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Internationalizing China's Countryside: The Political Economy of Exports from Rural Industry*

Published online by Cambridge University Press:  12 February 2009


The 10 years of the “open policy” changed China dramatically. After it decided to join the world economy by expanding its exports and importing technology, funds and management skills to bring to fruition the historic goal of modernizing China, it opened itself as well to new forces in the international system. But while most studies of China's growing foreign trade sector emphasize its impact on China's trading partners and the international economy, few studies have addressed the domestic impact of this decision to open up parts of the domestic economy to foreign trade and shift into a more “export-led” pattern of economic development.

Research Article
Copyright © The China Quarterly 1991

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1. For its impact on North-east Asia, see Lardy, Nicholas R., China's Entry into the World Economy (Lanham, Maryland: University Press of America, 1987)Google Scholar;

2. For a discussion of how the faction tied to the oil industry pushed for the opening to the outside, see Lieberthal, Kenneth and Oksenberg, Michel, Policy Making in China: Leaders, Structures and Process (Princeton: Princeton University Press, 1989)Google Scholar; For a discussion of how the open policy led to new coalitions, see Shirk, Susan, “The domestic political dimensions of China's foreign relations,” in Kim, Samuel (ed.), China and the World (Boulder: Westview Press, 1984), pp. 5781Google Scholar; For an economic analysis of the linkage between domestic economic reform and foreign trade reform, see Lardy, Nicholas R., Foreign Trade and Economic Reform in China (New York: Cambridge University Press, 1991)Google Scholar;

3. Gourevitch, Peter, “The second image reversed: the international sources of domestic politics,” International Organization, Vol. 32, No. 4 (Autumn 1978), pp. 881911CrossRefGoogle Scholar;

4. See Naughton, Barry, “Industrial policy during the Cultural Revolution: military preparation, decentralization, and leaps forward,” in Joseph, William A., Wong, Christine and Zweig, David (eds.), New Perspectives on the Cultural Revolution (Cambridge, Mass.: Harvard Contemporary China Series, 1991)Google Scholar; and Naughton, Barry, “The Third Front: defence industrialization in the Chinese interior,” The China Quarterly, No. 115 (09 1988), pp. 351386CrossRefGoogle Scholar;

5. See Jacobson, Harold K. and Oksenberg, Michel, China's Participation in the IMF, the World Bank, and GATT: Towards a Global Economic Order (Ann Arbor, MI: The University of Michigan Press, 1990)CrossRefGoogle Scholar;

6. See Watson, Andrew, “Agricultural reform and China's foreign trade,” Australian Journal of Chinese Affairs, No. 14 (07 1985), pp. 3963CrossRefGoogle Scholar;

7. Tuan, Francis C., “Performance of China's agricultural trade in the 1980s,” in CPE Agriculture Report (0304 1990), pp. 25Google Scholar;

8. Guangdong's role in putting out for Hong Kong factories is indicated by the breakdown of the foreign exchange earnings. Commodities from rural industries were sold for 610 million RMB, salaries earned in rural factories were 390 million RMB, and exports of agricultural commodities totalled 1.7 billion RMB. See Nongmin ribao (hereafter NMRB), 15 March 1988.

9. Interview REBDHZ–7/90. Unless otherwise stated, TVEs include enterprises owned privately, owned by the village or township governments, or enterprises owned by the village or township that are leased to individuals.

10. By 1988, rural China had imported over 800,000 pieces of machinery reportedly used for export processing. Interview REBDHZ–4/89.

11. See Lardy, Foreign Trade and Economic Reform in China.

12. See Zweig, David, “Rural industry: constraining China's leading growth sector,” in Joint Economic Committee, Congress of the United States, China's Economic Dilemmas in the 1990s: The Problems of Reforms, Modernization and Interdependence (Washington, D.C.: U.S. Government Printing Office, 1991)Google Scholar; See also Wong, Christine P.W., “Interpreting rural industrial growth in the post-Mao period,” Modern China, Vol. 14, No. 1 (01 1988), pp. 329CrossRefGoogle Scholar;

