THE three counties of Wuxi, Songjiang, and Yueqing were similar in that they were among the wealthiest counties in the country as of the early 1990s, but they differed dramatically in the forms of property rights that characterized the rural industrial sector – the main source of wealth in each of the three local economies. Local government-run firms dominated rural industry in Wuxi and Songjiang, while privately run firms dominated in Yueqing. This chapter employs a case study approach to construct a theoretical explanation for this empirical puzzle. Local officials responded to incentives to generate revenue through the promotion of rural industry by supporting particular forms of property rights within their jurisdictions. However, their choices about what forms of property rights to support were constrained by distinct local resource endowments inherited from the Maoist era and shaped by the nature of national political-legal and market institutions during the reform period.

In the relatively inhospitable political and economic climate of the early reform period, local officials in Yueqing County, Wenzhou, faced a particular challenge in attempting to specify private property rights in order to promote private investment in industry. They responded to the challenge by innovating aggressively in the area of property rights, drafting local regulations that allowed several different forms of private investment to coexist. Most private investors in Yueqing chose to adopt cooperative shareholding (gufen hezuo) – a form of ownership that entailed some attenuation of full private property rights – rather than private (siying) ownership – an ownership form that did not entail the same attenuation.