Bureaucracy, Politics, and Decision Making in Post-Mao China "d0e12117"

Profits from Rural Industry and Small-town Development

Since township and village enterprises (TVEs) are the major source of new capital in the rural areas,^[30] rural governments constantly try to control their fiscal activities (Oi 1987).^[31] Poorly defined collective prop-

[30] World Bank estimates for four counties in Jiangsu, Anhui, Jiangxi, and Guangdong provinces show that 1986 profits handed over by township-owned enterprises to township governments made up 38 percent of township revenues (Song and Du 1990, 349).

[31] Byrd and Gelb call this "fiscal predation" (Byrd and Gelb 1990), 377–80.

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erty rights facilitate government interference. Although township governments, reestablished in 1984, were to separate economic and political power, they still control TVEs under their jurisdiction, making them both levels of government administration responsible for a community's development and owners of community-run enterprises (Song and Du 1990).

A major debate ensues on how much after-tax profits of TVEs should go to county-town and township governments for urban development and how much should be left in the factory. Under a 2:2:5:1 system, 20 percent of after-tax profits of TVEs goes to town development, with another 20 percent supplementing agriculture (yi gong bu nong ) (Tang and Ye 1986, 345).^[32] A potentially inflated figure posits that 20–30 percent of the profits of locally controlled rural enterprises are going to develop educational and health services in small towns (Jin 1987, 34). Jiangpu county officials in the Rural Industry Bureau argued in 1986 that while 10 percent of the profits of TVEs went directly to the government that owned them, 30 percent went to these governments' industrial company (gongye gongsi ) for investment in agriculture, for building new factories, or for saving bankrupt ones. Forty percent of the funds are turned over to the local government (Jiangpu 1986).^[33] According to Yok-shiu Lee's data, the percentage of after-tax profits of TVEs going to "collective welfare"—monies for rural highways, schools, theaters, and market-town infrastructure—tripled from 1978 to 1984, rising from 5.9 percent to 15.7 percent (see table 12.3).

Before 1985, when county-towns in Wujiang county did not control the surrounding rural areas, county-town leaders had difficulty in attaching the profits of township-owned enterprises that existed within their geographic domain, even though they had previously used these funds for repairing streets, roads, and bridges. Unlike the county government's superior status vis-à-vis the county seat, the legal status of county-towns

[32] Fifty percent was to go for reinvestment and 10 percent for workers' welfare.

[33] Two different townships, one in Wuxi county, Jiangsu province, and the second in Shangrao county, Jiangxi province, made dramatically different contributions to rural urbanization. The Wuxi township spent 10.7 percent, or 1 million yuan, of its total income on "public and social services"; the Shangrao township spent 68.9 percent, or 285,700 yuan, of its total income on "public and social services." Ninety-five percent of the income available to the Wuxi township came from enterprise profits; in Shangrao the township got only 3.2 percent of its income from enterprise profits. Moreover, because Shangrao had so little rural industry it depended on a massive budget allocation from the county, which comprised over 50 percent of its income and over 73 percent of the funds utilized for "public and social services." (Byrd and Gelb 1990, table 17–5.) Because of the weak industrial base in Shangrao county, the county took funds for governmental administration from the township enterprises even before these enterprises could get off the ground; as a result most rural enterprises failed to expand.

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TABLE 12.3. Percentage Distribution of After-Tax Profits of Township and Village Enterprises, 1978–1984
	1978	1979	1980	1981	1982	1983	1984
Reinvest in TVEs	45.3	50.4	49.7	43.0	46.0	48.4	61.2
Assist agriculture	38.5	33.3	23.9	17.0	13.8	13.0	6.6
Purchase farm machinery	16.9	14.0	9.6	7.0	5.1	3.9	n.a.
Farmland infrastructure	17.1	14.5	9.9	8.0	6.9	6.9	n.a.
Aid to poor teams	4.5	4.8	4.4	2.0	1.8	2.2	n.a.
Distribute to team membersa	—	—	n.a.	n.a.	21.7	16.3	6.4
Collective welfareb	5.9	6.1	7.2	7.0	9.1	10.9	15.7
Others	10.0	10.1	n.a.	n.a.	9.4	11.4	10.0
SOURCES: 1978–1979: ZGNYNJ 1980, 366.
1980–1981: ZGNCTJNJ 1985, 190.
1982: ZGNYNJ 1983, 83.
1983: ZGNYNJ 1984, 124.
1984: ZGNYNJ 1985, 181–82.
NOTE: This table was complied by Yok-shiu Lee and appeared in a draft chapter of his dissertation, Department of Urban Studies and Planning, MIT.
aTeam members here refer to those who have remained in farming jobs and not to the peasant workers.
b Collective welfare includes rural highways, schools, theaters, and market town infrastructure.

and township governments was formally the same, so leaders of township-owned enterprises simply refused funding requests from the county-town, accusing county-town officials of "levying contributions at random" (Fei 1986, 84). In fact, poorer towns in northern Jiangsu that took too much money from TVE profits for town development undermined industrial development (Tang and Ye 1986, 339–47). But the 1985 merger of county-towns and townships in Wujiang county has probably helped county-town officials raid factory profits for development projects. As a result, profits from TVEs are a critical source of funding for infrastructural development in county-towns and township seats, although the precise level of after-tax profits allocated for this investment remains unclear.