13. Interview SNBDI–1/89.

14. Interview DRCRWW–4/89.

15. Kamm, John, “Foreign trade,” in Vogel, Ezra, One Step Ahead in China (Cambridge, Mass.: Harvard University Press, 1989), p. 362Google Scholar;

16. Renmin ribao, 26 December 1984, cited in Kamm, , “Foreign trade,” pp. 384–85Google Scholar;

17. Interview DRCRWW–4/89.

18. Interview in 1990 with a former member of the RCRD.

19. See “Zhao on coastal area's development strategy,” Beijing Review, 8–14 February 1988, pp. 18–23.

20. See Jian, Wang, “Zou guoji daxunhuan jingji fazhan zhanlue de kenengxing ji qi yaoqiu” (“Pursue the possibility and demands of the economic development strategy of large-scale international circulation”), in Wenzuo, Rong and Huiming, Liu (eds.), Lun guoji de xunhuan (On Large-scale International Circulation) (Beijing: Economic Daily Publication House, 1988), pp. 265–69Google Scholar;

21. Ibid. p. 168.

22. Information in this paragraph came from interview DRCRWW–4/89.

23. For the most comprehensive study of reforms in the foreign trade sector and the debates which surrounded these decisions, see Lardy, Foreign Trade and Economic Reform in China.

24. Cummings, Bruce, “The political economy of China's turn outward,” in Kim, Samuel (ed.), China and the World: New Directions in Chinese Relations (Boulder: Westview Press, 1989), pp. 203236Google Scholar;

25. Gilpin, Robert, U.S. Power and the Multinational Corporation (New York: Basic Books, 1975)CrossRefGoogle Scholar argues that some states are able to control these outcomes more than others.

26. Thelen, , Marrin, , Johnson, and Bridges, , China Business: Current Regulation and Practise, 05 1988, p. 13Google Scholar;

27. This concept refers to the total magnitude of domestic currency subsidies provided by the centre to subsidize exports. Thanks to Nicholas R. Lardy who clarified the three quotas in personal correspondence with the author.

28. According to an official in the Ministry of Agriculture, by April 1989 all TVEs could legally talk to foreign businessmen and need not go through FTCs. But the need to control exports “in a planned economy” meant that FTCs still had important responsibilities to pass up foreign exchange to the state and then distribute the excess foreign exchange back to the firms. Interview REBDHZ–4/89. Guangdong factories with annual export sales of over one million U.S. dollars could get export licences and trade directly with foreign firms. Kamm, , “Foreign trade,” p. 376Google Scholar;

29. Interview MHXWJ–7/88.

30. See Ross, Madelyn C., “Changing the foreign trade system,” The China Business Review (0506 1988), p. 34Google Scholar.

31. Thelen, et al. , China Business, p. 13Google Scholar;

32. The dramatic rise in imports in 1985 was due in part to a central decision to use foreign exchange to import consumer durables to soak up the excess capital brought about by the drastic wage and bank loan expansions in late 1984. Thanks to an anonymous reader for this insight.

33. Interview DRCRWW–4/89.

34. For a discussion of the problems in the transitional period see Zweig, David, “The dilemmas of partial reform: state and collective firms versus the rural private sector,” in Reynolds, Bruce (ed.), Chinese Economic Policy: Economic Reform at Midstream (New York: Paragon House, 1989), pp. 1340Google Scholar; Oi, Jean C., “Peasant households between plan and market,” Modern China, Vol. 12, No. 2 (04 1986), pp. 230251CrossRefGoogle Scholar; Wong, Christine, “Between plan and market: the role of the local sector in post-Mao China,” Journal of Comparative Economics, No. 11 (1987), pp. 385398CrossRefGoogle Scholar; and Kueh, Y.Y., “Growth imperatives, economic recentralization, and China's open-door policy,” The Australian Journal of Chinese Affairs, No. 24 (07 1990), pp. 93119, who argues that the plan had always remained dominantCrossRefGoogle Scholar;

35. For a discussion of these mobilization strategies and the generation of “policy winds,” see Zweig, David, Agrarian Radicalism in China, 1968–1981 (Cambridge, Mass.: Harvard University Press, 1989), pp. 3848CrossRefGoogle Scholar;

36. Here is another case where the opening to the outside changed the task of a bureaucratic organization. Before the reform, its task was simply to certify the use of foreign exchange; now it must aggressively check that local firms turn in their share of foreign exchange. Interview MHXWJ–7/88.

