Chinese Economic Development

Industrial development since 1978 423the share of the state sector in non-farm business value-added falling from 41 percent in 1998 to 37 per cent in 2001 and 34 per cent in 2003.The restructuring of the TVE sector is equally apparent. In 1995, employmentin township- and village-owned TVEs amounted to 61 million, but this had beencut to only 29 million by 2003. Over the same period, the private sector increasedits level of employment from 9 to 46 million (Bramall 2007: 78). Even in Jiangsu,the heartland of TVEs owned by local government, the local state share in employmentwas down to 25 per cent in 2001, 14 per cent in 2002 and by 2004 it was amere 6 per cent (JSTJNJ 2002: 170; 2003: 206; 2005: 186). And the situation waslittle different in neighbouring Zhejiang, where local state-owned enterprises hadalso flourished in the 1980s; by 2004, the private sector provided 88 per cent ofTVE employment (ZJTJNJ 2005: 296). To all intents and purposes, TVEs ownedby local government had been wiped out during the course of a decade.How should all these changes be interpreted? It is tempting to conclude from thefact that the state sector remains so large that the change has been quantitative ratherthan qualitative. China has completed its transition to state capitalism perhaps, butthe state continues to be a key actor in the developmental process. Indeed, anideological justification for this sort of approach could still be constructed. Theformula adopted by Jiang Zemin and his successors was to argue either that thesignificance of the state sector was not measured by its size, or that the nature ofownership was irrelevant as long as income inequality remained within acceptablebounds. A quotation gives a flavour of the approach (Jiang 1997):On the premise that we keep public ownership in the dominant position, thatthe state controls the life-blood of the national economy and that the stateownedsector has stronger control capability and is more competitive, even ifthe state-owned sector accounts for a smaller proportion of the economy, thiswill not affect the socialist nature of our countryThis sanguine interpretation of the continuing importance of the state is supportedby the continuing emphasis placed on the development of both enterprise groupsand the subset of 100 national champions. It is of course true that not all theseenterprises are owned by the state, but ownership per se is not necessarily decisive.The experience of Japan, South Korea and Taiwan in the postwar era teachesus that state control can be exercised without formal ownership via the allocationof finance.Nevertheless, whilst recognizing the continuing importance of the state sector,the reduction in its role since the mid-1990s has been dramatic. To see this,consider the data on employment in corporations as recorded by the first NationalEconomic Census on 31 December 2004. These corporations represent the formalsector (the data exclude the self-employed, whether those living in urban areas orthe vast number of farm households). Corporations employed nearly 215 millionworkers at the end of 2004 (out of a total of some 770 million workers and theself-employed). Of the 96.4 million employed in industrial corporations, only 12.8million were employed in the state sector, and a further 7.33 million in collective