Development of the township-village enterprises and the re-instttutionalization of the family in China

Small farms, which have maintained flexibility throughout history, have long existed in China and the so-called “family household system as a cooperative organization” comprehensively playing a diverse socio-economic function has developed. In addition, trust derived from a unique environment based on a village structure where a few families dwell not to mention “everyone knows each other well” has also become institutionalized. In this setting, a complex and multi-dimensional property rights could have developed. Moreover, the Confucian order, historically institutionalized in China, has differentiated the respective roles of the public from the private and the center from the local through a network intertwined by relationships (guanxi-based network), allowing them to be relatively autonomous from each other (embedded autonomy). This institutional tradition of the Chinese society has re-emerged with the coming of the reform age. The reform reintroduced the revival of the traditional family household, as a cooperative unit for the insiders and, at the same time, as a competitive unit against the outsiders; and its renewed close relationship with the local governments have given birth to the township-village enterprises. Based on reforms of this nature, which have occurred from the bottom and approved by the center state ex post, China was able to experience the implementation a new form of transition to capitalism, i.e., rural industrialization. In this process, China's guana-based township-village enterprises were able to secure the fitness to react to market competition despite their collective ownership nature.