State-owned versus township and village enterprises in China

This paper presents an up-to-date survey of the comparison issue between state-owned enterprises (SOEs) and township-village enterprises (TVEs) in China. Although TVEs are disadvantaged in areas such as technology, labour skills, education levels of staff, access to bank loans and government supports, they have important advantages in ownership and governance structures, personnel systems and labor relations, and conditions of institutional arrangement. These advantages apparently have outweighed the disadvantages, allowing the TVEs to outperform SOEs and successfully expand market shares that previously belonged to the SOEs. However, our analysis also reveals that SOEs may not have performed so badly if the values they created other than reported profits are also taken into account. In conclusion, we argue that both SOEs and TVEs need to reform their ownership and governance structures. In particular, if TVEs are to develop further during the next century, they cannot avoid the grassroots democratization.