37. Jingxing, Hong, Ping, Pei and Qiang, Yan, Fazhan waixiangxing jingji de zhanlue sikao he jingzheng celue (Develop the Competitive Tactics and Strategic Reflections on the Development of an Export Economy) (Changzhou: Jiangsu People's Publishing House, 1989), pp. 7677Google Scholar;

38. Chinese scholars explained the greater independence in Shanxi on the export of coal mined in collectively-owned coal mines.

39. Kamm, , “Foreign trade,” p. 360Google Scholar; While western firms complain about subsidies for China's exports, domestic firms that must sell their goods to MOFERT at less than domestic costs suffer as well.

40. NMRB, 8 July 1987.

41. While the Chinese table did not make clear what “indirect exports” were, it did differentiate between “direct exports” and “direct exports through MOFERT.” While “direct” exports may refer simply to direct sales from firms to the foreign buyer, there would then be no reason to differentiate that figure from “direct exports through MOFERT,” because these would not be “direct sales.” I assume that “direct exports” refers to exports of goods produced in the province that leave directly through provincial ports. These would include sales to the foreign purchaser through local foreign trade companies not under MOFERT's control and through MOFERT and its local representatives. Of these direct exports, the amount not controlled by MOFERT (columns 5 and 6) would indicate the extent to which the official foreign trade system did not control the exports in the provinces. “Indirect exports” probably refers to goods exported through other provinces.

42. NMRB, 11 August 1988.

43. See Daojin, Chen, “Waixiangxing xiangzhen qiye moshi–Zhujiang moshi” (“A model for rural enterprise exports-the Pearl River model”), in Jiyuan, Chen (ed.), Xiangzhen qiye moshi yanjiu (Research on Models of Township and Village Enterprises) (Beijing: Chinese Academy of Social Sciences Publishers, 1989)Google Scholar;

44. FTCs in Guangdong Province were forced as early as 1978 to disclose their selling prices to the factories from whom they were procuring equipment for export. See Kamm, , “Foreign trade,” p. 357Google Scholar; But in their dealings with the rural areas, FTCs tried to keep control through this mechanism.

45. NMRB, 18 July 1988.

46. NMRB, 26 August 1988, p. 1.

47. Ibid. As inflation in the 1980s increased the cost of producing goods and their sale price on the domestic market, MOFERT probably tried to resist raising sir procurement costs. With China's currency overvalued, MOFERT could not absorb the pressures for increasing the domestic procurement prices caused by domestic inflation to which would be offset by increased exports due to the lower exchange rate.

48. NMRB, 19 July 1988.

49. NMRB, 11 August 1988.

50. Interview MHXWJ–7/88.

51. Xiaopeng, Luo, “Ownership and status stratification,” in Byrd, William and Qinsong, Lin (eds.), China's Rural Industry: Structure, Development and Reform (Oxford: Oxford University Press, 1990)Google Scholar;

52. NMRB, 23 July 1988.

53. Daojin, Chen, “Waixiangxing xiangzhen qiye moshi,” p. 177Google Scholar;

54. Interview WXMCTM–1/89.

55. Personal communication between the author and Andrew Walder.

56. For why local officials support TVEs, see Oi, Jean C., “The ‘state’ and the economy in rural China: the impact of fiscal reform in the 1980s,” presented at the Association for Asian Studies Annual Meeting, Chicago, 3–5 04 1990Google Scholar;

57. For how local governments squeeze funds from banks to promote rural enterprises see Walder, Andrew G., “A profile of Zouping County industry and finance,” Shandong Field Research Project, 1988 Field Report, presented at the conference at Wingspread Center, Racine, WI, 4–6 11 1988Google Scholar;

58. Interview XLZIL–4/90.

59. A 1979 ruling let Guangdong keep 70% of foreign exchange earned above the quota of US$1.4 billion which was based on the 1978 level.

