots cadre, 0 ⫽ others 4 1 ⫽ primary school or less, 2 ⫽ junior high school, 3 ⫽ senior high school, 4 ⫽ higher education.

Source: Shilin Family Business Survey

The dependent variables is whether (⫽ 1) or not (⫽ 0) the entrepreneur has loans from an organized or unorganized financial market. The organized market includes banks, the RCC and the community credit organizations. Unorganized market means borrowing funds from individual. ** indicates statistical significance at the 1% level, * at the 5% level.

Monthly sales volume (1,000 yuan) Years in business (years) Desire to expand business1 Restaurant/service business dummy2 Party member/grassroots cadre status3 Experience in formal economic organizations Educational level4 Constant Pseudo R-squared n

Coefficient

Organized (formal) market

Table 2.9 Logit estimation of factors influencing the accessibility to rural financial markets

Table 2.10 Profile of entrepreneurs with sociopolitical networks and political capital (per cent, numbers in parenthesis are numbers of samples)

Age: 35 years old or less

Sociopolitical networks

Political capital

Have

Have

Do not have

33.3 48.2 (15) (85) Pr ⫽ 0.286

Educational level: junior high school or above 60.0 48.8 (15) (84) Pr ⫽ 0.425 Gender: male

Size: monthly sales volume of 6,000 yuan or more

Average years in business Business category: sales/processing of agricultural and farm stock products Sales/processing (and repair) of industrial products

Desire to expand business: having desire to expand

Motivation to start business (multiple answers) Had know-how To compensate income Had desire to become rich Source: Shilin Family Business Survey

Do not have

18.2 49.4 (11) (89) Pr ⫽ 0.050 Fisher’s exact ⫽ 0.060 45.5 51.1 (11) (88) Pr ⫽ 0.722

80.0 45.9 (15) (85) Pr ⫽ 0.015 Fisher’s exact ⫽ 0.023

72.7 48.3 (11) (89) Pr ⫽ 0.127

28.6 26.5 (14) (83) Pr ⫽ 0.872

20.0 27.6 (10) (87) Pr ⫽ 0.608

5.1 (14)

5.1 (83)

4.9 (10)

5.1 (87)

20.0

24.4

27.3

23.3

66.7 57.3 (15) (82) Pr ⫽ 0.791

54.5 59.3 (11) (86) Pr ⫽ 0.948

33.3 16.5 (15) (85) Pr ⫽ 0.125

45.5 15.7 (11) (89) Pr ⫽ 0.018 Fisher’s exact ⫽ 0.032

46.7 20.0 45.5 (15)

54.5 18.2 46.7 (11)

28.2 41.2 32.6 (85)

28.1 40.4 31.8 (89)

50

The growth of market relations in post-reform rural China

have cultivated connections. One the other hand, those who are not connected to sociopolitical networks tend to adopt the risk-spreading strategy. They spread their trading over a wide range of dealers rather than rely on a few regular suppliers. Fourth, entrepreneurs with political capital can be singled out as a characteristic group that demonstrates an active management attitude and entrepreneurial zeal. They also have easier access to the organized financial market. The path-dependent characteristics of China’s marketization clearly show that one of the important driving forces of entrepreneurship at the bottom end of the rural market arises from within the institutional and organizational framework of the party–state system, which is a legacy of the Mao era.

3

TVE reform and patron–client networks between peasant entrepreneurs and the local government: the Sunan model versus the Wenzhou model reconsidered

Issues, survey areas and data Issues and data Issues This chapter analyses the social characteristics and managerial behaviours of peasant entrepreneurs, that is, the executive class in TVEs, based on the firm surveys conducted from 1999 to 2000. The target areas are Wujiang City (administratively belonging to Suzhou City) in the south of Jiangsu Province (Sunan) and Wenzhou City in the southern part of Zhejiang Province. These two areas have been referred to as the Sunan model (Sunan moshi) and the Wenzhou model (Wenzhou moshi), respectively, as these contrasting areas show different patterns of rural industrialization. As will be explained later, the stylized facts about the Sunan and Wenzhou models indicate that the former has a development pattern based on collective-owned enterprises (jiti qiye); the latter, on the other hand, has a development pattern based on private enterprises (siying qiye). This tendency is characteristic of the executive class as well, for the high executives in Wenzhou project an image appropriate to entrepreneurs who start an enterprise and undertake all the risks by themselves. The high executives in Sunan who hold administrative positions in collective-owned enterprises, however, display characteristics corresponding more to those appropriate to local officials. However, in the latter half of the 1990s, as the ownership and management reforms (gaizhi) of the TVEs have taken effect, it has become increasingly difficult to draw this distinction. This growing similarity is due to corporatization and privatization of the TVEs having advanced to a large extent in the Sunan area as a result of these reforms. The question is, then, how different were these two areas in terms of the social characteristics and managerial behaviours of the high executives at the end of the 1990s? Furthermore, can any similar convergence trends be recognized? To answer this question, this chapter examines the following issues in relation to the analysis framework used throughout the study.

52

The growth of market relations in post-reform rural China

The first issue involves the factors that influence the transformation from peasant to entrepreneur. Chapter 2 examined this issue using as subjects family businesses active in the periodic markets in inland rural areas. In this chapter, the issue is dealt with using as subjects high executives in coastal rural areas where rural industrialization has advanced to a considerable degree. The second issue is how the relationship between the enterprises and the local party–governmental apparatus may have changed during the marketization process. (In this chapter, the local party–governmental apparatus includes collective economic management organizations created in parallel to the party–governmental apparatus for the purpose of managing assets of local collectives and supervising collective owned enterprises.) As will be explained later, in the Sunan model, devised in the 1980s, the collective-owned TVEs sought to reduce market risk through entering into strong patron–client ties with the local party–governmental apparatus. In Wenzhou, however, family businesses and private enterprises have had to find ways to survive in the unstable market environment without receiving any direct support from the local party–governmental apparatus. We must ask then how the deepening of marketization and the advance of TVE reform in the 1990s affected the relationship between the enterprises and the local party–governmental apparatus seen in the Sunan model. Can it simply be concluded that the relationship between the enterprises and the local party–governmental apparatus in the Sunan model converges to something similar to that of the Wenzhou model? Previous studies The previous studies referred to in this chapter can be broadly divided into two types. The first focus on firms as economic agents. Representative recent studies include the research by Lin and Du (1997) and Jefferson and Singh (1999), based on the large-scale firm survey conducted in collaboration between the World Bank and a research organization in China (hereafter referred to as the World Bank survey). From this survey, it is possible to appreciate the actual condition of Chinese firms (SOEs, urban collectiveowned enterprises and TVEs) in the time span covering the latter half of the 1980s to the early 1990s.1 The advantage of the World Bank survey is that, while it focuses mainly on the statistical data related to the performance of the firms surveyed, it also includes data on the decision-making processes inside the firms and the behaviour of the management executives. (See Jefferson, Zhang, and Zhao 1999, included in Jefferson and Singh 1999 as a study analysing the decision-making processes inside and outside the firms.) Therefore, the survey by the author incorporates survey items that can be compared with the World Bank survey in terms of behaviour and attitude of enterprise management executives in order to compare the general conditions of TVEs in the early 1990s and the conditions of Sunan and Wenzhou at the end of the 1990s.

TVE reform and patron–client networks

53

The other type of previous studies, business administrative or sociological/ anthropological, focus on the management executives themselves. Recent major studies include a series of survey reports (e.g. Zhongguo Qiyejia Diaocha Xitong 1997 and 1999, Wank 1999, and Li Lulu 1998). The purpose of these studies is to analyse the characteristics of the entrepreneurs (social origins and patterns of work history), the relationship between the management systems and the incentives for the management executives, and the relationship between the entrepreneurs and party–government officials and employees. As necessary, this chapter refers to information gathered in previous studies related to the social characteristics of enterprise management executives. Data This chapter is based on data from the firm survey conducted in Wujiang and Wenzhou with cooperation from Nanjing University, East China University of Science and Technology, and the Policy Research Institute of Wenzhou City (hereafter abbreviated as the Wujiang survey and the Wenzhou survey, respectively). The Wujiang survey was conducted in the spring of 2000 and encompassed a total of 31 firms from two townships, S and Q. S Township comprises a population of 10,500 and specializes in the textile and apparel industry. Q Township has a population of 32,000 and is famous as a producer of communication cables. Based on the recommendation of the Wujiang City authority, 20 firms (textile/apparel, machinery and chemical) were selected as the sample firms in S Township, and 11 firms (metallurgy, fabric and machinery) were selected in Q Township. Responses from a total of 94 executives were received. The Wenzhou survey was conducted by students of East China University of Science and Technology in the summer holiday of 2000 in connection with the social practice programme of the university. Responses were obtained from 178 executives of 107 firms located in areas under the direct jurisdiction of Wenzhou City as well as in Cangnan, Leqing, and Yongjia Counties. Since a complete list of entrepreneurs (such as the business registry of the Business Administration Bureau) was not available, the Wenzhou samples were selected using the snowballing sampling method,2 thus limiting the data collected. Table 3.1 summarizes the general characteristics of the sample firms. More firms were established early in Wujiang than in Wenzhou. This fact reflects the characteristics of the Sunan area, where collective-owned enterprises had already developed during the Mao era. Small firms owned by small-scale owners were excluded from the Wenzhou survey in order to compare the two surveys on an equal basis. Organization of the chapter The rest of this chapter is organized as follows. The following section summarizes the background of the ownership and management system

54

The growth of market relations in post-reform rural China

Table 3.1 General characteristics of the sample firms (number of firms) Wujiang

Wenzhou

6 7 7 9 2 31

8 12 24 45 18 107

6 14 1 1 4 4 1 31

36 6 8 2 7 46 2 107

1 Period of establishment Before 1980 1981 to 1985 1986 to 1990 1991 to 1995 1996 or later Total 2 Industry Machinery Textile/apparel Chemical Building material Metallurgy Other Unknown Total

3 Firm size (number of employees) and management system Shareholding corporation Wujiang 30 or less 31 to 100 101 to 300 301 or more Total Wenzhou 30 or less 31 to 100 101 to 300 301 or more Total

Limited liability corporation

Shareholding cooperative enterprise

Private enterprise

Total

0 1 2 2 5

0 6 4 6 16

0 1 0 1 2

4 0 3 0 7

4 8 9 9 30

0 10 13 3 26

3 14 7 14 38

5 15 5 1 26

3 1 3 5 12

11 40 28 23 102

Source: Wujiang and Wenzhou surveys

reforms of the TVEs and the process of the reforms during the 1990s, in order to show that convergent trends can be recognized in the forms of business organization in Wujiang and Wenzhou. The next section clarifies the differences and similarities of the two areas in terms of the social characteristics of the high executives. The third section first points out the convergent trends in the managerial behaviour and attitudes of the high executives (regarding decision-making authority and constraints on managerial objectives and

TVE reform and patron–client networks

55

behaviour) in the two areas and then discusses the implications they have on the relationship between the entrepreneurs and the local party–governmental apparatus in the marketization process. Regional types of TVE development: the Sunan model versus the Wenzhou model Regional types of TVE development The main goal of the Chinese enterprise reforms is to enable firms and entrepreneurs to become independent economic agents. From the 1980s to the beginning of the 1990s, the independence of the firms was advanced by promoting a contract responsibility system (chengbao zeren zhi) at the management system level, leaving the ownership of the firms untouched. It was not until the latter half of the 1990s that the enterprise reforms reached the level of ownership. Throughout the 1980s and the beginning of the 1990s, in the state-owned enterprise sector the strong patron–client ties between the firms and the administrative departments that supervised the firms were regarded as problems. In fact, they have been suggested as the prime factor inhibiting the improvement of the firms’ efficiency. In the TVE sector, on the other hand, the patron–client ties with the local party–governmental apparatus played an active role in the development of the firms and regional economies, depending on the areas. The background can be summarized as follows. First, it was important for the firms to follow the principle of collective ownership and receive political protection from the party–governmental apparatus during times in which the legal and political positions of non-state enterprises in rural areas were not stable. Second, close cooperation with the local party–governmental apparatus was necessary for the TVEs in order to secure supply and marketing routes, and to procure capital as well as land and human resources. The TVEs found themselves in an environment in which the regulations on distribution of commodities and prices remained in effect and the factor market was at a very early stage of development. For example, the main sources of capital were bank financing and financial contributions from townships, villages and local peasants. In either case, support or guarantees from the party–governmental apparatus were required. It was effective, in securing supply and marketing routes and the introduction of technologies, for a firm to cooperate with an urban state-owned sector (e.g. in a subcontract relationship). Showing evidence of collective ownership was effective in such cases as well. Third, township and village governments could obtain their own revenues from profits received from collective-owned enterprises in times when the rural fiscal system was quite vulnerable. Such revenues not only became a source of investment funds for firms but were also used to build up the regional infrastructure, as well as to invest in agriculture and education. Fourth, in reality, the group of capable people in the rural areas that

56

The growth of market relations in post-reform rural China

could handle business administration overlapped considerably with the human resources absorbed into the local party–governmental apparatus. Thus, a regional politico-economic system in which the party–governmental apparatus supervised collective-owned enterprises with the characteristics of community-oriented enterprises was formed. This kind of regional system was most often formed in areas where the agriculture and rural industry had historically been fairly well developed. These were also the areas where the majority of the assets of local collectives were accumulated during the Mao era, and some collective-owned enterprises had already been developed in the 1970s. Because they were situated in the Eastern China region, adjacent to the urban state sector and markets in the metropolitan areas, they are referred to as the Sunan model, from the name of the Sunan area at the centre of the region. On the other hand, in areas that were not blessed with the conditions for regional economic development characteristic of the Sunan model, it was the small family businesses, that is, the private sector, that became the driving force of the rural industrialization. Wenzhou is a typical example of regional economic development focused on the private sector, and under the name of the Wenzhou model, it has been contrasted with the Sunan model. Wenzhou has a very high man–land ratio, and historically the peasants could not live off agriculture alone; so they organized themselves into ultra small-scale nonagricultural family businesses. This tradition of nonagricultural family businesses continued throughout the Mao era as well. Again, the accumulation of assets of local collectives was very limited in Wenzhou. In addition, the state industrial sector was weak and the building of infrastructure was delayed because state investments were extremely limited for military reasons.3 Peasants in Wenzhou, who were placed at the fringe of the planned system, responded instantaneously to the market opportunities opened up by the economic reforms and ventured into nonagricultural family business in an attempt to escape from poverty. (Refer to Appendix 3A for the historical characteristics of Wenzhou mentioned above.) In short, the Sunan model is a rural industrialization model with a background rooted in the high agricultural productivity of the Changjiang (Yangtze River) Delta, whereas the Wenzhou model is a rural industrialization model driven by poverty in hilly or mountainous areas, where agricultural productivity is low. (See Table 3.2.) Deepening of marketization and convergence of business organization forms Ownership and management system reforms The special characteristics of the Sunan model can have drawbacks. First, the fact that township and village finances are not separated from business administration carries with it the risk of generating ‘soft budget constraints’

TVE reform and patron–client networks

57

for the firms or, conversely, causing the firms to be ‘exploited’ to benefit township and village finances. Second, egalitarianism in wages originating from the characteristics of the community-oriented enterprise, overemployment and requests for economic contributions to the community tend to inhibit the efficiency of business administration. Third, the strong personal connections between the cadres of the local party–governmental apparatus and the executives of the business impair the independence of these executives, which may also make it difficult to bring in capable human resources from the outside. These problems are essentially the same as those faced by SOEs, and as a result, firms and management executives cannot function as truly independent economic agents. Since marketization was deepened in the 1990s (see Chapter 1), the special characteristics of the Sunan model have gradually become fetters inhibiting firms’ development. The liberalization of the commodity market is almost complete, the private sector has grown, the reform of the urban state sector has advanced to a certain degree, and foreign capital has started to enter the market full-scale. Therefore collective-owned enterprises having the characteristics of the Sunan model have faced even stronger competition. In addition, the development of the factor market, especially the financial market, has weakened the importance of local government in the procurement of management resources. Furthermore, discriminative treatment against enterprise ownership in respect of both legal status and taxation policy has faded away. As a result of these environmental shifts, reforms of the ownership and management system, collective-owned TVEs have become the main pillar of economic reform since the middle of the 1990s. Table 3.3 summarizes the course of enterprise reform in Jiangsu Province, which is typical of the development of collective-owned TVEs. In 1998 the number of collectiveowned TVEs (industrial firms) which had been subject to some kind of reform of ownership and management system was 84,931, equivalent to approximately 90 per cent of the total number of firms in 1996, when the reforms began. The reform methods may be broadly divided into three types. The first is the ‘property rights reform’, intended to reorganize TVEs into shareholding cooperative enterprises (gufen hezuozhi qiye). The second method is ‘ownership reform’, whose aim is to sell off the enterprises, that is, privatization. Finally, the third method is ‘management system reform’, which has the purpose of transforming TVEs into leased (zulin) firms and implementing the risk–deposit contract responsibility system (fengxian diya chengbao). They account for 36 per cent, 43 per cent, and 21 per cent, respectively, of the total number of firms (Nongyebu Zhongguo Xiangzhen Qiye Nianjian Bianji Weiyuanhui 1999, 43).4 In the corporate system, shareholding cooperative enterprises have the characteristics of cooperatives, or firms that offer share-ownership participation by employees (Nongyebu Xiangzhenqiyeju 1998; Qin 1995). However,

7,216 10,186 4,024 70.2 37.9 56 238 113 8 10.0 0.6 78.2

634 204 35 16.6 1.4 2.7

Wenzhou

5,762 23,574 5,248 65.0 42.0 2,856

Suzhou

17.9 12.6 43.2

379 134

6,534 2,210

National

Gross product makeup (%) State-owned enterprises Collective-owned enterprises Shareholding cooperative enterprises Limited liability corporations Shareholding corporations Private enterprises Foreign funded enterprises (including Taiwan, Hong Kong and Macao capital) Other

9.6 19.4 7.7 9.5 4.9 3.7 43.9 1.4

Suzhou

10.9 10.2 39.9 20.1 1.6 5.9 11.1 0.3

Wenzhou

2 Makeup of industrial firms (state-owned enterprises and not-state-owned enterprises with annual sales of 5 million yuan or more (1999)

Economic indicators at the end of 1990s (1999) Population (1,000 people) GDP per capita (yuan)1 Per capita annual net income of rural households (yuan) Rural industry’s share of GVIO (Gross Value of Industrial Output) Heavy Industry’s share of GVIO (%) Foreign capital acceptance figure (million US$)2 Initial condition of economic development (1978) GDP per capita (yuan) Net income per peasant (yuan) Savings per head of the population (yuan) Urban share of population (%)3 Cultivated area per rural population (are) Mountainous or hilly area/overall land area (%)

1 Basic conditions

Table 3.2 Comparison of the Sunan model and the Wenzhou model

13.6 10.3 40.1 20.0 1.1 6.6 7.9 0.4 285 152 135 204 181 212 148 258

15.8 23.7 11.5 7.8 3.5 4.7 30.2 2.9 484 256 215 656 439 124 292 328

Notes: 1 Data in value terms in this table are calculated at current prices 2 The foreign capital acceptance figure is the total amount of capital that has been procured by the government, firm, or individual from other countries (including Taiwan, Hong Kong and Macao) in the form of loans, direct investments or other methods 3 Urban population ⫽ total population (nianmo zong renkou) ⫺ rural population (xiangcun renkou)

Sources: Suzhou Shi Tongjiju (2000), 32–37, 144–51, Suzhou Shi Tongjiju (1995), 27, Wenzhou Shi Tongjiju (2000), 21–31, 135, Guojia Tongjiju (2000), 53, 312

Employed labour force makeup (%) State-owned enterprises Collective-owned enterprises Shareholding cooperative enterprises Limited liability corporations Shareholding corporations Private enterprises Foreign funded enterprises (including Taiwan, Hong Kong and Macao capital) Other Firm size (average number of employees) State-owned enterprises Collective-owned enterprises Shareholding cooperative enterprises Limited liability corporations Shareholding corporations Private enterprises Foreign funded enterprises (including Taiwan, Hong Kong and Macao capital) Other

60

The growth of market relations in post-reform rural China

Table 3.3 Ownership and management system reforms of collective-owned TVEs in Jiangsu Province (collective-owned industrial firms for which the reforms have been executed at the end of 1998) Number of firms

(1) Property rights reform Reorganized to shareholding corporations Reorganized to limited liability corporations Reorganized to shareholding cooperative enterprises (2) Ownership reform Transformed into private enterprises Merger, transfer, or bankruptcy (3) Management system reform Leased firms Risk-deposit contract responsibility system Total

Percentage

Firm size (capital or gross assets)1 (million yuan)

30,949

36.4

1.4

78

0.1

46.2

6,952

8.2

3.3

23,919 36,561 34.120 2,441 17,421 12,012

28.1 43.0 40.1 2.9 20.5 14.1

0.7 0.3

5,409 84,931

6.4 100.0

6.2

3.0 1.6

Source: Nongyebu Zhongguo Xiangzhen Qiye Nianjian Bianji Weiyuanhui (1999), 43, 301 Note: 1 Capital in firms belonging to (1), otherwise gross value of assets

in reality they take quite diverse forms. There are firms in which collective shares account for the majority, firms in which the shares are concentrated in the hands of the management executives (de facto private enterprises), and firms in which the ownership of the stocks is widely distributed among employees. For example, as explained later, the vast majority of the shareholding cooperative enterprises in Wenzhou are in effect private enterprises. Considering the relationship between firm size and the reform method, it can be seen that, generally, small-scale firms were privatized, while middlescale firms were reorganized into shareholding cooperative enterprises or limited liability corporations (youxian zeren gongsi). Large-scale enterprises in particular were reorganized into shareholding corporations (gufen youxian gongsi). It has been proposed that the reason TVE reform advanced so rapidly was that it matched the interests of the local party–governmental apparatus. In other words, as argued by Tan (2000), the gains that the local party– governmental apparatus can obtain by controlling collective-owned enterprises gradually decreased as marketization deepened. For firms with competent management executives, it is more advantageous to withdraw from the collective capital and let these executives take over the ownership and management of the firm. In the long run this also increases the gains of the local party–governmental apparatus. By contrast, remaining in position as

TVE reform and patron–client networks

61

owners of less competitive firms, tends only to increase the economic and political burdens on the local party–governmental apparatus. According to Tan (2000), there are many cases where the local party–governmental apparatus actively gave up its controlling interest in the ownership of collective-owned enterprises. However, in case of Jiangsu Province, collective capital retained a relatively strong presence. In 1998 the collective capital in shareholding enterprises and shareholding cooperative enterprises in Jiangsu Province accounted for 40.3 per cent of the total capital, higher than the national average of 33.7 per cent. On the other hand, in Zhejiang Province, where Wenzhou City is located, the proportion of collective capital remains at only 12.9 per cent (Nongyebu Zhongguo Xiangzhen Qiye Nianjian Bianji Weiyuanhui 1999, 182). Enterprise reforms in Wujiang The ownership and management system reforms in Wujiang passed through three phases (Fan 2000). The first phase lasted from the first half of the 1990s through to September 1997, and mainly involved the reorganization into leased firms. The second phase dated from the time the Fifteenth National Congress of the Chinese Communist Party, convened in October 1997, to the autumn of the following year, 1998. The reform of the enterprise ownership system was authorized at this party conference, and as a result, the TVE reforms were fully enacted. During this phase, reforms to small-scale enterprise ownership and management systems were advanced. The main method of reform was to sell enterprises to individuals (principally former management executives); few TVEs were reorganized into shareholding cooperative enterprises in this phase. In other words, the privatization of small-scale enterprises was promoted extensively. Of the 84 middle- to largescale collective-owned enterprises (with gross assets of 30 million yuan or more) in all of Wujiang, on the other hand, approximately half of them (43 enterprises) were transformed into shareholding corporations or limited liability corporations in this phase. The third phase began after the autumn of 1998, during which 40 of the remaining 41 middle- to large-scale enterprises completed the reform. Table 3.4 summarizes the general features of the ownership and management system reforms of the sample firms in Wujiang. Approximately 70 per cent of the total number of firms that went through the reforms did so after 1998. When the ownership and management systems before and after the reform are compared, it can be seen that many of the relatively small-scale village enterprises were transformed into private enterprises, whereas many of the large-scale township enterprises were transformed into limited liability corporations and shareholding corporations. It must be noted, however, that a few enterprises have used a shareholding cooperative system (gufen hezuozhi). By looking at the ratio of collective capital to total capital (zibenjin, gubenjin or gujin) after the reforms, it can be

62

The growth of market relations in post-reform rural China

Table 3.4 Ownership and management system reforms in Wujiang sample firms (number of firms) 1 Period of enterprise reform 1996 1997 1998 1999 2000 Unknown Total

3 6 9 6 6 1 31

2 Comparison of management system before and after reform After reform

Shareholding corporations Limited liability corporations Shareholding cooperative enterprises Private enterprises Total

Before reform Township enterprise

Village enterprise

Total

3 12 1 1 17

2 3 1 6 12

5 15 2 7 29

Source: Wujiang survey

seen that collective capital was completely withdrawn in 11 out of 22 firms, not including private enterprises. The basic policies of the TVE reforms in Wujiang were ‘complete withdrawal of collective capital’ and ‘concentration of shares in the hands of management executives’. The general trend is privatization. According to the author’s interviews in Wujiang City, the political standard applied is that the share of management executives’ capital should exceed at least 20 per cent in the firms after the reforms (interviews in Wujiang City Rural-Work Department, 22 September 1999). Nonetheless, there remain five firms in which collective capital still accounts for more than 50 per cent of the shares. No clear relationship has been recognized between capital scale and collective capital share of the firms, so it cannot simply be said that the withdrawal of collective capital is advancing faster in firms which operate on a smaller capital scale. Evolution of business organization forms in Wenzhou In this section, the evolutionary development process in the private sector in Wenzhou is considered, taking note of the type of enterprises. The evolution of enterprises in Wenzhou can be divided broadly into three stages (Ma 2000). The first stage occurred through the early 1980s. In this stage, small family businesses were the leading actors in rural industrialization. For example, in

TVE reform and patron–client networks

63

the 1970s many farm households in Xianxiang Township, Ruian County, began to manually manufacture plastic shoes, using cutters and irons. In Pingyang and Cangnan Counties, many small workshops producing synthetic fabric bags (woven of plastic twine) sprang up in the rural area, drawing their raw materials from kitchen and factory waste. Even the collectively owned and operated enterprises established during the commune era introduced a subcontracting system, and a considerable share of industrial production was in fact delegated to farming households within the community. The second stage began in the late 1980s. This stage is characterized by the development of shareholding cooperative enterprises. As can be clearly seen from Table 3.2, shareholding cooperative enterprises constituted the main form of business organization in Wenzhou even at the end of the 1990s. However, it should be noted that the shareholding cooperative enterprises in Wenzhou have characteristics that are different from those in Sunan. The shareholding cooperative enterprises in Wenzhou are joint stock enterprises owned by several individuals (families), which means that they should be understood as a type of private enterprise. It was a wise move on the part of the Wenzhou government and entrepreneurs to allow these de facto private enterprises to come under the shareholding cooperative system in order to avoid political and ideological criticism of private ownership. The third stage in the enterprise development in Wenzhou began during the latter half of the 1990s. In this phase, some of the enterprises were reorganized into limited liability corporations or shareholding corporations and have begun to restructure themselves along the lines of modern business organizations. However, in most cases, even these enterprises tend to have a strong family-run nature.

Social characteristics of peasant entrepreneurs Personal attributes, employment channels and business careers Personal attributes Table 3.5 summarizes the personal attributes of the high executives in the survey. First, it is apparent that the educational level of high executives is lower than the general standard among enterprise management executives, including those of state-owned enterprises, but considerably higher than the overall standard among TVE employees. In general, high executives of state-owned enterprises and collective-owned enterprises can be said to have a higher educational level than the management executives of private enterprises (Li Lulu 1998, 88–90). However, from this table it can be seen that high executives in Wenzhou have a higher educational level. It would seem that this is due to a recent increase in opportunities for bringing in capable human resources from the outside, though formerly most of the high executives were enterprise owners of local peasant origin in Wenzhou. To

93.6 6.4 (94)

25.5 57.4 17.0 (94)

64.3 (84)

32.6 57.6 9.8 (92)

75.1 24.9 (173)

35.2 52.3 12.5 (176)

41.1 (175)

39.4 34.3 26.3 (175)

64.5 33.5 2.0

43.5 38.1 18.4

Private enterprise management executives (national, 1995)

2.9 15.3 81.8

Enterprise management executives in general (national, large corporations, 1998)

Sources: Wujiang and Wenzhou surveys, Li Lulu (1998), 89, Nongyebu Xiangzhen Qiye Nianjian Bianji Weiyuanhui (1999), 176, Zhongguo Qiyejia Diaocha Xitong (1999), 145

Place of household registration Within the township where enterprise is situated Other

Age 34 or less 35 to 49 50 or more

Political status Ratio of party members

Educational level Junior high school or below Senior high school, specialized secondary school Higher education

TVE employees (national, 1998)

Wujiang

Wenzhou

Comparison data

Wujiang and Wenzhou surveys

Table 3.5 Personal attributes of high executives (per cent, numbers in parenthesis are numbers of samples)

TVE reform and patron–client networks

65

examine this point, Table 3.6 summarizes the relationship between the date of employment, employment channel and educational level of high executives. This table confirms that the ratio of high executives who joined enterprises through selective examinations or by accepting invitations from the enterprises is clearly increasing, and many of these executives are highly educated. In Wujiang, by way of contrast, there are no significant differences between the date of employment and employment channel, and between employment channel and educational level. The political status of the high executives is examined next. The proportion of party members is very high, not only in Wujiang but also in Wenzhou. It is clear from the results of other surveys that the proportion of party members is higher among private entrepreneurs than the general standard in rural areas. According to the country-wide private enterprise sample survey by the National Bureau of Business Administration, cited in Chapter 2, 22 per cent of management executives in rural areas are party members. This is much higher than the general level in rural areas (a few per cent of the adult population) for the same period.5 Moreover, in the survey of self-employed distributors in Wenzhou at the end of the 1980s (Zhang and Li 1990, 113–15), the ratio of party members was high as well, 21 per cent. The results of this survey, however, show an even higher ratio compared to existing survey results. This high ratio is partly due to small firms being excluded from the Wenzhou survey, and partly to samples being biased because it was not possible to perform random sampling. Employment channel As Table 3.6 clearly shows, there are significant differences between the two areas in the employment channels followed by the high executives. In Wujiang, 68 per cent of high executives joined the enterprises through appointment by the collective (township or village) or personal introduction (from the township or village cadres, etc.) Furthermore, upon examining how the high executives in Wujiang were appointed to their current position, it can be seen that 48 per cent were appointed by the party–governmental apparatus and 34 per cent were appointed from within the enterprises. In Wenzhou, on the other hand, 49 per cent of the management executives are enterprise owners. These differences in employment channels are reflected in the distribution of the subjects’ birthplaces (places of household registration). In Wujiang most high executives are from the same township as the enterprises they work for, whereas high executives from outside the township account for a significant percentage in Wenzhou (Table 3.5). Previous career Table 3.7 summarizes the occupations (or political status) in which the executives in the survey have gained experience before joining the current

23.2

22.6 54.2 100.0 (177)

68.1

18.1 13.8 100.0 (94)

Sources: Wujiang and Wenzhou surveys

Appointment by collective or personal introduction Invitation or examination Stakeholder Total 64.0

17.4 20.0 13.0 16.0 100.0 100.0 (69) (25) Pr ⫽ 0.874

69.6

29.7

10.1 40.5 69.6 29.7 100.0 100.0 (79) (74) Pr ⫽ 0.000

20.3

1995 or later

1994 or earlier

1994 or earlier

1995 or later

Wenzhou

Wujiang

Wujiang

Wenzhou

Date of employment and employment channel

Employment channel

16.7 26.7 100.0 (30) Pr ⫽ 0.055

56.7

Less than junior high school

Wujiang

19.4 8.1 100.0 (62)

72.6

Senior high school or higher

8.7 69.6 100.0 (69) Pr ⫽ 0.001

21.7

Less than junior high school

Wenzhou

Educational level and employment channel

31.1 44.3 100.0 (106)

24.5

Senior high school or higher

Table 3.6 Employment channel, date of employment and educational level of high executives (per cent, numbers in parenthesis are numbers of samples)

TVE reform and patron–client networks

67

Table 3.7 Previous careers of high executives1 (per cent, numbers in parenthesis are numbers of samples) Wujiang Family business General employees of other firms Executives of other firms2 Other firms (general employees or executives) State-owned commercial/financial institutions (including the SMC and the RCC) Military service Township and village cadres

Wenzhou

3.2 10.6 38.3 2.1

26.9 24.8 29.0 11.7

6.4 2.1 20.2 (94)

6.2 9.0 6.2 (146)

Sources: Wujiang and Wenzhou surveys Notes: 1 Occupations before joining the current enterprises. Multiple careers may be stated 2 Besides management executives as such, this figure includes technicians and people in charge of supply or marketing

enterprises. Again, the first thing to be noticed in this table is the difference between the two areas. In Wujiang, many executives gained their previous experience in township and village cadres, whereas in Wenzhou, many have experience with family businesses. However, behind the difference it is also possible to see what the areas have in common. As mentioned in Chapter 1, experience developed in both the cadres and the family businesses is helpful in accumulating human capital in the broad sense and network capital in the sense used in this book. Note also that experience from the cadres makes it possible to accumulate vertical networks linked to the party–state system, that is, the sociopolitical networks. Moreover, when the work experience of the fathers of the executives is examined, it emerges that a large proportion of high executives have fathers who engaged in nonagricultural activities in both Wujiang and Wenzhou (Wujiang 33 per cent, Wenzhou 37 per cent).6 This direct or indirect influence of nonagricultural experience in the father’s generation can also be included in the human capital in the broad sense. (For details of the job history of the peasant entrepreneurs in Wujiang and Wenzhou, see Appendix 3B.) Continuity and discontinuity in the high executive class Continuity in Wujiang As described above, there is strong continuity before and after the reform in the high executive class in the case of Wujiang. That is, in many cases previous high executives were typically appointed straight to the position of management executive of enterprises after the reform. This claim is also supported by the author’s interview survey in Wujiang City (interviews at the

68

The growth of market relations in post-reform rural China

TVE Administration Bureau, Rural-Work Department and H Township, 22–3 September 1999). This finding supports the power conversion hypothesis, that is, the transformation of political capital holders into entrepreneurs, explained in Chapter 1. In other words, enterprise reform on the Sunan model became a process that transformed assets of local collectives into private assets of the management executives under advantageous conditions for them. This transformation was possible because the assessment of the enterprise asset sales price and the evaluation of the management executives’ contribution during the enterprise asset evaluation are in most cases decided through negotiation between the township and village (the owners of the enterprises) and the high executives of the corresponding enterprises. When the reallocation of property rights between the interested parties is carried out under the main policy of ‘concentrating assets in the hands of the management executives’, it is only natural that the result is very favourable for the management executives. For example, in the case of the former township-owned enterprise WD company (carpet manufacturing), the only enterprise in H Township in Wujiang that maintains a collective (township) shareholding, reform was carried out in early 1998. The enterprise was appraised at that time to have net assets worth 4,470,000 yuan, and 2,030,000 yuan was left as shares owned by the township. The factory head was to own shares worth 1,400,000 yuan. He purchased shares worth 800,000 yuan with private funds, and the rest were assigned to him as compensation for his contribution up to that time as a management executive. The remaining shares were acquired by six other management executives. In this manner, all shares other than those held by the collective were acquired by the management executives. Furthermore, 420,000 yuan’s worth of the collective shares were assigned to the management executive class as ‘jointly held shares’ (gongxiang gu) according to their level of contribution to the enterprise. The ownership of these ‘jointly held shares’ was vested in the collective, but the dividend was given to individual management executives. The factory head was assigned dividends of jointly held shares corresponding to a net worth of 200,000 yuan. In actual situations during enterprise reforms, as in this case, various kinds of preferential treatment were given in order to increase the incentives for management executives (interview at WD company, 23 September 1999). Continuity and discontinuity in Wenzhou It is also natural, in a sense, that most high executives in Wenzhou should be of the enterprise owner type. Here, may be noted as a sign of change that the number of management executives brought in from outside increased during the latter half of the 1990s and onward. This indicates that private enterprises in Wenzhou, which until then had been firmly based in family business structures were now looking for a way to change their management structure. Such a change was necessary in order to cope with changes in the market

TVE reform and patron–client networks

69

environment, which include competitive industrial regions gaining power, more intense competition with large-scale firms such as state-owned enterprises and foreign-funded enterprises, and stronger influence from technological innovations. However, according to Ma (1999), who compared the changes in management structures in representative firms in Wenzhou, cases have been observed in which inviting nonkinsmen to join the company has actually made the enterprise management unstable. There are also cases where enterprises in good standing have been reorganized into shareholding corporations and have employed modern management structures, yet still firmly maintain family management by sharing the stocks among family members only. Moreover, in Wenzhou as a whole, small-scale family businesses still accounted for the majority of the businesses even at the end of the 1990s. It seems this situation – in which most enterprises retain family management but some evolve into more modern management structures – will continue for some time.

