Black Cat or White Cat

In 1978, China was an impoverished country that had just gone through the devastating Cultural Revolution. Forty years later, China has become the world’s second largest economy and is still growing rapidly. This unprecedented economic success is the result of government reform. Scholars have presented different perspectives on China’s success. Some economists, like Yasheng Huang, attribute China’s rapid growth to the opening to private enterprise in the rural areas. Whereas others, like Jean Oi, argue that the township and village enterprises were not private, but actually were owned by the government. However, Huang’s argument is more persuasive as he provides more evidence. Yet, Huang’s neglect of the government’s longstanding attention to the urban areas, which was the main driving force China’s economy, and his determination to attribute the “rural decay” to the “urban focus” reduces the value of his article.

Oi believes China’s township and village enterprises are a form of collective economy, controlled by the government. Yet her argument relies on speculation and anecdote. As a result, her argument doesn’t reflect a nuanced or well-informed understanding of the issue.  For example, Oi stated that “township and village enterprises, which are the most economically significant portion of the rural industry, are not privately owned, nor are they forms of hybrid privatization, but forms of government ownership”(Oi, 1135). Her point is that township and village enterprises are completely owned by the states. To be more specific, she thinks that the Chinese government runs like, what she called, a “multi-level corporation” (Oi 1138). A county can be regarded as the corporate headquarters (the top of the corporate hierarchy), the township can be regarded as regional headquarters, and villages are companies. She points out the reason behind the succession of the collectiveness from the Maoist era is that fresh to the terror of the Maoist era, people were unsure of political wind and were unwilling to bear the risks to start a business under the Communist state. Under such circumstances, the states had to step in and develop the rural industry.

Huang, on the other hand, challenged Oi’s arguments by offering evidence that China’s township and rural enterprises are in fact private. Huang disagrees when he writes, “township and village enterprises from the inception have been private and that China has been private and China undertook significant and meaningful financial liberalization at the very start of the reforms”(Huang 148). Huang believes that the Chinese government has been encouraging the privatization of the rural industry since the inception of the reform. Pieces of evidence in Huang’s article shows that in the 1980s the Chinese government implemented a series of actions such as releasing former capitalists from jail and returning confiscated properties to show the government’s positive attitude toward private owned businesses. He also offers an explanation for why many western scholars would mistakenly think township and village enterprise as a collective institution. Huang states that these western economists falsely believed that rural enterprises’ origin is the “commune and brigade enterprises”, a collective institution created in the Great Leap Forward, and assumed that township and village enterprises are referring to local ownership of these enterprises. Yet, in fact, the enterprises are actually referring to the geographic location of the enterprises in townships and villages.

Huang’s argument is further supported by Roselyn Hsueh’s claim that China’s economy has both private and non-private ownership at the level of large firms. This supports the idea that private ownership is allowed. She describes China as a paradox, “ the omnipresence of the state in economic activities along with genuinely capitalist practices and values”(Hsueh 1)  She discusses that China’s economy has a bifurcated system which is comprised of the strategic sector controlled by the state and the liberalized non-strategic sector. Hsueh explains that the strategic sector – which is built up by state-owned enterprises – is determined by the sector’s degree of importance to national security and national technology base. The non-strategic sector, which is less influential towards national security, is the private sector of the Chinese economy. According to Hsueh – in contrast to the deliberately controlled strategic industries – the state embraces the liberalization of the market in the non-strategic industries, introducing FDI and competition. She highlights that in the non-strategic electronic industry, “the state has fully embraced private entry and FDI to develop and promote the domestic industry” (Hsueh 258). Also the paper industry “is the most extensively liberalized and decentralized sector,” with no regulation beyond the central-level ministry (Hsueh 258). This reflects a prosperous private sector and liberalized market in China’s economy. However, even though Hsueh doesn’t talk about the township and village enterprises in her article, it’s not hard to discover that they also belong to the private non-strategic sector. The example of Chen Kai’s father losing his job in the early 1980s – detailed in the book Street of Eternal Happiness by Rob Schmitz – demonstrates and supports this claim. Schmitz writes that in the early 1980s, Chen Kai’s father lost his job at Hengyang City Number Two Construction Company because the reforms privatized parts of China. Schmitz also attributes the lay-off to the local privatized township and village enterprise increasing the competition in the market and eliminating inefficient state-owned enterprises like the one Chen Kai’s father worked in.

While Huang makes a persuasive argument for the private ownership of township and village enterprises, his claim that the “rural decay” after 1989 is due to an “urban focus” adopted by a new leader (Jiang Zemin) is not completely accurate. He believes that the instabilities in 1989 caused Zhao Ziyang, who pioneered in rural reforms, to fall from power. The successors were a group of politicians who started their career in China urban area and suppressed the rural industry to focus on the growth of the urban areas; Huang calls this the financial reversal. Yet, Huang is predisposed with biases ascribing legitimate regulations, like “wiping out informal finance” and lifting floors for agricultural lending, to the state’s control over the rural industry (Huang 162). Furthermore, Huang fails to realize that ever since the inception of the reform the focus has always been developing the urban area. As Morrison puts it, “coastal regions and cities were designated as open cities and developmental zones, which allowed them to experiment with free-market reforms and developmental zones”(Morrison 4). In short, the coastal cities were the first regions to benefit from the state’s policies and to practice capitalism in mainland China. Deng Xiaoping imaged the blueprint that the development of the city will drive the economic growth of its surrounding regions. Huang falsely believed that the core of China’s fast development was based in the rural industries because most of China’s population (close to 80% according to Huang) was located in the rural areas at the beginning of the reform. The urban migration, which refers to the migration of large population and wealth from the rural areas to the urban areas, explains the fast deterioration of the rural areas. This implies that the “rural decay” is an unavoidable result instead of being the result of Jiang Zemin’s take office. The engine of China’s economy doesn’t lie in the rural industries, but the urban industries.

In conclusion, China’s economic system is a “grey cat.” China’s success presented a completely new economic model to the world, with both collective and private sectors. No doubt that the introduction of capitalism into the Chinese economy infused new energy into the economy, creating a thriving view in both urban and rural areas. Nonetheless, the engine of China’s economy still lies in the urban areas. Yet, the government’s focus on the urban industry does raise concerns about the development in rural areas.


Hsueh, Roselyn. China’s Regulatory State: A New Strategy for Globalization. Cornell University

Press, 2011.

Huang, Yasheng. “How Did China Take Off?” Journal of Economic Perspectives  Volume 26, no. 4 (Fall

2012): 147–70.

Oi, Jean C. “The Role of the Local State in China’s Transitional Economy.” The China Quarterly, no. 144 (1995): 1132-49.

Schmitz, Rob. Street of Eternal Happiness: Big City Dreams Along a Shanghai Road. John Murray Publishers LT, 2017.

Morrison, Wayne M. “China’s Economic Rise: History, Trends, Challenges, and Implications for the United States.” Congressional Research Service, 2018.