60. Kamm, , “Foreign trade,” p. 377Google Scholar;

61. January 1985 rules gave special retention rights of 70–100% for garments, arts and crafts, light industrial goods, and others. Kamm, , “Foreign trade,” p. 376Google Scholar;

62. RMRB, 19 July 1988.

63. There is extensive debate on whether the 10 years of reform and open policy have expanded inter-provincial or inter-regional inequality. For the case against expanding provincial inequalities see David L. Denny, “Provincial economic differences diminished in the decade of reform,” in Joint Economic Committee, Congress of the United States, China's Economic Dilemmas in the 1990s. The case for expanding regional inequality is in Yang, Dali, “Patterns of China's regional development strategy,” The China Quarterly, No. 122 (06 1990), pp. 230257CrossRefGoogle Scholar;

64. Cheng, Elizabeth, “Beggar thy neighbour,” Far Eastern Economic Review, 12 01 1989, pp. 4546Google Scholar;

65. Personal comments from Edward Friedman and Terry Sicular.

66. A similar situation occurred in 1986–87, as private firms emerged in the countryside to challenge the supply amd marketing co-operatives and service companies in county towns. These firms had numerous responsibilities derived from their former tasks–such as buying crops from peasants when other markets had dried up or welfare obligations to dozens of retired workers–that private firms did not face. See Zweig, “The dilemmas of partial reform.”

67. Faison, Seth, “Hunan-Guangdong trade ‘border war’ continues,” South China Morning Post, 5 03 1990, p. 11Google Scholar;

68. Jingxing, Hong et al. (eds.), Fazhan waixiangxing jingji, p. 79Google Scholar; When I presented this paper at the Sociology Institute at CASS in July 1990 several scholars expressed concern about how the coast was exploiting the inland provinces.

69. Interview MHXWJ–7/88.

70. Interview MEMCY–4/89.

71. Interview CHZIBJ/7–90.

72. Interview DRCRWW–4/89.

73. Li Peng's government work report, 20 March 1990,” in FBIS, No. 67 (6 04 1990), p. 24Google Scholar;

74. Interview REBDHZ–7/90.

75. “Party chief on coastal development,” China Daily, 12 December 1989.

76. See Wen wei po, 26 February 1990, p. 1, in Foreign Broadcast Information Service, 27 February 1990, pp. 32–33.

77. Faison, , “Hunan-Guangdong trade,” p. 11Google Scholar.

78. Reporter, “Pay close attention to the work of rectifying various kinds of foreign trade corporations,” Guoji shangbao (International Business), 20 03 1990, p. 1, cited in an unpublished paper by Nicholas R. LardyGoogle Scholar.

79. Migdal, Joel, “Strong states, weak states: power and accommodation,” in Huntington, Samuel and Weiner, Myron (eds.), Understanding Political Development (Boston: Little, Brown and Co., 1988), pp. 391436Google Scholar;

80. For an evaluation of how Maoist policies strengthened local governments see Shue, Vivienne, The Reach of the State (Stanford: Stanford University Press, 1988)Google Scholar; Oi, Jean C., State and Peasant in Contemporary China (Berkeley: University of California Press, 1990)Google Scholar; and Zweig, Agrarian Radicalism in China. While Shue believes that the reforms weakened the local government's ability to protect the peasant from the state, I disagree with this evaluation.

81. In 1985–87 excessive shifts in the acreage of certain exportable crops led to over production and price collapses, harming many farmers. See Nongmin bao, 8 July 1987. When a retired county official made US$350,000 carving jade, many technicians and of experts in the region tried to match his success but most went bankrupt. See NMRB, 15 June 1988.

82. Comments made by a reportedly liberal professor when I presented this paper at the Sociology Institute of the Chinese Academy of Sciences, July 1990.

83. Faison, , “Hunan-Guangdong trade,” p. 11Google Scholar;

84. Here regional variations are important as the growth of private networks in Guangdong and the shift of foreign trade authority to private traders may differ significantly from areas in Jiangsu where the local bureaucracy competes with the central one.

85. “Zhao on coastal areas' development strategy,” p. 18.

86. Kurth, James R., “The Pacific Basin versus the Atlantic alliance: two paradigms of international relations,” The Annals of the American Academy of Political and Social Sciences (09 1989), pp. 3445Google Scholar;

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