Deepening of marketization and changes in behavioural patterns of peasant entrepreneurs Decision-making of high executives, managerial objectives and constraints on behaviour Decision-making authority: similarities Table 3.8 shows the distribution of the decision-making authority of the top executives (executive officers) in Wujiang and Wenzhou. This distribution is compared with the results of the World Bank survey, which shows the general conditions of TVEs in the early 1990s. From this table it can be seen that, compared to the general position before the TVE reform, the decisionmaking authority of the top executives in the surveyed firms was considerably higher after the reform. Moreover, no regional differences between Wujiang and Wenzhou can be recognized; the direct involvement of the party– governmental apparatus in enterprise management has all but disappeared, even in Wujiang. Managerial objectives: differences The characteristics of the two areas are reflected in differences in managerial objectives and the constraints placed on the behaviour of high executives (Table 3.9). To begin with, the following facts are apparent upon examining the managerial objectives. First, respondents from Wenzhou, on average, put higher importance on objectives related to the development of the firms themselves (increasing turnover/sales, maximization of profit, technological innovation, and raising the status of the firm) than did the respondents from Wujiang. Furthermore, there is little variation in the values attached to these

70

The growth of market relations in post-reform rural China

Table 3.8 Decision-making authority of enterprise management executives (per cent, numbers in parenthesis are numbers of samples) Wujiang The Consultation Consultation Others/ executive within the with township/ unknown officer firm village (or decides supervisory department) decide Bank financing Invitation of executive officers and technicians Formulation of production plan Appointment of senior executive officers Pricing Employment of general employees Dismissal of employees General investment projects Allocation of retained profits Selling out mechanical equipment Appointment of management administrators Determination of wages Joining a business group Affiliation or merger with another firm Important investment projects

61

35

0

3

55 58

35 39

0 0

10 3

55 52 45 42 39 32 29

32 42 48 52 58 65 58

6 3 0 0 0 0 0

6 3 6 6 3 3 13

29 29 23

48 65 48

13 3 10

10 3 19

23 13 (31)

58 77

10 6

10 3

Sources: Wujiang and Wenzhou surveys, Lin and Du (1997), 620

objectives by respondents from Wenzhou (i.e. the coefficient of variance is small). This implies that high executives in Wenzhou are by and large more strongly committed to dealing with the market competition. Second, in contrast with the above point, the respondents from Wujiang, on average, put higher importance on patron–client ties within the firms (increasing income of employees), patron–client ties between the firms and the community (providing employment opportunities, contributing to the community’s public welfare), and the relationship with the state (contribution by tax payment); the coefficient of variance is small here as well. This implies that most high executives in Wujiang still to some degree see their firms as community-oriented enterprises. Next, regarding constraints on high executives’ behaviour, the following facts can be pointed out (Table 3.10). The most important constraint for both areas is the market competition. Comparing the two areas, the average value of the index for market competition is higher in Wenzhou, while the

TVE reform and patron–client networks

71

Wenzhou

World Bank Survey (collective-owned TVEs)

The Consultation Consultation Others/ executive within the with township/ unknown officer firm village (or decides supervisory department) decide

The Consultation The executive within the township/ officer firm village (or decides supervisory department) decide

41

56

0

3

54 36

44 62

2 1

0 1

46 30 59 47 22 21 33

50 69 36 49 75 75 57

1 1 1 2 2 0 0

19 41 10

79 56 60

10 12 (107)

65 85

58

20

22

4 0 4 3 1 5 10

67 72 25

30 24 60

4 4 16

42

39

19

1 0 0

2 3 30

16 79 26

24 12 41

60 9 34

0 1

24 2

12

35

52

(285)

coefficient of variance is very small. In other words, high executives in Wenzhou in general seem to feel the pressure from the market more strongly than high executives in Wujiang. However, in regard to other constraints – organizations and groups within the enterprise, local party–governmental apparatus, and community public sentiments – the average value of the index for degree of constraint is lower in Wenzhou, indicating that the executives have a higher degree of freedom in making decisions. Convergence? The question then, is whether these regional differences in enterprise behaviour between Wujiang and Wenzhou are transient phenomena that will disappear with time, or whether they will remain for a long period. To answer this question, a regression model was devised using the Wujiang samples (Table 3.11). In this model, the dependent variables employed are the

(94) (93) (93) (93) (94) (92) (94) (93)

4.0 4.2 4.0 3.7 4.0 3.4 3.4 4.0

3.6

2.3 3.3

4.5 4.7 4.6 4.6 3.3

(164)

(163) (162)

(163) (161) (164) (164) (164)

0.33

0.41 0.41

0.37 0.30 0.33 0.43 0.29

0.39

0.69 0.41

0.19 0.17 0.18 0.19 0.40

Note: The importance level values are simple averages of six-scale evaluations ranging from 5 ⫽ very important to 1 ⫽ not very important, and 0 ⫽ unconcerned. Numbers in parenthesis are numbers of samples

Sources: Wujiang and Wenzhou surveys

Development of the firm Increasing turnover/sales Maximization of profit Technological innovation Raising the status of the firm Increasing income of employees Relationship with the community Providing employment opportunities Contribution to the community’s public welfare Relationship with the state Increasing the state’s tax revenue

Wenzhou

Wujiang

Wujiang

Wenzhou

Coefficient of variance

Average of the importance level

Table 3.9 Managerial objectives of high executives (self-evaluation, importance level)

(82) (81) (85) (90) (88) (87) (85) (89)

3.1 2.3 3.2 2.1 2.0 2.6 2.0 3.8

4.4

1.7

1.4 1.7 1.1

2.4 1.1 2.9

(162)

(156)

(158) (160) (158)

(156) (160) (156)

0.45

0.83

0.77 0.78 0.69

0.39 0.74 0.46

0.22

0.90

1.12 0.90 1.49

0.82 1.42 0.65

Note: The constraint level values are simple averages of six-scale evaluations ranging from 5 ⫽ very important to 1 ⫽ not very important, and 0 ⫽ unconcerned. Numbers in parenthesis are numbers of samples

Sources: Wujiang and Wenzhou surveys

Constraints within the firm Board of directors Employees (labour organizations, employee representative meetings) Shareholders in general Local party – governmental apparatus Township leaders Other administrative departments Party organizations Community Public sentiment of the community Market Competition

Wenzhou

Wujiang

Wujiang

Wenzhou

Coefficient of variance

Average of the strength of constraint

Table 3.10 Constraints on behaviours of high executives (self-evaluation, strength of constraint)

0.178 ⫺0.004 0.389 0.072 ⫺0.111 0.010 ⫺0.762 ⫺775.459 0.111 67 0.262 ⫺0.010 0.491 ⫺0.004 1.338 ⫺0.034 ⫺0.175 ⫺980.571 0.153 66

Public sentiments of the community Firm size Ratio of collective shares Period of enterprise reform Political status Location of the household registration Number of years of continuous employment Position within the enterprise Constant Adjusted R-squared n

Coefficient

Constraint (dependent variable): leaders of township Firm size2 Ratio of collective shares (%) Period of enterprise reform (year) Political status (party member ⫽ 1, non party member ⫽ 0) Location of the household registration (township where the firm is located ⫽ 1, others ⫽ 0) Number of years of continuous employment (years) Position within the enterprise (top executive ⫽ 1, others ⫽ 0) Constant Adjusted R-squared n

Table 3.11 Constraints on managerial behaviours of high executives in Wujiang (OLS estimation)

2.24* ⫺1.16 2.82** ⫺0.01 1.44 ⫺1.25 ⫺0.44 ⫺2.82**

1.50 ⫺0.48 2.18* 0.15 ⫺0.13 0.37 ⫺1.86 ⫺2.18*

t-statistics1

0.534 ⫺0.016 0.555 ⫺0.846 0.564 0.003 ⫺0.323 ⫺1108.968 0.395 66

Employees Firm size Ratio of collective shares Period of enterprise reform Political status Location of the household registration Number of years of continuous employment Position within the enterprise Constant Adjusted R-squared n

5.33** ⫺2.23* 3.72** ⫺2.08* 0.70 0.15 ⫺0.94 ⫺3.72**

0.17 ⫺2.16* 1.77 ⫺0.75 1.15 ⫺1.80 0.04 ⫺1.77

Notes: 1 **indicates statistical significance at the 1% level, * at the 5% level 2 The values are obtained by classifying the number of employees and fixed assets into four levels, respectively, to obtain scores, and then adding up the scores. Number of employees: 30 or less ⫽ 1, 31 to 100 ⫽ 2, 101 to 300 ⫽ 3, 301 or more ⫽ 4. Fixed assets: 2 million yuan or less ⫽ 1, 2 to 10 million yuan ⫽ 2, 10 to 30 million yuan ⫽ 3, 30 million yuan or more ⫽ 4 3 Not including private enterprises

Source: Wujiang survey

0.019 ⫺0.016 0.340 ⫺0.339 1.598 ⫺0.054 0.015 ⫺675.833 0.017 54

Board of directors Firm size Ratio of collective shares Period of enterprise reform Political status Location of the household registration Number of years of continuous employment Position within the enterprise Constant Adjusted R-squared n3

76

The growth of market relations in post-reform rural China

strength of the main constraints on the behaviour of high executives (board of directors, employees, township leaders, community public sentiment), and the independent variables are the characteristics of the enterprises and high executives. Specifically, firm size (number of employees and fixed assets are indexed together), the ratio of collective capital (shares held), and the period of enterprise reform (year) are incorporated into the model as the characteristics of the enterprises. The individual characteristics of high executives are expressed by the executive’s position within the enterprise (whether or not s/he is the top executive), political status (whether or not s/he is a party member), the location of the household registration (whether or not s/he is from the local township), and the number of years of continuous employment. Two points can be made when interpreting the results of this regression model. Both points indicate that community constraints on high executives’ behaviour are transient, and that their behavioural patterns will eventually converge to the more market-oriented behavioural patterns seen in Wenzhou. The first question is about the strength of the external constraints. Looking at the case where the township leader is used as a dependent variable, it can be seen that the period of enterprise reform is statistically significant. This implies that high executives in enterprises that underwent reform a short time ago feel more strongly that their managerial decision-making is constrained by the leaders of the township. Somewhat surprisingly, the ratio of collective shares is not significant. If community public sentiment is used as a dependent variable, it can be seen that, besides the fact that the firm size becomes significant, the result is the same as in the case where the leaders of the township are used as a dependent variable. This result suggests that constraints from the local party–governmental apparatus and community on the managerial behaviours of the high executives decrease with time, regardless of whether or not the collectives hold the capital. The second point concerns constraints within enterprises. First, looking at influences from employees, it was found that executives in enterprises with lower ratios of collective shares feel the influence of the employees’ opinions more strongly. The same result is obtained for the board of directors. The existence of collectives as major stakeholders is not a factor that restricts the managerial behaviour of the high executives; rather, it becomes a factor that strengthens the high executives’ power base and increases their freedom in managerial behaviour. To put it the other way round, high executives in enterprises where withdrawal of collective capital is well advanced are facing the cost of having to adjust to interests within the enterprise, as a price that must be paid for obtaining freedom from the interference from the party– governmental apparatus. This suggests that the patron–client ties between the party–governmental apparatus and the high executives through collective capital will continue to operate. The trend in future will perhaps be a differentiation into two kinds: the majority of the enterprises where collective capital is completely withdrawn, and a minority of enterprises where collective capital still occupies a certain position.

TVE reform and patron–client networks

77

Deepening of marketization and reorganization of the relationship between entrepreneurs and the local party–governmental apparatus Reorganization of the patron–client networks Does this trend of converging managerial behaviour among high executives mean that the relationship between enterprises and the local party– governmental apparatus seen in the Sunan model will simply break up? The results of this study suggest not. Rather, the process should be understood as a reorganization of patron–client networks of both parties. This claim is based on the following arguments. The first is that the role of the local party–governmental apparatus is important, even for enterprises that went through both corporatization and privatization. This importance is strongly indicated by the evidence of change in the opinions of the Wenzhou entrepreneurs toward local politics. Table 3.12 summarizes responses to the question ‘What method can be considered to improve the social influences of entrepreneurs/executive class of enterprises?’ The interesting point in this table is that more people in Wenzhou than in Wujiang suggested direct participation in local politics (‘becoming a township/village leader’, ‘getting a position as administrative official’, or ‘getting elected as a representative of the People’s Congress at the township/county level’).7 Participation in local politics may take two forms: an active form, where the interests of the entrepreneurs are presented directly to the administration, and a passive form, where the entrepreneurs have to defend themselves from interference from the local party–governmental apparatus. The active form will be explained first. Private entrepreneurs in Wenzhou did not remark upon the presence of the local party–governmental apparatus much before, but with intensified market Table 3.12 How to improve status of peasant entrepreneurs (per cent, numbers in parenthesis are numbers of samples) Wujiang Joining the party Getting a position as administrative official Being elected as representative of the People’s Congress Becoming a township/village leader Performing public service Obtaining closer relationship with party–government executives Expressing opinions through entrepreneurs’ organizations Expanding firm size Sources: Wujiang and Wenzhou surveys Note: Multiple answers (up to two)

Wenzhou

14.9 1.1 20.2 0.0 50.0

12.4 13.5 15.2 7.9 46.1

14.9 10.6 58.5 (94)

9.6 24.7 52.8 (178)

78

The growth of market relations in post-reform rural China

competition, they have been forced to recognize the importance of the role the local party–governmental apparatus plays in building up the physical and institutional infrastructures for market development. Hence they have begun to see the importance of developing a network of relations with the local party–governmental apparatus. Regarding the passive form, it may be pointed out that there are cases where enterprises move out of their region because the relationships between the township party–governmental apparatus and the enterprises have grown tense because of increased taxation and the burden of various charges or donations (Zhang Letian 2000).8 The second argument is that there are both formal and informal aspects of the patron–client networks involving the enterprises. The formal aspects refer to the authority the party–government cadres can bring to bear on the personal affairs of the enterprise’s high executives, whereas the informal aspects refer to the personal connections between party–government cadres and high executives. The formal relationship between the enterprises and the local party–governmental apparatus in Wujiang has indeed changed dramatically. However, due to social inertia, informal relationships will probably continue for a long time. These informal relationships are strongly indicated by the continuity of the high executives of enterprises, as well as by the process of transforming assets of local collectives into private assets through negotiations between the interested parties (party–governmental executives and high executives).9 Changes in government roles These findings about the behaviour and attitudes of high executives raise the basic issue of the relationship between market development and the role the government plays. Schematically speaking, in the case of Wujiang during the time when the market was notably underdeveloped, the situation was such that the local government’s direct involvement in the enterprises had an active, advantageous influence on the development of the enterprises and on the market as a whole (the Sunan model in the 1980s). However, as marketization deepened, the role of the local government shifted to a more indirect one. In other words, there was a change in the local government’s role, from functioning as a substitute market for the local enterprises to taking a marketsupporting stance in the background. In Wenzhou as well, although the private sector has developed without any direct relationship with the local government, management is starting to expect more from the local government.10 This is equivalent to Oi’s (1999, 12–13) schema of the evolution of local state corporatism, but seen from a different point of view. Oi’s schema is that, in the post-reform rural industrialization, local governments started from a local corporatism in which the local governments and public enterprises functioned as if they were one corporation. They then evolved into another form of local corporatism, a regional politico-economic system in which local

TVE reform and patron–client networks

79

government supports the activities of public and private enterprises as a coordinator of regional economic development. Using Aoki’s terminology, the local corporatism in the latter sense is close to the government’s marketenhancing role (Aoki 1998, 539–42). However, this process was never a pre-established harmony. To begin with, the areas where the Sunan model of the 1980s worked effectively were very limited. Second, as marketization deepens, the requirements placed on the local government as a coordinator of the local economic development become more and more high-level, but the capabilities of the cadres in the local party–governmental apparatus do not automatically increase along with the requirements. Third, even in areas where an evolutionary development of the regional politico-economic system similar to the above schema can be recognized, the process is based on insider negotiation (Gu and Qian 1999, 62). That is, it can be seen as a transformation of the previous management executive class into entrepreneurs, and of the assets of local collectives into the management’s private assets. Therefore, the management of the privatized enterprises may not automatically respond directly to the market situation. In addition, there is a risk that the transition will have a negative effect on labour–management relations.

Conclusion The main conclusions of this chapter can be summarized as follows. First, there are large differences between Wujiang and Wenzhou in the social characteristics of the high executives. In Wujiang, a strong degree of continuity was recognized in the high executive class before and after ownership and management system reform. Moreover, the high executive class overlaps considerably with the group constituting the cadres in the party– governmental apparatus at the township level. This supports the power conversion hypothesis in the market transition debate. On the other hand, the corresponding group of entrepreneurs in Wenzhou is constituted mainly of enterprise owners and a certain number of people brought in from the outside. However, there are nonetheless some significant similarities behind these differences. These similarities show that human capital in the broad sense and network capital are important when individuals are transformed from peasants to entrepreneurs. Second, in spite of the differences in the characteristics of the high executives in the two places, it is possible to recognize a trend of broad convergence toward more market-oriented behavioural patterns among the high executives in both Wujiang and Wenzhou. Third, however, the trend of convergence in the behavioural pattern of the high executives does not imply that the regional politico-economic system of Wujiang is simply converging to that of present-day Wenzhou. That is to say, the informal networks linking high executives and local government executives still operate, and the local party–governmental apparatus is

Source: Yongjia Xian Qiaotou Zhenzhi Bianzuan Lingdao Xiaozu (1989), 243

Number of family members (persons) Number of labour force (persons) Arable land per capita (ha) Grain production (distribution) per capita (kg) Total household income (yuan) Income structure (%) Agricultural income Income from commercial activities outside the township Income from a selling space at the wholesale market in Qioaotou Township Income from other sideline activities 75.0 – – 25.0

6 3 0.029 158 320

1952

58.8 – – 41.2

3 2 – 167 340

1957

42.3 – – 57.7

4 2 – 150 520

1967

Table 3A Changes in the economic structure of a household in Qiaotou Township, Yongjia County

20.0 40.0 0.0 40.0

5 3 – 160 1,250

1977

1987

7.0 90.0 0.0 3.0

2.3 59.7 38.0 0.0

6 7 4 4 0.018 0.015 175 150 5,000 18,420

1982

TVE reform and patron–client networks

81

important even for the privatized enterprises as providers of the physical and institutional infrastructures that support the market. The fact that the executives in Wenzhou intend to participate in local politics to a higher degree, though the relationships between the enterprises and local governments used to be weak, suggests that the regional politico-economic system of Wenzhou is also going to change. Fourth, the issues mentioned above all come down to the fundamental relationship between market and government. Schematically speaking, as long as the market was decidedly underdeveloped, it was possible to see situations where local government acting in direct cooperation with enterprises got involved with the market, or where local government played the role of a substitute market for the enterprises. However, as marketization deepened, the relationship between local governments and enterprises changed to a more indirect one. In other words, it came to be expected of the local governments that they should take a supporting role behind the scenes in the market, rather than an active one up front.

Appendix 3A: The regional economy of Wenzhou The regional economy of Wenzhou began its development in a unique way. The most outstanding feature was the stronger tendency toward decollectivization compared with other regions. For example, as early as 1957, 178,000 farm households (about 15 per cent of the total number of farm households in the region) of over 1,000 collective farms (Advanced Agricultural Producers’ Cooperatives) had secretly switched to a household contracting system. This change is today referred to as the first successful attempt to institute the household contract responsibility system (jiating chengbao zerenzhi) that was adopted nationwide in the post-reform era. At the time, of course, this action was severely criticized by the Communist party. In Wenzhou, however, an underground market economy continued to play an extremely important role in the regional economy as a whole. For example, in the Xuanshan Subdistrict of Cangnan County, there were over 11,000 ‘underground’ merchants in 1976. They were actively involved in trading not only agricultural products and daily-use industrial goods, but also various kinds of production materials. Reportedly around 90 per cent of retail sales of commodities were on the underground markets in the mid-1970s (Zhang and Li 1990, 13–14). As a backdrop to this activity, the basic socioeconomic environment of the region, that is, the mountainous terrain and scarcity of arable land, made it impossible for peasants to live solely from farming. Table 3A shows a peasant household’s economic structure in Qiaotou Township of Yongjia County. The man–land ratio there has been very high, and per capita grain production (distribution) has been extremely low. It is noteworthy that, in spite of the collectivization of agriculture and the Maoist rural policy that emphasized the importance of grain production, the significance of agricultural income steadily fell from 1957 to 1977.

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The growth of market relations in post-reform rural China

Appendix 3B: Nonagricultural job history of peasant entrepreneurs in Wujiang and Wenzhou Table 3B summarizes the job history of the peasant entrepreneurs in Wujiang and Wenzhou. Regarding Wujiang, due to space limitations the job experiences of 31 high executives that seem to represent the regional characteristics mentioned above have been used. As for Wenzhou, because detailed data on job history has not yet been compiled from the Wenzhou survey in 2000, data from the author’s previous survey is presented. This survey was conducted in two townships in Cangnan County in 1994 (see Sato 1994 for details).

6

4

3

5

3

4

1

2

3

4

5

6

SHS

JHS

JHS

SHS

UC

JHS

PE

PE

LLC

LLC

LLC

PE

1 Wujiang (survey year: 2000)

Foundry

Foundry

Production of textile goods Production of textile goods Production of textile goods Production of electronic equipment

No. Age Educational Type of Present class 1 level 2 ownership line of and business management3 1969 and earlier

Job history 1975–9

Accountant of production team

Leader of production team, accountant of production brigade

1970–4

Table 3B Nonagricultural job history of entrepreneurs in Wujiang and Wenzhou

Accounting manager of an enterprise Person in charge of purchasing and marketing Accountant of production team

Manager of state-owned farm Warehouse manager

1980–4

President of another factory (outside the township)

Vice president of another enterprise Primary school teacher

Current job since 1985

1985–9

Current job since 1999

Current job since 1999

Current job since 1991

Current job since 1999

Current job since 1992

1990 on

6

4

5

6

8

4

7

8

9

10

11

12

No. Age class

UC

JHS

JHS

SHS

SHS

UC

LLC

SC

SC

LLC

LLC

SC

Production of silk materials

Production of textile goods

Production of textile goods Production of textile goods

Production of silk materials

Production of textile goods

Educational Type of Present level ownership line of and business management

Table 3B (continued)

1969 and earlier

Job history 1970–4

Military service

Factory engineer (outside the township) Secretary of village branch of the Communist Youth League Employed at another TVE

1980–4

Repair technician, family business

Manager of another enterprise (outside the township)

1985–9

Primary school teacher, then current job since 1984

Accountant of production team

1975–9

Village accountant, then current job since 1994

Current job since 1994

Current job since 1997

Village cadre, then current job since 1994

Current job since 2000

1990 on

4

6

4

6

5

6

8

13

14

15

16

17

18

19

JHS

SHS

UC

JHS

UC

JHS

SHS

LLC

LLC

LLC

LLC

LLC

PE

LLC

Production of home electronics equipment

Production of textile goods Production of textile goods

Production of silk materials Production of chemical materials Production of textile goods Production of textile goods

Accountant of production team

Factory manager

Village cadre (accountant, village head)

Leader of production team

Village cadre

Teacher

Current job since 1986

Vice president of an enterprise

Factory manager

President of a diary farm

Employed at textile machinery factory

Village cadre

Manager of a silk-made goods market. Current job since 1997.

Employed at textile machinery factory. Current job since 1996. Current job since 1993

Sales, then current job since 1997 Current job since 1996

Current job

4

6

6

6

22

23

24

25

JHS

SHS

UC

SHS

SHS

8

21

LLC

LLC

LLC

SCE

LLC

Production of leather ware Production of textile goods Production of textile goods

Production of home electronics equipment Production of home electronics equipment Production of cable

JHS

7

20

LLC

Educational Type of Present level ownership line of and business management

No. Age class

Table 3B (continued)

Accountant of production team

1969 and earlier

Job history

Carpenter

Accountant of production team

1970–4

Current job since 1989

1985–9

Village cadre (accountant, party secretary), accounting manager of an enterprise Sales

Family business

Current job siince 1996

Employed at Current job textile factory since 1986

Accounting manager of an enterprise

1980–4

Secretary of village branch of the Communist Youth League

1975–9

Current job since 1998

Current job

Current job since 1996

1990 on

4

6

7

4

6

5

26

27

28

29

30

31

JHS

UC

SHS

SHS

JHS

SHS

PE

SC

LLC

SC

SC

SC

Production of aluminium wheel Production of aluminium wheel Machinery industry Production of cable

Production of textile goods Production of cable

Manager of an enterprise Accounting manager of an enterprise

President of furniture factory

Agricultural Accountant of production technician team Farming Employed at a TVE

Sales

Current job since 1989

Accountant Accounting of production manager of team an enterprise Vice president of the enterprise

Current job since 1997

Current job since 1993

Party secretary of the enterprise Current job since 1993

Current job

55

45

43

41

40

39

1

2

3

4

5

6

PS

JHS

PS

PS

UC

JHS

PC

SCE

SCE

PE

SCE

PC

Production and installation of piping facilities Production of printing materials Printing of labels etc. Production of plastic bags Lead products (seals)

Carpet marketing

Educational Type of Present level ownership line of and business management

2 Wenzhou (survey year: 1994)

No. Age class

Table 3B (continued)

1970–4

Military service

Military service Military service

Dam Fishing construction equipment site factory (the home township

1969 and earlier

Job history 1985–9

1990 on

Current job since 1992

Current job since 1992 Current job since 1992

Current job since 1990

Employed at a Manager of wool knit the factory factory owned by private by county contracting government since 1990 Fishing equipment factory (outside the township). Production of piping facilities since 1984. Establishment of current factory in 1986.

1980–4

Stationery Production goods of soda factory water Operation of plastic processing business Sales of Purchasing and sale of metal various goods products Commerce

1975–9

38

37

37

37

33

30

30

30

7

8

9

10

11

12

13

14

SHS

JHS

JHS

JHS

SHS

JHS

JHS

JHS

SCE

JOE

JOE

PE

SCE

JOE

SCE

JOE

Printing and production of packaging materials

Printing of labels

Production of plastic bags

Printing

Production of accessories

Production of adhesives Production of ink and printing materials

Production of plastic bags

Military service

Lumber trade

Printing

Operation of equipment repair service Establishment of metal and plastic processing factory Village cadre (vicesecretary of party branch) Current job since 1983

Production of plastic bags

Person in charge of purchasing and marketing Operation of printing factory County packaging paper factory

Current job since 1983

Current job since 1986

Current factory since 1988 Current job since 1992

Current job since 1993

Current job since 1992

Establishment of current factory in 1990

23

23

17

18

JOE

SCE

PE

Metal and plastic accessories

Printing of plastics Production of enamelware

1969 and earlier

Job history 1970–4

1975–9

1980–4

Private contracting of operation of factory since 1991 Current job since 1993 Current job since 1990

1990 on

Person in charge of purchasing and marketing Employed at Current job county since 1992 accessory factory

Farming

1985–9

Notes: 1 Age class: 1 ⫽ 24 years old or younger; 2 ⫽ 25–29 years old; 3 ⫽ 30–34 years old; 4 ⫽ 35–40 years old; 5 ⫽ 41–44 years old; 6 ⫽ 45–49 years old; 7 ⫽ 50–54 years old; 8 ⫽ 55–59 years old; 9 ⫽ 60–64 years old; 10 ⫽ 65 years old or older. 2 Educational level: PS ⫽ primary school; JHS ⫽ junior high school; SHS ⫽ senior high school; UC ⫽ university/college 3 PC ⫽ private contracting of state-owned or collective-owned enterprise; SC ⫽ shareholding corporation; LLC ⫽ limited liability corporation; SCE ⫽ shareholding cooperative enterprise; JOE ⫽ joint ownership enterprise; PE ⫽ private enterprise

Sources: The Wujiang survey and the author’s survey in Wenzhou (1994)

JHS

JHS

JHS

25

16

Production of packaging paper and paper boxes

JHS

25

15

PC

Educational Type of Present level ownership line of and business management

No. Age class

Table 3B (continued)

4

Migration, the job search and social networks: three surveys of rural–urban migration

Issues and data Issues This chapter focuses on rural–urban migration in the post-reform era. Three surveys are used in this chapter: the migrant household survey in 13 cities in six provinces (hereafter referred to as the migrant household survey); the survey of firms in Zhujiang Delta, Guangdong Province in which Japanese companies have invested (hereafter referred to as the Japanese investment survey); and the survey of the day-labourer market in Yunnan Province (hereafter referred to as the day-labourer survey). This chapter has two main tasks. The first task is to compare the effect of human, political and network capital on the job search methods and income generation of migrant peasants. The second is to consider the implications of the social network role in out-migration from two angles: regional disparities in the mobility of the rural labour force, and the characteristics of gatekeepers at the bottom end of the urban labour market. As previous studies such as Zhao Shukai (1998; 2000), and Solinger (1999a) emphasized, a social network based on personal ties such as kinship and shared territorial bonding – called the primary social network in this study – plays an essential role in rural–urban migration, as it does in other developing economies. For example, according to a survey conducted by the Ministry of Labour (hereafter referred to as the MOL survey), approximately 54 per cent of the peasants who worked outside of their home province in 1994 had obtained their jobs through introductions by relatives, friends and neighbours (Laodongbu et al. 1997, 249–74).1 However, little is known about the following questions. To what degree do social networks affect the position attained in the urban labour market (e.g. state sector versus non-state sector, unskilled jobs versus skilled or managerial jobs, etc.)? To what extent may social networks be substituted for educational background (human capital in the narrow sense)? How might migration through social networks brings about uneven development of labour mobility among localities? What are the social characteristics of key people, or gatekeepers, in the labour market? In addition, as a topic related to the main issues mentioned above, this

92

The growth of market relations in post-reform rural China

chapter describes the behavioural and attitudinal characteristics of migrant workers (Appendix 4A). Based on the Japanese investment survey, a factor analysis was carried out using data on individual and family attributes, characteristics of the place of origin, circumstance of migration, attitudes toward factory labour, and future plans. Data collecting and profile of the samples Data A number of methods can be used to collect quantitative data on outmigrants. The first method is to obtain samples for each of the rural areas from which the out-migrants have migrated. The second method is to obtain samples for each of the enterprises in cities where the out-migrants work. Most of the earlier research employed either (or both) of these methods. However, there is a third important method, which is to obtain samples from the households living in the cities. This approach is relevant because many out-migrants in cities maintain households there; not all of them live communally at factories and construction work sites. The official household survey conducted by the National Bureau of Statistics (NBS) has been sampled based on household registration status. Because of this, people engaged in economic activities who maintain unregistered households in cities (people who are considered peasants in the household registration system but in practice ought to be counted among the urban population) were not included in the surveys. This omission has caused a distortion in the understanding of the actual conditions among urban households (Sato 2000). To address this problem, the sampling frame of the migrant household survey includes migrant peasants who maintain households in cities. The survey covers 13 cities in six provinces, and the data on 800 households (1,181 individuals) was collected. The cities surveyed are as follows: Shenyang, Jinzhou(LiaoningProvince),Nanjing,Xuzhou(JiangsuProvince),Zhengzhou, Kaifeng, Pingdingshan (Henan Province), Chengdu, Zigong, Nanchong (Sichuan Province), Lanzhou, Pingliang (Gansu Province), and Beijing. The time of the survey was February–March 2000, and the reference year is 1999.2 The Japanese investment survey, on the other hand, used the second sampling method mentioned above.3 The locations and main business of firms surveyed, and the period during which the survey took place, are as follows. M factory, located in Shenzhen, just outside the Special Economic Zone administration border, manufactures printers for personal computers. This factory was surveyed in August 1992 and resurveyed at the beginning of 1998. B factory, situated adjacent to M factory, specializes in assembling computer peripherals and parts and was surveyed in August 1993. (B factory is an overseas production base of the same Japanese company as M factory.) T factory, located within the Special Economic Zone of Shenzhen, processes parts for acoustic devices and was surveyed in December 1993. S factory,

Migration, the job search and social networks 93 surveyed in March 1994, manufactures compact precision motors and is located in Dongguan City. The method used in the survey was systematic sampling using the employee ledgers. The number of samples obtained are as follows: 114 for M factory (1992), 183 for M factory (1998), 178 for B factory, 263 for T factory, and 197 for S factory.4 In contrast to the two kinds of quantitative data collected in the first two surveys, the day-labourer survey is an interview survey of day-labourers and labour-bosses (baogongtou) conducted by the author in the county seat of Shilin County, Yunnan Province, in December 1997. Profile of the samples Table 4.1 is a comparison of the migrant household survey, the Japanese investment survey and the MOL survey, intended to clarify the characteristics of the data used. From this table the following differences can be seen. The average age is highest in the migrant household survey, lowest in the Japanese investment survey, and in between in the MOL survey. The educational level is high in the migrant household survey and the Japanese investment survey. A comparison of the city jobs classified by industry, which is omitted from Table 4.1, reveals the following distribution. In the MOL survey, 28 per cent were employed in the manufacturing industry, 31 per cent in construction, 11 per cent in commercial and restaurant businesses, 14 per cent in other service businesses, 6 per cent in traffic and transportation, and 10 per cent in other forms of business.5 In the migrant household survey, 13 per cent were employed in the manufacturing industry, 4 per cent in construction, 42 per cent in commercial/restaurant businesses, 29 per cent in other service businesses, and 12 per cent in other forms of business. Comparison of the modes of employment reveals the following differences. The migrant household survey samples show that 52 per cent of the total labour force is self-employed and 48 per cent is employed. It is evident that, because the migrant household survey was conducted among out-migrants that maintain households in urban areas, there is a high ratio of self-employed households belonging to higher age groups. On the other hand, in the Japanese investment survey, the majority of the survey subjects are single people belonging to lower age groups, because the sampling was conducted mainly among unskilled workers living in communal dormitories.

Entry barriers to the urban labour market A framework for entry barriers and entry channels Network or non-network According to Solinger (1999a, 176–82), the channels utilized by migrants to enter the urban labour market can be classified into three broad categories.

Marital status Married (%)

Educational level Primary school or less Junior high school level Senior high school level or above

Gender Male (%)

Age (%) 25 or less 26–35 36–45 46 or more Average age (years)

Table 4.1 Profile of migrant peasants

Total

81.1 (222)

29.3 41.4 29.3 (222)

61.3 (222)

20.3 40.5 24.3 14.9 34.6 (222)2

State

73.2 (332)

23.2 53.6 23.2 (332)

59.6 (332)

31.0 46.4 14.5 8.1 30.8 (332)

Non-state

91.9 (607)

25.4 53.2 21.4 (607)

57.6 (604)

13.3 53.7 25.4 7.6 33.6 (607)

84.5 (1,161)

25.5 51.1 23.4 (1,161)

58.9 (1,158)

19.7 49.1 22.0 9.1 32.9 (1,161)

9.7 (290)3

4.6 70.9 24.5 (958)

24.6 (957)

91.5 6.9 1.5 0.1 21.4 (956)

8.9 (247)

5.5 77.8 16.6 (775)

22.6 (774)

94.0 4.5 1.3 0.1 21.0 (771)

Samples with rural household registration status

All samples

Selfemployed

Employed 1

Japanese investment survey (1992–8)

Migrant household survey (1999)

–

29.2 61.1 9.7 (1,193)

–

51.8 26.8 13.8 7.6 – (1,193)

MOL survey (1994)

36.7 52.0 11.3 (150) 9,616

501 (218)

3.2 (222)

20.7 (222) 67.3 (220)

35.7 55.2 9.0 (210) 11,420

676 (325)

2.4 (332)

12.0 (332) 79.8 (332)

15.8 84.0 0.3 (349) 18,627

760 (588)

2.3 (607)

10.4 (607) 69.7 (607)

26.1 68.7 5.2 (709) 14,572

686 (1,131)

2.5 (1,161)

12.8 (1,161) 72.1 (1,159)

Notes: 1 State-owned and collective enterprises 2 Numbers in parenthesis are numbers of samples 3 M factory (1992 and 1998) 4 373 yuan in M factory (1992), 393 yuan in B factory, 582 yuan in T factory, 569 yuan in M factory (1998)

Sources: Migrant Household Survey, Japanese investment survey, and Laodongbu et al. (1997), 274

Annual household income (yuan)

Household types Single household (%) Non-single household (%) Living in communal dormitories (%)

Income level Average monthly income per capita (yuan)

Political status Party member (%)

Outside the survey cities (%)

Place of origin Outside the survey provinces (%)

4

– – – – –

–

45.3 (966) –

– – – – –

–

45.8 (787) –

– – – – –

–

26.4 (1,193) –

96

The growth of market relations in post-reform rural China

The first entry channel is a network connected to the government or the party–state system in some form. This channel includes entry via personal connections to the party and government cadres or to the managers of SOEs, as well as formal employment assistance (job placement by government agencies and organized migration as a poverty-alleviation programme of local government). Solinger calls them the ‘bureaucrat-migrant connections’, similar to the sociopolitical networks in this study. The second channel is a network based on shared territorial bonding, referred to as the primary social networks in this study. The third channel is the movement of peasants to the cities on their own to find jobs without relying on either of the aforementioned networks. Solinger also summarizes what kinds of networks are necessary when a peasant seeks entrance to the six most representative job categories for migrants (manufacturing, marketing/services, garment processing, nursemaiding, construction, and begging and scrap collecting). For example, (this refers to relatively large-scale factories), it is most common to gain entry to manufacturing industry through networks connected to the government or networks of shared territorial bonding. The main entry to the garment processing industry (this refers to petty sewing workshops), is through networks of shared territorial bonding. Construction workers use all three types of entry channel: networks connected to the government (the case of a construction team organized by local government), networks of shared territorial bonding (the case of a construction team made up of peasants from the same place of origin), and individual entry (the case of a day-labourer at the lowest level of the construction labour market). Finally, in the case of begging and scrap collecting, it is easy for peasants to enter without using networks at all. Solinger developed her framework for examining the relationship between job category and entry channel to the urban labour market from wideranging interview surveys. It also accords with the intuitive impressions one gets. However, the statistical evidence presented for it is not sufficient. In addition, the interpretation of the significance of the entry channels is rather one-sided because Solinger mainly paid attention to the lower classes in the urban labour market. Even if the same entry channel, for example individual entry, is used, the meaning changes depending on whether the peasants gain entry to unskilled jobs or jobs requiring skills. For the former, as Solinger pointed out, the use of a channel indicates that it is easy to gain entry, but for the latter, it indicates that people with skills and ability can get jobs without having to rely on social networks. A framework for analysis Therefore, in this section the relationships between job categories and entry channels are examined from an angle different from Solinger’s, using the migrant household survey. The conceptual framework shown in Figure 4.1 is used.

Migration, the job search and social networks 97 High

Non-state sector

State sector Skilled/managerial

Skilled/managerial

Level of skill required

Difficulty of entry

Unskilled Unskilled

Non-temporary (relatively stable) positions Temporary position

Unskilled, low-wage and unstable

Low

High Institutional barriers

Figure 4.1 Job ranks and barriers to entry Source: the author

The vertical axis of the figure indicates the level of skill and ability required to obtain employment. Jobs requiring high skills are positioned at the top, whereas jobs requiring little or no skills are at the bottom. For simplicity, a job level based on a skill or ability prerequisite is divided into two broad levels. The higher level includes job categories such as technicians, skilled workers and department or section managers (hereafter referred to as skilled/ managerial jobs). The lower level includes common jobs such as production workers, salesclerks and waiters (hereafter referred to as unskilled jobs). Cross-tabulation of job levels and educational levels reveals a close association between them. Thus, it is safe to use educational level as a proxy for the level of skill/ability prerequisite. The horizontal axis of the figure indicates the height of institutional barriers (such as the household registration system and other local government regulations that prevent peasants from entering the urban labour market).6 It is assumed that institutional barriers are higher for the state sector than for the non-state sector.7 It is also assumed that the height of the institutional barriers depends on the level of employment stability (the barrier will become higher for employment forms with higher stability). In short, as indicated by the arrow in the figure, peasants will have more difficulty in gaining entry to job categories located upwards and to the right.

