The Institutional Root of China's Rural Industry and Gradual Reform

China's transition from planned to market economy is at present one of the topics most discussed among researchers. According to almost any version of mainstream property rights theory, the rapid privatization or what has been described as the "East European model" basically represents the correct approach to transformation, while the gradual transition, or the "Chinese model", should represent a recipe for economic disaster. The central paradox is the enormous success of the Chinese model in practice. Why do theory and practice seem so diametrically opposed in this important area? This has provoked intensive study and debate on China's gradual transition. This thesis is an outcome of the debate and basically a collection of internationally published papers. The aim of the thesis is specifically to study: 1) the combinative role of China's larger rural sector and its institutional foundation in the gradual transition from plan to market; 2) the organizational mechanism responsible for the success of township-village enterprises (TVEs); 3) the connection of the organizational mechanism of TVEs with the institutional foundation of the large rural sector; 4) the inner link of the pre-reform and post-reform institutions. The four basic points of the aim of this thesis are finally connected and framed as a complete whole by the argument of the collective land system. The collective land system is the principal factor of both the Maoist and post-Maoist institutions and connects the two development patterns. It is; the institutional foundation of both TVEs and the large rural sector, the factor which generates and supports TVEs, the organizational mechanism responsible for the success of TVEs and the macro-mechanism of China's gradual transition. The thesis concludes that the combination of the two basic factors, China's large rural sector and collective land system, has made the gradual transition successful. If the collective land had been privatized in the early 1980s, there would have been no TVEs and gradual transition at all in China. No factor can be more fundamental than the collective land system in the TVE model and the Chinese model of gradual transition. The challenge of China's economic transition for economic theory is made not by TVEs and township-village governments, but by the collective land system which generates and supports TVEs and the Chinese style township-village governments