Township-village enterprises, local governments and rural communities: the Chinese village as a firm during economic transition 1

The nature of TVEs and the real functions of township-village governments are rooted in the Chinese township-village organization. The management of common property in a village group or a rural community is quite different from management in a situation where the boundaries of common property are unclear. Before economic reform, the cooperative elements or interspecific resources, such as low information costs, kinship ties, trust and cooperative spirit belonged in common to all villagers, yet cooperation was absent because the Chinese state appropriated the collective benefits. During the course of reform, the link between village official and state is being gradually broken down and the official is returning to his own village organization. The original interspecific resources of villagers and the identity of the village leader as government official are institutionalized as specific contractual relations in China's reform circumstances. The Chinese village behaves as a firm-type organization and the collective benefits can be internalized during the economic transition. Copyright 1996 The European Bank for Reconstruction and Development.