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The growth of market relations in post-reform rural China

Conversely, the job categories that are easiest to enter, that is, unskilled, low-wage and unstable jobs, are located at the bottom left of the figure (construction worker and begging/scrap collecting in Solinger’s typology fall into this category). Working hypotheses Based on the framework illustrated in Figure 4.1, two working hypotheses can be formulated. 1 Barriers of required skill/ability (the vertical axis in the figure). Individual peasants can utilize both their skill/ability (using educational level as a proxy) and their social networks to overcome entry barriers to the urban labour market. If one of them is insufficient, the other can be substituted for it. The efficiency of these two forms of capital – human capital and network capital – vary according to job rank as follows. (a) It is possible even for a peasant who lacks both of them to gain employment in one of the unskilled, low-wage and unstable jobs located at the lower left in the figure (hereafter referred to collectively as low-rank jobs). (b) Educational level becomes important for obtaining the unskilled jobs that are located at the middle of the vertical axis of the figure (hereafter referred to as middle-rank jobs). (c) The efficacy of social networks in compensating for low educational level becomes stronger for middle-rank jobs (in other words, the proportion of peasants entering jobs of this category via social networks is expected to be higher for those with a low level of education than for those with high educational levels). (d) Educational level plays an important role in the case of the skilled/ managerial jobs at the high end of the vertical axis (hereafter referred to collectively as the high-rank jobs), while the efficacy of a social network compensating for lack of education becomes weak. In other words, for highrank jobs, it is expected that there would be many cases where peasants with a high educational level obtain employment without relying on their social networks. To summarize, the ratio of entry via social networks is expected to be low for low- and high-rank jobs, and high for middle-rank jobs. The same can be said about the relationship between educational level and entry channel: the proportion entering via social networks is expected to be low among the low and high educational level groups and high among the middle educational level group. This means that if a graph were drawn by plotting the proportion entering via social networks on the vertical axis, and the job ranks and educational level on the horizontal axis, respectively, the curve would have an inverted-U shape. 2 Institutional barriers (the horizontal axis in the figure). As Solinger suggested, being connected to a social network is thought to be especially advantageous in overcoming institutional barriers. Therefore, when the state

Migration, the job search and social networks 99 sector and non-state sector are compared, the proportion entering via social networks (and through formal channels) is expected to be higher for the state sector. Employment opportunities in the state sector can be divided into two tiers according to the stability of employment: temporary employment without labour contract (linshigong) and relatively stable employment with labour contract (hetonggong). The proportion entering via social networks (and formal channels) is expected to be higher for the latter because it is relatively difficult for people without local household registration status to obtain employment in this category. Case examples from the migrant household survey Barriers of required skill/ability Table 4.2 summarizes the cross-tabulations that examine the working hypotheses, using the migrant household survey. From this table, the following observations can be made. First, there is a statistically significant difference in the entry channel used when entry to the state sector is compared with entry to the non-state sector. The proportion entering via social networks is higher for the state sector than for the non-state sector. Conversely, the proportion of individual entry (entry without relying on a social network) is higher for the non-state sector (Table 4.2A). Second, with regard to the relationship between educational level and entry channel in the non-state sector, an association that is consistent with the above hypotheses can be observed. The proportion entering via social networks is lower for the low educational level group (primary school or less) and the high educational level group (senior high school or above), but higher for the middle educational level group (junior high school). A graph plotting the proportion entering via social networks to educational level thus has an inverted-U shape (Table 4.2A). Third, as in the relationship between job rank based on a skill/ ability prerequisite and entry channel in the non-state sector, only the first part of the inverted-U curve is apparent, while the other part is not clear (Table 4.2A). The proportion entering via social networks is low for low-rank jobs but becomes higher for middle-rank jobs. However, the proportion entering via social networks for high-rank jobs is almost same as for middlerank jobs. Fourth, regarding the state sector, the relationship between job rank/educational level and entry channel does not exhibit an inverted-U curve. The proportion entering via social networks varies inversely with both job rank and educational level, whereas the proportion of individual entry varies directly with job rank and educational level. This implies that, because of the high institutional barriers in the state sector, it is difficult to gain individual entry even to the low-rank jobs, so having the network capital is important. Fifth, cross-tabulations of educational level and entry channel controlled by job rank suggest the substitution of skill or ability for connection to a social network. As in the non-state sector, a statistically significant

2.8 35.4 61.8 (319)

6.8 62.1 31.1 (219)

2.9 14.7 82.4 (34) Pr ⫽ 0.217

0.0 73.3 26.7 (30) Pr ⫽ 0.184

Low (unskilled jobs, monthly wage < 250 yuan) Formal channel Social networks Individual entry 0.0 75.0 25.0 (28) Pr ⫽ 0.440

0.0 50.0 50.0 (2)

0.0 73.3 26.7 (30)

3.1 15.6 81.3 (32) Pr ⫽ 0.796

Junior high school or less

Total

1.4 24.7 74.0 (73)

9.2 47.7 43.1 (65)

0.0 0.0 100.0 (2)

2.9 14.7 82.4 (34)

Total

Senior high school or above

Senior high school or above

3.4 42.0 54.6 (174)

6.7 62.2 31.1 (90)

Junior high school or less

2.8 30.6 66.7 (72) Pr ⫽ 0.049

4.7 76.6 18.8 (64) Pr ⫽ 0.022

Non-state sector Senior high school or above

0.0 38.5 61.5 (26)

11.8 41.2 47.1 (17)

Junior high school

State sector

3.1 37.8 59.1 (259)

7.6 62.2 30.2 (172)

Primary school or less

High (skilled/ managerial jobs)

Low (unskilled jobs, monthly wage < 250 yuan)

Middle (unskilled jobs, monthly wage ⭓ 250 yuan)

Educational level

Job rank

B Entry channel and educational level (by job rank)

Non-state sector Formal channel Social networks Individual entry

State sector Formal channel Social networks Individual entry

Total

A Entry channel, job rank and educational level (by sector)

Table 4.2 Relationship between entry channel, job rank and educational level (per cent, numbers in parenthesis are numbers of samples)

0.0 50.0 50.0 (4) Pr ⫽ 0.696

7.4 67.2 25.4 (122) Pr ⫽ 0.085

3.6 71.0 25.4 (138) Pr ⫽ 0.011

0.0 51.2 48.8 (41)

Senior high school or above 2.8 66.5 30.7 (179)

26.3 36.8 36.8 (19) Pr ⫽ 0.948

25.0 41.7 33.3 (24)

Senior high school or above

Junior high school or less

0.0 37.5 62.5 (16)

1.8 21.8 76.4 (55)

Junior high school or less

0.0 40.0 60.0 (10) Pr ⫽ 0.899

3.4 42.2 54.4 (204) Pr ⫽ 0.013

Non-temporary (long-term contract worker)

11.8 41.2 47.1 (17)

7.6 62.2 30.2 (172)

Temporary (temporary or short-term contract worker)

Source: Migrant Household Survey

Formal channel Social networks Individual entry

Employment status Total

15.4 38.5 46.2 (13)

8.0 50.0 42.0 (50)

C Entry channel and educational level (state sector, by employment status)

High (skilled/managerial jobs) Formal channel Social networks Individual entry

Middle (unskilled jobs, monthly wage ⭓ 250 yuan) Formal channel Social networks Individual entry

25.6 39.5 34.9 (43)

Total

0.0 38.5 61.5 (26)

3.1 37.8 59.1 (259)

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The growth of market relations in post-reform rural China

association is observed for the middle-rank jobs, and the proportion entering via social networks is higher for the low educational level group (Table 4.2B). In case of state sector, the same association is shown for the middle-rank jobs, even though the significance level is low (Table 4.2B). From the above findings, it is possible to make some general observations about the efficacy of primary social networks in certain parts of the urban labour market. A social network is particularly effective in gaining entry to the unskilled job category in the state sector, which has high institutional barriers. Also, social networks can be effectively substituted for a higher educational level in middle-rank jobs, whereas a high educational level becomes critical in the high-rank jobs both in the state and non-state sectors. Institutional barriers The relationship between institutional barriers and entry channel is partly consistent with the working hypotheses, but partly not. When the two sectors are compared, the proportion entering via social networks is higher in the state sector than in the non-state sector (Table 4.2A). This is an expected result. The cross-tabulation of educational level and entry channel controlled by the stability of employment shows that, in the case of temporary employment (temporary or short-term contract workers), the proportion entering via social networks is higher for the lower educational group (Table 4.2C). This result also is consistent with the hypotheses. However, the same crosstabulation shows some results that do not support the working hypotheses: for the relatively stable, non-temporary employment (long-term contract workers), there is no statistically significant association between educational level and entry channel, and the proportion entering via social networks is lower for relatively stable employment than for temporary employment. These findings show that the social network has a limited efficacy in the urban labour market. Social networks are effective for peasants with low education levels only when they are working in the lower tier of the urban state sector. Effect of social capital on migrants’ economic status The determinants of wages and income In this section, the effect of social capitals on migrants’ economic status is examined by estimating determinants of wage and income. Dependent variables are as follows: (a) if the migrant is employed, it is the wage per working hour of the household head or primary income-earner in 1999; and (b) if the migrant is self-employed, it is the annual household income in 1999. Logarithmic transformation is performed on both dependent variables. Two independent variables are used as indicators of network capital: (a) number of relatives, people from the same province and friends in the city where the respondent works (the quantity of the primary social networks); and

Migration, the job search and social networks 103 (b) whether or not there are any party members among the people mentioned above (1 ⫽ yes, 0 ⫽ no) (the quality of social networks, that is, whether or not the migrant has access to sociopolitical networks). (Note that for technical reasons, data for these two variables are obtained only from household heads or one primary income-earner per household.) Party membership and educational level are used as indicators of political capital and human capital in the narrow sense. In addition to the indicators of social capital, the following variables are used as indicators of individual characteristics and working status of the respondent: age, gender, state sector dummy and skilled/managerial jobs dummy (in the case of employed migrants), industrial sector dummies, and city dummies. Estimation results The results shown in Table 4.3 can be summarized as follows. First, both quantity and quality of social networks have positive and statistically significant effects on the income of self-employed out-migrants, whereas they have no significant effect on the wage level of those employed by others. This suggests that social networks support self-employed migrants who get little assistance from local authorities and communities in urban areas. Second, the effect of human capital in the narrow sense is different according to where the respondent is employed. Years of education has a positive and statistically significant effect on the wage level of employed migrants, while it has no significant effect on the household income of self-employed migrants. Third, party membership has a positive effect on the wage level of employed migrants, but the level of significance is less than 5 per cent.

The significance of social networks on migration and its implications Regional imbalance in labour mobility: the case of firms with Japanese investment From village to factory Let us turn to the Japanese investment survey to confirm the significance of social networks in out-migration and to consider its implications for the regional development of China. Table 4.4 summarizes the job search channel of migrant workers at each factory.8 Of the factories surveyed, S factory has the highest ratio of individual entry. However, according to the author’s interviews with the employees of S factory, the majority took advantage of their networks of shared territorial bonding during their migration to Zhujiang Delta. For example, an employee from Hubei Province was engaged in day-labour at a construction site for a time after moving to Zhujiang Delta from his place of

Table 4.3 Determinants of wage and income of out-migrants (OLS estimations) Employed

Age (years old) Age squared Male Years of education (years) Party membership Number of relatives, people from the same province, and friends in the city where the migrant works Whether or not there are any party members among the people mentioned above Employed in the state sector Manufacturing sector Construction sector Commerce and other service sectors Skilled/managerial jobs Shenyang Jinzhou Nanjing Beijing Zhengzhou Kaifeng Pingdingshan Chengdu Nanchong Zigong Lanzhou Pingliang Constant Adjusted R-squared n

Self-employed

Coefficient

t-statistics

Coefficient

t-statistics

0.039 ⫺0.001 0.122 0.073 0.277

2.12* ⫺2.27* 1.71 5.84** 1.45

0.065 ⫺0.001 ⫺0.044 0.040 ⫺0.099

⫺0.002

0.84

0.011

2.44*

0.110 ⫺0.072 0.118 0.345

1.30 ⫺1.05 1.04 2.40*

0.236

2.08*

⫺0.092 1.117

⫺0.44 2.42*

⫺0.080 0.151 ⫺0.007 ⫺0.092 ⫺0.044 0.143 ⫺0.569 ⫺0.168 ⫺0.509 0.057 ⫺0.483 ⫺0.349 ⫺0.330 ⫺0.323 ⫺0.491 0.307 344

⫺0.90 1.32 ⫺0.04 ⫺0.49 ⫺0.26 0.87 ⫺2.82** ⫺0.92 ⫺2.05* 0.33 ⫺2.38* ⫺1.76 ⫺1.87 ⫺1.63 ⫺1.32

⫺0.043

⫺0.27

0.718 0.122 ⫺0.059 0.269 ⫺0.766 ⫺0.059 ⫺0.124 0.468 0.084 ⫺0.227 ⫺0.321 ⫺0.346 7.680 0.171 336

3.12** 0.49 ⫺0.24 1.20 ⫺2.93** ⫺0.24 ⫺0.57 1.62 0.36 ⫺0.96 ⫺1.22 ⫺1.43 10.00**

1.77 ⫺1.58 ⫺0.40 1.94 ⫺0.32

Source: Migrant Household Survey The dependent variables are log-transformation of the wage per working hour of the household head or primary income-earner in 1999 in the case of employed out-migrants, and logtransformation of the annual household income of 1999 in the case of self-employed outmigrants. Independent variables indicate the three forms of social capital and other individual characteristics of the household head or primary income-earner (business owner). Omitted dummy variables are female; not party member; non-state sector; transportation and storage; unskilled jobs; Xuzhou City. Four observations with exceptionally high income (monthly wage ⭓ 5,000 yuan) are omitted. ** indicates statistical significance at the 1% level, * at the 5% level.

Source: Japanese investment survey

Samples with urban household registration status Individual entry Introduction by relatives or friends Other

Samples with rural household registration status Individual entry Introduction by relatives or friends Other

Total Individual entry Introduction by relatives or friends Other

46.2 53.8 0.0 (13)

21.3 78.7 0.0 (94)

25.5 74.5 0.0 (110)

M Factory (1992)

31.0 69.0 0.0 (29)

25.0 74.4 0.6 (172)

25.4 74.1 0.5 (205)

B Factory

28.6 53.6 17.9 (84)

25.4 58.0 16.6 (169)

26.2 56.6 17.2 (256)

T Factory

Table 4.4 Entry channels by firm (per cent, numbers in parenthesis are numbers of sample)

91.3 8.7 0.0 (23)

88.8 11.2 0.0 (169)

89.3 10.7 0.0 (196)

S Factory

20.7 79.3 0.0 (29)

33.3 66.7 0.0 (150)

31.3 68.7 0.0 (182)

M Factory (1998)

37.1 54.5 8.4 (178)

40.6 55.6 3.8 (754)

39.9 55.3 4.7 (949)

Total

106

The growth of market relations in post-reform rural China Li LD (F)

Lei RH (F) Xing SZ (F) Ding HQ (F) [Friend] [Friend] [Friend] <July 1990> <Sept. 1992> <March 1991>

Wang J (F) [Friend] <May 1990>

Li YJ (M) [Relative?] <July 1990>

Li ZY (M) [Brother] <July 1990>

He ZM (M) Li XB (F) Li XM (F) Li XJ (F) Li YQ (F) Li WJ (F) Wei MH (F) [?] [Relative?] [Relative?] [Relative?] [Relative?] [Sister] [?] <May 1991> <June 1992> <May 1992> <March 1991> <June 1991> <May 1991> Note: (F) (M) [ ] < >

indicates female indicates male indicates the person’s relationship to Li LD indicates the date of entry

Figure 4.2 Process of entry into M Factory (case study of workers from Yingshan County, Sichuan Province, 1992) Source: Japanese investment survey

origin. Many people from the same province worked at the site, and he applied to S factory after one of these people told him that the factory was recruiting. Actually, the majority of the employees of S factory are from particular counties in Hubei Province. Thus, it is safe to conclude that the great majority of S factory employees enter the Zhujiang Delta labour market at least indirectly via the social networks. Figure 4.2 shows the process of entry to the M factory, using the example of workers from Yingshan County, Sichuan Province. An informal connection between a rural area and an urban workplace was established when a young female peasant had the opportunity to obtain a job in a particular workplace. Then, using their connection to this key person, family members, relatives and friends have entered the same workplace or other workplaces in the same city one after another. Uneven development of out-migration With respect to out-migration being limited to certain localities, another case from the survey conducted by the author may be introduced. Yongxing County, Hunan Province, is located close to the boundary to Guangdong Province and many peasants migrate across the border. However, in S administrative village in this county where the author interviewed villagers and cadres, the villagers’ desire to work away from home was very weak and only a few peasants migrated outside the village.9 On the other hand, in the

Migration, the job search and social networks 107 neighbouring administrative village, the number of young people who migrate to Guangdong began to increase in the 1980s. Given that these two villages are very similar, not only in geographical conditions but also with regard to socioeconomic structures, it is difficult to explain their different migration patterns. However, a possible explanation attributes it to an information exchange with urban workplaces started by chance in one of the villages. The author’s field survey was conducted in October–November 1992, and it seems likely that information concerning the urban labour market would already have spread to S village as well. However, it should be noted that uneven distribution of information and employment opportunities among neighbouring villages existed for a considerable period of time in Yongxing County. The explanatory significance of an imbalance in the development of labour mobility at a local or community level – not an imbalance at a wider level, such as interprovincial imbalances and imbalances between coastal and inland regions – is supported by Tsui’s study, which focuses on the determinants of household income inequality in rural areas. Based on his study on the official rural household income survey data for 1990 in Sichuan Province, Tsui decomposed the household income inequalities into intercounty disparities and intracounty disparities, using the Theil index. His findings are as follows (Tsui 1998a, 516). First, by decomposing inequalities in total household income into intercounty and intracounty disparities, he showed that intracounty disparities account for 75 per cent of the total inequality, whereas intercounty disparities account for only 25 per cent. Second, when the decomposition was conducted for each income item (agricultural income, wage income from local TVEs and remittances from family members working away from home), Tsui found that the percentage of intracounty disparities in the total inequality is the largest in the case of remittance (89 per cent), compared to 69 per cent in the case of agricultural income, and 60 per cent in the case of wage income. In sum, in a large developing economy like China, regional disparities in market development must be taken into account, not only at a wider level but also at local and community levels. Who is the gatekeeper? The case of the day-labourer market Easy to enter, no regulation The market for day-labourers, which is at the bottom end of the construction/ civil engineering industry, is the most primitive form of labour market in post-reform China.10 It was the first to flourish after reform, and it has a very wide geographical spread, from coastal to inland regions. In Shilin County, it developed from the end of 1980s to the early 1990s. Two questions will be explored here. First, how do day-labourers find jobs? Second, who is the labour-boss, the gatekeeper who has information about

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The growth of market relations in post-reform rural China

local construction projects and acts as an intermediary between labourer and builder? As the case study below clearly shows, it is easy to gain entry into this market even for peasants who have no education or skills. Case 1. A 21-year-old female from Nayong County, Guizhou Province, is a member of a female-only group looking for work. She has a husband and a one-year-old son. She decided to migrate because her hometown was struck by a flood. She and her husband migrated to Shilin County in February and August 1997, respectively, relying on her elder brother, who had migrated to the county earlier. There are more than ten people from the same province in Shilin County. She brings her son to the construction site and works as a carrier (her husband and other men from the same province form a different group). On average, she can find work approximately 20 days per month (her wage is approximately 25 yuan per day including meals). There is no difference in wages for men and women who work identical jobs, but she says it is difficult for women to find jobs. According to an official at the Bureau of Personnel and Labour in Shilin County, the day-labourer market in county seat is an ‘extremely spontaneous labour market; it is beyond the control of the labour department of the county government and neither the hiring side nor the applicants for jobs want government control’ (interview by the author, December 1997).11 The author observed the following situation at the labour market. Every morning at around 7.30, job-seeking peasants gather on the main street in the county seat. Labour-bosses negotiate with the applicants for jobs. When both sides arrive at an agreement, the labour-bosses immediately take the applicants to the appropriate construction sites by tractors and microbuses. As 50 to 60 applicants gather, the peak of negotiation lasts slightly more than half an hour until a little past 8 a.m. The majority of the applicants form groups. In many cases, such applicant groups consist of two to several people from the same province. Female applicants form female-only groups. The majority come from provinces other than Yunnan, such as Sichuan and Guizhou. Applicants from Shilin County are in the minority. Informal safety-net This is an arena for face-to-face negotiation between sellers and buyers of labour force and little else. Other than the bargaining parties, only stalls that sell snacks operate here. According to an interview with one of the labourbosses, the business conditions in the survey year (1997) were not favourable, and the standard wages had been decreasing compared to the previous year. Also, according to an owner of a retail store facing the main street, more peasants failed to get jobs than had the year before. Under such conditions, out-migrants are supported by the social networks of blood relations and shared territorial bonding, as can be seen in the next case study.

Migration, the job search and social networks 109 Case 2. This case deals with circumstances of migration for a group of three males from Neijiang City, Sichuan Province (hereafter referred to as A, B and C). They are cousins but their parents’ houses are in different villages. A is 20 years old and graduated from junior high school, B is 23 years old and graduated from primary school, and C is 22 years old and also graduated from junior high school. Employment opportunities are very scarce in their home villages, and many people in those villages work away from home. Among these three, it was B who came to Shilin County first. B, after helping with farming at home upon graduating from primary school, moved to and worked for a year in Kaiyuan City in Yunnan Province, which is relatively close to his home village. While in Kaiyuan City, he was living with and relying on the experience of his elder brother, who had migrated there earlier, and then came to Shilin County with the same brother five to six years ago. A, 16 years old at the time, became an apprentice to a watch mender near his parents’ house after graduating from junior high school. However, because he was not being paid as an apprentice, he moved to Chengdu (the provincial capital of Sichuan Province) and worked as a day-labourer for a year. Two years ago, he came to Shilin, relying on B, who had already migrated to that county. C worked as an odd-job man in Chengdu for two years after graduating from junior high school and then moved to Shilin in July 1997, relying on A and B. The three of them rent a room together in a personal residence in Shilin. Although many young people would prefer to move to a coastal area, such as Zhujiang Delta in Guangdong, A decided to rely on his cousins, who had already moved to Shilin, an inland area, because there were no close relatives or friends who had migrated to Zhujiang Delta and his parents were concerned about the poor security in Guangdong. B also gave up the idea of moving to a coastal area because he had no acquaintances in such areas at the time of his migration. C also considered migrating to Guangdong, but did not go because he could not find anybody who would go with him. In addition, even though there were many peasants from his home village who migrated to Guangdong, lately some of them had begun to return because wages were falling. The only way for C to migrate was to rely on personal connections, because there are no official organizations offering assistance to those who wish to migrate in his home village. The three young men look for jobs together. When things go well, they work five to six days a week, but when there are not many jobs, they can find work only two to three days a week. Once they find a job, the work normally continues for a couple of days. The wage is 35 yuan a day for a tough job and a little over 20 yuan for a relatively light job (meals are provided separately). The monthly income is 400–500 yuan when well paid and 200–300 yuan when not paid well. On average, they send approximately half of their earnings to their parents. The day before the interview they had found a job, but when they went to the job site they found that construction was cancelled and were paid only five yuan.

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The growth of market relations in post-reform rural China

Labour-boss What does it take to be a labour-boss? According to the migrants in case 2 only ‘people who have connections with the building contractors, or have information about construction projects’ can become labour-bosses. One such person will be described here. Case 3. A male in his late thirties from Shilin County with rural household registration status (hereafter referred to as D), D is a military veteran and obtains information about construction projects from veteran friends in various departments of the county government. A plasterer from Sichuan Province, E, who obtained a job from D at the time of the author’s interview, is also a veteran, which is why E could often get jobs from D. E organizes groups of plasterers from the same province. In small inland cities such as the county seat of Shilin, local governments order the majority of the construction and civil engineering projects. Being well informed about such construction projects is the first prerequisite for becoming a labour-boss. In short, the essential factor that divides labourbosses from day-labourers is what Solinger calls ‘bureaucrat–migrant connections’, or what in this study are called sociopolitical networks. Furthermore, labour-bosses are not limited to their own locality. Actually, some labour-bosses were once day-labourers from other places. Even an out-migrant can become a labour-boss at the lowest level if he/she happens to succeed in making connections with local labour-bosses. For example, E occupies an intermediate position between a labourer and a labour-boss at the lowest level.

Conclusion This chapter studied the effect of human, political and network capital on the job search methods and income generation of migrant peasants. In addition, the implications of the role of social networks in out-migration was described from two angles, regional disparities in the mobility of the rural labour force, and the characteristics of gatekeepers at the bottom end of the urban labour market. The main points that were made in this chapter can be summarized as follows. First, primary social networks can be substituted for a higher educational level (human capital in the narrow sense), although the substitutional effect differs depending on the job rank (rank by the skill/ability prerequisite) and sector (state or non-state). With regard to job rank, the substitutional effect is notable in obtaining middle-rank jobs but diminishes with high-rank jobs. Concerning sectors, primary social networks play an important role in overcoming institutional entry barriers in the state sector. Second, the effect of social capital on out-migrants’ wage and income vary according to employment status. In the case of those employed by others,

Migration, the job search and social networks 111 human capital in the narrow sense has positive influences on their wage level, while network capital has no significant influence. In contrast to those employed by others, self-employed migrants who have connections with social networks in the city where they work earn higher incomes. Network capital supports self-employed migrants who can obtain little assistance from local authorities and urban communities. Third, migration enabled through a worker’s social networks contributes to regional disparities in labour mobility, not only at a wider level but also at a local and a community level. Such disparities are an important factor contributing to income inequality in rural China. Fourth, a case study of a construction labour market suggests that the essential factor distinguishing labour-bosses, the gatekeepers in the market, from day-labourers is their connection with local authorities. This study calls these connections sociopolitical networks, whereas Solinger (1999a) calls them ‘bureaucrat–migrant connections’.

Appendix 4A: The behavioural and attitudinal structure of migrant workers in firms with Japanese investment The significance of social networks in rural–urban migration has been discussed in the previous sections of this chapter. How do such characteristics influence their attitudes toward labour? Based on the Japanese investment survey, the behavioural and attitudinal structure of migrant workers was examined using factor analysis. Factor analysis is a method of identifying a few principal common factors that may be hidden behind a number of variables. Note, however, that factor analysis is an exploratory method, rather than one which can yield a unique result. Figure 4A shows the framework of the analysis. It is assumed that several different factors influence the attitude and behaviour of migrant workers in their workplaces. Here, the following five factors are deemed to be influencing one another: (a) individual and family characteristics of migrant worker; (b) characteristics of the place of origin; (c) circumstances of migration; (d) job status and attitude toward factory labour; and (e) plans for the future. The following variables are employed in the model.12 1 Individual and family characteristics. Age (years of age); gender (1 ⫽ male, 0 ⫽ female); educational level (4 ⫽ college and above, 3 ⫽ senior high school/middle level professional school, 2 ⫽ junior high school, 1 ⫽ primary school or less); annual cash income of family home (4 ⫽ 4,000 yuan or more, 3 ⫽ 2,500 to less than 4,000 yuan, 2 ⫽ 1,500 to less than 2,500 yuan, 1 ⫽ less than 1,500 yuan). 2 Characteristics of the place of origin. Location of the place of origin (1 ⫽ out of Guangdong Province, 0 ⫽ within Guangdong Province); development level of out-migration in the place of origin (proportion of outmigrants among the labour force in the home village); nonagricultural job

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Factors behind the observable variables

1 Individual and family characteristics • Age • Gender • Educational level • Family income

4 Job status and attitudes toward factory labour • Job status • Job satisfaction • Values set on factory work • Attitude toward job turnover

3 Circumstances of migration • Prior information • Entry channel • Experiences of job turnover

2 Characteristics of the place or origin • Location • Development level of out-migration • Nonagricultural job opportunities

5 Plans for the future • Intention of returning to the place of origin • Entrepreneurship

Figure 4A Behavioural and attitudinal structure of migrant workers: framework for factor analysis Source: the author

opportunities in the place of origin (easiness of finding jobs in the TVE sector; 3 ⫽ easy, 2 ⫽ somewhat difficult, 1 ⫽ difficult). 3 Circumstances of migration. Prior information on the labour market condition in Zhujiang Delta (how much was known about the labour market conditions in Zhujiang Delta before out-migration: 2 ⫽ knew well, 1 ⫽ knew to some extent, 0 ⫽ did not know well); channel of entry into the present workplace (1 ⫽ via social networks, 0 ⫽ individual entry); experiences of job turnover outside the home village (1 ⫽ yes, 0 ⫽ no). 4 Job status and attitudes toward factory labour. Job status in the factory (3 ⫽ skilled worker/technician, and office clerical staff, 2 ⫽ foreman, 1 ⫽ unskilled worker); job satisfaction (the sum of satisfaction ratings for wages and skill acquisition opportunities, 1 to 3 points for each); value set on factory work –wage preference (how important the wage level is in taking a factory job; 3 ⫽ important, 2 ⫽ somewhat important, 1 ⫽ not very important); value

Migration, the job search and social networks 113 set on factory work – preference for skill acquisition (how important skill acquisition opportunities are in taking a factory job, 3 ⫽ important, 2 ⫽ somewhat important, 1 ⫽ not very important); value set on factory work – preferences for network of shared territorial bonding (whether working together with people from the same place of origin is important in taking a factory job, 3 ⫽ important, 2 ⫽ somewhat important, 1 ⫽ not very important); understanding the labour market conditions in other factories (2 ⫽ knows very well, 1 ⫽ knows to some extent, 0 ⫽ does not know well); attitudes toward job turnover (whether or not the subject wishes to move to a different factory with better conditions if there are any opportunities, 2 ⫽ wishes to do so strongly, 1 ⫽ wishes to do so to a limited extent, 0 ⫽ does not wish to do so). 5 Plans for the future. Intention of returning to the place of origin (1 ⫽ wants to return to the place of origin or the vicinity, 0 ⫽ wants to continue working outside the place of origin); entrepreneurship (whether or not the subject wishes to set up his/her own family business in the future; 2 ⫽ wishes to do so strongly, 1 ⫽ wishes to do so to a limited extent, 0 ⫽ does not wish to do so). Table 4A summarizes the results of the factor analysis, using the combined data set of M factory (1992 and 1998), B factory (1993) and S factory (1994). Three communal factors are estimated by the varimax rotation method. The results can be interpreted as follows. The first factor is constructed from (a) individual and family characteristics (relatively high age, male, and higher educational level); (b) circumstances of migration (rich prior information); (c) job status and attitudes toward factory labour (higher job status, strong preference for skill acquisition and weak preference for having a social network, rich information on the labour market); and finally (d) plans for the future (strong entrepreneurship). This factor is an indicator of the appeal of factory labour to peasants and their positive attitude toward factory labour. The expectation of being able to acquire experience and skills that cannot be obtained in rural areas is more important than the fact that wages are higher than in the place of origin. Thus, the first factor can be understood as a pull factor in the migration process: a positive attitude toward factory labour, in other words. The second factor is constructed from (a) individual and family characteristics (low family income); (b) characteristics of the place of origin (low proportion of migration, coming from outside Guangdong); (c) circumstances of migration (individual entry, or entry without relying formal/ informal channels); (d) job status and attitudes toward factory labour (high job satisfaction); and (e) plans for the future (strong intention of returning to the place of origin). This factor can be understood as an indicator of ties with the place of origin. In regard to this factor, the following points can be made. First, individual entry is included in this factor. This reflects the fact that informal connections between rural areas and urban workplaces have not accumulated in remote regions. Second, job satisfaction is rated very high in

0.385 0.701 0.582 0.070 0.071 0.054 ⫺0.139 0.333 ⫺0.022 ⫺0.026 0.503 0.195 ⫺0.006 0.314 ⫺0.253 0.434 0.185 ⫺0.256 0.330 ‘Pull’ factor of outmigration

Age Gender Educational level Family income Place of origin Development level of out-migration in the place of origin Nonagricultural job opportunities in the place of origin Prior information on the labour market condition in Zhujiang Delta Channel of entry into the present workplace Experiences of job turnover outside the home village Job status in the factory Job satisfaction Value set on factory work (wage rate) Value set on factory work (opportunity for skill acquisition) Value set on factory work (network of shared territorial bonding) Understanding the labour market conditions in other factories Attitude toward job turnover Intention of returning to the place of origin Entrepreneurship

Source: Japanese investment survey

Factor 1

Variables

Table 4A Behavioural and attitudinal structure of migrant workers: factor analysis

0.034 0.046 ⫺0.057 ⫺0.440 0.650 ⫺0.383 ⫺0.161 0.098 ⫺0.473 ⫺0.087 ⫺0.107 0.343 0.000 ⫺0.003 0.179 0.110 ⫺0.261 0.414 ⫺0.009 Ties with the place of origin

Factor 2 0.004 0.069 0.022 ⫺0.043 0.024 0.161 ⫺0.394 0.090 0.110 0.083 ⫺0.058 ⫺0.166 0.442 0.104 0.124 0.286 0.445 0.068 0.102 ‘Push’ factor of outmigration

Factor 3

0.738 0.465 0.599 0.738 0.556 0.729 0.715 0.744 0.705 0.887 0.695 0.731 0.788 0.745 0.817 0.645 0.658 0.701 0.792

Uniqueness

Migration, the job search and social networks 115 this factor. This can be interpreted as an indicator of low expectations about factory labour. From a corporate manager’s point of view, this is a stabilizing factor in labour management in the sense that stable employment of a young unskilled labour force for a reasonable period of time is more likely when this factor is significant. The third factor is constructed from (a) characteristics of the place of origin (easiness of finding employment in TVEs); and (b) job status and attitude toward factory labour (strong preference for wages and propensity for job turnover). This factor indicates that peasants with few opportunities of finding employment at their places of origin tend to be pushed out of the rural areas. In other words, it can be interpreted as a push factor in migration, that is, the opposite of the first factor. What is interesting here is that this push factor includes a high preference for high wages and job turnover. In the interviews conducted by the author, the managers of the firms studied often pointed out the problem of the high employee turnover, a manifestation of the behavioural and attitudinal structure of migrant workers. By contrast to the second factor, the third factor is a destabilizing force in labour management. Two points can be made by way of conclusion. First, with respect to the formation of an industrial labour force, it is notable that a positive attitude toward factory labour is the first (most significant) component of the behavioural and attitudinal structure of migrant workers. Second, from the standpoint of labour management, it is important to note that both stabilizing and destabilizing factors can operate at the same time. This suggests that management methods designed to suppress the influence of the third factor while providing incentives that promote the operation of the first factor are required.

5

How does local government mobilize social networks? The micro political economy of microfinance in rural Yunnan

Setting the agenda Issues and research areas Issues In Chapter 2, capital procurement by family businesses was discussed. This chapter will take a closer look at issues involving the rural financial market, paying particular attention to microfinance, that is, loans of small amounts to low-income peasants. In particular, the position with microfinance will be examined using research conducted in Luquan and Shilin Counties, both part of Kunming City, Yunnan Province. As is well known, microfinance is used throughout many developing economies as a financing programme for peasants and small family businesses. In rural China, experiments with microfinance started in the 1990s in low-income areas. In this chapter, microfinance is discussed from three perspectives. First, microfinance is a new type of financial system that utilizes an informal institution (an organization based on social relations) to overcome problems due to the underdevelopment of a formal institutional infrastructure (see Table 5.1 shown below). In this sense, microfinance provides an interesting example of market development in rural China, which is the basic concern throughout this study. Second, in many developing economies, microfinance is perceived as a set of programmes for the poor. In rural Yunnan too, microfinance is administered by local governments (both provincial and Kunming City) as a part of their rural poverty-alleviation (fupin) programmes. Loans under the poverty-alleviation policy in China are largely divided into two types: the regional development approach (diqu fupin) and the householdoriented approach (fupin daohu), under which peasant households are directly supported. As will be explained later, microfinance may be seen as supplementing the former approach while rectifying its shortcomings. Third, by viewing these approaches from a different perspective, it can be said that microfinance is one of the new channels through which the Communist

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117

party can organize peasants and govern rural areas. Recently, along with microfinance, Yunnan Province has implemented policies such as the assignment of young, educated, county-level officials to township governments as science and technology township vice-mayors (keji fuxiangzhang), and the dispatch of special missions composed of county-level officials (called the ‘poverty-alleviation work-team’, fupin gongzuodui) to observe village elections. Microfinance can be seen as one of the activities intended to strengthen the political foundation of the party at the grassroots level. In sum, this chapter focuses on the actual conditions in which institutions that support microfinance are built. A description of the position of microfinance in development finance follows, while in the next section, the introduction of microfinance in research areas is discussed. In the last two sections actual situations involving microfinance in a research area are examined.1 Research areas For this chapter, field research was conducted in C Township and Z Township of Luquan County (November 1999) and G Township of Shilin County (December 1998). Table 5.1 sets out the major economic indicators for the areas researched. Luquan County is located in a mountainous area in northern Kunming City and has been designated a national-level poor county (guoding pinkunxian). In 1998 the per capita annual net income of rural households (nongmin renjun chunshouru) of Luquan County was 1,200 yuan, much lower than the 2,162 yuan national average. The basic agricultural activities in the townships researched are selfsufficient grain production and tobacco growing. In the case of two townships in Luquan County, securing peasants’ staple foodstuffs remains an issue.2 The major crop is corn, which accounts for 86 per cent of the total food production in Z Township, for example.3 Tobacco growing has rapidly expanded since the beginning of the 1990s, and under the government monopoly, tobacco is a profitable cash source for peasants living in the mountainous areas of Yunnan Province. As such, tobacco growing was regarded as an effective tool for poverty alleviation. However, since the late 1990s tobacco has been overproduced, and since 1998, a tobacco production reduction policy has been implemented. In the case of C Township, for example, tobacco was being grown in 202 natural villages in 17 administrative offices (banshichu) in 1997.4 However, in 1999, it was being grown in only 152 natural villages in 16 administrative offices. Therefore, the tobaccosowing restrictions are a critical issue for the townships studied. Since nonagricultural employment opportunities are very limited, hopes have been set on the restructuring of agriculture towards stock farming, orchards and forestry.

