Chinese Villages and Townships as Industrial Corporations: Ownership, Governance, and Market Discipline
Public firms in a reforming socialist economy face two problems:the old soft-budget constraint syndrome and new principal-agent problems. China’s township-village government-owned enterprises (TVEs) outperform state-owned enterprises (SOEs) in growth rate and productivity. Three explanations are proposed in the literature: (1) TVEs represent informal or ambiguous private property rights,
which are most efficient in partial reform. (2) The small size and scale of township-village governments as industrial corporations allows officials to monitor TVEs directly and to limit their wherewithal for cross-subsidizing. (3) Strict market disciplines facing TVEs render indirect market monitoring to mitigate agency problems effectively. Analyses of Jiangyin data show that (a) while both superior to local SOEs, village and township enterprises share similar productivity and (b) the scale of township-village corporations slightly increases productivity. I conclude that local state corporatism should be revised to include market discipline as an effective governance mechanism.
Chinese Villages and Townships as Industrial Corporations: Ownership, Governance, and Market Discipline
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