Per capita annual net income of rural households (yuan) GDP per capita (yuan) Structure of GDP (%) Primary industry Secondary industry Tertiary industry Yield of grain per capita (kg) Yield of grain per sown area (kg/ha) 834 – – – – 370 4,530

– – – 380 3,105

C Township

921 –

Z Township

1 Level of economic development (1998)

Table 5.1 Economic indicators for townships studied

– – – – 4,260

1,193 –

G Township

– – – 432 4,245

973 –

Nineteen Schwerpunkt poor townships in Kunming City

52.3 18.6 29.2 353 3,855

1,200 1,874

40.7 26.4 33.0 487 4,335

1,508 3,593

Luquan Shilin County County

22.8 46.2 31.1 318 3,390

1,387 4,355

Yunnan Province

39.8 32.5 27.7 416 3,540

1,318 2,521

National level poor counties

18.6 49.3 32.1 410 4,500

2,162 6,307

National average

17 233 8,654 35,678 307 2,102 2,267 25,656 1,268 1,211 26.3 38.3 4,048 5,514 5,048 4,631

1,264 1,309 20.4 32.4 1,610 2,390 3,550 3,309

C Township

13 170 4,523 18,753 260 1,669 3,627 7,303

Z Township

4,094 3,930

2,783 3,080

25.6 53.7

2,264 2,318

10 40 4,076 16,372 291 2,219 127 16,433

G Township

62,118 57,697

38,293 47,866

17.0 34.4

1,358 1,214

192 2,337 90,327 372,562 4,288 30,433 23,301 195,289

Nineteen Schwerpunkt poor townships in Kunming City

Note: Data in value terms in this table are calculated at current prices

Sources: Author interviews, Guojia Tongjiju Guomin Jingji Zonghe Tongjisi (1999), 1, 3, Guojia Tongjiju Nongcun Shehui Jingji Diaocha Zongdui (2000a), 40, 244, Guojia Tongjiju Nongcun Shehui Jingji Diaocha Zongdui (2000b), 66–8, Yunnan Sheng Tongjiju (1999), 429–516

General conditions (1998) Number of administrative office Number of natural villages Total number of households Total population (persons) Total land area (sq km) Total cultivated area (ha) Grassland (ha) Forest (ha) Gross rural income (nongcun jingji zongshouru) per capita (yuan) 1998 1997 Gross income from tobacco growing/total of gross rural income (%) 1998 1997 Fiscal revenue (1,000 yuan) 1998 1997 Fiscal expenditure (1,000 yuan) 1998 1997

2 Economic indicators

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The growth of market relations in post-reform rural China

Theoretical background to microfinance Microfinance as development finance Microfinance is generally defined as follows: (a) collective reference to financial intermediary services targeting poor peasants and family businesses (particularly in low-income groups); (b) a means of providing loans and savings services, or occasionally only loan services; and (c) in many cases, a means of providing not only financial intermediary services but also various social intermediary services (for example, supporting self-help groups among the poor, generating economic confidence, disseminating production technologies, and providing accounting and management techniques) (Ledgerwood 1998, 1–2). One of the purposes of many microfinance programmes is to raise the social status of women through loans. In this sense, microfinance is a social development tool as well as a financial programme. Since the 1980s, many developing economies have introduced microfinance, and these attempts have been quite successful. As microfinance spreads, theoretical research of microfinance has also advanced, and today microfinance is attracting attention as a new framework that runs against the conventional institutional and theoretical framework for development finance. The conventional institutional and theoretical frameworks are beset with various problems, set out in Table 5.2. First, the institutional framework refers to low-interest (state-subsidized) loan programmes run by governments or public financial institutions. Until the 1970s, these programmes were regarded as a major channel for supplying capital to facilitate modern agricultural technologies (the ‘Green Revolution’) and to alleviate poverty in rural areas. At the same time, the problems with these programmes, such as inefficiency and high default rates, were evident. Under these programmes, borrowers (and institutions of financial policy) tended to depend on the government, and the bureaucracy and political intervention of financial institutions resulted in unsatisfactory operation of the programmes. Furthermore, peasants who could not provide collateral tended to be excluded from them. Second, the theoretical framework refers to a theory of agricultural finance (the so-called Ohio School), which emphasizes a market mechanism and became very influential during the mid-1970s. The main claims of this school are that ‘cheap’ provision of capital by government cripples rural financial markets, and financial institutions will inevitably fall into bureaucratism and dependence on subsidies. It also claims that targeting loans on specified purposes and a particular class of people tends not to be effective (rent-seeking is inevitable and it is difficult to monitor the usage of loans). Supporters of the Ohio School argue that government should withdraw from rural financial markets and that funds should instead be rationally allocated by private entities, including existing informal financial institutions. However, these arguments do not take into proper consideration the

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121

Table 5.2 Problems of rural financial markets in developing economies Basic problems (i) Information shortages, uncertainty and risk. Difficulty in monitoring the use of funds (ii) Lack of collateral due to insufficient income or assets. Problems with the definition of property rights (iii) Underdevelopment of formal institutional arrangements for credit contract. Underdevelopment of formal financial institutions (organizations) These lead to: • A The screening problem: exclusion of small borrowers from credit market • B The enforcement problem: difficulties in enforcing loans contracts Problems with low-interest (state-subsidized) public financing (i) Formal financial institutions: lack of incentives to improve cost efficiency; inability to monitor the use of funds and to enforce repayment; bureaucratism (ii) Financial institutions, local government and politicians: incitement of rentseeking and malversion; political intervention in credit programmes (iii) Borrowers: lack of incentives to encourage efficient investment and savings; lack of pressure for repayment; dependency of borrowers on government These lead to: • A Low recovery rate, low adaptation rate of cost-saving technologies • B Failure in ‘targeting’ loans on specific borrowers (e.g. low-income peasants rationed out of credit market) • C Diversion of funds (e.g. from agriculture to nonagriculture), corruption. Microfinance as an alternative (i) Utilizing social networks and norms to solve the enforcement problem: group loans to self-selected (self-help) groups; joint responsibility and peer group monitoring (ii) Screening and targeting techniques: character references; small loan size; dividend repayment; market interest rates These lead to: • A Sustainable small-sized, signature loan programmes for small peasants and family business • B ‘Targeting’ loans on low-income groups. Sources: Braverman and Guasch (1986), Khandker (1998), and Hulme and Mosley (1996)

characteristics of rural areas in developing economies. In fact, rural financial markets in developing economies face deep-rooted problems: (a) serious information shortages and uncertainties as well as high risks, such as natural disasters; (b) difficulties in monitoring the usage of loans; (c) difficulties in establishing collateral due to institutional problems (such as complex traditional land ownership systems and unclear definitions of property rights); and (d) underdevelopment of market-supporting institutional infrastructure. Under such circumstances, private financial institutions are reluctant to extend loans to small peasant households and family businesses because

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The growth of market relations in post-reform rural China

they are required to bear much higher risk when extending loans to small borrowers (this is called ‘the screening problem’). Furthermore, even if a loan is extended, it is extremely difficult to enforce a financial contract by monitoring the usage of the loan, collecting payment and enforcing collateral rights (this is called ‘the enforcement problem’). Further, informal financial organizations are often affected by the local power structure. Therefore, there is no guarantee that the withdrawal of public finance will automatically bring about the growth of an effective rural financial market. Also, for public policy purposes, it will still be necessary to target as borrowers people of lowincome or peasants and small businesses. Against this background, microfinance rightly attracted much attention. The main reason why microfinance is regarded as a third framework is that it provides a peer-monitoring mechanism based on social relations, through which both screening and enforcement problems (the characteristic failure of an underdeveloped financial market) and low efficiency (the characteristic state failure) can be overcome. A typical mechanism involves giving a loan to small groups of borrowers. Because the members of a group are jointly responsible for the repayment of the loan, default can be prevented through peer pressure, leading to efficient investment and substantial risk reduction for the lender. In other words, transaction costs transfer from the lender to the borrower (Stiglitz 1990; Hoff and Stiglitz 1990). Using this mechanism, it became commercially viable to extend small loans to small borrowers. In addition to a group loan system, various devices are used in setting interest rates and repayment methods (such as setting higher interest rates than market rates and allowing repayment in instalments). Through these devices, effective targeting of small peasants and the self-employed (in particular, lowincome groups) became possible, while excluding wealthy borrowers who have access to ordinary commercial banks.5 Types of microfinance institutions Microfinance institutions can be broadly divided into government-related institutions, nonprofit organizations (such as cooperatives and NGOs), and profit organizations (commercial banks). Government-related institutions include newly established entities that specialize in microfinance and entities that came into existence as a result of reorganization or expansion of an existing organization. Different organizations emphasize different targets ranging from poverty alleviation, provision of assistance to peasants or family businesses, to improvement of the financial status of women or ethnic minorities. The methods of operation – such as whether or not a group joint responsibility system is adopted, setting of interest rates, period of loans and number of instalment payments, and whether or not regular borrowers’ meetings are being held – also differ among organizations. This diversity in microfinancing is a reflection of the diverse economic and social conditions in the areas where microfinance is extended.

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123

Despite this diversity, however, it is possible to find common basic characteristics of microfinance. According to Hulme and Mosley (1996, 9, 12–13), microfinance is characterized by four factors: (a) targeting method; (b) screening technique; (c) provision of incentives for repayment; and (d) guaranteed sustainability. Table 5.3 compares microfinance programmes in the area where research was conducted with typical microfinance programmes in other developing economies. In the following analysis, reference will be made to this table whenever necessary.

The background to microfinance Conditions in the rural financial markets General conditions Among the three basic problems summarized in Table 5.2, the first (poor information, uncertainties, high risks and difficulties in monitoring) applies to rural China. This is more serious in areas that are liable to occasional natural disasters. As for the difficulty in providing collateral, conditions in rural China are different from other developing countries. It is difficult in China to use land for collateral, not because there are many peasants who have no land at all, but because land is collectively owned. With respect to the underdevelopment of formal financial institutions, branch networks of the Agricultural Bank (nongye yinhang) and Rural Credit Cooperatives (RCC) (xinyongshe) extend to every corner of rural China. In this sense, formal financial institutions are highly developed in China. The problem lies in the lack of access to these formal institutions. Formal financial institutions are inflexible in the sense that although they are willing to offer loans to manufacturing and service industries (especially enterprises under the guardianship of local government), they are reluctant to extend loans to primary industry and small borrowers. This creates a huge vacuum in rural financial markets. This means, first, that self-starting peasant entrepreneurs do not have easy access to the organized (formal) financial market. Second, peasants, particularly those in low-income areas, cannot have their capital demands for agricultural production met through the formal financial market. Thus, many farm households and family businesses rely on unorganized (informal) financial markets, such as lending and borrowing among relatives and friends. However, as was shown in Chapter 2, the capacity of such unorganized financial markets to finance business investment is limited. Under these circumstances, community-based credit organizations have attracted attention as a new type of financial intermediary that can fill the vacuum in rural financing. Community-based credit organizations, which have rapidly expanded since the 1990s, can be broadly divided into two types. The first type is a credit organization established at the township level and

Policies determined by provincial, Kunming City and county governments

404,000 households (1997–99) Group lending Nominal interest rate 5.04%, real interest rate 14.24% (1999)

Government influence

Number of borrowers

Lending model Interest rate

Public financing (provincial government)

Institutional status

1 Basic features

Bangladesh scheme (Yunnan)

Table 5.3 Comparison of microfinance programmes

20,000 households (1999) Individual 0% (governmentsubsidized loan)

Public financing (Kunming City government) Policies determined by Kunming City government

Kunming scheme (Yunnan)

1,400,000 clients (1992) Group lending Real interest rate 15% (1992)

Minimal government influence on policies

Statutory financial institution

Grameen Bank (Bangladesh)

Controlled interest rates; periodic conference with government 1,200,000 borrowers Individual Real interest rate 3% (1992)

Parastatal bank

Regional rural banks (India)

Poor (primarily women)

Borrowers should be women [Actual situation] 70% of the borrowing small group heads are women (C Township) Maximum income/assets Income and yield of grain: less than 500 yuan of per capita annual net income of rural households (in 1990 prices), less than 300 kg of grain per capita Loan size 2,000 yuan (1999) (approx. 240 US$) Restrictions on purpose of loan Primarily agricultural/ stock raising [Actual situation] Loans are given for nonagricultural purposes also

Women’s involvement

Target group

2 Targeting and screening

99 US$ (1992) Any productive purpose

80 US$ (1992) Any productive purpose

1,000 yuan (1998–9) (approx. 120 US$) Agricultural/stock raising

Income and land holding

–

Land holding and other criteria

–

Not specified

None

Poor (exclusively women) Percentage of female borrower members: 93 (1992)

Poor

Self-selected group

3 Enforcement

Table 5.3 (continued)

Self-selected groups. Peasants form a borrowing small group (xiaozu) consisting of basically 5 households. The members of the group elect a small-group leader (xiaozuzhang). Several borrowing small groups form a borrowing centre (zhongxin). The borrowing centre manager (zhongxin zhuren) is elected among the small-group leaders [Actual situation] Most of the borrowing centre managers are cadres at natural village level, and are virtually appointed by the Township Microfinance Station. Election of leaders of borrowing small groups reflect the will of the borrowing centre managers

Bangladesh scheme (Yunnan)

None

Kunming scheme (Yunnan)

Self-selected groups, periodic group meeting

Grameen Bank (Bangladesh)

None

Regional rural banks (India)

Deposit and savings

Incentives to repay

Monitoring technique

Joint guarantors Local collecting method

Periodic meeting

5% of loans into ‘Group Fund (xiaozu jijn)’ and ‘Centre Fund (zhongxin jijn)’. No voluntary savings.

Yes. A borrowing centre meeting is held every 15 days. [Actual situation] No regular meetings. None Every 15 days at group meeting place [Actual situation] At borrower’s premises by the officials of Township Microfinance Station Joint responsibility and peer group monitoring [Actual situation] Borrowing small groups and borrowing centre do not actually function as organizations. Progressive lending None

None

None

Needed Annually (post-harvest)

None

Compulsory savings per week, 5% of loans in ‘Group Fund’ and 5% of loans in ‘Emergency Fund’

Progressive lending

Joint responsibility and peer group monitoring

None Weekly at group meeting place

Yes

Threat of legal action None

None

None Annually (postharvest

None

[Actual situation] No annual subsidies to the microfinance implementation organizations at the township level

None

Unsalaried borrowing small group leaders and borrowing centre managers help to loan collecting. [Actual situation] Officials of the Township Microfinance Station travel to villages to collect loans Annual subsidies from provincial government Annual subsidies from Kunming City government

None

Kunming scheme (Yunnan)

Yes, but not sufficient

Bangladesh scheme (Yunnan)

None

Loan collection through self-help groups of borrowers

Yes

Grameen Bank (Bangladesh)

Sources: Author’s interviews, Hulme and Mosley (1996), 8–15, 160–3, Okamoto, Awano, and Yoshida (1999), 13, 84, 109–10, 219–22

Subsidies for expenses for management

Interest rates that can earn operating costs of microfinance programmes Bearing the operating costs by borrowers

4 Sustainability

Table 5.3 (continued)

–

None

None

Regional rural banks (India)

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based on the collective assets of townships and villages together with cash investment from peasants. Such an organization is generally called a Rural Credit Association (nongcun hezuo jijinhui), and is usually managed or supervised by the Rural Management Station (nongcun jingying guanli zhan). The second type is represented by the Peasants’ Mutual Help Loan Association (nongmin huzhu chujin hui), often seen in low- or middle-income areas of inner China. These associations are set up at an administrative village or at township level, with funding provided mostly through governmental departments, such as the civil affairs (minzheng) department. However, most borrowers from rural credit associations are family businesses, and they cannot meet the demand from ordinary peasant households who need production capital. In addition, the central government recently began to take measures to suspend the expansion of rural credit associations, which lack clear legal status, in order to unify financial administrations. Thus, rural credit association-type organizations cannot entirely fill the vacuum in financial markets. Furthermore, although mutual help loan association-type organizations were established for the purpose of providing loans to low-income peasants, in many cases this purpose is not served.6 Also, in many cases, this type of organization shares the same problems as the government’s low-interest loan programmes, such as low repayment rates. In this context, microfinance, or a sustainable financial programme focusing on low-income people, becomes meaningful in rural China. Financial markets in the survey area Because the TVE sector is not developed, RCCs that cannot find powerful borrowers tend to be relatively more inclined to lend money to peasants. For example, about 70 per cent of the loans extended by the RCC of Shilin County in 1997 was given to peasants. However, agriculture-related loans accounted for only 18 per cent of the total amount of loans to peasants, and most of the loans were for commercial or industrial purposes (according to an interview with the officials of the Shilin County office of the RCC in December 1998). The amount lent to each peasant was about 9,700 yuan, indicating that these loans went to peasants who were operating their businesses on a relatively large scale. Meanwhile, in Luquan County, where income levels are even lower than in Shilin, there are cases where the RCC provides small loans to peasants. For example, in 1996, S household in Z Township, Luquan County, borrowed 1,200 yuan (for one year) from the RCC for agricultural production (interview with S household in November 1999). To complete the procedures, S household had to mortgage their house, secure a guarantor and visit the RCC several times.7 As is evident from this case, ordinary peasants must go through elaborate procedures to obtain access to a formal financial market. In fact, the S household is no longer borrowing from the RCC. It restructured the loan to a microfinance programme in 1998, borrowing 300 yuan in 1998 and 450 yuan in 1999.

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In the survey areas, rural credit associations were established much later than in other areas because there are few collective assets among townships and villages (for example, in Z Township in 1997 and in C Township in 1998; G Township was preparing for establishment as of December 1998). In addition, since rural credit associations basically rely on cash investment from peasants and use it as collateral for loans, peasants who are incapable of making investments are not entitled to a loan. As a township cadre in charge of the Rural Management Station of G Township suggests, ‘loans of rural credit associations are extended to wealthy people but not to the poor [daifu budaipin]’ (author’s interview, December 1997). Thus, for peasants, informal loans based on social relations are the most familiar form of capital procurement. Loans of approximately 1,000 yuan were being made on a daily basis. In this case, loans are generally limited to short-term (one month or less), although sometimes long-term (two or three years) noninterest loans are provided by someone close to the lender (interviews in C Township and Z Township, November 1999). Traditional financial organizations such as rotational-loan groups (hui) are not as developed. Implementation of poverty-alleviation policies The rural poverty-alleviation programmes have been fully implemented since the mid-1980s. This implementation can be divided into two major phases (Zhongguo [Hainan] Gaige Fazhan Yanjiuyuan Fanpinkun Yanjiu Ketizu 1998; Zhonggong Zhongyang Zuzhibu 1997; Cheng Danfeng 2000). The first phase was the period from the mid-1980s to the early 1990s and was characterized by a regional development approach that targeted specific areas. Using this approach, the central and provincial governments designated ‘poor counties’ (pinkunxian) and provided subsidies or policy loans to these counties on a project basis. The second phase began in the middle of the 1990s, when policy focus shifted to the household-oriented approach, supporting peasants directly while maintaining the existing framework of the regional development approach. This shift occurred partly because region-intensive poverty was alleviated through a certain amount of success with the regional development programmes began in the 1980s. However, it occurred more as a reflection of the fact that the policy implementation guidelines of the regional development approach did not address the issue of whether the programmes were truly beneficial to the poor. The economic development of poor counties had been evaluated based on regional economic development (in particular, the growth of industrial production) and the growth of that county’s average income. Therefore, county governments were eager to raise their economic growth rates by concentrating the injection of poverty-alleviation funds on secondary and tertiary industries, in particular county-run enterprises, largescale TVEs and areas with relatively good economic conditions. (Note that county governments have strong incentives to invest in county-run enterprises

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in order to enhance their own budgets.) The banking sector at the county level in charge of the management of public loans for poverty-alleviation (fupin zhuanxiang daikuan) allocated by the central government, a major component of the poverty-alleviation programmes, also found it more attractive to invest in large-scale businesses with higher profits. Furthermore, capital was often allocated in an unfair manner, reflecting political considerations, favouritism, and misappropriation (Sato 1989; Zhu 1999). The Poverty-Alleviation Programme Office (fupin bangongshi, hereafter referred to as the PAPO) in the county government is responsible for preventing political factors from negatively affecting these programmes. However, it is not easy for the office to coordinate beyond the vertical chain of command that operates within government organizations (interviews with the PAPO, Luquan County, in November 1999 and the PAPO, Shilin County, in December 1998). These problems, which are rooted in the incentive structure of local governments, cannot be solved simply by strengthening central government’s regulations over the poverty-alleviation fund. A separate policy framework that reaches out directly to the poor is necessary. Against this background, the Chinese government began to examine microfinance programmes in other Asian countries, in particular that of the Grameen Bank in Bangladesh. As a result, inner counties in Shaanxi, Sichuan, and Yunnan Provinces began experimenting with microfinance in 1997.8

Design of microfinance Overview of two schemes Two schemes of microfinance operate in Yunnan Province.9 One is the Bangladesh scheme (mengjiala-shi xiaoexindai) introduced by the provincial government (hereafter referred to as the Bangladesh scheme). The other is the Kunming City scheme (kunming-shi xiaoexindai) that was separately introduced by the government of Kunming City (hereafter referred to as the Kunming scheme). Bangladesh scheme In early 1997 Yunnan Province sent a delegation to Bangladesh to study the case of the Grameen Bank. Based on this study, the Bangladesh scheme was introduced experimentally in 25 townships in 25 counties in July 1997. C Township was one of these 25 townships. The Bangladesh scheme is modelled on the principles of the Grameen Bank: (a) nonsecured group loans (based on joint responsibility of group members) and (b) instalment payments every 15 days (a total of 24 times over a one-year period) (see Table 5.3). In 1997 the total loan source amount was 11.5 million yuan, and 8.73 million yuan was loaned out to about 11,000 households. Of the borrowers, 95 per cent were

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The growth of market relations in post-reform rural China

poor peasant households, and more than 80 per cent used women’s names on the loan contract applications. Capital sources of these loans were county governments and poverty-alleviation programmes.10 The Bangladesh scheme was introduced with the following policy intentions: (a) to meet the demand of poor households for production capital and to alleviate poverty; (b) to provide an opportunity for poor households to learn what it takes to manage their own finances and develop a self-help attitude by lending with interest, instead of lending interest-free; and (c) to encourage peasants to form self-help groups. As will be explained in detail later, in order for a peasant to apply for a loan under the Bangladesh scheme, he or she had to form a borrowing small group (xiaozu) consisting basically of five households. Several borrowing small groups then must form a borrowing centre (zhongxin). These organizational structures, though formed to enable microfinance, were expected to be useful to local governments in implementing other policies, such as extending agricultural technologies and enforcing family planning. It was also expected that peasants would become more knowledgeable and capable in managing their businesses through group work experience. After the trial run in 1997, the provincial government decided in 1998 to apply the Bangladesh scheme in all poverty-alleviation Schwerpunkt townships (fupin gongjian xiang) by injecting 900 million yuan over a three-year period through to the year 2000. In response to this decision, in the spring of 1998 Shilin County selected G Township from among three povertyalleviation Schwerpunkt townships as a pilot for the Bangladesh scheme. By the end of October 1999, the Bangladesh scheme had been implemented in 706 townships in 113 counties (of which 505 townships were povertyalleviation Schwerpunkt townships), with a total capital source of 597 million yuan.11 The total loan amount was 474.44 million yuan. In all, 404,111 households from 21,700 natural villages became beneficiaries (the average loan amount per household was 1,174 yuan). Beneficiaries accounted for approximately 5 per cent of the total number of rural households in Yunnan Province. In Luquan County, the Bangladesh scheme was implemented in 171 natural villages of four townships (including C Township), and 2,808 households received benefits (with 557 borrowing small groups and 95 borrowing centres) as of November 1999. The total loan amount from 1997 to October 1999 was 3.49 million yuan. In C Township, 500,000 yuan in public funds were injected in 1997, and a one million yuan poverty-alleviation loan was added in 1998, increasing the loan source to 1.5 million yuan. The portion of the source that was funded by public funds was loaned out entirely to 108 borrowing small groups (540 households) of 24 natural villages in 17 administrative offices. The portion of the source capital that was funded by the povertyalleviation public loan was loaned out to 153 borrowing small groups (729 households) of 17 natural villages in four administrative offices. The breakdown of the amount of loan by business during the period from 1997 to 1999 in Luquan County was as follows: 23.9 per cent for cultivation, 49.1 per cent

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for stock farming and fishery, 2.8 per cent for manufacturing, 7 per cent for commerce, and 17.1 per cent for other businesses. The average loan amount per household is 1,241 yuan.12 Kunming scheme The Kunming scheme was implemented in three counties (including Luquan County) within its jurisdiction, starting in 1997. The Kunming scheme has the following characteristics: (a) loans for individual borrowers instead of group borrowers; (b) noninterest loans (Kunming City bears the interest); and (c) lump-sum repayment at year-end, instead of instalment repayment as in the Bangladesh scheme. The maximum loan limit in 1998–99 was 1,000 yuan. The sources of the loans used for the Kunming scheme were Kunming City’s public funds (80 per cent) and poverty-alleviation public loans (20 per cent). Every year, Kunming City allocates the loans to eligible counties. At this time, 10 per cent of the total amount of the loan is added as an allowance (allowance for bad debt, sources of interest payment and some of the operating expenses). In this scheme, county and township officials and party members who are in a position to facilitate the implementation of the povertyalleviation programmes are appointed as joint guarantors. However, this system exists basically in name only, and there are many cases where loans are extended without a guarantor. In Luquan County, the amount of loans under the Kunming scheme during the period from 1997 to October 1999 totalled 19.74 million yuan with a yearly breakdown of 1.74 million yuan (to 5,000 households) in 1997, 8 million yuan (to 17,445 households) in 1998 and 10 million yuan (to 19,535 households) in 1999. At the time of its inception in 1997, the scheme was implemented in five townships (including C and Z townships), and was expanded in 1998 to 18 townships. With respect to the usage of the loans under the Kunming scheme, in 1997, when the maximum loan limit was low, cultivation (particularly for the purchase of fertilizer) accounted for a higher percentage than in the Bangladesh scheme. However, after 1997, no major difference in the usage of the loans of two microfinance schemes is evident. Organizational structure Organization A microfinance office was established within the Poverty-Alleviation Programme Office of each county. At the township level, the Township Microfinance Stations (xiaoexindai gongzuozhan) were established within the Township Poverty-Alleviation Programme Stations (fupin gongzuozhan), which is subordinate to the County Poverty-Alleviation Programme Office.13 Township Microfinance Stations were set up differently in each region. In the case of G Township, the operations of the station are assigned to the Rural

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The growth of market relations in post-reform rural China

Management Station. (The head of the microfinance station is the township mayor, the subhead of the station is the head of the Rural Management Station and accounting personnel are also shared with the Rural Management Station.) In the case of C Township, the head of the Township PovertyAlleviation Programme Station also acts as the head of the Microfinance Station, and the accounting person is a young cadre dispatched from the county government as the science and technology manager (keji zhuangan) of the township government. The Microfinance Station of C Township manages only those portions of the loans that are funded by the poverty-alleviation public loans under both the Kunming and Bangladesh schemes. The portion of the loans that is provided by public funds under the Bangladesh scheme is separately managed by another Microfinance Office established within the Township Public Finance Office (caizhengsuo). This Microfinance Office shares one accounting person with the Public Finance Office, as well as two staff members (nonpermanent members) who work under this accounting person. Meanwhile, in Z Township, the mayor acts as the head of the Microfinance Station, and an accountant of the township government also acts as accountant for the station. The cashier of the Microfinance Station is the head of the Poverty-Alleviation Programme Station. Operating expenses The operating expenses of a Township Microfinance Station are covered by interest income from the Bangladesh scheme, as well as by public subsidiaries. It is stipulated under county government regulations that the county government should provide a Township Microfinance Station with 3 per cent of the annual lending limit to be used for operating expenses. However, Luquan County has received no annual subsidies, whereas 20,000 yuan had been given when operations started. Interest income from the Bangladesh scheme is only about 8,000 to 10,000 yuan, which is not sufficient to cover the heavy operating costs (to be explained later). In the case of the Kunming scheme, the county government allocates 5 per cent of the total loan source every year (for example, in the case of Z Township, 15,000 yuan in 1999). Since most of this amount is reallocated to administrative offices, only a small amount is left for the Township Microfinance Station. The Microfinance Office of the Township Public Finance Office relies entirely on interest income for its operating expenses. In the case of C Township, the Microfinance Office’s annual expenses are at least 15,000 yuan (for labour and vehicles, etc.). However, managing a station is reportedly quite difficult because, as will be explained later, the repayment rate decreases as the workload increases. Unified control of financial market As is evident from the above paragraphs, financial organizations at the township level are complicated. In addition, in 1999 the influence of unified

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control of financial markets reached microfinance as well. As a result, the old mechanism whereby a Township Microfinance Station borrowed from a county branch of the Agricultural Bank and conducted loan operations (assessment, loans and collection) was changed to a new mechanism where the Agricultural Bank is directly engaged in loan operations. (It means that an employee of a township sub-branch of the Agricultural Bank is sent to a Township Microfinance Station to conduct loan-related operations.) This new system is also to be applied to microfinance funded by public funds. Nonetheless, no concrete changes were seen in a field study conducted in Luquan County in November 1999. The operation system of the Bangladesh scheme Targeting and screening Borrowers are limited to relatively poor households in a township. The economic status of each household is assessed based on the poor household registration card (pinkunhu ka) (cards on which such information as family composition and income of members is recorded) that are compiled at the township level every year. The maximum loan limit per household was 2,000 yuan in 1999 (up from 1,000 yuan in 1997 and 1,500 yuan in 1998). The loan procedure is as follows. Households that wish to apply for a loan must, on their own initiative, form a borrowing small group. Basically, one group should comprise five households. The members of the group elect a small-group leader (xiaozuzhang). Close relatives may not belong to the same group (although there is no specific definition of ‘close relatives’). Three to eight borrowing small groups form a borrowing centre, and a borrowing centre manager (zhongxin zhuren) is elected from among the small-group leaders. Then, the Township Microfinance Stations provide seminars explaining the purposes and methods of microfinance at borrowing centres or at the borrowing small group level and receive loan applications from each small group, taking capital demand into consideration. When applying, each household must present a business plan (such as chicken raising and pig raising). The application must first be approved within the borrowing small group and, upon ratification by the borrowing centre, submitted to the Township Microfinance Station, which assesses the eligibility of a group member and the feasibility of the business plan (as well as repayment capability) and conclude a loan agreement with the approved small borrowing group. Normally, each household’s loan-designated applicants should be women. The Township Microfinance Station provides a loan to a borrowing small group after withdrawing 5 per cent of the loan amount as the group fund (xiaozu jijin). Although a group fund is a shared asset of a borrowing small group, the Township Microfinance Station manages the fund on its behalf and

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uses the fund as an allowance for default or a financial source for mutual-help activities among the group members. Half of the group fund goes to a centre fund (zhongxin jijin), which is also a shared asset of the group members and managed by the Township Microfinance Station. Method of repayment and interest rates Members of a borrowing small group are jointly responsible for the repayment of a loan. A borrowing centre meeting is held on each repayment day, every 15 days, and all members of a borrowing small group are obliged to attend. Small-group leaders must collect each household’s payments and bring them to the meeting. Then a manager of a borrowing centre collects repayment from each group and repays it to the Township Microfinance Station. At each repayment, each household must pay two yuan to the group fund. The purpose of a borrowing centre meeting is to secure repayment through mutual monitoring among members. However, it is also expected that the meeting provides a place for information exchange among members and opportunities to learn about production technologies and management techniques. Interest rates for loans to peasants are normally linked to the interest rates of the poverty-alleviation public loans, although they vary depending on the type of loan source and on timing. In the case of Luquan County, the annual interest rate for microfinance loans funded by the poverty-alleviation public loans was 5.04 per cent as of November 1999. In this case, the interest rate of the poverty-alleviation public loan to a Township Microfinance Station from the Agricultural Bank was 2.88 per cent, and the margin between the borrowing and lending interest rates was allocated to the operating expenses of the Microfinance Station. Meanwhile, the annual interest rate on microfinance funded by public funds is uniformly set at 7.2 per cent in Luquan County. (The margin from the internal interest rate of 2.88 per cent that is equivalent to the interest rate for the poverty-alleviation public loan is used for microfinance office operating expenses.)14 The calculation of an effective interest rate varies depending on the definition of the group fund. Group funds are shared assets of small groups and may not be divided into individual holdings. As will be explained later, groups under the Bangladesh scheme were basically formed in a top–down manner by the initiative of cadres. In this sense, from the peasants’ perspective, the group fund is almost the same as the interest. Effective interest rates including the amount allocated for group funds for 24 installment repayments was equivalent to 14.24 per cent in Luquan County in 1999, lower than approximately 15 per cent of the Grameen Bank (see Table 5.3). In contrast, the annual interest rates in organized financial markets in Luquan County, for example, were about 8.7 per cent for a one-year loan by the RCC. Interest rates of rural credit associations were set higher than those of the RCC.

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Actual operations of microfinance and its implications The loan approval process In the following paragraphs, the example of C Township is used to explain how loans in microfinance programmes are actually approved. Bangladesh scheme In the case of the Bangladesh scheme operated by the Township Microfinance Station, actual lending occurs in the following manner. First, the Microfinance Station preselects four administrative offices, primarily on the basis of proximity (the administrative office must be within one day’s round trip travel from the township). Second, cadres of the relevant administrative offices select several natural villages, who in turn select eligible households upon consultation with natural village cadres, and form groups of the relevant households. Third, officials of the Township Microfinance Station go to each administrative office and assess loan applications for each borrowing small group by referring to the poor household registration cards. Once eligible administrative offices have been chosen, the cadres of administrative offices and natural villages have enormous influence because the Township Microfinance Station has little or no information whatsoever on each household. The poor household registration cards contain scanty information and it is impossible for a limited number of staff members in a Township Microfinance Station to check the information on the cards when making an assessment. Borrowing centres are closely related to natural villages, and the natural village cadres (village heads in most cases) are almost automatically appointed as the borrowing centre manager by the Township Microfinance Station. The borrowing centre does not actually function as an organization, and no activities, such as regular meetings, are conducted. Election of leaders of borrowing small groups reflect the will of the borrowing centre manager (although the opinions of group members are also considered). In short, the nominal institutional principle of bottom–up loan application is not followed; instead, capital is allocated in a top–down manner through the same channel as other administrative operations. Basically, the same holds true for the Bangladesh scheme operated by the Microfinance Office of the Public Finance Office. Kunming scheme As for the Kunming scheme, it is likely that applications are processed first from the bottom, namely from a household to an administrative office, then to a township, where they are then assessed by a township government (by consultation among leaders of a Poverty-Alleviation Programme Station, a township party committee, leading officials of a township government and a

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leading member of a township people’s congress). However, in the case of Z Township, assessment by the township is nominal and the allocation of loans to each household is virtually determined by the administrative office cadres. (Therefore, in most cases, the cadres of the administrative offices become loan guarantors.) According to a hearing conducted in H administrative office of C Township, cadres of the administrative office determine borrowers and loan amounts by consultation with natural village cadres. Difficulty in managing the Bangladesh scheme Operating cost As noted above, in practice the self-help organization of the Bangladesh scheme exists in name only. This results in increased operating costs at the township level. This can be illustrated by the case of the Bangladesh scheme operated by the C Township Public Finance Office. In 1997 cadres and staff members of the office travelled to administrative offices and collected repayment through the borrowing centre managers and borrowing small group leaders on every repayment date. The number of dates spent on the collection of repayment was only five days per month because there were not many eligible natural villages and loans were mainly extended to stockbreeders who produced relatively good returns. In the spring of 1998, loans were extended to peasants engaging in tobacco growing. However, the crops of many borrowers suffered from hail in the summer of 1998 and defaulted on their loans. The repayment collection mechanism through the borrowing centre and borrowing small groups no longer functioned. In other words, as the risk became a reality, the joint responsibility scheme lost its effect. As a result of this incident, the staffs of Microfinance Offices had to visit each household to collect repayment, doubling their workload (they had to stay over at least ten nights per month to visit borrowers). Microfinance Station of C Township Poverty-Alleviation Programme Station also changed the collection method under the Bangladesh scheme to direct-visit collection by township station staff members in the autumn of 1998. The repayment rate (actual amount collected against the repayment amount owing on each due date) of the Bangladesh scheme in Luquan County is decreasing (90 per cent in 1998 and 70 per cent in 1999).15 The expected benefit of microfinance in creating an efficient financing programme using peasants’ voluntary self-help organizations has not yet been realized in the survey areas. Incentives for grassroots cadres It is worth noting that the collection method was modified in situations where the township officials did not fully trust the cadres of natural villages. A staffmember of the Microfinance Station of C Township suggested that one of the major reasons why direct-visit repayment collection became necessary was

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that borrowing centre managers who were also natural village cadres had negative attitudes toward microfinance programmes (in particular, the Bangladesh scheme). Therefore, not only was little cooperation expected from natural village cadres, but there was also concern that the funds were being misappropriated. A major reason why natural village cadres feel negatively toward microfinance programmes is that they receive little material return for their heavy microfinance-related workload. (As mentioned above, in the case of the Kunming City scheme a certain honorarium is paid to administrative offices, whereas in the case of the Bangladesh scheme no fee is paid to the cadres of administrative offices and natural villages.) Given the lack of incentives for the grassroots cadres and limited monitoring ability at the township level, there is a possibility that the microfinance system is negatively affected by the attitude of grassroots cadres who are involved in microfinance. Kang Xiaoguang, who conducted research on microfinance under the Bangladesh scheme in Dayao County, Yunnan Province, in 1997, found that as borrowing centres and borrowing small groups formed, they intertwined with the organizational network of the Communist Youth League, and as a result, microfinance was used virtually as a financial programme for Communist Youth League members and their relatives (Kang et al. 1998). This amounts to an example of microfinance being used as new political capital for grassroots cadres. In our survey area, no evidence of such organizational distortion was found. However, the possibility that such distortion will arise as microfinance programmes become more common in the future cannot be denied. Incentives for peasants Peasants are not totally positive toward the Bangladesh scheme either. It was intended that microfinance would give economic incentives to peasants to organize themselves voluntarily so that such organizations could be used as an instrument for poverty alleviation (and a channel for implementing other policies). However, if peasants do not respond to this incentive, microfinance ends up becoming a superficial ‘top–down’ system. In this case, the traditional rural policy implementation pattern is repeated, whereby policy implementation is contracted to grassroots cadres of entities below administrative office level. So, why are peasants not more positive about microfinance? First, there is little connection between capital provision and extension of new technological knowledge. In general, a microfinance programme can be broadly divided into schemes that specialize in financial services and comprehensive schemes that combine financial services with other services. The Bangladesh scheme originally belonged to the latter, and linking the extension of production technologies and the provision of capital was considered important. Organizations set up for microfinance are supposed to be used as effective channels for technical training. However, the comprehensive approach has yet to be realized because borrowing centre meetings were a

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mere formality and there was no budgetary support for technical training. This is one of the reasons why peasants are not positive toward microfinance programmes.16 The second reason is lack of marketing services. As noted above, one of the largest challenges to the rural economy in the areas where this research was conducted is convincing people to reduce their dependency on tobacco growing and diversify their agricultural production. Microfinance is a part of this agricultural restructuring policy, and the facilitation of animal husbandry through microfinance has been particularly emphasized. The head of the Microfinance Station of G Township noted that the purpose of microfinance was to support agricultural production (interview in December 1998). However, since 1998 overall prices of livestock products have been declining and peasants are not always willing to engage in stock raising. Behind this is a basic issue common to mountainous areas: the link between production and marketing is very weak. Due to a poor transportation infrastructure and underdevelopment of the food processing industry, markets are limited to a small area. Therefore, it is easy for production to become excessive in a particular area. Policy packages that combine financial support for farm households and family businesses and investment in physical infrastructure are important. Third, the existence of a competitive scheme also affects peasants’ attitudes toward microfinance. For peasants and grassroots cadres, the Bangladesh scheme seems to be very troublesome in comparison to the no interest, lumpsum payment practice of the Kunming scheme. In this respect, it is notable that the governments of Yunnan Province and Kunming City have slightly different ideas about what constitutes an ideal microfinance scheme. At the provincial level, the innovation of the Bangladesh scheme is emphasized, whereas at Kunming City level, the actual performance of the Kunming scheme is commended and the emphasis is given to the continuation of the programme (interviews with the Poverty-Alleviation Programme Offices of Yunnan Province and Kunming City). Kunming City takes this attitude partly because, as a provincial capital, it must substantially alleviate poverty over the short term (the Kunming scheme is preferable because it is simpler and easier to implement), and partly because it has sufficient financial capabilities to support the Kunming scheme. However, it is impossible to implement the Kunming scheme in other, poorer areas in the province. Therefore, the central scheme under the microfinance policy for the provincial government is the Bangladesh scheme, which has the potential to develop into a less expensive financial programme in the long run.17 Modification of the Bangladesh scheme After assessing the difficulties of managing the Bangladesh scheme, Yunnan Province authorities modified it. By November 1999, when the author’s field research was conducted, it had already been decided that procedures for

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the Bangladesh scheme would be simplified from 2000 and the number of instalment repayments (equivalent to the number of borrowing centre meetings) would be halved from every 15 days (24 times a year) to every 30 days (12 times a year). Does this point to a retreat from microfinance programmes? Given the current situation with microfinance, the change can be seen rather as a practical policy measure to sustain microfinance programmes. It is extremely difficult to implement a regular meeting system modelled on the Grameen Bank of Bangladesh in areas where small hamlets are scattered in high mountains.18 One of the reasons behind the complex repayment procedures set up by the Grameen Bank is to exclude wealthy borrowers. However, there is less necessity in rural China to introduce bothersome procedures to screen out non-targeted groups because the collective ownership of land restrains social stratification within a community. By reducing the number of repayments (meeting) to facilitate peasants’ group activities, a larger policy advantage can be obtained.

Conclusion The experiment with microfinance in rural Yunnan has just begun and the programmes are still unstable, both in terms of organizational set-up and actual operations. Therefore, it is necessary to evaluate the experiment from two angles: current conditions and long-term prospects. The microfinance programmes in the survey areas were innovative in that they facilitated small-amount loans to peasants in areas where loans were previously unavailable. However, as for the current conditions, the goals of an ideal microfinance programme – targeting the poor and securing costeffectiveness by utilizing social relations – are far from being achieved. In particular, under the Bangladesh scheme, the traditional rural policy pattern – under which peasants were superficially organized through a top–down approach and policy implementation was subcontracted to grassroots cadres below the administrative village level – was repeated. This occurred because peasants did not have a strong incentive to organize self-help groups for microfinance. Behind this were the lack of a linkage between capital provision and the extension of technologies, an absence of support services for marketing, and the presence of competitive schemes. However, with regard to long-term institution-building, microfinance has the potential to develop a new relationship between state, peasants and markets. Under the Bangladesh scheme, local government motivates peasants to create self-help groups by giving them economic incentives, instead of the conventional political mobilization. In this sense, the experiment of microfinance in poor inland areas has something in common with the policy of promoting the specialized agricultural producer’s association (zhuanye jishu xiehui), market-oriented organization of farmers that provide technical and marketing services in coastal areas and suburbs.19 In other words, these

1990 Village Total number of membership household is 700 in 1991 (approximately 90% of the households in S village) Government (department of civil affairs), village and peasant household 4,850 yuan

5 yuan per stock. Commitment of one household is limited to 100 stock (500 yuan) Member households, collectives (villages) Individual: annual rate of 7.8% (less than the Rural Credit Cooperatives)

Productive purpose (such as fertilizer)

Year of foundation Level of organization Number of member household

Price of the stock

Purpose of loan

Source: Author’s field studies

Interest rate

Target group

Size of fund

Fund source

S Village, Yongxing County, Hunan Province (1992)

Location and year of survey

Table 5A Community-based credit organizations

2 to 5 yuan per stock

Government (department of civil affairs), village and peasant household –

Late 1980 Village Almost all villages have their own credit organizations

Nanchang County,Jianxi Province (1995)

Member households, Member households collectives (villages) Individual: annual rate No interest of 10.8% (almost the same as the Rural Credit Cooperatives Agricultural/stock raising Agricultural/stock raising

–

Approximately 8 million yuan

Township, village and peasant household

1992 Township –

L Township, Anqiu County, Shandong Province (1992)

–

–

–

Appproximately 18 million yuan (4 million by townships; 8 million by villages; 5.5 million by households; 0.5 million from other sources) –

Township, village and peasant household

1987 Township All townships (25) have their own credit organizations

Xindu County, Sichuan Province (1995)

Local government and social networks: microfinance

143

policies should be recognized as part of the effort to address the largest challenge for the Chinese government: changing the role of the state from serving as a market substitute to providing market support. Khandker (1998, 153) argues that what is most important in turning microfinance into a cost-efficient, sustainable financial programme is strengthening the management ability of small borrowers. Once the management ability of peasants is improved, demand for loans will be created and an incentive to organize self-help groups for microfinance will be generated. Khandker further emphasized that it was important to consider a policy package in which microfinance was combined with other policies that support the poor. The same conclusion can be drawn from the Yunnan experiment.

Appendix 5A: Community-based credit organization Table 5A shows case studies of community-based credit organizations taken from the author’s field research. From this table it can be seen that while credit organizations take the form of a mutual saving association in Hunan and Jiangxi, where income level is relatively low, they take the form of a credit association in Shandong and Sichuan, where income level is relatively high. Is there any relationship between the degree of economic development and the types of financial markets? Based on field studies in Jiangsu Province, Xu et al. (1994, 89) found the tendency that is indicated in Figure 5A. First of

Degree of development of financial institutions

High

Peasants’ mutual help loan association

Credit supply by the Rural Credit Cooperatives and the Agricultural Bank

Community-based credit organizations at the township level

Community-based credit organizations at the village level

Low

High Level of economic development

Figure 5A Development level and the types of financial institutions Source: Xu et al. (1994), 89

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The growth of market relations in post-reform rural China

all, mutual savings association type organizations are more widespread in low-income inland areas. The development of credit associations shows an inverted-U curve, indicating that they are most common in areas of medium economic development level and less common in high-income coastal areas. According to Xu et al., this is because in coastal areas, formal financial institutions can provide sufficient funds with more flexibility, and many borrowers are operating their businesses on a large scale.

Part II

Comparative village analyses

6

Income generation and access to economic opportunities: a comparative village analysis

Introduction Issues and survey villages Issues The purpose of this chapter is to conduct a comparative regional analysis of household income generation and income distribution, using a village-based data set collected from household surveys in five administrative villages. The main issues to be analysed in this chapter are summarized below. 1 Decomposing household income structure, and analysing the determinants of household income. Official statistics show that the overall distribution of rural household income has worsened after reform. However, only a few studies have analysed the realities of income distribution in a specific regional context. To describe the structure of household income and the mechanism of income generation in the survey villages, a decomposition analysis of household income and estimation of household income function are attempted in the next section. 2 Comparing the effects of human capital and political capital on accessibility to economic opportunities in the survey villages. As discussed in Chapter 1, regional comparative analysis at the community level is able to advance the study of the opportunity structure in the post-reform era. To shed light on the effects of human and political capital in a specific regional context, logit models of access to nonagricultural opportunities are deployed in the third section. Previous research concerning household income distribution in postreform rural China can be broadly divided into two kinds: systematic studies using large-scale data, and semi-microscopic studies based on surveys of specific regions. Recent studies of to the first kind were summarized in Chapter 1 and will not be repeated here. Many semi-microscopic studies of the distribution of rural household income have already been done: Zhu (1991), Hsiung and Putterman (1989), Putterman (1993), Hare (1994), Cook (1998), Rozelle (1994), and Knight and Li (1997). This chapter supplements and extends previous semi-micro studies in two main ways. First, most of the previous studies were based on surveys of one region, be it at village, township

582 0.22 1,506 Rice Hogs, poultry, artificially cultured freshwater fish, tea-oil seeds

0.19 1,024

Wheat, corn Vegetables, watermelon, cotton

3,280 783 175.6

15 km from county seat

Yongxing (1991)

601

16 km from county seat. Township government is located here 2,898 754 145.3

Source: Data gathered through the author’s field survey

Total population (person) Number of households Cultivated area (ha) Yield of grain per capita (kg/person) Cultivated area per household (ha/household) Number of hogs (year-end) Agricultural products Grain Other major products

Location

Anqiu (1991)

Table 6.1 Economic structure of survey villages

Rice, wheat

0.18 421

209

20 km from county seat. Township government is located here 2,299 500 87.9

Guiding (1991)

Rice, wheat Hogs, poultry

0.50 1,145

1,591

1,395 367 182.7

15 km from county seat, approximately 40 km to Yangzhou

Tianchang (1992)

Rice, wheat Silkworm cocoons, jute and ambary hemp, sweet potato seedling, mustard tuber

0.22 540

434

1,543 433 94.3

15 km from county seat, 62 km to Hangzhou

Haining (1993)

Income generation and access to economic opportunities

149

or county level, whereas this study is based on a comparative regional analysis. Second, this study puts special emphasis on the relationship between peasants’ behavioural choices and the politico-economic and socio-cultural environments at the community level. Survey villages Table 6.1 summarizes the economic structure of the survey villages. The five survey villages located in five counties are as follows: Anqiu County (Shandong Province), Yongxing County (Hunan Province), Guiding County (Guizhou Province), Tianchang County (Anhui Province), and Haining County (Zhejiang Province). Hereafter the county’s name is used to refer to each survey village. The surveys from Anqiu, Yongxing, Guiding, and Tianchang were designed and conducted in collaboration with three Chinese research institutions: the Development Research Centre of the State Council, the Research Centre for Rural Economy of the Ministry of Agriculture and the Rural Development Institute of the Chinese Academy of Social Sciences. The reference year of the household survey is 1991 for Anqiu, Yongxing and Guiding, 1992 for Tianchang. The selection of four of the survey villages was based on two criteria. One was the basic agro-ecological condition, the other the economic structure and overall development level. Anqiu, a wheat-growing village in northern China, is a relatively industrialized village. Tianchang is a relatively developed rice-cropping village in the Changjiang River basin. Yongxing is a relatively underdeveloped rice-cropping village located in a hilly area of the southernmost part of Hunan. Located near Guiyang (the provincial capital), Guiding is a poor mountainous village. One hundred sample households were selected from each survey village. The survey in Haining was carried out in collaboration with East China University of Science and Technology. Three natural villages (zirancun) – a relatively rich one, a relatively poor one and an average one – were selected, and all the households were surveyed. The reference year is 1993. Haining is a typical sericulture area located in Northern Zhejiang (Zhebei) Plain. Although Haining has a high proportion of nonagricultural labour, it is not a frontrunner in rural industrialization in the Sunan-Zhebei area, which is one of the most developed areas in rural China. Because the structure of the questionnaire is basically the same, a combined data set of five villages is used in this chapter. The author also collected a series of historical statistics in Haining. A time-series analysis of the household economy in Haining is presented in Chapter 7. The employment structure of survey villages Table 6.2 summarizes the employment structure of the survey villages. In Anqiu, a considerable part of the key male labour force falls into the

122 6 3

18.5 32.0 49.5 100.0 (287)

Anqiu

3 17 7

77.8 18.9 3.3 100.0 (243)

Yongxing

7 12 10

47.2 40.8 12.0 100.0 (324)

Guiding

80 6 40

29.5 40.0 30.5 100.0 (315)

Tianchang

92 10 15

47.6 15.4 37.0 100.0 (330)

Haining

Notes: 1 Numbers in parenthesis are numbers of samples 2 ‘Mainly agricultural activities’ means the days of labour in agricultural activities is more than 200 days/year. ‘Mainly nonagricultural activities’ means the days of labour in nonagricultural activities is more than 200 days/year 3 This portion contains clearly identifiable individuals only

Source: Household survey data

By economic sector (number)3 Collective State Self-employment

By day’s labour (%) Mainly agricultural activities2 Agricultural and nonagricultural activities Mainly nonagricultural activities Total

1

Table 6.2 Employment structure of survey villages

Income generation and access to economic opportunities

151

collective category. The collective category here means the TVEs, which are directly managed by the party–governmental apparatuses on the village level. On the other hand, very few are employed by individuals and the private sector, and there is not a single case of employment outside the township. As a purely agricultural village, Yongxing has the highest proportion of its labour force involved in agricultural activities.1 Also, very few workers are active in the collective sector. Although Yongxing County is considered to be a source of out-migrant workers to Guangdong Province, few people worked away from their home in the survey village. Compared to Yongxing, Guiding has a higher proportion of its labour force involved in nonagricultural activities. The nonagricultural sector mainly comprises small-scale commercial and industrial activities such as agricultural product processing, farm tool manufacturing and meat processing. Although some members of the labour force are employed in the state sector, all of them are temporary or seasonal workers in the factories at the county seat or the provincial capital, Guiyang. Very few have jobs outside the province. Unlike Anqiu, urban unskilled labour markets have played a major role in shaping Tianchang’s employment structure. Many villagers are working in Yangzhou, Yizheng, Nanjing, and other large cities in the Changjiang Delta. On the other hand, compared with those in Anqiu, the TVEs in Tianchang bear the characteristics of family businesses. There are over 40 small cottageworkshops there.2 As is typical in a sericulture village, a differentiation in labour allocation patterns can be noted in Haining, between households mainly engaged in labour-intensive sericulture sectors and households engaged in wage employment. The proportion of the labour force primarily engaged in farming is as high as it is in Guiding, though it is second to the proportion primarily engaged in nonagricultural activities. The pillar of the TVEs in Haining is the automobile industry (an automaker located in the township and several related firms making automobile accessories and parts). TVEs in Haining are mostly collectively owned firms but are actually operated privately through the management contract system (chengbao jingying). Besides working at TVEs, many villagers in Haining have various types of temporary jobs. Some of them work away from the township.

The level and structure of household income in survey villages Estimation of household income The total household income described in this chapter is defined as the sum of farm income, wage income, nonagricultural self-employment income, and other miscellaneous sources of income. Each income component refers to cash income. Self-consumption of grain and other agricultural products are

152

The growth of market relations in post-reform rural China

excluded. A household is defined as the sum of the family members who economically depend on each other. That is to say, it includes those who are not living with their families but who make remittances, such as migrant workers; it excludes economically independent family members, such as those in military service. The following are definitions and estimating methods of each component of household income. 1 Farm income. Farm income is defined as the gross agricultural revenue minus material costs, whereas the gross agricultural revenue is defined as the gross value of cash derived from agricultural activities in the broad sense (danongye), which includes cultivation, livestock husbandry, forestry, and fishery. The revenue from agricultural sales is divided into two parts; one is cultivation, the other is livestock husbandry, forestry, and fishery. With regard to the first part, the net income ratio (net agricultural income / gross agricultural revenue) is set at 0.7 with reference to the provincial average of the official production cost survey by the NBS. Concerning the second part of agricultural sales, the net income ratio is set at 0.55 for Anqiu, Guiding, Tianchang, and Haining. For Yongxing it is set at 0.6 for pig-breeding and 0.8 for fish-raising. 2 Wage income. Wage income is defined as the sum of wages, bonuses and allowances received from employers such as collective TVEs, private enterprises, SOEs, and public institutions. Remittances from household members working away from home are included in this category of income. It also includes salaries and service allowances (wugong butie) for township and administrative village officials, regardless of whether or not they are full-time cadres. 3 Nonagricultural self-employment income. This is defined as the total value of net cash income (sales minus material costs) from all kinds of nonagricultural self-employment or private business activities such as manufacturing, transportation, construction, and commerce, etc. 4 Other miscellaneous sources of income. This includes official transfer income (cash income from state or collective, such as social welfare payments to poor families or old age households), private transfer (such as gifts from relatives and friends), and other miscellaneous cash income. Based on the estimates of income using these definitions,Table 6.3 summarizes the level and structure of household income in per capita terms, using the Gini and the pseudo-Gini coefficients. It reveals the following regional characteristics. Haining has the highest per capita income among the five villages, followed by Anqiu, Tianchang, Yongxing, and Guiding. The large difference between Haining and Guiding is convincing evidence of the significance of interregional disparities in rural China. The income structures of the survey villages also vary greatly. In Anqiu, farm income accounts for only 19 per cent of the total income. Meanwhile, in Yongxing, farm income contributes a large part to the total income, reaching 74 per cent. The proportions for the other three villages fall between Anqiu and Yongxing, with farm income reaching

Income generation and access to economic opportunities

153

51 per cent in Haining, 43 per cent in Tianchang and 38 per cent in Guiding.3 Nonagricultural incomes in Anqiu and Haining mainly comprise wages. In Guiding and Yongxing, on the other hand, the main sources of nonagricultural income are traditional sidelines. In Tianchang, both wages and profits from family businesses are important to households. Analysis of the income structure As well as summarizing the level and structure of income in each village, Table 6.3 also draws attention to the following features of the household income distribution in each village. 1 The Gini coefficient of per capita income in Guiding is the largest, whereas Anqiu’s is the smallest.4 Between Guiding and Anqiu are Haining, Tianchang and Yongxing. No simple correlation exists between mean income (a proxy for overall level of economic development) and the degree of income inequality. This implies that the pattern of household income distribution is mainly determined by specific regional factors at the community level. 2 From decomposition analysis using the pseudo-Gini coefficient, the components of total income have the following characteristics. In all five villages, the pseudo-Gini coefficient of nonagricultural income is higher than that of farm income. This means that nonagricultural income has much more influence on the inequality of income as a whole. In fact, even including Yongxing, the percentage contribution of nonagricultural income to the overall Gini coefficient in Table 6.3 is higher than the percentage of nonagricultural income to the total income. 3 The small pseudo-Gini coefficient of farm income reflects the basic structure of Chinese agriculture after reform: homogeneous, small-scale farm-households that are a result of the collective ownership of land and egalitarianism in the distribution of landholdings within the community.5 4 It is important to note that Anqiu has a very equal distribution of wage income. This reflects the fact that the wage structure of Anqiu’s village-run enterprises, which employ most of the villagers, is rather egalitarian. The TVE sector in Anqiu has community-oriented characteristics. In Haining, by contrast, the distribution of wage income is quite unequal. This disparity is partly due to the differentiation in labour allocation patterns among households mentioned above, and partly to the weaker community-oriented characteristics of the TVE sector in Haining. The determinants of household income Model To study the determinants of household income, a combined data set for the five villages was prepared. Factors related to household income were allocated to seven categories.

227 832 103 40 1,202 0.157 485 50 98 23 656 0.329 157 63 168 27 415 0.434

Yongxing (98) Farm income Wage income Income from nonagricultural self-employment Other income Total income Gini coefficient of total income

Guiding (93) Farm income Wage income Income from nonagricultural self-employment Other income Total income Gini coefficient of total income

Per capita annual income (yuan)

Anqiu (95) Farm income Wage income Income from nonagricultural self-employment Other income Total income Gini coefficient of total income

Table 6.3 Structure of household income

37.8 15.2 40.6 6.4 100.0

73.9 7.6 14.9 3.6 100.0

18.9 69.2 8.6 3.3 100.0

Proportion of each income component to total income (%)

0.268 0.479 0.577 0.412 0.434

0.265 0.536 0.589 0.242 0.329

0.020 0.197 0.181 0.036 0.157

Pseudo-Gini coefficient of income components

23.3 16.8 53.8 6.1 100.0

58.9 12.2 26.4 2.5 100.0

2.4 86.9 9.9 0.8 100.0

Contribution to the Gini coefficient of total income (%)

757 687 35 – 1,479 0.339

Haining (129) Farm income Wage income Income from nonagricultural self-employment Other income Total income Gini coefficient of total income

Note: Numbers in parenthesis are numbers of samples

Source: Household survey data

384 372 107 34 897 0.258

Tianchang (99) Farm income Wage income Income from nonagricultural self-employment Other income Total income Gini coefficient of total income 51.2 46.4 2.4 – 100.0

42.8 41.5 11.9 3.8 100.0

0.102 0.623 0.695 – 0.339

0.061 0.372 0.613 0.029 0.258

14.6 80.8 4.6 – 100.0

10.0 61.4 28.3 0.3 100.0

7.18** ⫺4.97** 8.56** 1.29 2.97** 0.50 3.73** 3.25** 1.98* 3.80** 0.34 ⫺6.77** 8.66** 27.59**

0.364 0.033 ⫺0.743 0.846 6.477 0.520 493

t-statistics

0.177 ⫺0.272 0.794 0.116 0.106 0.001 0.193 0.214 0.025

Coefficient

Log of total income

Dependent variables

Note: ** indicates statistical significance at the 1% level, * at the 5% level

Source: Household survey data

Household size Dependency ratio Employment structure Degree of diversification in agricultural production Educational level of household head Age of household head Arena of daily activities of the household head Present political status of household Cultivated land (mu) Village dummy Anqiu Yongxing Guiding Haining Constant Adjusted R-squared n

Determinants of household income

Table 6.4 Household income function

0.555 ⫺0.805 ⫺0.574 1.054 5.977 0.509 367

0.214 ⫺0.383 1.199 ⫺0.090 0.140 0.001 0.284 0.271 ⫺0.038

Coefficient

3.90** ⫺5.00** ⫺3.33** 6.54** 14.91**

5.28** ⫺4.03** 7.60** ⫺0.58 2.42* 0.24 3.62** 2.66** ⫺1.97*

t-statistics

Log of nonagricultural income

3.15** ⫺1.72 ⫺1.95* 8.15** 2.02* 1.38 ⫺1.13 ⫺0.09 6.60** ⫺4.16** 3.75** ⫺9.27** 9.62** 20.70**

⫺0.469 0.417 ⫺1.179 1.105 5.717 0.550 505

t-statistics 0.090 ⫺0.110 ⫺0.211 0.856 0.084 0.005 ⫺0.068 ⫺0.007 0.097

Coefficient

Log of farm income

Income generation and access to economic opportunities

157

1 Household structure and factor endowment. Household size (number of household members), the dependency ratio (number of household members / total labour force) and cultivated land (in mu) are employed. 2 Economic characteristics of household. Employment structure (number in the labour force engaged in nonagricultural economic activities more than half of total labour days / total labour force), and the degree of diversification in agricultural production (nongrain sales / total agricultural sales) are used as indicators of the economic characteristics of a household. 3 Human capital in the narrow sense. The educational level of the household head as the indicator of human capital in the narrow sense is used in the ordinal form (5 ⫽ college level or above, 4 ⫽ senior high school or vocational school level, 3 ⫽ junior high school level, 2 ⫽ primary school level, 1 ⫽ below primary school level). To control for the gap in educational level between the different generations, the age of the household head is used in the estimations. 4 Human capital in the broad sense. In addition to educational level, the arena of daily activities of the household head (3 ⫽ often going out of the home village, 2 ⫽ sometimes going out of the village, 1 ⫽ remaining mostly within the village) is used as an indicator of human capital in the broad sense. This variable is taken to indicate an active attitude toward the outside world, which cannot be adequately measured simply by educational level. 5 Political capital. The present political status of the household (having party members or township/village cadres in the family ⫽ 1, not having any ⫽ 0) is used. 6 Cultivated land (mu). 7 Regional factors. To control for the overall development level of survey areas and various other regional factors, a village dummy variable is employed. Estimation Table 6.4 shows the estimation of the household income function using these determinants. Dependent variables are total household income, nonagricultural income and farm income (in all the equations, a natural log of incomes is used). 1 Household structure, factor endowment. Household size is expected to have a positive correlation with household income, and the dependency ratio is expected to be negatively correlated with household income. With regard to these two variables, these expected results were attained in all the models, although the dependency ratio was not statistically significant in the case of farm income. Land holding has a positive relationship to total household income as well as farm income. However, its effect is not large even in the equation for farm income. This reflects the fact that in all five villages, the land distribution method was egalitarian when the household production responsibility system was first introduced. Also, land adjustment according to the

158

The growth of market relations in post-reform rural China

change in population has been undertaken, to a greater or lesser degree, by all the village administrations.6 2 Characteristics of economic activities. Previous community-based microeconomic studies on peasant households such as Putterman (1993) and Hare (1994) have shown that families who have shifted their labour force to nonagricultural activities have become wealthier in the community. The author’s estimation also shows that the employment structure has a large and positive effect on total household income. The degree of diversification in agricultural production has a positive effect on both farm income and total household income as expected, with the former being statistically significant and the latter not significant. Khan (1993) estimated the household income function using rural samples of the CASS survey in 1988. Two indicators of the degree of marketization in household economic activities – the overall level of marketization (total sales / total production) and the level of nonagricultural development (sales of industry and sideline business / agricultural sales) – are used in Khan’s equation for total household income. The result is that the former has a positive and significant effect, while the latter has a positive but not significant effect. Khan argues that because many rural areas still rely on farming, the overall level of marketization (including agriculture) has a stronger effect on total income than nonagricultural development. Because a community-based data set was used, the author’s estimation shows that the shift from agricultural to nonagricultural activities appears as an important determinant of total household income, while the degree of diversification in agricultural production has a large effect on farm income. 3 Human capital and political capital. The educational level of the household head has a positive and significant effect on total household income, nonagricultural income and farm income. The arena of daily activities of household heads also appears to be positive and significant in the equations for total income and nonagricultural income, while it is negative but not significant in the equation for farm income. These results imply that the accumulation of human capital (both in the narrow sense and the broad sense) by a household head as the coordinator of a household’s economic activities is an important determinant of household income. The equations also show that political capital has a significant effect on household income. The political status of the household has a positive and significant effect on nonagricultural income and total income, but it has no significant effect on farm income. 4 Regional factors. The village dummy reflects the relative geographical advantages of each village compared with Tianchang, and clearly shows the great disparities in the level and type of economic development among the five villages.7 This discussion confirms that the development of nonagricultural activities is the most significant determinant of household income, and that both human capital and political capital have positive effects on the household’s nonagricultural income generation. With these facts as background, we can

Income generation and access to economic opportunities

159

now turn to the analysis at the level of individuals. To what degree do the effects that an individual’s human capital and political capital have on the accessibility to nonagricultural opportunities vary among the survey villages?

Access to economic opportunities Typology of the survey villages Table 6.5 presents a conceptual framework for the relationship between a peasant’s behavioural choices – in this case access to nonagricultural economic opportunities – and semi-micro environments. Descriptions of the semi-micro environments involve four factors: (a) overall level of economic development (income level); (b) level of market development; (c) typology of market development; and (d) sociopolitical structure. The degree of commercialization in agricultural sectors and the development level of nonagricultural sectors measure the level of market development. The type of market development is classified according to the characteristics of the TVE sector, degree of development of nonagricultural family businesses and the local labour market structure (the degree of openness of the labour market). The sociopolitical structure is measured by closeness of the cadre–peasant relationship (ganqun guanxi) – the degree of influence of the grassroots party–governmental apparatus over a household’s economic behaviour – and by the demand of household heads for the qualification of being grassroots cadres. As shown in Table 6.6, in Anqiu the party–governmental apparatus at the administrative village level mediated most of the nonagricultural employment opportunities. Family businesses were not developed, and few villagers were working away from home. The local labour market of Anqiu was a closed one. The village also provides agricultural services such as cultivation and harvesting, using collectively owned tractors and combine harvesters. There was a close economic relationship between cadres and villagers, and villagers had high economic expectations of village cadres (see Appendix 6A). To borrow an argument from Oi, the semi-micro socioeconomic structure of Anqiu can be characterized as the early stage of local state corporatism (Oi 1999). Given these characteristics, three inferences about the effects of political capital and human capital in Anqiu seem valid. First, political status has a significant effect on the accessibility to local TVEs. Because the TVE sector has community-oriented characteristics, ordinary positions will be allocated in a rather egalitarian way. So the net positive effect of political capital will only appear when access to relatively well-paid positions is examined. On the other hand, because there has been a certain degree of accumulation of skilled workers and managerial staff in Anqiu’s TVE sector, human capital will also have a positive effect on access to the TVE sector. In contrast to Anqiu, Tianchang is an open community. There is little direct involvement of the party–governmental apparatus in the job search

High Low

High

Economic development level Income level

Level of market development Agricultural sector

Nonagricultural sector

Proportion of labour force who have wage incomes (%)

45

Collectively operated firms

Far

Distance from large cities

Types of market development Characteristics of TVE sector

Coastal

Geographical condition Location

38

Privateowned cottage workshops

High (high market surplus of food grain) High

High

Near

Coastal

Collectiveowned and privately operated through the management contract system 60

Low (sales of cocoons is under state control) High

High

Not so far

Coastal

7

Privately operated coal mines

High (sales of livestock and aquatic products) Low

Low

Far

Inland, hilly

9

Underdeveloped

Low

Low

Low

Inland mountainous Not so far

Guiding

Yongxing

Haining

Anqiu

Tianchang

Two underdeveloped villages

Three developed villages

Table 6.5 Relationship between a peasant’s behavioural choices and semi-micro environments

Ability to help villagers become rich; impartiality

Ability to help villagers become rich

Great many

Almost none

Weak

Medium

Medium

Strong

26

89

Relatively strong Sufficient experience as a cadre; ability to help villagers become rich

Small numbers Many

22

Sources: Household survey data and Sato (2000)

Effects of human and political capitals on the accessibility to nonagricultural employment opportunities Nonagricultural employment opportunities [access 1] Positive Insignificant Insignificant Human capital in the narrow sense Political capital Insignificant Insignificant Positive Stable or well-paid nonagricultural employment opportunities [access 2] Human capital in the narrow sense Positive Insignificant Positive Political capital Positive Insignificant Positive

Sociopolitical structure Influence of the local party–governmental apparatus on the behavioural choices of peasants Peasants’ expectation of grassroots cadres

Proportion of labour force getting jobs through the arrangements of the local party–governmental apparatus to total number of labour force with wage incomes (%) Number of households involved in nonagricultural sidelines and family businesses Number of labour force working outside the home township

Insignificant Insignificant

Insignificant Insignificant

Insignificant

Insignificant Insignificant

Impartiality

Weak

Many

Many

7

Insignificant

Impartiality

Weak

Small numbers Small numbers

21

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The growth of market relations in post-reform rural China

Table 6.6 Entry channels to nonagricultural employment opportunities (per cent, numbers in parenthesis are numbers of samples) Anqiu Arrangement by collective/ introduction by cadres Introduction by relativs, neighbours and friends Others (taking examination, etc.) Total

Yongxing

Guiding

Tianchang

Haining

89.3

20.8

7.2

26.1

21.5

6.9

45.8

57.1

52.2

48.6

3.8 100.0 (131)

33.4 100.0 (24)

35.7 100.0 (28)

21.7 100.0 (115)

29.9 100.0 (107)

Source: Household survey data

process. Many villagers have entered the urban labour market in nearby large cities. Concerning Tianchang, two inferences can be made. The first is that political status has little effect on accessibility to employment opportunities. The second concerns the effect of human capital, for which there are two possibilities. One is that because most of the villagers find jobs by themselves, human capital has a positive effect on employment opportunities. The other possibility is that because the urban labour market is segmented and peasants can enter only the lower levels of the market, human capital has little net effect. As the TVEs in Haining are mostly township-owned, privately operated firms, the party–governmental apparatus at the administrative village level does not directly influence firms’ employment policies. At the same time, employment opportunities for villagers of Haining are not limited to the township. Considering these characteristics, two inferences seem to be valid. First, it is more likely that political capital has a positive effect via direct personal connections among grassroots cadres and party members than through the party–governmental apparatus. Second, as the main business category of local TVEs is machine industry, it is plausible that human capital has a certain positive effect. Given that there are few collectively owned firms, the economic foundations of the party–governmental apparatuses in Yongxing and Guiding are very weak. The villagers’ economic expectations of village cadres is very low, and the relationship between cadres and peasants is rather slack. Peasants want village cadres to be ‘impartial’ (see Appendix 6A). This desire reflects the fact that the main function of a village government is to execute tasks assigned by the township government (collecting levies, enforcing family planning, and so on), and that village cadres have little ability to promote a village’s economic development.8 Considering these characteristics, two assumptions should be valid for these two inland villages. First, with regard to the effect of political capital, two possibilities exist. One is that cadres and party members have

Income generation and access to economic opportunities

163

access to rare nonagricultural employment opportunities through their political power and personal connections. The other is that primary social networks are more important in the job search processes, so the cadres and the party members would have little advantage. Second, as to employment opportunities, most available jobs tend to be basically unskilled and temporary ones. It is plausible to infer that human capital would therefore have little effect on employment opportunities. The determinants of access to nonagricultural employment opportunities Data set and variables An individual data set of the five villages that includes all labourers over 15 years old was prepared, and logit estimation is conducted. Those who had urban household registration status were excluded from the data set. Accessibility to economic opportunities were described by two dummy variables: (a) either having (⫽ 1) or not having (⫽ 0) nonagricultural employment opportunities (hereafter access 1); (b) either having (⫽ 1) or not having (⫽ 0) stable or well-paid employment opportunities (more than the median of wage income in each village) (hereafter access 2). Educational level was used as the indicator of human capital in the narrow sense (5 ⫽ college level or above, 4 ⫽ senior high school or vocational school level, 3 ⫽ junior high school level, 2 ⫽ primary school level, 1 ⫽ below primary school level). Regarding political capital, two variables were employed. One was the individual’s present political status (1 ⫽ party member or township/village cadre, 0 ⫽ none). The other was the political background of the family (1 ⫽ having present/former cadres in the family, 0 ⫽ none). To take into account the historical factor – accumulation of political capital in the family – former cadre status is included in the latter variable. Also, gender (1 ⫽ male, 0 ⫽ female) and age (years-old) were controlled. Political capital and human capital The results of the logit estimation are shown in Table 6.5 and Table 6.7. 1 Three developed villages: Anqiu, Tianchang, and Haining. With regard to Anqiu, the assumptions seem to be correct. Political capital has a positive and significant effect in stable or well-paid positions [access 2], whereas its effect is not significant in ordinary positions [access 1]. In sum, the egalitarianism and the monopolization by village elite coexist in the nonagricultural job allocation in Anqiu. By contrast to Anqiu, neither political capital nor human capital has significant effects on accessibility to employment opportunities in Tianchang. The effect of political capital fits the above-mentioned assumption. The effect of human capital in Tianchang reflects the fact that, due to

7.4 2.5 44.9 5.3 12.3

44.6 22.6 58.9 12.9 17.1

Yongxing

Guiding

Tianchang

11.8

4.6

33.3

3.4

9.0

323 35 45.2

Guiding

Haining

9.8

6.3

31.4

13.0

37.8

315 35 46.7

Tianchang

7.6

3.9

36.5

15.2

60.3

330 40 49.7

Haining

Gender (1 ⫽ male, 0 ⫽ female) 2.041 Age (years old) ⫺0.022 Educational level 0.531 Individual’s present political status 0.470 Political background of the family 0.622 2.43* 0.14 ⫺0.87 ⫺0.23 ⫺0.07

1.451 0.003 ⫺0.306 ⫺0.268 ⫺0.058

6.44** ⫺1.51 2.40*

0.95

1.58

⫺0.625

0.203

⫺0.193 ⫺0.032 0.354

⫺0.78

0.18

⫺0.46 ⫺1.75 1.22

0.530

⫺0.419

1.119 ⫺0.097 0.104

1.10

⫺0.62

3.49** ⫺6.04** 0.46

0.546

2.742

1.480 ⫺0.105 0.240

0.77

2.19*

4.86** ⫺6.78** 0.92

Coefficient z-statistics Coefficient z-statistics Coefficient z-statistics Coefficient z-statistics Coefficient z-statistics

Anqiu

2 Dependent variable: nonagricultural employment opportunities [access 1]

243 34 50.2

287 35 46.0

Total number of labour forces Average age (years old) Proportion of male to total number of labour forces (%) Proportion of labour forces who have nonagricultural employment opportunities (%) Proportion of labour forces who have stable or well-paid nonagricultural employment opportunities (%) Proportion of labour forces whose educational attainment are junior high school level or above (%) Individual’s present political status (proportion of labour forces who are party members or township/village cadres) (%) Political background of the family (proportion of labout forces whose family members have present/former cadre status) (%)

Yongxing

Anqiu

1 Summary of variables

Table 6.7 Determinants of access to nonagricultural employment opportunities (logit estimation)

⫺2.19*

(0.000)

⫺2.043

0.231 286

0.058 243

⫺2.798

(0.187)

⫺1.99*

0.046 321

⫺2.036

(0.129)

⫺1.98*

(0.000)

2.33

Haining

0.310 329

3.351

(0.000)

3.26**

0.195

0.408 ⫺0.773

0.104 315

2.58*

⫺0.34 ⫺4.56**

(0.000)

(0.000)

0.68 ⫺0.75

0.24

3.01** ⫺3.01** 0.12

0.199 329

1.334 ⫺4.871

0.920

0.930 ⫺0.019 1.205

(0.000)

2.28* ⫺3.83**

1.18

2.54* ⫺1.11 4.00**

Coefficient z-statistics Coefficient z-statistics

Tianchang

1.250 ⫺0.062 0.035

Guiding

5.38** 0.04 2.99**

Yongxing

0.210 315

1.859

Notes: As for [access 2], Yongxing and Guiding are omitted because individual’s present political status and political background of the family predict failure perfectly. ** indicates statistical significance at the 1% level, * at the 5% level

Source: Household survey data

Gender 2.752 Age 0.001 Educational level 0.853 Individual’s present political status 1.353 Political background of the family ⫺0.180 Constant ⫺5.737 Pseudo R-squared (Pr ⬎ chisquared) 0.329 n 286

Coefficient z-statistics

Anqiu

3 Dependent variable: stable or well-paid nonagricultural employment opportunities [access 2]

Constant Pseudo R-squared (Pr ⬎ chisquared) n

166

The growth of market relations in post-reform rural China

an institutional barrier, the urban labour market is segmented, and peasants can enter into only the lower level of labour market in nearby cities. It was almost impossible for young, educated peasants to get a stable job in the urban formal sector at the beginning of 1990s. As for Haining, it is notable that the effect of the present political status of an individual was positive but insignificant, while the political background of family (accumulation of political capital in the family) had a significant positive effect on the access to stable or well-paid nonagricultural jobs [access 2]. Contrary to the situation at Haining, the political background of family was not significant in Anqiu. It is reasonable to suppose that this fact reflects the different historical characteristics of the TVE sector in Haining and Anqiu. The TVEs in Haining had built the foundation in the 1970s as the commune- and brigade-run enterprises (shedui qiye). In spite of some mergers or restructuring over the 1980s and 1990s, there was continuity in the TVE sector development in Haining. By contrast, the TVE sector began to develop after the 1980s in Anqiu and was a rather new source of political power. This could be the reason why only present political status is effective in Anqiu, while the accumulation of political capital in the family is important in Haining. 2 Two underdeveloped villages: Yongxing and Guiding. The estimation results show that neither human capital nor political capital had a significant effect on the accessibility to nonagricultural employment opportunities. From the standpoint of the market transition debate, the cases in Yongxing and Guiding can be described as manifesting a redistributive mechanism in decline, and is without substantial development of market coordination. The ability of the grassroots party–governmental apparatuses to mobilize and to redistribute economic resources within the community has been weakened. However, market opportunities have not been increased. The traditional type of personal connections based on blood relations and other social ties seem to plays an essential role (see Table 6.6). An implicit assumption of the market transition thesis is that once the redistribution mechanism has declined, the market mechanism will begin to grow. This does not seem to be the case for the transition process in an underdeveloped economy such as rural China, especially in inland, purely agricultural areas.9

Conclusion The main finding of this chapter may be summarized as follows. 1 The household income distribution structure. Although development level and economic structures of the survey villages are very different, there are still common characteristics concerning household income distribution. The distribution of total household income is largely determined by the distribution of nonagricultural income, whereas the distribution of farm income has limited influence. Also, estimating household income functions, confirmed that the transfer of labour allocation from agricultural activities to nonagricultural activities is the most significant determinant of household

Income generation and access to economic opportunities

167

income, and that both human capital and political capital have net positive effects on household income. 2 The effect of human capital (in the narrow sense) and political capital. With regard to the determinants of access to nonagricultural employment opportunities, the results of the logit estimation varied among the villages. Differences in the effects of human capital and political capital are due to the type of the market development as well as to the characteristics of grassroots party–governmental apparatus. There is no simple correlation between the overall level of economic development and the effects of an individual’s human and political capital. Marketization in rural China encompasses various types of market development, and there is region-specific interaction between an individual’s/household’s economic behaviour and the semi-micro environments. An implicit assumption of the discontinuity approach to the market transition debate (see Chapter 1) is that once the redistribution mechanism has declined, the market mechanism will begin to grow. This is not valid for the marketization process of a large developing economy like rural China. Idiographic and historical approaches would seem to be more appropriate in studying the distinctive processes of marketization in rural China.

Appendix 6A: The cadre–peasant relationship Table 6A summarizes the demand of household heads for the qualifications of village cadres. They are classified in three broad categories. 1 A person who handles things fairly (‘banshi gongdao’, hereafter referred to as ‘impartiality’). This is a traditional value of officials in rural China (Sato 1984 and 1987). 2 A person who is able to help villagers become rich (‘neng bangzhu cunmin zhifu’, hereafter referred to as ‘getting rich’). This new qualification has taken on importance after the economic reform. 3 A person who has sufficient experience as a cadre (‘you lingdao jingyan’, hereafter referred to as ‘experience’). This is a general qualification of officials. In Anqiu and Tianchang the number of respondents choosing ‘getting rich’ was about equal to or more than those choosing ‘impartiality’, whereas in Yongxing, Guiding, and Haining, the majority of respondents hoped for ‘impartiality’. Several points can be made from these results. First, as mentioned above, the reason why the majority of villagers of Yongxing and Guiding chose ‘impartiality’ is the limited capacity of the village party–governmental apparatus to promote the development of village economy. Second, the difference between Anqiu and Haining can be explained by the above-mentioned difference in the characteristics of the TVE sector, that is to say, whether it adopts community-oriented employment policies. Third, although similar tendencies are to be observed in the frequency distributions for Anqiu and Tianchang, an interesting regional difference

168

The growth of market relations in post-reform rural China

Table 6A Qualification of village cadres (per cent, numbers in parentthesis are numbers of examples)

Impartiality Getting rich Experience

Anqiu

Yongxing

Guiding

Tianchang

Haining

Total

37.4 54.5 8.1 100.0 (99)

80.0 16.8 3.2 100.0 (95)

77.8 16.7 5.6 100.0 (90)

47.5 46.3 6.3 100.0 (80)

70.3 11.7 18.0 100.0 (128)

63.2 27.8 8.9 100.0 (492)

Anqiu

Impartiality Getting rich Experience

Tianchang

Low income

High income

Low income

High income

50.0 37.0 13.0 100.0 (46)

26.5 69.4 4.1 100.0 (49) Pr ⫽ 0.006

27.8 58.3 13.9 100.0 (36)

65.1 34.9 0.0 100.0 (43) Pr ⫽ 0.001

Source: Household survey data

emerges when the data is cross-tabulated against wage income stratum. As shown in Table 6A, the lower income stratum in Tianchang tended to choose ‘getting rich’ and the upper income stratum ‘impartial’, whereas the reverse applied in Anqiu. This finding can be explained by the difference in the institutional environment of the two villages. In Anqiu, the grassroots party– governmental apparatus mediated nonagricultural employment opportunities. Thus, the stratum that is relatively disadvantaged in terms of nonagricultural employment opportunities shows a strong preference for village cadres to show an ‘impartial’ attitude, whereas the relatively favoured stratum had strong expectations that the cadres should work to make villagers wealthier.10 In Tianchang, by contrast to Anqiu, the village finances depend heavily on each household, rather than collective firms. The economic foundation of the grassroots party–governmental apparatus is weak in comparison to its economic development level. Therefore, those who can access lucrative income opportunities by themselves want village cadres to be ‘’impartial’. On the other hand, the stratum that cannot access lucrative opportunities by themselves has stronger expectations of the village cadres to promote economic development.11 In sum, the characteristics of the cadre–peasant relationship are determined mainly by the type of market development of the community; there is no simple correlation between the level of economic development and the community’s sociopolitical structure.

7

The continuity and vitality of small peasant households: a case study of household behaviour under the commune system

Introduction Setting the agenda Issues The aim of this chapter is to examine the long-term trend in household labour allocation and household income generation from the preliberation era to the early 1980s, using microdata on a natural village (zirancun) located in Northern Zhejiang (hereafter referred to as HQ village). HQ village is one of the three natural villages that were examined in the previous chapter.1 The data on which this chapter is based is as follows: (a) materials prepared for the land reform of 1951, including each household’s family structure, landholding and class status; (b) annual accounting reports of the production team (1962–82); and (c) a comprehensive household survey conducted in 1994, which covered all households in the village. There are two reasons why Haining was chosen as the survey site. First, historical statistics at the village level are systematically available. From the standpoint of rural development in developing economies, China’s experiences under the commune system is an interesting area of research. However, because of the lack of data, only a few studies have been conducted on the microeconomic behaviour of China’s peasants under the commune system. During the commune era, at every level of the commune system (commune, production brigade and production team), various statistical data and other documents were compiled to manage collective agriculture. However, many of them disappeared after the reform. The survey site here is one of the few areas where rich historical research materials are available. Second, extensive literature exists on the long-term economic development of this region to which this chapter can refer. The Southern Jiangsu (Sunan) – Northern Zhejiang (Zhebei) area was the most developed region in preliberation rural China, and it has been a keystone in studies of China’s economic development.2

111 182 1,359

129 271 1,583

Suzhou City

– 55

36.1 43.7

24,485

5,669

Suzhou City

107 191 686

National average

– 95

66.6 7.8

4,766

–

National average

Notes: 1 Figure for Suzhou City includes labour force in rural area with urban household registration status (nongcun laodongli). Other figures are labour force with rural household registration status (xiangcun laodongli). 2 1 mu equals 0.0667 ha 3 Net disposable income (net revenue of the commune minus tax and public funds)

Sources: Author’s field studies, Nongyebu (1983), Suzhou Shi Tongjiju (1986, 1991, 1993), Haining Shi Nongcun Jingji Weiyuanhui (1992), Haining Shi Tongjiju (1989), Guojia Tongjiju (2000), Guojia Tongjiju Nongcun Shehui Jingji Diaocha Zongdui (2000a)

99 187 1,275

18.4 141

23.1 205

2 Net peasant income per capita (yuan in current price)3 1965 1980 1990

38.7 34.3

45.4 27.9

Haining County

11,593

13,190

Y Township

628

Haining County

22.2

Y Township

Year

1 Basic economic statistics in the early 1990s (1992) Total population (thousand persons) Income level Gross value of social output per capita (shehui zongchanzhi) (yuan, in current price) Employment structure of rural labour force (%)1 Agriculture Rural industry Land utilization Proportion of mulberry field to total cultivated area (%) Yield of silkworm cocoon (kg/mu)2

Table 7.1 Economic conditions in the survey area

Continuity and vitality of small peasant households 171 Survey site An overview of the economic conditions of the survey site is summarized in Table 7.1. The development level of Haining was higher than the national average, but compared to Suzhou, one of the most developed cities in the Sunan–Zhebei region, Haining was not a frontrunner in rural industrialization. Y Township is located near the Qiantanjiang River. As mentioned in the previous chapter, the pillar of TVE sector in Y Township is the automobile industry. However, because of severe market competition and financial and technological difficulties, the automobile industry has suffered in recent years. HQ village, one of 130 natural villages in Y Township, contains about 50 households and 160 persons. HQ village was an independent natural village before 1949, and it became a single production team under the commune system. After decollectivization, HQ village became a village small group (cunmin xiaozu) under L administrative village, Y Township. Since HQ village has remained a single administrative unit from the 1950s to the 1980s, it is useful for long-term analysis of peasant behaviour. The village economy of HQ village is characterized by two distinctive historical features. One is specialization in sericulture (silkworm raising), the other is out-migration. The common factor that lies behind these two characteristics is the high man–land ratio.The Sunan–Zhebei region itself is an area with a high population density and scarcity of land, but HQ village’s man–land ratio was exceptionally high compared to all Haining County and the other counties in the Sunan–Zhebei region. In the early 1950s, the per capita cultivated area in HQ village was only 0.06 ha (0.93 mu, one mu is approximately equal to 0.0667 ha), while it was 0.13 ha (1.9 mu) in Haining County, 0.15 ha (2.27 mu) in Suzhou city and 0.13 ha (1.89 mu) in Jiading County near Shanghai (Cao, Zhang, and Chen 1995, 29; Suzhou Shi Tongjiju 1986, 10, 166; Jiading Xian Tongjiju 1990, 2, 4). Village economy in the preliberation era Sericulture The Sunan–Zhebei region is one of the most typical sericulture areas in Eastern China. During the Ming and Qing dynasties, a distinct pattern of peasant-family production that combined grain cropping (rice and wheat) with sericulture, spinning and weaving was found in this region (Huang 1990, Brandt 1989). Over the late nineteenth and early twentieth centuries, along with the development of machine-based spinning of silk yarn in Shanghai and other cities (such as Suzhou, Wuxi, Hangzhou, and Jiaxing), this region became more and more specialized in silkworm raising. In Haining County, around 45 per cent of cultivated areas were devoted to mulberry in the 1910s (Cao, Zhang, and Chen 1995, 112).3

172

The growth of market relations in post-reform rural China

How did they respond to market development and allocate their labour forces among different sectors? Unfortunately, no statistical data is available on the household structures and their economic activities in preliberation HQ village. The only data available is the material that was provided for the land reform at the beginning of the 1950s. This material includes some information on household structure, such as the number of household members, employment structure (on-farm or out-migration), land holdings (both owned land holdings and cultivated holdings), and class identification (chengfen). By combining this data with the household registration (hukou) data in the late 1950s, the first population census data (1953), and the information gathered by Zhang Letian through his intensive field survey (Cao, Zhang, and Chen 1995, 20–36; Zhang Letian 1998, 21–40), the author tried to conduct a tentative ‘family reconstitution’ of HQ village before the land reform. Family reconstitution is a fundamental method used in historical demography that involves reconstituting the demographic and related characteristics of a household using various historical materials. Only 27 of the total of 57 households of HQ village before the land reform can be reconstituted. This is rather disappointing, but because of extremely high population mobility over the preliberation era and the first half of the 1950s, it is quite difficult to trace each household’s demographic structure. Figure 7.1 shows one result of family reconstitution. From this figure we can see the relationship between farm size (cultivated holdings) and the degree of specialization in sericulture, measured by the ratio of mulberry fields to the total amount of land under cultivation. A cursory glance at this figure seems to suggest that there is no obvious relationship between farm size and specialization in sericulture (the degree of commercialization in agriculture), but if looked at carefully, two points can be made. First, in the households classified as ‘rich middle peasant’ (fuyu zhongnong), ‘middle peasant’ (zhongnong), ‘tenantry middle peasant’ (dian zhongnong), ‘poor peasant’ (pinnong), and ‘hired peasant’ (gunong), that is to say, those who were laying their economic foundations on farming, there is a negative correlation between farm size and the degree of specialization in sericulture. The smaller the farm’s size, the higher the proportion of mulberry fields. This relationship can be explained by the comparative profitability of grain (rice or wheat) cultivation and sericulture. To take the price condition of grains and silkworm cocoons at that time into consideration, mulberry cultivation combined with silkworm raising brought higher returns per sown area than rice or wheat cultivating, but lower returns per labour day (Cao, Zhang, and Chen 1995, 130). From the standpoint of maximization of household income, it was prudent for households with a higher labour–land ratio to specialize in sericulture at the expense of optimal returns per unit of labour input.4 Secondly, the households classified as ‘managerial/professional’ (gaoji zhiyuan), ‘clerk’ (zhiyuan), ‘worker’ (gongren), and ‘merchant’ (shangren) – the classes laying their economic foundations on nonfarm activities – are lower than the average, both in farm size and the degree of specialization

Continuity and vitality of small peasant households 173 1.2 RM

1.0

M/P

M

M M

Farm size (ha)

0.8

L P

0.6

P RM

M

M

CC

P

M

0.4 M/P

P

P

M

P C P M MRC P OC C P P L

0.2 P MRC

P

0

0

C

M

P

H

M/P W

M M

P

P

L

P C MRC

P

20

P W P

40

60

80

100

Proportion of mulberry field to total cultivated land (%)

Figure 7.1 Farm size and land utilization before the land reform Note: Abbreviations of the class identification are as follows: L ⫽ landlord, RM ⫽ rich middle peasant, M ⫽ middle peasant and tenantry middle peasant, P ⫽ poor peasant, H ⫽ hired peasant, M/P ⫽ managerial/professional, C ⫽ clerk, W ⫽ worker, MRC ⫽ merchant, O ⫽ others Source: Materials prepared for the land reform

in sericulture. Their farming activities were supplementary to nonfarm activities.5 Out-migration The second characteristic of the HQ village’s economic structure is outmigration. Just before the land reform, HQ village comprised 57 households and 259 persons. At that time, 72 persons out of 46 households were working away from the village. On the supposition that the percentage of labour force to total population was 60 per cent,6 this means that about 46 per cent of the labour force were working away from home. Table 7.2 briefly describes the out-migration by class identification just before the land reform, and Table 7.3 shows a partial list of out-migrants by household (it should be noted that temporary or seasonal employment may

0.19 0.67 0.31 0.13 0.19 0.05 0.47

21 3 7 6 3 1 57

Note: Land holding includes lands outside the village

Source: Materials prepared for the land reform

3.05 1.01 0.53

3 2 11

Landlord Rich middle peasant Middle peasant and tenantry middle peasant Poor peasant and hired peasant (agricultural labourer) Managerial/professional Clerk Worker Merchant Others Sum/mean 2.9 10.1 4.6 2.0 2.9 0.7 7.0

45.8 15.1 8.0 7 0 0 0 1 0 11

1 0 2 11 2 3 1 1 1 25

0 2 4

One

3 1 4 3 1 0 19

2 0 5

Two or more

None

(by ha)

(by mu)

Number of permanent out-migrants

Land holding per household

Number of households

Class identification in the land reform

Table 7.2 Out-migration before the land reform

0 0 0 2 0 0 2

0 0 0

Unknown

Clerk Clerk Worker

Merchant Merchant Tenantry middle peasant Middle peasant Poor peasant Poor peasant Unknown Unknown Unknown Unknown

7 8 9

10 11 12 13 14 15 16 17 18 19

Source: Materials prepared for the land reform

Landlord Landlord Rich middle peasant Managerial/professional Managerial/professional Clerk

Class identification of the household

1 2 3 4 5 6

Number

Shanghai Jiaxing Shanghai Shanghai Shanghai Nanjing

Unknown Unknown

Jiaxing Jiaxing Shanghai

Jiaxing (?) Shanghai Jiaxing

Jiaxing Jiaxing

Butcher Butcher None None Leatherwork factory Agrochemical factory Telegraph wire factory Fuelling factory Aluminium factory Telegraphic instruments factory

Brewer Pharmacy Soap-boiler

Physician Brewer None Unknown Electric parts seller Brewer

Son Son

Younger brother

First son First son

First son

None None Shanghai Huzhou None Unknown Unknown Unknown Unknown Unknown

None Unknown Shanghai

None Unknown Unknown None Shanghai Suzhou

Place

Rice mill Fertilizer factory

Electric equipment factory

Student Serve his apprenticeship with a rice chandler

Unknown

Occupation

Relationship to the household head

Place

Occupation

Out-migrant (other household members)

Out-migrant (household head)

Table 7.3 Partial list of out-migrants by household

176

The growth of market relations in post-reform rural China

Table 7.4 Class status and landholding in HQ village Land owned

1 Distribution of landholding Landless Under 5 mu 5–10 mu 10–20 mu 20–30 mu 30–40 mu Over 40 mu Total Gini coefficient

Land cultivated

Number of households

(%)

Number of households

(%)

3 30 16 4 3 0 1 57

5.3 52.6 28.1 7.0 5.3 0.0 1.8 100.0 0.530

4 30 18 5 0 0 0 57

7.0 52.6 31.6 8.8 0.0 0.0 0.0 100.0 0.393

Number of households Leasing out 2 Class status and land lease Landlord Rich middle peasant Middle peasant and tenantry middle peasant Poor and hired peasant Managerial/professional Clerk Worker Merchant Others Total

Borrowing

Both leasing out and borrowing

Neither leasing out or borrowing

3 1

0 0

0 1

0 0

3 6 3 6 0 0 1 23

2 7 0 1 1 0 0 11

3 0 0 0 0 0 0 4

3 8 0 0 5 3 0 19

Source: Materials prepared for the land reform Note: 1 mu equals 0.0667 ha

not be fully included in these tables). After examining these tables, several points can be made. First, out-migrants were not limited to the households with poorly cultivated land endowment. There were a considerable number of out-migrants in the households who had relatively large amounts of cultivated land. Second, the majority of out-migrants were part of the male key labour force, and many of them were household heads. This means that the auxiliary labour force (females, the aged and children) were to bear substantial burdens of the agricultural activities (especially in sericulture). Third, the places of work outside the village were the neighbouring mediumto large-sized cities, such as Jiaxing, Suzhou, Nanjing, and Shanghai.

Continuity and vitality of small peasant households 177 Available positions were for modern factory workers, as well as traditional manufacturing and commerce occupations, such as brewery shop workers or butchers. Significance of the land reform Land reform in Haining transferred the land owned by the households classified as ‘landlord’ to those labelled ‘poor and hired peasant’. Land owned by other classes was preserved. Three ‘landlords’ of HQ village owned rather small tracts of land. One was a ‘landlord-industrialist’, and his economic foundation was not land but nonagricultural activities. According to the results of the family reconstitution, the Gini coefficient for landholdings was estimated to be 0.53 before land reform and 0.38 after the redistribution of land. Land reform reduced the inequality in land distribution. However, taking the above-mentioned high out-migration rate into consideration, it seems that the correlation between landholdings and income-generating power was comparatively weak in HQ village.7 Table 7.4 supports this assumption. It shows that the ‘poor and hired peasant’ was not necessarily a tenant farmer or a landless peasant, and that the number of ‘poor and hired peasants’ who leased their land out was almost the same as the number of those who leased their land in. In fact, land reform did not change villagers’ economic behaviour significantly. Out-migration continued throughout the 1950s (see Appendix 7A). It was not until the establishment of the commune system that household behaviour in HQ village changed fundamentally. What was significant about land reform was its political impact. Through the political mobilization of villagers for land reform, several young peasants were recruited as grassroots cadres, and the party branch – the lowest level of the party–state system – was established.

The collective distribution system and peasants’ response Trends in the collective distribution Establishment of the commune system After the establishment of the people’s commune, the institutional environment for villagers changed drastically. First, HQ village was transformed into the HQ production team (shengchan dui), which is the ‘basic accounting unit’ (jiben hesuan danwei) of the commune system. The HQ production team belonged to the L production brigade (shengchan dadui) and S people’s commune (renmin gongshe). HQ village, which can be characterized as a rather relaxed cluster of independent farm households with a strong propensity of out-migration, transformed itself into a pseudo-household (or quasi-communal) socioeconomic entity. Looking from the outside, the production team behaved as a monotonic enlargement of a household, which

The growth of market relations in post-reform rural China

180 160

Per capita collective income

2.0 1.8

Wage per workday

1.6

140

1.4

120

1.2

100

1.0 80 0.8 60

0.6

40

Wage per workday (yuan)

Index of per capita collective income (1962 = 100)

178

0.4

20

0.2

0 0 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 Year

Figure 7.2 Per capita collective income in HQ village (1962–82) Source: Annual accounting books of the HQ production team

both produces and consumes. However, it was still an aggregate of peasant households, who faced a choice between collective agriculture and private sidelines even though the range of choices was very narrow. Second, the close relations with markets outside the village had been shut down. Under the compulsory procurement (tonggou tongxiao) system, the state began to take complete control of HQ village’s major farm products (cocoons and grain). In the village’s sale of farm products to the state and in purchases of modern agricultural inputs and consumer goods, it was the state that set the price and at the same time fixed quotas. Furthermore, enforcement of the household registration system created insuperable barriers that continue to constrain the mobility of the population to this day. Inflow and outflow of population continued after the 1960s, but it was controlled. Spontaneous migration was strictly prohibited. Two principles Figure 7.2 shows the per capita collective income and wage per workday (gongfenzhi). Both stagnated from the early 1960s to the early 1980s, apart from some fluctuations. The malfunction of the collective farming system, due to lack of incentives and difficulty in monitoring, could be observed in HQ village. What was the situation, then, regarding the distribution of income? Table 7.5 estimates using the Gini coefficient the distribution of collective

Continuity and vitality of small peasant households 179 0.9 Total collective distribution

Coefficient of variance

0.8

Distribution in-kind

0.7

0.6

0.5

0.4 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 Year

Figure 7.3 Inequality in collective income among households (1962–82) Source: Annual accounting books of the HQ production team

income for three benchmark years, which represent the period of Rectification and Adjustment (tiaozheng) after the serious setback of the Great Leap Forward (dayuejin) policy, the Cultural Revolution (wenhua dageming), and the early reform/late commune era. In this table, two different figures are presented. The upper row is calculated by the total work-points (gongfen) that each household earned, and the lower row is based on the actual distribution including the debt of the ‘deficit household’ (chaozhihu) to the production team (‘deficit household’ means a household that could not earn sufficient work-points to get grains and cash for meeting household members’ minimum needs). Since such debt had rarely been paid off, the reality of collective income distribution was rather similar to the latter case (Zhang Letian 1998, 364). Collective income distribution during the Cultural Revolution period was extremely egalitarian, especially in per capita terms. At the same time, comparing two other periods with the Cultural Revolution period, a certain fluctuation in income inequality can be seen. To confirm this point, Figure 7.3 illustrates the inequality in collective income year by year. A converging trend had occurred in the 1960s and a diverging trend at the end of the 1970s and the early 1980s. This U-shaped curve can be explained by the combination of two different principles of collective distribution, that is, the ‘distribution by working contribution’ (anlao fenpei) and the ‘distribution by needs’ (anxu fenpei). Regarding these two principles, the following points can be made.

Note: Numbers in parenthesis are numbers of samples

Source: Annual accounting books of the HQ production team

Income per household Total work-points earned Actual distribution (including the debt of the ‘deficit household’) Actual distribution in kind (grain) Income per capita Total work-points earned Actual distribution (including the debt of the ‘deficit household’) Actual distribution in kind (grain) (45) (45) (46) (44) (44) (44)

0.420 0.396 0.322 0.342 0.295 0.154

Period of ‘Rectification and Adjustment’ (1962)

Table 7.5 The distribution of collective income (Gini coefficient)

0.168 0.087

0.202

0.277 0.261

0.300

(40) (42)

(40)

(40) (42)

(40)

Cultural Revolution (1969)

0.294 0.173

0.313

0.323 0.260

0.337

Early reform period (1982)

(46) (48)

(46)

(40) (50)

(49)

Continuity and vitality of small peasant households 181

Food grain distribution per capita (1962 = 100)

100

180 160

80

140 60

120 100 80

40

60 40

20

20 0

1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981

0

Percentage of each distribution principle

200

Year Food grain distribution per capita

Distribution by working contribution

Distribution by needs

Distribution by work-points for stock raising

Figure 7.4 Structure of collective distribution Source: Annual accounting books of the HQ production team

First, the political factor was very important in the distribution of income in kind (grain). Figure 7.4 constructs and plots the trend of these two distribution principles, using the in kind term data. Over the latter half of the 1970s and the early 1980s, the proportionate application of the two principles proceeded in parallel with the amount of disposable grain surplus. The greater the surplus, the higher the proportion of ‘distribution by working contribution’. By contrast, over the latter half of the 1960s and the early 1970s, despite the moderate increase in grain surplus, the proportion of ‘distribution by working contribution’ had decreased. This indicates that political factors rather than the pure economic factors, determines the balance between the two principles. That is to say, during the Cultural Revolution, the period of the ‘agrarian radicalism’ (Zweig 1989), egalitarianism weighed heavily in the distribution process, whereas during the early reform era the emphasis of the distribution policy was changed to accommodate economic incentives to peasants. Second, cash distribution (most of it being income from sericulture) basically followed the ‘distribution by working contribution’ principle. The proportion of sericulture income to total collective income had almost

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The growth of market relations in post-reform rural China

Table 7.6 Determinants of collective income in HQ village (OLS estimation) 1972 Coefficient Labour force endowment Household size (number of household members) Constant Adjusted R-squared n

1980 t-statistics

79.736

0.69

133.514 28.701 0.836 23

10.24** 0.45

Coefficient

t-statistics

474.414

2.63*

168.137 ⫺150.907 0.714 36

7.97** ⫺1.67

The dependent variable is collective income (income in kind and cash income) per household (yuan). ** indicates statistical significance at the 1% level, * at the 5% level Sources: Annual accounting books of the HQ production team and the author’s household survey in 1994 Note: Labour force endowment of each household (number of male key labour force/total number of household members) is estimated from household registration of HQ village (various years) and the author’s household survey conducted in 1994. Male key labour force means male labour force in the age range of from 18 to 60 years old

levelled off in the 1960s. In the first half of the 1970s, this percentage increased somewhat, slightly decreased after the midpoint of that decade, and then jumped from the end of the 1970s to the beginning of the 1980s. The jump in the final stage of collective agriculture reflects the large increase in the state purchasing price of silkworm cocoons, which afford both the village and the peasants the best incentive to produce more cocoons. As mentioned above, this increase in price caused a considerable divergence in household income at that time. In short, during the Rectification and Adjustment period, for the purpose of accelerating economic recovery from disasters caused by the Great Leap Forward, the ‘distribution by working contribution’ principle had been emphasized. Over the latter half of the 1960s and the early 1970s, the ‘distribution by needs’ principle became dominant. And then, once again, at the end of the 1970s and the beginning of the 1980s, the ‘distribution by working contribution’ model began to be emphasized. To confirm this trend, Table 7.6 compares the determinants of collective income in the early reform period (1980) and during the Cultural Revolution period (1972). There is a difference in the effect of demographic structure in the two periods. In the early reform period, a household’s labour force endowment (the ratio of estimated number of male key labour force / total number of household members, the inverse of the dependency ratio) had a significant positive effect on household collective income, whereas this variable was not significant in the Cultural Revolution period. This result confirms the discussion on the two distribution principles. With this as background, we can now turn to an analysis of households’ response to the collective distribution system in the social context of HQ village.8

Continuity and vitality of small peasant households 183 Between the collective sector and the private sector The Dahe case Putterman (1993) conducted a cross-sectional analysis on the relationship between the principles of collective distribution and the choice of labour allocation at the production team level and the household level, using the data on Dahe Township (Hebei Province) at the end of the 1970s. Putterman’s model and findings are as follows. In his model, the level of labour input into collective farming for one year is determined by the previous year’s ‘expected distribution ratio’ and ‘distribution in kind ratio’. The ‘expected distribution ratio’ is the ratio of the peasants’ share to the total surplus (total production minus the team’s quota to the state and minus the team’s reserves), while the ‘distribution in kind ratio’ is the ratio of the distribution in kind to the total distribution. Since peasants do not know each year’s distribution until year end, they refer to the previous year’s distribution level. By conducting a regression analysis, Putterman showed that the production team’s labour input in collective farming correlates positively to the ‘expected distribution ratio’ of the total surplus, which in turn correlates negatively to the ‘distribution in kind ratio.’ The same results were observed with the household’s labour allocation behaviour within a production team. From these findings Putterman draws the conclusion that production teams and farm households, despite the strong institutional constraints, did respond aggressively to economic opportunities (Putterman 1993, 175–6, 183–91). The HQ village case What was going on in HQ village, then? Figure 7.5 examines the relationship between a household’s demographic endowment and its labour input to the collective farming sector. The horizontal axis on this figure indicates the labour force endowment (the ratio of the estimated number of male key labour force / total number of household members, the same as in Table 7.6). The vertical axis represents each household’s labour input to the collective sector measured by the ‘collective labour input ratio’, that is, the ratio of ‘actual’ labour input to ‘standardized’ labour input. The standardized labour input is calculated by multiplying each labour force’s ‘basic work-points’ (difen) and average annual number of work days (assumed 330 days). The basic work-points listed indicates work-points per work day for each labour force and was to be individually evaluated by age, gender, physical condition, skill and experience, political attitude, and so on. However, in most cases, the basic number of work-points given was predominantly decided simply by gender and age, so each labour force’s basic work-points was in a very narrow range, especially in the period of the Cultural Revolution. Here, it is assumed that the basic work-points were ten points for the male key labour force (age range from 18 to 60 years old), eight points for the supplementary labour force

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The growth of market relations in post-reform rural China 1.5 1975

1982

Collective labour input ratio

Collective labour input ratio

1.0

0.5

0 0 Poor

0.2 0.4 Labour force endowment

0.6 Rich

1.0

0.5

0 0 Poor

0.2 0.4 Labour force endowment

0.6 Rich

Figure 7.5 Household’s demographic structure and labour input (1975 and 1982) Source: Annual accounting books of the HQ production team and the author’s household survey in 1994

(the entire female labour force and male labour force that was over 60 or under 18). Each household’s ‘actual’ labour input is the sum of each labour force’s ‘work-points for labour contribution’ (laodong gongfen) recorded in the annual accounting book of the production team. The ‘work-points for labour contribution’ is calculated by deducting ‘work-points for stock raising’ (xumu gongfen) from ‘total work-points earned’ (zong gongfen). (The ‘work-points for stock raising’ is the remuneration for barnyard manure offered by households to the collective sector.) Given that households in HQ village actively pursued their economic interests in an egalitarian framework of collective income distribution, a household’s labour allocation decision could be hypothesized as follows. Households with relatively poor labour force endowment (a high dependency ratio) would tend to concentrate their labour input in the collective sector in order to maximize the work-points earned. On the other hand, for households with a relatively rich labour force endowment (a low dependency ratio), it would make sense to increase labour input in the private sector (household sidelines) where rewards are directly connected to effort. A glance at Figure 7.5 will reveal that, at the end of the Cultural Revolution period (1975), when egalitarianism was strong, there was a negative correlation between household demographic endowments and the collective labour input ratio. That is to say, the ratios were higher in households with high dependency ratios than in households with low dependency ratios. By

Continuity and vitality of small peasant households 185 contrast, in the early reform period (1982) when the ‘distribution by working contribution’ principle was emphasized, there was no such relationship. The results obtained are consistent with this hypothesis. Although the range of choices was very narrow, HQ village’s households actively pursued the maximizing of their household incomes.

Private activities under the commune system The significance of the private sector The private sector in HQ village The major household sidelines in HQ village were hog raising and farming on private plots (ziliudi) and front yards. Before collectivization, hog raising was limited to the households with landholding status because of the shortage of grain (hog’s feed) and high propensity for out-migration. Hog raising in HQ village began to develop after the mid-1960s because it was encouraged by the state to raise organic fertilizer for collective farming. On private plots, peasants secured foodstuffs and vegetables for family use and for privately raised hogs first, then produced crops such as sweet potato seedling and zhacai (mustard tubers, which are processed into pickles) for market sales. Private plots were distributed according to family size and the number of hogs. For example, 0.4 mu (0.027 ha) was distributed to a household with four members and two hogs (0.05 mu for one person and 0.1 mu for one hog). Adding the front yard, the total area for private cultivation would be 0.5 mu for this household. The total cultivated area of HQ village was 98.8 mu in 1974: 82.2 mu was devoted to collective farming; 8.5 mu was used as private plots for the team members; and 8.2 mu was land devoted to growing the hogs’ feed (siliaotian), which was also allocated to households. In sum, about 17 per cent of the total cultivated land was allocated to households. Structure of a household’s budget Because there are no compiled statistics concerning each household’s private activities, it is difficult to conduct detailed analysis of the volume of private activities under the commune system. Fortunately, one interesting source of information is available, a household’s housekeeping books in a village neighbouring HQ village. Table 7.7 summarizes the structure of this household’s budget, using the housekeeping books and the account books of the production team to which the household belonged. Share of private income (all in cash) to total income ranged from 30 per cent to 50 per cent (cash plus in kind), and from 60 per cent to 75 per cent (cash income), respectively. There is no evidence that this household was exceptional in its private economic activities. It seems safe to conclude that private sidelines contributed a considerable share to household income in the survey area.9

1,065 965 868 698

355 322 290 233

258 371 361 407

216 237 362 241

(e) Estimated material costs of private sidelines

Note: Cash distribution is assumed one third of the total collective distribution

458 532 769 585

(d) Cash from private plots

1,565 1,631 1,636 1,449

(a)⫹(f)

(c)⫹(d)⫺(e) 500 666 768 751

(g) Total income

855 988 1,058 984

(b)⫹(f)

(h) Total cash income

Total income (yuan)

(f) Estimated net cash income from private sidelines

(c) Cash from stock raising

(a) Total collective distribution

(b) Cash distribution

Cash income from private sidelines (yuan)

Collective income (yuan)

Source: Cao, Zhang, and Chen (1995), 299

1971 1974 1980 1982

Year

Table 7.7 A household budget in the commune era (1971–82)

32 41 47 52

(i) Proportion of private sideline income to total income (f)/(g)

58 67 73 76

(j) Proportion of private sideline income to total cash income (f)/(h)

Share of private income (%)

Continuity and vitality of small peasant households 187 The effect of sideline activities on income distribution Previous studies The significance of private economic activities has been repeatedly discussed by previous studies such as those by Walker (1968/98), Griffin and Saith (1981), Griffin and Griffin (1984), Vermeer (1982), and Putterman (1993). Using microdata on several communes in the late 1970s, Griffin and Saith claimed that sideline activities reduced disparity of household income within a community (Griffin and Saith 1981, Griffin and Griffin 1984). The reasons for this are two-fold. First, popular sideline activities such as hog raising and private-plot farming could be carried out by auxiliary labour forces, so this would be a means to replenish income for the households with poor labour force endowment. Second, low-income households were given preference by the collective in access to collectively run sideline activities (such as livestock husbandry and commune- and brigade-run enterprises). Vermeer objected to this claim, arguing that their survey sites were all ‘model’ communes that had concrete collective economic foundations with strong grassroots party– governmental apparatuses, and that the community welfare oriented distribution of employment opportunities may have been limited in such ‘model’ communes (Vermeer 1982). Recently, Putterman (1993) re-examined this issue and supported the convergence hypothesis of Griffin and Saith, using data on Dahe Township at the end of 1970s. He estimated that the Gini coefficients of per capita income of 243 households in Dahe were 0.2480 for collective income only and 0.2092 for total income including sideline income. (In the Dahe data set, sideline income basically means the income from cultivating private plots, stock raising and handicrafts, but in a small proportion of the samples, wage income earned outside the commune is included.) Again, what was going on in HQ village, then? Private sidelines It should be noted that sideline activities under the commune system comprise two distinct categories, the private sidelines and the collective sidelines. On private sidelines in HQ village, the only systematic data available is the abovementioned ‘work-points for stock raising’, which is a proxy for the scale of hog raising engaged in by each household indirectly. Using this data, the author tried to examine the effect of household sidelines on income distribution by decomposing the allocation of collective income into two parts: income from ‘work-points for labour contribution’ and income from ‘workpoints for stock raising.’ Table 7.8 shows the result of the decomposition. In the early 1960s (1962), when hog raising had just begun to develop, the concentration ratio (measured by the pseudo-Gini coefficient) of ‘workpoints for stock raising’ was almost the same as ‘work-points for labour

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The growth of market relations in post-reform rural China

Table 7.8 Decomposition of collective distribution Proportion of Pseudo-Gini each income Coefficient component to total collective distribution (%) 1962 Distribution by ‘work-points for labour contribution’ Distribution by ‘work-points for stock raising’ Total collective distribution 1969 Distribution by ‘work-points for labour contribution’ Distribution by ‘work-points for stock raising’ Total collective distribution 1980 Distribution by ‘work-points for labour contribution’ Distribution by ‘work-points for stock raising’ Total collective distribution

Contribution to the Gini coefficient of the total collective distribution (%)

83.9

0.263

84.7

16.1 100.0

0.247 0.260

15.3 100.0

84.3

0.186

88.4

15.7 100.0

0.131 0.177

11.6 100.0

65.4

0.198

79.9

34.6 100.0

0.094 0.162

20.1 100.0

Source: Annual accounting books of the HQ production team

contribution.’ However, in the Cultural Revolution period (1969) and the early reform period (1980), the concentration ratio of the former was smaller than the latter. This change in the concentration ratio suggests that, along with the diffusion of hog raising to almost all households, distribution by ‘work-points for stock raising’ began to have a converging effect on household income distribution. This result is consistent with Putterman’s findings. However, the distribution by ‘work-points for stock raising’ was only a part of the private sideline income. HQ village was famous for producing sweet potato seedlings and mustard tubers (zhacai), and these were two of the most important goods for exchange in periodic markets. It is said that, in the 1970s, an experienced farmer could earn around 300 yuan annually by selling only sweet potato seedlings (Cao, Zhang, and Chen 1995, 189). Unfortunately, no systematic data on the rest of the private sidelines is available. It is not clear whether the rest of the private sidelines had worsened the total household income distribution. Collective sidelines The author gathered information about the people who had access to collective nonfarm employment opportunities during the commune era (see

Continuity and vitality of small peasant households 189 Table 7.9). From the end of the 1970s to the early 1980s, 15 people or around 20 per cent of the total labour force in HQ village took up nonfarm economic opportunities in the collectively owned enterprises (shedui qiye) and other manufacturing and service activities that were collectively controlled and individually operated (such as blacksmithing and woodworking). Judged by their personal histories and kinship relations, these people could be divided into two categories: first, those who had some professional skills or experience (most of the peasants who engaged in individually operated activities); and second, those who were grassroots cadres or relatives of grassroots cadres (most of the peasants who found jobs in the collective enterprises). It is likely that a welfare-oriented employment policy in collective sidelines did not exist in HQ village. It seems reasonable to suppose that behind this lies the weakness of communal ties within the village due to the high population mobility. Those who earned wage income from collective enterprises were to render part of their wages (around 10 per cent) to the production team in compensation for grain distribution. Nonetheless, engaging in nonagricultural business itself was a privilege for peasants. With regard to nonfarm employment opportunities in the collective sector, Vermeer’s claim seems to be applicable to the case of HQ village.

Conclusion This chapter discussed the long-term trends in household behaviour, using village-based microdata. The main points in this chapter can be summarized as follows. 1 The historical continuity of small farm households as the basic economic unit. HQ village experienced radical institutional reform under the party–state system, such as the land reform and the collectivization of agriculture. It was shown that households in HQ village actively responded to the changes in the institutional environment and attempted to maximize the welfare of the household. Even during the Cultural Revolution period, households chose whether they would allocate labour to the collective sector or the private sector, although the range of choices was very narrow. As Miyajima (1994) emphasized, one of the most impressive historical characteristics of East Asia is the persistence of the small peasant as the dominant socioeconomic entity. In this chapter, we have observed this historical characteristic in the context of a specific village. The drive of China’s peasants as revealed in this chapter can also be understood as an expression of this historical identity. The continuity and vitality of small peasant households portrayed in the chapter was the driving force behind Chinese economic reform, that is, marketization. 2 The significance of private activities under the commune system. It was shown that private economic activities had great significance for household income generation during the commune era. The magnitude of private sidelines would suggest that the private sector was an indispensable part of the commune system, rather than merely a supplementary or residual element.

2 3 4 0 3 2 15 6

1962–8 1969–70 1971–2 1973–4 1975–6 1977–8 1979–80 1981–2

1 1 2 0 0 1 6 2

Collective-owned enterprises

0 2 1 0 3 0 2 0

Individually operated manufacturing and service activities 1 0 0 0 0 0 1 0

State sector

Sources: Household registration of HQ village (various years) and the author’s household survey in 1994

Total number

Years of entry into nonagricultural activities

Table 7.9 Nonagricultural employment during the commune era (1969–82) (by number of persons)

0 0 1 0 0 0 6 2

Taking over the jobs of retired parents (dingti)

0 0 0 0 0 1 0 2

Unknown

Continuity and vitality of small peasant households 191 220 180 160 140 120

Net outflow

100

Total population

80 60 40 20 0 1951–57 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 58 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93

100 90 80 70 60 50 40 30 20 10 0 –10 –20

Net outflow (person)

Total population (person)

200

Year

Figure 7A Demographic trends in HQ village Source: Annual accounting books and household registration records of the HQ production team (various years)

Unfortunately, due to a lack of data, it was not possible to evaluate the effects of private sidelines on the overall distribution of household income during the commune era. However, it was suggested that the effect of sidelines on income distribution varied according to the economic characteristics of the sidelines (the degree of intervention of the collective) and the sociopolitical context of the community.

Appendix 7A: Demographic trends in HQ village (1950s–80s) Figure 7A summarizes the trends in the growth and mobility of the population from the 1950s to the 1980s, using household registration records, population census reports and the author’s original household survey data. Migration size is shown by net out-migration (net outflow), that is, the total number of emigrants (gross outflow) minus the total number of immigrants (gross inflow). Note that the mobility of the population caused by marriages is excluded. The total population of HQ village fluctuated from the 1950s to the 1970s, and the population in the early 1980s was slightly smaller than that in the mid-1960s. This is a unique population trend. In most other cases, the total population of a rural community tended to increase continuously because of high fertility, low mortality and the strict control on out-migration. The population trend of L administrative village (production brigade) and Y Township (commune) showed a continuous increase over the commune era.

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The growth of market relations in post-reform rural China

Given there were no abnormal trends in fertility or mortality in HQ village, this unique trend should be attributed to the preliberation legacy, that is to say, the migration factor. The following trends can be observed from this Figure 7A. A huge outmigration occurred before the establishment of the commune system. This was the spontaneous out-migration to find jobs in the nearby cities, a continuation of the preliberation trend. The net inflow in the early 1960s was caused by the sent-down (xiaxiang) policy. This was a national policy intended to cut down the size of urban populations in order to ride out the food shortage caused by the setback of the Great Leap Forward (dayuejin) policy. Those who moved out before the 1950s and worked in urban areas were sent back home and returned to cultivation. During the Cultural Revolution period, some of the former out-migrants who came home in the early 1960s were sent to inland areas to join the Third Front Construction (sanxian jianshe) project. At the same time, there were inflows of the sentdown youth (xiafang zhiqing), young high school and college students who were sent to rural areas for reorientation. Some of the ‘sent-down youth’ were sons and daughters of former HQ villagers. Given the combination of these two factors, the total population increased in the mid-1970s due to the second baby boom (the first baby boomers born in the 1950s became marriageable at this time) and the inflow of retired workers (many of those who had migrated to cities and worked in the formal sector reached retirement age at this time). However, the inflow of retired workers was cancelled out by the outflow of youth, who took over the jobs of retired parents (dingti) throughout the late 1970s and early 1980s (see Table 7.9). In the 1980s, a new tendency towards outflow emerged due to the relaxation of the household registration system, namely the ‘supply own grain’ household registration (zili kouliang hukou), which made it possible for peasants to move their household registration to townships. Because of this, the total population in the early 1990s was smaller than in the early 1980s.

8

Concluding remarks: marketization and networks in post-reform rural China

Microstudy of marketization The prime focus of this study was clarification of the interrelationship between marketization and socioeconomic actors in post-reform rural China by analysing microdata collected through field studies. The main issues addressed in each chapter have been summarized in Chapter 1 and will not be repeated here. This chapter describes the results of the analyses in each of the previous chapters and summarizes how this work on the Chinese marketization, which is a process that combines economic development and system transformation, can be applied in Asian studies, development studies and studies of economic transition. The key concepts are: markets considered as a nexus of social networks; underdevelopment of markets; the triadic relationship of market, state and society; imbalances in the market development at the semi-micro level; and the continuity and vitality of small peasant households. As explained in Chapter 1, this study sought to approach the microstudy of marketization from three angles (see Chapter 1, Figure 1.1): (a) from opportunity structure analysis (by analysing the response of socioeconomic actors to changes in opportunity structure due to marketization); (b) from market behaviour analysis (by analysing the behaviours of socioeconomic actors and local party–governmental apparatus in an underdeveloped market environment); and (c) from regional comparative analysis (by analysing the regional differences in market development levels and patterns). First, in the opportunity structure analysis, the following tasks were undertaken: identifying the significance of human capital in the broad sense; examining the significance of sociopolitical networks and political capital; and describing the influence and the limitations of the primary social networks. Second, in the market behaviour analysis, the following issues were investigated: strategies of family business owners for avoidance of risks; interrelationships among peasant entrepreneurs, the local party–governmental apparatus and the local community; and relationships between local government and social networks. Third, in the regional comparative analysis, the following issues were examined: interrelationships among semi-micro environments, behavioural choices of peasants and peasant households and distribution of income in the

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The growth of market relations in post-reform rural China

community (aggregation of the outcomes of each peasant and peasant household’s behaviour); and regional comparison of the characteristics of peasant entrepreneurs.

The market as a nexus of social networks In this study, three forms of capital were defined as factors that affect socioeconomic actors’ behavioural choices, along with the outcome of these choices. These are human capital (educational level, that is, human capital in the narrow sense, as well as human capital in the broad sense, which cannot be measured by educational level only); political capital, whose source is political status (status as party member, grassroots cadre, etc.); and network capital (that is, the quality and quantity of the social networks that individuals and households can mobilize). These three forms of capital overlap, but this study has specifically placed network capital at the centre of the analysis as a focal variable (see Chapter 1, Figure 1.3). The study then sought to separate the effects of the three forms of capital and, conversely, to clarify the significance of social networks by focusing on the area where the three forms overlap. In other words, this analytic framework incorporates not only politicoeconomic factors but also sociocultural factors into its empirical analysis of the market development. It is consistent with the trend of recent works in development economics, which have attempted to clarify the triadic relationship of market, state and society beyond the framework of bipolar opposition between market and state. For example, Ishikawa has proposed a particular type of cost–benefit analysis of the combination of market economy and traditional economy found in developing countries (Ishikawa 1990, 29–43). Hayami has presented a triadic schema involving market, state and community, and claims that the most important issue in development economics is identifying a proper combination of these three institutions (Hayami 1997, 270). By the most commonly accepted definition, a community is a group of people connected by certain social ties. That is to say, social networks form the core of a community and are represented as kinship groups (typically zongzu or the lineage-based system of kinship in the case of China), neighbourhood communities, or occupational communities, depending on social and historical contexts.1 When a community analysis is substituted for a network analysis, it directly leads to a market analysis. This result, as Wank and Hara emphasize, is due to a market being nothing more than multiple layers of networks among people (Wank 1999, 29–32; Hara 1996, 108). Since the characteristics of social networks vary depending on country and region, understanding a market as a nexus of social networks clarifies the interrelationship between a market economy and social structure. In principle, there are two distinct possible positions with regard to the relationship between market development and social structure in developing and transitional economies. The first emphasizes the autonomy of the market

Conclusions: marketization and networks

195

mechanism and argues that in the long run the particular market economies found in different countries develop into broadly similar systems, regardless of differences in the social structure. The other position emphasizes the path dependency of institutional change and predicts the formation of a variety of market economies determined by inherent social structures and historical contexts. Such basic differences in points of view about markets exist in the background of the market transition debate. The discontinuity approach adopts the former position, whereas the continuity approach adopts the latter position. In other words, the difference lies in whether the marketization is viewed in a teleological or an evolutionary framework, as pointed out by Szelényi and Kostello (1998). The basic difference between these two views of markets is reflected in their short- and medium-term empirical analyses. The discontinuity approach seeks to describe the genetic history of the market and focuses on the aspects of the market mechanisms that have an external impact on the established institutional arrangements and power structure. On the other hand, the continuity approach focuses on the aspects of the market mechanisms that permeate the market using the existing institutional arrangement and sociopolitical structure as catalysts. As should be clear from the discussion in each of the previous chapters, this book emphasizes the multiplicity of the market economic system taking a position close to that of the continuity approach to the market transition debate.

Institutional change and informal institutional constraints Given that a market is an institution, differences in views of the market come down to differences in understanding of institutions and institutional change. This book uses the concept of an institution as defined by North, although the three qualifications should be borne in mind once again. The first is that North emphasizes the importance of informal institutional constraints. It can be argued that, to a considerable degree, formal institutions, such as legal systems, are universal in the world today. However, informal institutions such as customs and social norms are rooted in inherent social structure and therefore vary depending on country and region (North 1990, 36–45, 67–9). As a result of market transactions, these informal institutions give rise to considerable differences in the allocation of capital and distribution of income, according to how people form networks within a market (Hara 1996, 117). Second, the simple two-fold division of formal versus informal institutions is problematic because institutional arrangements and the actual conditions of employment may be very different. The same law that applies a particular rule to the market may receive a wide range of interpretations according to the informal norms of the region in which it is applied. Informal personal relationships may have a significant impact on the behaviour of an organization that enforces formal institutions. Such interactions have often been observed in the histories of many countries. Third, informal institutions are never static, but change as the market

196

The growth of market relations in post-reform rural China

develops. For example, Wank discusses how the marketization of the urban economy in China in the 1980s brought about a commodification of human connections between entrepreneurs and local officials, in other words, a reconfiguration of human connections to a form suitable for pursuing market profit (Wank 1999, 29–32). Hayami also claims that peasants make rational choices regarding the community principles of work and income-sharing in the rural areas of the Philippines. Thus, the institution necessarily adapts according to environmental changes. At the same time, however, the direction and pattern of institutional change are affected by existing social norms (Hayami 1997, 260–5).

Two-fold network, two-fold tradition To sum up the above discussion, it is necessary to understand an institution as a dual structure, with a formal and an informal part, and then dynamically examine the interrelationship between the two. Given this necessity, the investigations of network capital in this study were carried out at two levels, as explained in Chapter 1. The primary social networks, that is, networks based on informal ties such as kinship relations and neighbourhood relations, formed one level, and the sociopolitical networks, that is, relationships developed through particular roles, such as party member or grassroots cadre, or through formal economic organizations, formed another level. Sociopolitical networks constitute an important part of political capital. Moreover, they act as a channel for acquiring skills and abilities that cannot be obtained through formal education and general experience in rural areas, so they can also be interpreted as human capital in the broad sense. That is to say, they constitute the core part of the overlap of the three forms of capital considered here – human capital, political capital and network capital. From the analyses in each chapter, it is clear that the status of sociopolitical network accumulation has a significant effect on socioeconomic actors’ behavioural choices and the outcomes of these choices. While the primary social networks in rural areas are based on traditional social relations, the sociopolitical networks are based on the party–state system that has been enforced since the 1950s, a new tradition, relatively speaking.2 The characteristics of the economic development in post-reform rural China are clearly evident from the observation that one of the important driving forces of marketization at the bottom end of the rural economy arises from within the institutional and organizational framework on which the party rule was built.

The underdeveloped market and the relationships of market, state and society According to Ishikawa, the development of a market economy cannot be measured simply by an increase of market activities in the economy as a whole

Conclusions: marketization and networks

197

or development of the physical infrastructure such as transportation and communication networks. The essential factor here is the institutional infrastructure that the market transactions are founded upon. The building up of institutional infrastructure is an important standard when understanding the marketization process of China (Ishikawa 1990, 6–8, 233–41). This book has examined three aspects of the interrelationships among market, state and society (social networks) in an underdeveloped market environment. The first aspect is that social networks compensate for the underdeveloped market. For example, from the analysis of rural–urban migration, it was confirmed that primary social networks play an essential role in peasants’ job searches as well as in resolving problems in their lives under conditions where the labour market is extremely underdeveloped. Moreover, from the analysis of family businesses active in periodic rural markets, it has become clear that different management strategies are employed by family businesses according to the availability of network capital. The second aspect is that the relationship between state and market changes with the development of markets, and so do the roles expected of local governments. This book examined this issue through a comparison of two contrasting models of regional economic development. In the Sunan model, which is based on collective-owned TVEs, there was a tendency in the 1980s for local government and government firms to participate actively as market agents at a stage when the market was extremely underdeveloped. However, as marketization deepened in the 1990s, the role of the local government became more indirect, contributing to the market development through supportive policies. The third aspect was the attempts by the state to address the issue of underdeveloped markets by actively using social networks. A case study of microfinance in inland rural areas concerned an experiment undertaken by the local government to open up efficient financing channels for the poor. The local government was trying to overcome both the failure in low-interest public financing (government failure) and the failure of the underdeveloped financial market (market failure) by taking advantage of the social networks. As explained in Chapter 5, up to the present time this experiment has not achieved the expected results. It is nonetheless worthy of note as it indicates the birth of a new relationship between state and society as well as between state and market, which should replace the political mobilization and the direct interference in the market that took place during the planned economy era. The result of the analysis of these three aspects shows that in the study of the marketization process of developing and transitional economies it is important to examine the interrelationships of market, state and society under the assumption that the market is underdeveloped. At this time, the point of view in which a given market is regarded as a nexus of social networks is considered to be very effective in clarifying the interrelationships among these three factors.

198

The growth of market relations in post-reform rural China

Regional imbalances in market development In a large country like China, the presence of regional imbalances in market development is also an important issue. Studies of regional differences in marketization have mainly dealt with disparities between macro regions, such as differences between coastal and inland areas or among provinces. This study, on the other hand, has raised the issue of imbalances in the market development at the semi-micro environment level, that is, the community level, based on the results obtained through a rural community comparative analysis of individuals’ and households’ behavioural choices, and the outcomes of these choices. First, human capital, political capital and network capital possessed by individuals/households do indeed influence their behavioural choices at the semi-micro environment level. At this semi-micro environment level, factors such as differences in politico-economic structure and sociocultural structure are more important than the level of economic development, although that is the standard assumption. In other words, at this level simple relationships – for instance that the profitability of human capital gradually increases or that the significance of political capital and network capital gradually decreases as the economic development level is heightened – could not be found. Second, peasants’ behavioural choices sometimes vary considerably in different communities where economic development levels and economic structures are almost the same. The reason is that information about the market is communicated through informal networks. The presence of imbalances in market development caused by social factors at the semi-micro level is a phenomenon that can often be observed in developing economies. In this sense, the semi-micro approach to regional comparative analysis taken in this study is well suited for using in comparative analyses between China and other Asian regions.3

Drive of small peasant households The discussion in each of the previous chapters implicitly assumed that China’s peasants lead their lives in active pursuit of their own economic interest under the given environmental conditions. Chapter 7 explicitly addressed this point; the behavioural choices of peasant households from the preliberation era to the beginning of the 1980s were observed, using a village in Zhejiang Province as the subject. It was found that the peasants have consistently and actively chosen behaviours that would improve their households’ welfare in spite of the radical institutional transformations they underwent, such as the land reforms and agricultural collectivization. However, the phrase ‘active behavioural choice’ should not automatically be understood as a choice that always aims for the maximization of one behavioural objective (profit or utility), as is the case with the rational actors assumed in neoclassical economic theory. In accord with Lu and Dai (1988)

Conclusions: marketization and networks

199

and Nakagane (1993; 1997), this study regards the peasants’ behavioural objectives as something more complex. In other words, the peasants, in their rational attitudes, try to deal with uncertainties and risk by combining different objectives, including increase and stabilization of income. Common themes in the historical identities of northeast Asia, including China, Korea and Japan, can be found in the fact that small peasant households – small farming systems mainly relying on family labour – have been an important component of rural societies for a long period of time (Miyajima 1994). The drive of China’s peasants as it is portrayed through this book can also be understood as a manifestation of this historical identity. The continuity and vitality of small peasant households was the driving force behind Chinese economic reform, that is, marketization.

Agenda for further investigation The contribution of this study rests on the following points. First, this analysis drew together three main streams of relevant studies into a synthesis by regarding the market as an aggregation of social networks: sociological and political studies on the market transition thesis; economic studies on personal and household income distribution; and sociological and political or anthropological studies of the economic implications of social networks. Second, economic, sociological and political approaches were combined, and quantitative analyses were supplemented by qualitative information such as interviews with peasants, grassroots cadres and local government officials. Third, all chapters contain microscopic analyses of socioeconomic actors based on first-hand microdata collected through field research. In other words, this study focused on the bottom level of the economic reforms. Fourth, the study conducted comparative regional analyses focused on the semi-micro level. However, several issues could not be addressed. First, most of the microdata analyses contained in this study are not dynamic in the sense that they do not follow the same socioeconomic actors or the same regions over a prolonged period of time. This omission was caused by the inherent limitations of the data. Up to the present, follow-up surveys have been conducted by the author for each of the subject regions in Chapter 6. Conversely, it is also important to conduct analyses that reach back in time; this is another issue that should be addressed in the future. Second, the focus of this study was essentially limited to rural areas. As suggested in Chapter 4, due to the recent expansion of marketization practice, the institutional gaps between cities and rural areas are gradually being filled (Knight and Song 1999, 340–43). An analysis of the relationship between the marketization and social networks that include cities is also left for future work.

Appendix A Survey areas

Map of survey areas

1995

1999

Total population (1,000 people) 987,050 1,058,510 1,171,710 1,211,210 1,259,090 1,092 1,087 1,096 599 Rural population (xiangcun renkou) (1,000 people) 795,650 807,570 847,990 859,470 870,170 926 919 1,018 991 979 451 476 528 Urban share of population (%)1 19.4 23.7 27.6 29.0 30.9 6.8 8.8 10.7 11.9 GDP per capita (yuan)2 460 855 2,287 4,854 6,534 6,802 GVRO per rural population (yuan)3 785 1,204 434 Yield of grain per rural population (kg) 403 469 522 543 584 498 615 626 707 528 360 411 361 Non-primary industry’s share of GDP (%) 69.9 71.6 78.2 79.5 82.3 71.5 Non-agriculture’s share of GVRO (%) 42.9 37.8 37.6 Non-agriculture’s share of rural labour force (%) 6.4 18.1 22.3 28.2 29.8 35.7 53.1 39.5 14.1 Non-grain’s share of total sown area (%) 19.9 24.2 25.8 26.6 27.6 13.8 24.9 25.7 30.5 47.2 20.4 15.4 25.8 Yield of grain per hectare (kg/ha) 2,734 3,483 4,004 4,240 4,493 3,584 4,830 5,560 6,315 6,375 3,865 4,652 4,937

1992

504 19.9 4,342

514

528 13.3

439

32.6

18.2

5,386 5,506

28.3

22.1

74.0

629

609

1980 1985 1992 1995 1999 1980 1985 1992 1995 1999

1985

1980

Yongxing

Anqiu

National

Table A Basic socioeconomic indicators for survey areas

Total population (1,000 people) Rural population (1,000 people) Urban share of population (%) GDP per capita (yuan) GVRO per rural population (yuan) Yield of grain per rural population (kg) Non-primary industry’s share of GDP (%)

Consumption of chemical fertilizers per hectare (kg/ha) Number of hospital beds per 1,000 population

Table A (continued)

1992

197

1995

240

1999

264

1985

307

183

291

432

194

338

16.2

14.4

300

217

259

214

250

1995

1999

0.9

1.3

1.6

484

18.0 6,664

493

73.5

14.1 17.0

486

601

78.4

1,166

465

583

626 1,184 1,181 1,127 1,166

467

566

334

13.1 5,769

232

267

2.4

421

Haining

66

95

0.6

199

1.8

329

1.4

253

429

505

578

2,870

456

520

634

492

473

16.9 18.0

522

628

89.8

479

19.1 15,771

517

639

1980 1985 1992 1995 1999 1980 1985 1992 1995 1999

1992

2.3

367

1980

2.3

242

Tianchang

2.1

2.0

204

Guiding

124

87

120

1980 1985 1992 1995 1999 1980 1985 1992 1995 1999

1985

1980

Yongxing

Anqiu

National

Total population (1,000 people) Rural population (1,000 people) Urban share of population (%) GDP per capita (yuan)

Non-agriculture’s share of GVRO (%) Non-agriculture’s share of rural labour force (%) Non-grain’s share of total sown area (%) Yield of grain per hectare (kg/ha) Consumption of chemical fertilizers per hectare (%) Number of hospital beds per 1,000 population

171

1985

179

194 8.1

6.4

211

191

204

1995

26.8

27.2 35.6

29.9 32.0

44.6 50.2

32.3

51.8

1999

10.9 4,158

196

220

1.4

107

84

174

0.9

302

1.9

370

1.8

360

245

0.9

343

366

386

3.3

414

428

3.9

422

439

4.4 2,035

430

450

2.3

247

2.3

210

822

870

8.1

964

8.4

9.7 11,572

998 1,029

1,049 1,089 1,139

Leqing (Wenzhou)

245

1980 1985 1992 1995 1999 1980 1985 1992 1995 1999

1992

23.1 29.7 30.1

29.7

1980

1.5

0.6

28.5

23.7 30.6

3,691 3,841 6,967 7,344 6,870 7,075 3,776 5,007 4,925 5,162 5,819

33.3

14.9

74.1

Luquan

107

3,600

36.7

11.5

86

3,275

3,161

80

37.4

39.9

9.3

35.9

Shilin (Lunan)

111

22.1

19.3

GVRO per rural population (yuan) Yield of grain per rural population (kg) Non-primary industry’s share of GDP (%) Non-agriculture’s share of GVRO (%) Non-agriculture’s share of rural labour force (%) Non-grain’s share of total sown area (%) Yield of grain per hectare (kg/ha) Consumption of chemical fertilizers per hectare (%) Number of hospital beds per 1,000 population

Table A (continued)

1992

457

1995

503

1999

28.0

3,274

158

3,202

74

27.7

383

19.9

402

509 576

182

1.9

0.6

4,670

50.3

8.7

221

4,354

49.0

8.3 6.4

6.0

257

6.6

297

13.2 19.5 24.6

24.3

226

17.6

7.8

46.2

389

64.1

324

27.3 23.8

349

992 263

23.4 20.5

47.9 56.5

259

23.1

60.3

91.9

251

1.8

193

36

80

0.8

102

1.5

268

1.6

286

74

105

0.5

201

1.2

313

1.2

307

4,639 2,793 2,580 3,052 3,396 4,057 5,509 5,552 5,226 6,062 5,791

44.7

12.0

64.8

274

311

1980 1985 1992 1995 1999 1980 1985 1992 1995 1999

1985

1980

Leqing (Wenzhou)

Luquan

Shilin (Lunan)

Total population (1,000 people) Rural population (1,000 people) Urban share of population (%) GDP per capita (yuan) GVRO per rural population (yuan) Yield of grain per rural population (kg) Non-primary industry’s share of GDP (%) Non-agriculture’s share of GVRO (%) Non-agriculture’s share of rural labour force (%) Non-grain’s share of total sown area (%) Yield of grain per hectare (kg/ha) Consumption of chemical fertilizers per hectare (%) 25.7 4,395

149

5,068

176

39.8

21.0

48.3

198

5,204

20.2

53.5

246

266

17.1

42.7 48.7

228

5.7

793

841

7.3 13.5 13.9

57.7

220

5.1

780

822

17.9

52.0

92.9

200

8.3 6,598

808

881

69.5

853

3,062

570

21.4 29.3

709

627

627

777

694

31.3 38.7

54.8 73.5

800

17.5 19.3

637

772

38.6

65.9

91.4

589

24.6 23,154

581

771

204

111

135

145

201

219

229

182

351

341

392

5,226 4,417 3,877 3,664 4,380 4,259 3,817 4,731 6,549 6,849 7,090

17.7

57.0

86.6

239

710

263

224

9.7 5,788

695

300

7.9

6.1

1,075

1,190

1999

519

1,051

1,027

1,141

1995

764

908

1,094

1992

1980 1985 1992 1995 1999 1980 1985 1992 1995 1999

1985

1980

Wujiang

Yongjia (Wenzhou)

Cangnan (Wenzhou)

1992

0.3

1995

0.8

1999

0.8

0.5

0.9

0.6

1.2

2.1

2.2

1980 1985 1992 1995 1999 1980 1985 1992 1995 1999

1985

1980

Wujiang

Yongjia (Wenzhou)

Cangnan (Wenzhou)

Notes: 1 Urban population ⫽ total population (nianmo zong renkou) ⫺ rural population (xiangcun renkou) 2 Data in value terms in this table are calculated at current prices 3 GVRO means Gross Value of Rural Output (nongcun shehui zongchanzhi)

Sources: Guojia Tongjiju (2000), Guojia Tongjiju Nongcun Jingji Shehui Diaocha Zongdui (2000c), Guojia Tongjiju Nongcun Shehui Jingji Tongjisi (1989), Guojia Tongjiju Guomin Jingji Zonghe Tongjisi (1999), Guojia Tongjiju Nongcun Jingji Shehui Diaocha Zongdui (2000a)

Number of hospital beds per 1,000 population

Table A (continued)

Appendix B Glossary of Chinese terms

anlao fenpei

distribution by working contribution

anxu fenpei

distribution by needs

banshichu

administrative office

banshi gongdao

handle things fairly

baogongtou

labour-bosses

buguifan

disorganized

caigouyuan, tuixiaoyuan

a manager or a person in charge of purchasing/ marketing in a TVE

caizhengsuo

Public Finance Office

chaozhihu

deficit household

chengbao jingying

management contract system

chengbao zeren zhi

contract responsibility system

chengfen

class identification

cunmin weiyuanhui

village committee

cunmin xiaozu

village smal group

dang zhibu

party branch

danongye

agricultural activities in the broad sense

208

Appendix B

danwei

work unit

dayuejin

the Great Leap Forward

dian zhongnong

tenantry middle peasant

difen

basic work-points

dingti

to take over the jobs of retired parents

diqu fupin

regional development approach in the povertyalleviation policies

duangong shi

day-labourer (temporary labourer) market

fengxian diya chengbao

risk-deposit contract responsibility system

fupin

poverty alleviation

fupin bangongshi

Poverty-Alleviation Programme Office

fupin daohu

household-oriented approach in the povertyalleviation policies

fupin gongjian xiang

poverty-alleviation Schwerpunkt townships

fupin gongzuodui

poverty-alleviation workteam

fupin gongzuozhan

Poverty-Alleviation Programme Station

fupin zhuangan

poverty-alleviation policy manager

fupin zhuanxiang daikuan

public loans for povertyalleviation

fuyu zhongnong

rich middle peasant

gaizhi

ownership and management system reforms of the TVEs

Glossary of Chinese terms 209 ganqun guanxi

cadre–peasant relationship

gaoji zhiyuan

managerial/professional (class status)

getihu

family business

gongfen

work-points

gongfenzhi

collective income and wage per workday

gongren

worker

gongshang xingzheng guanliju

Business Administration Bureau

gongxiang gu

jointly held shares

gongxiaoshe

Supply and Marketing Cooperatives

guanxi, guanxiwang

social networks, social connections

gufen hezuozhi

shareholding cooperative system

gufen hezuozhi qiye

shareholding cooperative enterprise

gufen youxian gongsi

shareholding corporation

gunong

hired peasant

guoding pinkunxian

national level poor county

hetonggong

employment with labour contract

hui

rotational-loan groups

hukou

household registration

jiating chengbao zerenzhi

household contract responsibility system

jiben hesuan danwei

basic accounting unit

jishi

periodic rural market

210

Appendix B

jiti qiye

collective-owned enterprise

jiti suoyou

collectively owned (collective ownership)

keji fuxiangzhang

science and technology township vice-mayor

keji zhuangan

science and technology manager

kunming-shi xiaoexindai

Kunming City scheme of microfinance

laodong gongfen

work-points for labour contribution

linshigong

temporary employment without labour contract

mengjiala-shi xiaoexindai

Bangladesh scheme microfinance

minzheng

civil affairs

mu

measure of area equal to 0.0667 ha

neng bangzhu cunmin zhifu

be able to help villagers become rich

nenggan

capable

nongcun hezuo jijinhui

rural credit association (community-based credit organization)

nongcun jingying guanli zhan

Rural Management Station

nongmin huzhu chujin hui

peasant’s mutual help loan association

nongmin qiyejia

peasant entrepreneurs

nongmin renjun chunshouru

per capita annual net income of rural households

Glossary of Chinese terms 211 nongye yinhang

Agricultural Bank

pinkunhu ka

poor household registration card

pinkunxian

poor county

pinnong

poor peasant

renmin gongshe

people’s commune

sanxian jianshe

Third Front Construction

shangren

merchant

shedui qiye

commune and brigade run enterprise

shengchan dui

production team

shengchan dadui

production brigade

shequxing hezuo jingji zuzhi

collective economic entities at the township or village level

shuanggui

‘dual-track’

siliaotian

land devoted to growing the hogs’ feed

siying qiye

private enterprise

Sunan moshi

Sunan (Southern Jiangsu) model

tanwei

selling space

taojiahuanjia

face-to-face bargaining

tiaozheng

adjustment

tonggou tongxiao

compulsory procurement

wenhua dageming

the Cultural Revolution

Wenzhou moshi

Wenzhou model

wugong butie

service allowance (for grassroots cadre)

212

Appendix B

xiafang zhiqing

sent-down youth

xiang, zhen

township

xiangzhen qiye

township and village enterprise (TVE)

xiao baihuo

general merchandise

xiaoexindai gongzuozhan

Township Microfinance Station

xiao wujin

small hardware

xiaozu

borrowing small group

xiaozu jijin

group fund

xiaozuzhang

small-group leader

Xiaxiang

sent down (to the countryside)

xingzhengcun

administrative village

xinyongshe

Rural Credit Cooperative

xumu gongfen

work-points for stock raising

you lingdao jingyan

having sufficient experience as a cadre

youxian zeren gongsi

limited liability corporation

zhacai

mustard tuber which is processed into pickles

zhiyuan

clerk

zhongnong

middle peasant

zhongxin

centre

zhongxin jijin

centre fund

zhongxin zhuren

centre manager

zhuanye jishu xiehui

specialized agricultural producer’s association

Glossary of Chinese terms 213 zibenjin, gubenjin or gujin

capital

zili kouliang hukou

‘supply own grain’ household registration

ziliudi

private plots

zirancun

natural village

zong gongfen

total work-points earned

zongzu

lineage-based system of kinship

zulin

lease, leased

zuzhang, banzhang, or lazhang

foreman

Places Anqiu Cangnan Guiding Haining Leqing Luquan Shilin (Lunan) Tianchang Wujiang Yongjia Yongxing

Notes

1 Introduction and overview 1 This analysis will follow North’s definition of an institution: institutions refer collectively to the rules of the game in a society that restrains the behaviour of socioeconomic actors (North 1990, 3). In this sense, the market itself is also an institution, which consists of formal and informal rules (such as laws, business customs, and moral norms shared by sellers and buyers). This study does not employ the assumption of the market–institution trade-off that is often used in economic studies. 2 In the market transition thesis, Polanyi’s typology of social systems is applied to describe the marketization process of certain economies (such as post-communist countries in Europe and socialist countries in East Asia) as they are transformed from a social system driven by a redistribution mechanism (administrative allocation of resources) to a social system driven by market coordination. 3 This summary of the market transition thesis is based on Nee (1989) and Walder (1996). 4 In this study, the term ‘grassroots cadres’ refers to local peasants who concurrently serve as cadres at both administrative village and township levels. They are at the lowest level in the bureaucratic hierarchy of the party–state system. Needless to say, there is a significant overlap between grassroots cadres and party members. The origin of the grassroots party–state system can be traced back to the rural base of the Chinese Communist party in the preliberation era (see Sato 1984, Sato 1987). 5 ‘Cadres’ here refer to grassroots cadres in the case of rural areas and people in administrative positions in official organizations and the state-owned enterprises (SOEs) in the case of cities. Note that the analysis by Li is based on the private enterprise sample survey in 1995 (encompassing 2,870 samples) that covers all the provinces. 6 The inverted-U hypothesis states that the income distribution shows a disequalizing trend in the early stage of the economic development, but changes to an equalizing trend when the development reaches a certain stage (Kuznets 1955). Many studies have been conducted in connection with this hypothesis. The recent study by the research team of the World Bank suggests that a simple relationship cannot be found between the level of economic development and income distribution, so the mechanism of income distribution change should be explained by various factors specific to country and region (Deininger and Squire 1996a; Deininger and Squire 1996b; Deininger and Squire 1998; Li, Squire, and Zou 1998). 7 The household survey from a public health point of view used by Nee (1996) and the survey on social mobility used by Walder (2000) can also be included in this third group.

Notes

215

8 Their model is: ln Y ⫽ a ⫹ bS ⫹ cEX ⫹ dEX2 ⫹ u. In this equation, ln Y is the natural logarithm of the individual income (annual income). The educational attainment S is measured in years of education. EX is the number of years of working experience. The coefficient b gives the rate of return on education. 9 However, when Zhang Ping (1999b) and Tsui (1998a) are compared, the result of a decomposition analysis of the degree of inequality itself does not exhibit any essential differences. Zhang Ping (1999b) focused on the fact that the degree of inequality of nonagricultural income is higher than that of agricultural income, while Tsui focused his attention on the fact that the share of agricultural income is still a large part of the total income. 10 Chen Junjie (1998) is useful for a review of related studies. Yang (1994) gives a detailed explanation on vocabulary, discourse and use-context concerning social networks in present-day China. Also, Yan (1996) has analysed the formation and function of social networks in rural societies from a gift-giving point of view. 11 Wank referred to his market analysis framework as an institutional commodification account and tried to combine the discontinuity approach (market transition account, according to Wank) and the continuity approach (political economy account, according to Wank). 12 The term ‘natural village’ refers to a historically formed village as an aggregation of farm households and is the complementary concept of the artificially organized administrative unit. However, in many cases, natural villages correspond to village small groups (cunmin xiaozu), which form the administrative units below an administrative village. Moreover, in many cases, it was used as a unit for organizing production teams (shengchan dui) in the commune era. 13 In terms of the commune system, the township is equivalent to the commune (renmin gongshe) level, and the administrative village is equivalent to the production brigade (shengchan dadui) level. 14 For historical aspects as well as recent changes of the urban work unit, see, for example, Lü and Perry (1997). 15 The commune was the organizational device that served to enforce these institutional arrangements, which made it easy for the state to control peasants and to mobilize rural resources. During the commune era, however, collective labour did not significantly improve agricultural productivity as was expected. (The moderate growth of agricultural production was cancelled out by rapid population growth.) By the end of the 1970s, approximately one third of the rural population lived in absolute poverty, which provided a strong incentive for Deng Xiaoping to institute economic reforms. For details of the mechanism of the commune system, see Zhang Letian’s profound study of an administrative village in Zhejiang Province (Zhang Letian 1998). This village is one of the subjects of this study and is discussed in Chapters 6 and 7. For detailed information on poverty in rural China, see Ravallion and Chen (1997b) and Zhu (1999). 16 It should be noted that this characteristic underinstitutionalization is also the source of the dynamism of China’s regional economies in the Deng era. 2 Network capital, political capital and the bazaar economy 1 Shilin County was formerly named Lunan County. 2 Han ethnicity accounts for 90 and other ethnicities for 7 of the households (unknown for 3 households). This reflects the ethnic makeup of the township, which is approximately 90 per cent of Han ethnicity (Lunan Xianzhi Bianji Weiyuanhui 1996, 109). 3 Based on the CASS survey in 1988, the proportion of peasants who have township or village cadre status among the total rural labour force (18–60 years old) is

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4

5

6

7

8 9

10

11 12

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around 2 per cent (calculated by the author from Inter-University Consortium for Political and Social Research 1988). The times when the businesses were opened is distributed as follows: 9 households ran their businesses from 1980 to 1984, 10 households from 1985 to 1989, 20 households from 1990 to 1994, 9 households in 1995, 20 households in 1996, 18 households in 1997, 4 households in 1998, and 3 households at an unknown date. Establishment of the General Retail Market of B Township was financed by the county government (interview at the Shilin County Business Administration Bureau in December 1995). In G Township as well, construction of the new marketplace was promoted in the same period as in B Township. The Dongdajie Market of G Township was constructed from 1993 to 1994, and later in 1997, the street stalls that spread along main roads moved to the marketplace (interview at G Township Business Administration Bureau in December 1997). Data for direct comparison with this case in B Township cannot be found. However, in a vegetable retail market in Baoji, Shaanxi Province, for example, the proportion of family businesses that circulate among multiple markets is no more than 25 per cent (Shi Yizhao 1995, 165–6). Note that the business category used here is not the business category classification based on the statistics by the business administration bureau, which was used at the sampling (see the first section), but reorganized by the author based on the main activity of businesses. This is the business category classification that will be used in the analyses below. Also, Nakanishi’s study of trade relations in an inner suburb of Manila indicates that buyer–seller networks are formed among people who share the same place of origin (Nakanishi 1991). The author’s interview at the food product wholesale market in Yiliang County also shows that the relationship between wholesalers and retailers principally take the form of cash transactions, while credit transactions are limited to a small proportion (December 1997). Another reason for the scarce involvement of territorial bonding may be that the traders’ home villages are widely dispersed. A situation where a majority of peasants in a certain village engage in family businesses of mutually related business categories, seen for example in Wenzhou (see Chapter 3), is not found in the survey area. The breakdown is as follows: 18 households borrowed from the RCC, 3 from banks, 2 from both the RCC and bank, and 2 from the community-based credit organization. The restaurant and service business dummy is added because the proportion of family businesses that obtain bank financing is highest for restaurant business, according to the national business survey.

3 TVE reform and patron–client networks 1 The TVE samples of the World Bank survey include 300 firms in ten provinces (Hubei, Sichuan, Guangdong, Zhejiang, Jiangsu, Anhui, Hebei, Liaoning, Shanxi, Gansu). 2 The snowballing sampling method is a kind of nonprobabilistic sampling method that starts from a small number of subjects and goes on to other subjects introduced by the first subjects. To explain the methodology of the survey in more detail: the author first prepared the questionnaire, then students of ECUST, born in Wenzhou, visited a small number of entrepreneurs and proprietors who were willing to cooperate (mostly their family members, relatives and friends), and then went on to their business associates.

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3 Wenzhou is situated on the Taiwan Straits. It is paradoxical that smuggling between Wenzhou and Taiwan played a significant role in the accumulation of capital in Wenzhou in the early stages of economic reform (personal interview with Professor Zhang Renshou, 12 September 1993, Hangzhou City). 4 Selling off firms can take two forms: bulk sales and sales only of movable property combined with leasing of immovable property. 5 Guojia Jingji Tizhi Gaige Weiyuanhui and Guojia Gongshang Xingzheng Guanliju (1993, 345). The proportion of party members generally in rural areas given here is the value calculated by the author based on the CASS survey (InterUniversity Consortium for Political and Social Research 1988). 6 The proportion of high executives with fathers having experience with family businesses is 3 per cent in Wujiang whereas it is 11 per cent in Wenzhou. This statistic is evidence of the tradition of commerce and industry in Wenzhou. 7 In Wenzhou, many respondents wished to ‘express opinions through entrepreneurs’ organizations’. It is safe to say that their motivation is similar to those who wish to participate in local politics. 8 According to Zhang Letian (2000), in Qiaotou Township, which is famous for its wholesale markets for sundry goods (e.g. buttons and fasteners), the wholesale markets’ volume of business shows sluggish growth, but the taxation norm brought down from the higher government to the township government remains fixed. Therefore, it is said that the conflict regarding the tax burden between the township government and the enterprises has intensified. 9 The significance of the influence of personal networks between party–government executives and high executives on the rural economy and politics is discussed in detail by Cao, Zhang, and Chen (1995), Chen Junjie (1998) based on case studies from Zhejiang Province. 10 Note that the statement that the relationship between the enterprises and the local party-governmental apparatus used to be weak in Wenzhou is to be understood as relative to the Sunan model. It does not mean that the local government in Wenzhou did not contribute to the development of the market at all. For example, the Wenzhou City government instituted local regulations regarding shareholding cooperative enterprises. It was an important part of the infrastructure that supported the development of the private sector in Wenzhou. 4 Migration, the job search and social networks 1 In contrast, 22 per cent found jobs by themselves, and 7 per cent found jobs through government agencies. The MOL survey was conducted in 1995 by extracting 90 administrative villages from the following 8 provinces: Sichuan, Guangdong, Hubei, Jiangsu, Anhui, Shandong, Hebei, and Gansu. The sample size was 3,998 households. 2 The samples are subsamples of a national survey conducted by the National Bureau of Statistics in 1999 (sample size was approximately 150,000 households). The main purpose of this survey is to prepare a new sampling frame for the regular urban household survey. Because this preparatory survey included migrant households, it can be used as the sampling frame for our survey. 3 See for example, Knight, Song, and Jia (1999) as another factory-based survey of rural–urban migration. 4 In case of S factory, employees with short service periods were not included among the samples for technical reasons. Also, similar surveys were conducted at J and K companies in Shanghai in 1995 and at O factory in Dalian City, Liaoning Province in 1996. The data of J and K companies are excluded from the analysis of this chapter because the majority of the employees were employed locally. O factory also was not dealt with because its employment methods were very different from

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9 10 11 12

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the firms in Zhujiang Delta, such as recruiting new graduates from specific regions in groups. The MOL survey shows the proportions of jobs by industry only for samples engaged in nonfarm businesses in cities. According to the MOL survey, approximately 10 per cent of the out-migrants were working as agricultural workers. For further details on institutional barriers to rural–urban migration, refer to Knight and Song (1999), Mallee (1999), Solinger (1999a; 1999b; 2000). The state sector includes collectively owned (jiti suoyou) enterprises. The non-state sector includes firms with foreign investment. The majority of subjects were unskilled workers, whereas a small part of them were foremen (zuzhang, banzhang, or lazhang), skilled workers and technicians, and office clerks. No statistically significant relationship was found between job status and entry channel. Also, there was no statistically significant association between educational level and entry channel. The reason for this would seem to be that screening is conducted during recruitment to limit employment to people with an educational level of junior high school or above. Chapter 6 gives a detailed account of this administrative village. See also Sato (1997) and Sato (2000). In the preliberation era, it was called duangong shi (meaning ‘temporary labourer market’). There was a plan for establishing an official employment service station in the future, however. This study does not deal with the problems outside the workplaces (consumption behaviour, relationships with friends and local peasants). Lee (1995) surveyed the consumption behaviour of out-migrants based on the firm survey in Zhujiang Delta.

5 Local government and social networks: microfinance 1 In this chapter, due to lack of data, the impact of the microfinance on peasants’ financial status is not analysed in detail. Many issues, such as how economic activities differ between households that received microfinance loans and those that did not, and how management efficiency changes in a given household before and after a microfinance loan, are left for future study. 2 However, thanks to improved agricultural infrastructure and technological advance, grain production increased in the latter half of the 1990s. For example, in Z Township, per capita grain production volume increased to 380 kg in 1998 from 310 kg in 1995. 3 Although rice is the staple food of peasants, because they cannot grow this themselves they exchange corn for rice. 4 As is noted in Chapter 1, the administrative level below the township is called an administrative office (banshichu). 5 Another background factor is the fact that, since the 1990s, aid policies of development aid organizations such as the World Bank have changed from a market mechanism oriented approach (financial liberalization) to an approach that emphasizes poverty alleviation and social development of rural areas. 6 For example, according to the author’s interview in a village in Yongxing County, Hunan Province, listed in Table 5A (see Appendix 5A), most of the borrowers from the mutual help loan association managed by the village were relatively wealthy peasants. 7 According to the author’s interviews in C Township, the RCC sometimes gives loans without collateral for amounts less than 1,000 yuan. However, even in these cases, an application procedure that operatesthrough village cadres is required. 8 For details on microfinance programs in rural China, see Liu (1997), Li Yiqing (1998), Li Xiaoyun (1998), Zhonggong Zhongyang Zuzhibu et al. (1997), Kang

Notes

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10 11 12

13

14 15 16

17

18

19

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et al. (1998), Zhongguo (Hainan) Gaige Fazhan Yanjiuyuan Fanpinkun Yanjiu Ketizu (1998). Unless otherwise indicated, this section is based on the following interviews: Poverty-Alleviation Programme Office of Yunnan Province (December 1998 and November 1999); Poverty-Alleviation Programme Office, Kunming City (November 1999); several leading cadres of Z Township government, Z Township Poverty-Alleviation Programme Station, cadres and peasants of F administrative office of Z Township (November, 1999); C Township government’s PovertyAlleviation Programme Station, Microfinance Office of the Public Finance Office of C Township, cadres and peasants of H administrative office of C Township (November 1999); leading cadres of G Township government and the PovertyAlleviation Programme Station of G Township (December 1998). In 1997, the former provided 10 million yuan and the latter 1.5 million yuan. Public funds amounted to 131 million yuan and poverty-alleviation public loans amounted to 466 million yuan. Breakdown by business activity is as follows: 1,026 yuan for cultivation, 1,248 yuan for stock farming and fishery, 1,623 yuan for manufacturing, 2,946 yuan for commerce, and 1,243 yuan for others. The amount of the loans for commercial use exceeded the maximum lending limit, indicating that a flexible approach was taken for industries with short-term capital turnover. In the case of C Township, however, the maximum loan amount was set at 1,500 yuan regardless of usage. A township Poverty-Alleviation Programme Station was established in Luquan County in 1997. A poverty-alleviation policy manager (fupin zhuangan) dispatched from the county serves as station manager. Although the Poverty-Alleviation Programme Office of the county directs this station, the township pays the salary of the poverty-alleviation policy manager. In G Township, the annual interest rate (for loans funded by public funds) was 5.76 per cent in 1998. However, this repayment rate is not particularly low in comparison with other microfinance programmes. For peasants, such projects as the swineherd project (where unsecured loans to peasants and technical training are combined) conducted by the Luquan County Stock Farming Bureau as a part of the World Bank Southwest Poverty Reduction Project in China, as well as production subsidies to tobacco growing households by the county tobacco company, are also competitive with the Bangladesh scheme (according to an interview in C Township tobacco purchasing station and H administrative office in this township). It seemed that the officials of counties and townships who worked on microfinance programs were caught between two layers of higher government that take different policy stances, as well as between peasants and grassroots cadres. ‘Theoretically, forming a self-help group and having group activities under the Bangladesh scheme is great. However, it is not easy to make it a reality’, said one official at the PovertyAlleviation Programme Office of Luquan County. For example, there are ten natural villages in F administrative office of Z Township. The difference in elevation between natural villages located in the highest and the lowest areas is about 1,000 metres. It is said that it takes even the local people six to seven hours to travel between these villages. A specialized agricultural producer’s association is an organization formed by peasants who specialize in market-oriented agricultural production such as greenhouse vegetable growing, orchards, animal husbandry, and cultivation of freshwater fish. In many cases, the agricultural department of the local government promotes the formation of the association by offering technical training, production material, and capital.

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6 Income generation and access to economic opportunities 1 Although there are some people working in the state sector and some of them are holders of nonagricultural household registrations, most of them are working for the county-run fry hatchery. 2 It is necessary to note that a village-run toy factory, which is a subcontractor of a joint venture in Yangzhou, opened just after the survey. The results of this study do not reflect the changes in the employment structure caused by the opening of this new factory. 3 It should be noted that income in kind has been excluded in the process of accounting for farm income. It may have greater influence on the estimates in Guiding than in the other villages. 4 The Gini coefficient of per capita annual net income of rural households (nongmin renjun chun shouru) based on the NBS Household Survey was 0.317 in 1992 and 0.322 in 1993. The intention here is not simply to compare village level data with nationwide data, but it seems reasonable to say that the income distribution in Anqiu is fairly equal, while that of Guiding is much more unequal when measured by Chinese standards of inequality in the early 1990s. 5 In Anqiu, both the proportion of farm income to total income and the inequality of the farm income is notably small. This reveals the fact that agriculture has already become a self-sufficient and supplementary economic sector in Anqiu. 6 Regarding other fixed production assets, an equation for farm income including the number of tractors kept by the household was estimated (omitted from Table 6.4). The number of tractors appears not to be a significant explanatory variable. This is partly because tractors tend to be used in nonagricultural economic activities rather than farming. 7 For the significance of regional factors in household income distribution in rural China, see Zhang Ping (1999b), World Bank (1997), Sato (1989), and Sato (2000). 8 When asked ‘What should the village cadre do to improve the life of the villagers?’ the majority of household heads in Yongxing answered ‘to lessen economic burdens on villagers’ (63 among 100 household heads). 9 However, the role of political capital in Yongxing should be examined carefully. During a field trip to Yongxing in October–November 1992, the author found that several grassroots cadres in neighbouring villages to the survey village had obtained coal mining rights and become coal miners. It is quite possible that political connections played an important role in obtaining the mining rights. 10 It is interesting to compare the factors influencing household heads’ decisions about nonagricultural activities in Anqiu and Tianchang. Among 100 households, 45 household heads consider ‘intentions of superiors (cadres)’, whereas only two household heads consider this factor in Tianchang. In Anqiu, when this is crosstabulated against the intention to expand nonagricultural activities, those who are engaged in nonagricultural activities tend to consider ‘intentions of superiors (cadres)’. This clearly shows the strong dependence on the party–governmental apparatus for nonagricultural activities in Anqiu. 11 The expansion of the village-run toy factory mentioned above suggests that the village cadres in Tianchang received pressure from villagers to promote the village economy. 7 Continuity and vitality of small peasant households 1 HQ village was the richest of the three natural villages at the time of household survey.

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2 See for example, Huang 1990; Brandt 1989, Brandt and Sands 1992, Bell (1992; 1999), Wu (1995), and Cao (1996). 3 Rather than specializing in sericulture, Haining was a consistent importer of grain. Grain was one of the most important goods in Haining’s periodic rural markets and there was a large grain market in Xiashi Township (now the county seat of Haining) (see Minami Manshu Tetsudou Kabushiki Kaisha Shanghai Jimusho 1942). In 1932, the county’s total demand for rice was 62.85 thousand tons; grain production was only 33.75 thousand tons, so there was a grain shortage of 29.1 thousand tons. Local grain merchants imported grain mainly from Jiangsu, Anhui (Haining Liangyouzhi Bianzuan Weiyuanhui 1990, 55–56). 4 Wu (1995, 21–25) calculated an estimate of the comparative return of grain farming and sericulture in Wuxi. According to his estimate, sericulture brought a higher net income per mu than grain farming over the period from the late nineteenth century and the early twentieth century (in 1894, 1910, 1921, and 1924). However, land profitability of sericulture decreased to a point lower than grain farming in 1936 because of the slump in the Chinese silk industry after the Great Depression. No time-series price data is available, but the relative price of grains and cocoons in Haining had returned to pre-depression level by the end of 1940s (Cao, Zhang, and Chen 1995). Similar estimates of the relative profitability of sericulture and grain farming is presented by Bell (1992, 219–23). 5 There are three ‘poor peasant’ households whose mulberry field ratio is lower than average. One of them is the live-alone household, which consists of one old woman, and the others have only two family members. 6 This is based on the annual accounting books of the HQ production team during the commune era. 7 Because of the poor quality of data, the relationship between the distribution of land and the distribution of income in preliberation China is not clear. The orthodox view of historians in China is that the uneven distribution of land is the most critical cause of poverty and of income disparities among rural households in preliberation China. By contrast, Brandt (1989), Brandt and Sands (1990) and Brandt and Sands (1992) reconsidered the income distribution in prewar China by reviewing the household survey data collected by Buck and the South Manchuria Railway Company (Buck 1937/1986 and Minami Manshu Tetsudou Kabushiki Kaisha Shanghai Jimusho 1941). They claimed that, at least in the central-eastern and northern coastal area, population growth and the deterioration of the man–land ratio did not necessarily mean the strengthening of class differentiation and growth in income inequality. They argued that the majority of small farm households were involved in markets and benefited from market activities (through commercial farming, non-farm sidelines, rural industry, and access to labour markets away from home), and therefore the relative return to land had been decreasing. At the same time, they claimed there was no concrete evidence of land concentration and that a rise in real rural wages had been observed, and so criticized Huang’s view of the agricultural decline in central-eastern China. This implies that either there was growth in total output without growth in per capita output or commercialization without development (Huang 1990). Because detailed data are not available for HQ village in the preliberation era, direct confirmation of these claims cannot be provided here. 8 Putterman conducted a similar analysis using the data set for Dahe Township, Hebei Province. His OLS estimation shows a strong negative effect of the dependency ratio (total household member / labour forces) on collective income in the early reform period (Putterman 1993, 310). 9 According to the nationwide sampling survey conducted by the NBS and the Ministry of Agriculture at the end of 1970s, the proportion of sideline income to total income ranged from 25 per cent to 30 per cent, including both cash and in kind.

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The figure for the East China region was 36.7 per cent, with an average of 53 households in six developed counties in Jiangsu Province (Nongyebu Nongye Nianjian Bianji Weiyuanhui 1981, 329–34). 8 Conclusions: marketization and networks 1 The concept of community here is different from the concept of community defined in Chapter 1 and used in the analyses in Chapters 6 and 7. The concept used here is more general. 2 Walder (1986) has shown that the traditional patron–client ties change their form and are embedded in human relationships within the state-enterprises, which form the core of the socialist economy. This study basically confirms Walder’s finding. 3 For example, Luong and Unger (1998) compared rural areas in North Vietnam and in China and concluded that the differences in household income distribution after the economic reforms between these two areas (more unequal in China than in Vietnam) was brought about not only by macro factors such as economic development level and economic policies, but also by semi-micro factors such as power structures at village level.

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Index

administrative office (banshichu) 13, 117, 132, 134, 137–9, 218; see also administrative village administrative village (xingzhengcun) 12–13, 141, 171, 214–15; typology of 16–18, 20–1, 106–7, 147, 152, 159, 162–3, 166–7; see also administrative office; party branch; partygovernmental apparatus; village committee Agricultural Bank (nongye yinhang) 123, 135–6; see also financial market ; Rural Credit Cooperative Aoki, M. 79 Awano, H. 128 bazaar economy 18, 25, 33, 36, 39, 40–1, 44, 47; see also family business; periodic (rural) market Bell, L. 221 Bian, Y. 9 blood relatives (relations) 46, 108, 166; see also lineage; kinship; social networks Brandt, L. 171, 221 Braverman, A. 121 Buck, J. 212 bureaucrat-industrial complex 16 Business Administration Bureau (gongshang xingzheng guanliju) 25–6, 29, 65, 216 cadre see grassroots cadre Cao, J. 9, 171–2, 188, 217, 221 Cao, X. 221 CASS survey 6–7, 158, 215, 217 Chen Z. 9, 171–2, 188, 217, 221 Chen, J. 9, 215, 217

Chen, S, 6, 215 Cheng, D. 130 Chinese Academy of Social Sciences (CASS) 6, 29, 149 class identification (chengfen) 172–3 collective economic entities at the township/village level (shequxing hezuo jingji zuzhi) 45 collective income distribution 177–9, 181–2; distribution by needs (anxu fenpei) 179, 189; distribution by working contribution (anlao fenpei) 179, 181–2, 185; private activities and 183–5, 187–9, 191; see also income distribution; people’s commune; workpoint collectively owned (collective ownership) (jiti suoyou) 63, 123, 151, 159, 162, 218 collective-owned enterprise (collectiveowned enterprise) (jiti qiye) 46, 51–3, 55–7, 60–1, 63, 151–2, 168, 189, 197, 218 command economy 4 commune and brigade run enterprise (shedui qiye) 166, 187 commune system see people’s commune communist party see party member community: definition of 12–13, 194, 222; disparity among 1, 3, 10, 17–20, 107, 111; entrepreneur and 17, 56–7, 70–1, 76, 153, 159, 193; income inequality within 141; typology of 159, 162–3, 166, 168, 191; see also party-governmental apparatus community-based credit organization 123, 143–4; see also financial market; Peasant’s Mutual Help Loan

Index Association; rural credit association; Rural Credit Cooperative compulsory procurement (tonggou tongxiao) 178 contract system: contract responsibility system (chengbao zeren zhi) 55, 57; household contract responsibility system (jiating chengbao zerenzhi) 177; management contract system (chengbao jingying) 151 Cook, S. 147 Cultural Revolution (wenhua dageming) 27, 179, 182–4, 188–9 customary economy 3, 194 Dai, X. 198 Davis, W. 44–5 decentralized economic system 16 deficit household (chaozhihu) 179 Deininger, K. 214 Development Research Centre of the State Council 149 distribution of income see income distribution Du, Y. 52 dual-sector model 13 dual-track (shuanggui) 14 East China University of Science and Technology (ECUST) 53, 149 egalitarianism 7, 57, 153, 157, 159, 163, 179, 181, 184 employment with labour contract (hetonggong) 99 entrepreneurs see peasant entrepreneurs executives of TVE see peasant entrepreneurs face-to-face bargaining (negotiation) (taojiahuanjia) 36–8, 108 family business (getihu): data on 25–6; enduring trade relations strategy 18, 36, 39–41, 43–5, 47; financial market and 16, 18, 46–7, 50, 116, 120–3, 129, 140; in underdeveloped market environments 15, 33, 36; income distribution and 5; price-formation method of 36–8, 47; purchasing activities of 38–40; risk-avoidance strategies of 18, 38–41, 43–5, 47–8, 50, 193; risk-spreading strategy 18, 39–40, 43, 50; social capitals and 1, 5, 9, 12, 16–18; social characteristics of 28–9,

235

32, 47, 216–17; village economy and 20, 151, 153 159; with political capital 47, 50; with sociopolitical networks 45–7, 50; see also bazaar economy; peasant entrepreneur; periodic (rural) market Fan, C. 61 financial market: social networks and 16, 18, 46–7, 50, 120–2; underdevelopment of 20, 33, 120–2; see also Agricultural Bank; community-based credit organization; market; microfinance; Peasant’s Mutual Help Loan Association; rural credit association ; Rural Credit Cooperative focal variable 3, 10–12, 194 formal economic organization 5, 12, 18, 41, 43, 45–6, 196 Geertz, C. 18, 25, 36, 38–40, 44–5, 47 Gini coefficient (Pseudo Gini coefficient) 152–3, 177, 179, 187, 220 grassroots cadre (township and village cadre): definition of 214; entrepreneurship and 18, 29, 41, 43, 47, 65, 67; microfinance and 20, 138–40, 218–19; qualification of cadre and cadre-peasant relationship (ganqun guanxi) 159, 162–3, 167–8, 220; ratio of 215–16; social capitals and 4–5, 7–8, 10–12, 162, 189, 194, 196; see also party-governmental apparatus; party member Great Leap Forward (dayuejin) 179, 182, 192 Griffin, K. 6, 187 Gu, J. 79 guanxi (guanxiwang) see social networks Guasch, L. 121 Guo, H. 139, 218–19 Hara, Y. 3, 36–7, 44, 194–5 Hare, D. 147, 158 Hayami, Y. 194, 196 Herrmann-Pillath, C. 9 Hoff, K. 122 household registration (hukou) 14, 29, 41, 43, 65, 76, 92, 99, 110, 135, 137, 163, 172, 178, 191–2, 220 Hsiung, B. 147 Huang, P. 171, 221 Hulme, D. 123

236

Index

human capital: definition and research framework 1, 5–6, 10–12, 17, 193–4, 196–8; family business/entrepreneur and 18–19, 29, 32, 67, 79; income distribution and 3–8, 17, 19, 103, 111, 147, 157–9, 162–7; market transition and 3–5; migration and 19, 91, 98–103, 111, 162–3, 166; merit system 7; rate of return on education 7–8; see also social capitals income distribution 3, 6–9, 17, 20, 102–3, 214, 221–2; comparative village analysis of 147, 153, 166, 220; see also collective income distribution institution: definition of 214; formal 116, 123, 195; informal 17, 116, 195; institutional arrangements of the party-state system (institutional legacy of the Mao era) 13–14, 16, 18, 50, 196, 199; institutional barrier in labour market 97–9, 102, 110, 166, 199, 218; market as 3; marketization and 15–17, 25, 33, 36, 78, 81, 121, 141, 195–6, 215 Inter-University Consortium for Political and Social Research 216–17 inverted-U hypothesis 6, 214 Ishihara, K. 16 Ishikawa, S. 15, 194, 196–7 Jalan, J. 6 Jefferson, G. 52 Jia, H. 217 Kang, X. 139, 218–19 Khan, A. 6, 7, 8, 158 Khandker, S. 143 kinship 11, 44, 91, 189, 194, 196; see also blood relatives (relations); social networks Knight, J. 6, 14, 29, 147, 199, 217–18 Kostello, E. 195 Kuznets, S. 6, 214 labour market: data on 92–3; primary social networks and 16, 91, 93, 96–9, 102, 107–11; sociopolitical networks and 17, 19, 107–8, 110–11; village economy and 151, 159, 162–3, 166–7, 221; see also market; migration

labour-boss (baogongtou) 17, 19, 93, 107–8, 110–11; see also labour market; migration Lai, D. 7 land reform 20, 169, 172–3, 177, 198 Ledgerwood, J. 123 Lee, Y. 218 Li, Hong 65, 81 Li, Hongyi 214 Li, L. 5, 53, 63, 214 Li, S. 6, 7, 147 Li, W. 7 Li, X. 218 Li, Y. 218 Lin, Q. 52 lineage (lineage-based system of kinship) (zongzu) 45, 194; see also blood relatives (relations); kinship; social networks Liu, W. 218 local government: developmental role of 5, 9, 19, 197, 219; enterprise/entrepreneur and 5, 9, 19, 51, 57, 78–9, 81, 217; microfinance and 17, 116, 123, 131–2, 141; migration and 96–7; povertyalleviation policy and 131–2; see also local state corporatism; partygovernmental apparatus; party-state system; state local state corporatism 78, 159; see also local government Lu, M. 198 Lü, X. 215 Luong, H. 222 Ma, J. 62, 69 Mallee, H. 218 manager or person in charge of purchasing/marketing (caigouyuan, tuixiaoyuan) 12, 41 market: as a nexus of social networks 3, 13, 193–5, 197; market transition thesis (debate) 3–6, 8–9, 79, 166, 195, 199, 214–15; underdevelopment of 13–16, 20, 25, 33, 121–3, 193; see also financial market; labour market market economy (system) 14, 81, 194–6 Meng, X. 7 microfinance: analytical framework 17, 20, 116–17, 197; background of

Index 120–3, 129–131; Bangladesh scheme 131–41, 219; borrowing center (zhongxin) / center manager (zhongxin zhuren) 132, 135–9, 141; borrowing small group (xiaozu) / small-group leader (xiaozuzhang) 132, 135–9; Kunming scheme 131, 133–4, 137–40; Microfinance Office 133–4, 136–8, 219; Microfinance Station (xiaoexindai gongzuozhan) 133–8, 140; natural village cadre and 137–9; Public Finance Office (caizhengsuo) 134, 137–8, 219; see also financial market; social networks migrant see migration migration: analytical framework and data 1, 91–3; background of 13–15; characteristics of migrants 93; entry to labour market 91, 93, 96–9, 102, 159, 162–3, 166; migrant’s attitude toward factory labour 91–2, 111–13, 115; regional disparity and 17, 106–7; social networks and 9, 16–19, 91, 96–9, 102–3, 106–13, 197; village economy and 151, 171–3, 176–8, 185, 191–2; see also labour market; primary social networks; social networks Ministry of Agriculture 7, 149, 221 Ministry of Labour 91 Miyajima, H. 189, 199 Mosley, P. 123 Nakagane, K. 16, 199 Nakanishi, T. 216 Nanjing University 53 National Bureau of Statistics (NBS) (guojia tongjiju) 6, 92, 152, 171, 220–1 natural village (zirancun) 12–13, 20, 117, 132, 137–9, 149, 169, 171, 215; demography of 191–2; see also administrative village; village-smallgroup Naughton, B.14–15 Nee, V. 4–5, 214 network capital: definition and research framework 1, 3, 10–12, 17, 25, 194; family business/entrepreneur and 18–19, 32, 47, 67, 79; entrepreneur’s behaviour and 41, 43; migration and 19, 91, 98–9, 102–3, 110–11; regional imbalances and 198; two folds of 196;

237

underdeveloped market and 197–8; see also social capitals; social networks; sociopolitical networks; non-state sector 15, 19, 55, 91, 97, 99, 102, 110, 151, 206, 218; see also state sector North, D. 195, 214 Oi, J. 5, 78, 159 Okamoto, M. 128 out-migration (out-migrants) see migration ownership and management system reforms (gaizhi) of TVE 56–7, 60–3; and behavioural patterns of entrepreneurs 19, 69–71, 76, 79; and changes in government roles 19, 78–9, 81, 197; and patron-client ties between entrepreneurs and local authority 77–9, 81; in Wenzhou 62–3; in Wujiang 61–2; jointly held shares (gongxiang gu) 68; leased (zulin) firm 57, 60–1; limited liability corporation (youxian zeren gongsi) 60–1, 63; private enterprise 51–2, 60–3, 65, 68, 79; risk-deposit contract responsibility system (fengxian diya chengbao) 57; shareholding corporation (gufen youxian gongsi) 60–1, 63, 69; shareholding cooperative enterprise (gufen hezuozhi qiye) 57, 60–1, 63; see also peasant entrepreneur; township and village enterprise party branch (dang zhibu) 13, 177; see also party-governmental apparatus party member: advantages of being 4–5, 7–8, 47, 103, 157, 162–3; behavioural choices of 41, 43, 76; ratio of 29, 65, 214, 217; microfinance and 133; social capitals and 10–12, 194, 214; see also grassroots cadre; party-governmental apparatus party-governmental apparatus 1, 9–10, 52, 193; enterprise/entrepreneur and 17, 19, 43, 52, 55–7, 60–1, 65, 69–71, 76–9, 81, 193, 217; income opportunities and 96, 151, 159, 162, 166–8, 187, 220; social capitals and 5, 43, 167; see also grassroots cadre; local government; party member; party-state system; state

238

Index

party-state system: entrepreneurship and 18, 50, 67; marketization and 4, 18, 50; organizational structure of 13, 177, 214; peasants and 189; social capitals and 12, 67, 96, 196; see also local government; party-governmental apparatus; state patron-client (clientelist) network (tie) 8–9, 17, 19, 51–2, 55, 70, 76–8, 222; see also sociopolitical networks peasant entrepreneurs (nongmin qiyejia) (executives of TVE) analytical framework and data 1, 4, 9, 25–6, 51–3, 193, 216; behaviours and relationship with local authority and community 17–19, 52–3, 54–5, 69–71, 76–9, 81, 217; behaviours in periodic market (see family business); entrepreneurship and party-state system 18, 46–7, 50, 67; social characteristics of 5, 17–19, 25, 28–9, 32, 47, 50, 51–2, 54, 63, 65, 67–9, 79, 82, 217; see also family business; ownership and management system reforms (gaizhi) of TVE; township and village enterprise Peasant’s Mutual Help Loan Association (nongmin huzhu chujin hui) 129, 143–4, 218; see also financial market; rural credit association; Rural Credit Cooperative people’s commune (renmingongshe) (commune system) 21, 169, 171, 177–8, 215; migration and 178, 192; private activities under 185, 187–9 192, 215; production brigade (shengchan dadui) 20, 169, 177, 191, 215; production team (shengchan dui) 20, 169, 171, 177, 215; income distribution within production team 177–9, 181–4, 189; see also collective income distribution; work-point per capita annual net income of rural households (nongmin renjun chunshouru) 117, 220 periodic (rural) market (jishi) 12, 18, 20, 197; in Shilin 25–8, 32; trade relations in 44–5; in the commune era 188; see also bazaar economy; family business Perry, E. 202 planned system (economy) 7, 14–16, 56 Polanyi, K. 214

Policy Research Institute of Wenzhou City 53 political capital: definition and research framework 1, 5–6, 10–12, 193–4, 196–8; family business/entrepreneur and 29, 47, 50; income distribution and 3–8, 17, 20, 147, 157–9, 162–7, 220; market transition and 3–6; migration and 18; see also grassroots cadre; party member; social capitals; sociopolitical networks poor county (pinkunxian) 117; see also poverty-alleviation policy poor household registration card (pinkunhu ka) 135, 137; see also poverty-alleviation policy poverty-alleviation (fupin) policy 96, 116–17, 130–41, 143; householdoriented approach in 116, 130; regional development approach in 116, 130; poverty-alleviation policy manager (fupin zhuangan) 219; Poverty-Alleviation Program Office (fupin bangongshi) 131, 133, 140, 219; Poverty-Alleviation Program Station (fupin gongzuozhan) 133–4, 138, 219; poverty-alleviation public loan (fupin zhuanxiang daikuan) 131–4, 136, 219; poverty-alleviation Schwerpunkt townships (fupin gongjian xiang) 132; poverty-alleviation work-team (fupin gongzuodui) 117; see also microfinance primary social networks: definition and framework 11, 193, 196; financial market and 16; migration and 16–17, 19, 91, 96, 102, 110, 197; in periodic market 44–5; income distribution and 163; see also social capitals; social networks; sociopolitical networks private enterprise (siying qiye) 5, 9, 21, 29, 46, 51–2, 60–3, 65, 68, 79, 152, 214 private plots (ziliudi) 20, 185, 187 production brigade (shengchan dadui) see people’s commune production team (shengchan dui) see people’s commune Putterman, L. 147, 158, 183, 187–8, 221 Qian S. 79 Qin, Z. 57 Ravallion, M. 6, 215

Index redistribution mechanism (system) 4, 14, 166–7 regional disparity (differences, imbalances) 1, 3, 6, 10, 12, 17–18; in access to economic opportunities 159, 162–3, 166–7; in income distribution 8, 151–3, 157–9; in migration 17–18, 106–7; in types of TVE development 55–6, 61–3 Research Centre for Rural Economy of the Ministry of Agriculture 149 Riskin, C. 6–8 rotational-loan groups (hui) 130 Rozelle, S. 147 rural credit association (nongcun hezuo jijinhui) 46, 123, 143–4, 216; see also community-based credit organization; financial market; Peasant’s Mutual Help Loan Association Rural Credit Cooperative (RCC) (xinyongshe) 46, 123, 129, 136, 216, 218; see also Agricultural Bank; community-based credit organization; financial market Rural Management Station (nongcun jingying guanli zhan) 129–30, 134 rural-urban divide 14–15 rural-urban migration see migration Saith, A. 187 Sands, B. 221 Sato, H. 82, 92, 131, 167, 214, 218, 220 semi-micro environment 3, 10, 12, 17, 20, 159, 167, 193, 198; see also community; party-governmental apparatus Sen, A. 10 sent-down youth (xiafang zhiqing) 192 sericulture 149, 151, 171–3, 176, 181, 221 service allowance (for grassroots cadre) (wugong butie) 152 Shi, X. 9 Shi, Y. 216 sidelines 153, 158, 178, 184–9, 191 Singh, I. 52 slackly centralized system 16 small peasant (small peasant household) 18, 121–2, 169, 189, 193, 198–9 social capitals: definition and research framework 1, 3, 9–12; income distribution and 3, 6–8, 19–20, 102–3, 110; market transition and 3–6; social

239

networks as 8–9; see also human capital; network capital; political capital; social networks; sociopolitical networks social networks (social relations): definition and research framework 1, 3–5, 8–12, 16–17, 193–9; financial market and 16, 20, 46, 116, 122, 130 (see also microfinance); income distribution and 8, 19, 102–3, 163, 166; in periodic market 44–5; market as a nexus of 3, 13, 193–5, 197; market transition and 3–5; migration and 9, 16–19, 91, 96–9, 102–3, 106–13, 197; see also network capital; primary social networks; social capitals; sociopolitical networks sociopolitical networks: definition and framework 11–12, 25, 193, 196; family business/entrepreneur and 9, 16–19, 25, 40, 43, 45–7, 50, 67; financial market and 16, 46–7; migration/labour market and 17, 19, 96, 103, 110–11; see also patron-client network; political capital; primary social networks; social capitals; social networks Solinger, D. 9, 19, 91, 93, 96, 98, 110–11, 218 Song, L. 6, 14, 29, 199, 217–18 specialized agricultural producer’s association (zhuanye jishu xiehui) 141, 219 Squire, L. 214 state: peasants and 20, 141, 178, 182–3, 185; relationship of state, market and society 3, 20, 70, 141, 143, 193–4, 196–7; state failure 122; see also local government; party-governmental apparatus; party-state system state-owned enterprises (SOE) 9, 52, 57, 96, 152, 214 state-owned marketing enterprise 12, 18, 41, 45 state (state-owned) sector 15, 19, 55–7, 91, 97, 99, 102–3, 110, 151, 218, 220 see also non-state sector Stiglitz, J. E. 122 Sunan (Southern Jiangsu) model (Sunan moshi) 18, 51–2, 55–7, 68, 78–9, 197, 217; see also Wenzhou model Supply and Marketing Cooperatives (SMC) (gongxiaoshe) 12, 18, 41 Szelényi, I. 195

240

Index

Tajima, T. 16 Tan, Q. 60–1 temporary employment without labour contract (linshigong) 99 township (xiang, zhen) 12–13, 45, 56–7 township and village cadre see grassroots cadre township and village enterprise (TVE) (xiangzhen qiye): community and 12; dual-sector model and 14; financial market and 46–7, 129; market transition and 5; party-governmental apparatus and 197; poverty-alleviation policy and 130; regional disparity and 107; regional types of 55–6, 61–3; social networks and 9, 12, 41, 45–6; village economy and 20, 149, 151–3, 157–9, 162–3, 166–7, 171; see also ownership and management system reforms of TVE; peasant entrepreneur Tsui, K. 6, 8, 107, 215 TVE see township and village enterprise Unger, J. 213 Vermeer, E. 187, 189 village cadre see grassroots cadre village committee (cunmin weiyuanhui) 13; see also administrative village village-small-group (cunmin xiaozu) 12, 171, 215; see also natural village Walder, A. 5, 9, 214, 222 Walker, K. 187 Wang, C. 9 Wang, X. 9 Wang, Z. 28

Wank, D. 9, 53, 194, 196, 215 Wenzhou model (Wenzhou moshi) 18, 51, 52, 55–6; see also Sunan model work-point (gongfen) 179, 183–4, 187–8; basic work-points (difen) 183; wage per workday (gongfenzhi) 178; workpoints for labor contribution (laodong gongfen) 184, 187; work-points for stock raising” (xumu gongfen) 184, 187–8; see also collective income distribution; people’s commune work unit (danwei) 14 World Bank 6, 52, 69, 214, 216, 218–20 Wu, B. 221 Wu, H. 7 Xu, X. 143–4 Yan, Y. 215 Yang, C. 139, 218–19 Yang, M. 215 Yoshida, H. 128 Yunnan Academy of Social Sciences 26 Zhang, J. 9 Zhang, L. 9, 78, 171–2, 179, 188, 215, 217, 221 Zhang, P. 6, 8, 52, 215, 220 Zhang, R. 65, 81, 217 Zhao, J. 52 Zhao, R. 6 Zhao, S. 9, 91 Zhu, C. 9 Zhu, L. 6, 131, 147, 215 Zou, H. 214 Zweig, D. 181