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Journal of Agrarian Change, Vol. 15 No. 3, July 2015, pp. 413–432.
From Local State Corporatism to Land Revenue
Regime: Urbanization and the Recent Transition
of Rural Industry in China
SHAOHUA ZHAN
This paper examines the transition of rural industry in China, particularly changes in the
recent decade following the privatization of collective enterprises. Based on fieldwork in a
Jiangsu county and drawing on national data, the author shows that rapid urbanization
has fundamentally altered the nature of rural industry, with previous village-based rural
enterprises replaced by large industrial corporations and urban real estate. While urbanization seems to many an inevitable outcome of economic development, this paper argues and
shows that the current form of urbanization in China has been driven by an unsustainable accumulation regime that prioritizes the needs of local revenue, real estate development
and large capital at the expense of the previous broad-based rural industry. This is thrown
into sharp relief by comparing with the accumulation regime based on local state corporatism during the early reform period.
Keywords: China, rural
urbanization
transition, rural
industry, accumulation
regime,
INTRODUCTION
The rapid growth of rural industry in China following the market-oriented reform profoundly transformed its rural economy. In the 17 years between 1978 and 1995, rural industrial output grew at an average rate of 17.8 per cent a year. In 1978, the rural economy was
still predominantly agricultural, with agriculture accounting for 68.6 per cent of the rural
gross output. By 1995, however, it had become largely non-agricultural, with the share of
agriculture in rural gross output decreasing to only 25 per cent, while the share of nonagricultural sectors, mainly rural industry, had risen to 75 per cent (NBSC 1985, 11; NBSC
1996, 3).1 Due to this remarkable process of rural industrialization, China has departed from
many other countries in terms of agrarian change.
Once heralded as China’s economic miracle, rural industrial growth attracted wide academic attention and triggered a great number of studies in the 1980s and 1990s (Byrd and
Lin 1990; Nolan and Dong 1990; McMillan and Naughton 1992; Nee 1992; Rawski 1994;
Shaohua Zhan, Assistant Professor of Sociology, Nanyang Technological University. HSS-05-38, 14 Nanyang
Drive, Singapore 637332. Email: shzhan@ntu.edu.sg
I wish to thank Yihong Jin for her all-round support for my study. I am also grateful to Yu Huang, Carlos
Oya, Forrest Q. Zhang and other contributors in this special issue for their critiques and comments during the
writing workshop in Beijing on 8–9 November 2014. The comments and suggestions from the JOAC editors
and two anonymous reviewers were most helpful in shaping up the final version of the paper. The research was
supported by the National Science Foundation (USA) and a Henry Luce Foundation/ACLS postdoctoral
fellowship in China studies.
1
The growth rate is calculated based on the data from NBSC (1997, 110, 125, 139) and adjusted for inflation.
© 2015 John Wiley & Sons Ltd
doi: 10.1111/joac.12122
414 Shaohua Zhan
Lin 1995; Whiting 1996; Oi 1999; Qian 2000). After rural collective enterprises – also known
as Township and Village Enterprises (TVEs) – were privatized in the early 2000s, however,
academic interest quickly dissipated and changes in rural industry fell below the radar of most
academics.
Studies in the 1980s and 19990s offered many insightful interpretations. One example was
Jean C. Oi’s notion of local state corporatism, which highlighted the important role of local
government in the development of rural industry. According to Oi, fiscal reforms in the late
1970s and early 1980s allowed local governments to retain the residual revenue after fulfilling
the tax quota paid to the central government. As a result, the more surplus rural collective
enterprises generated, the more of such residual revenue would flow to local coffers. Thus
local governments developed a considerable incentive to promote rural industry (Oi 1999,
18–53). Oi’s argument is subject to debate. For example, the state-centric explanation might
have not paid enough attention to the role of rural entrepreneurs (Nee 1992; Whiting 1996;
Huang 2008; Nee and Opper 2012). In addition, at least some credit should be given to the
Mao era (1949–76) when rural industrial growth had already started taking shape (Wong
1988; Putterman 1993; Bramall 2007). Nevertheless, the thesis of local state corporatism
brought to light the role of local government as a rational actor pursuing revenue while being
relatively independent of the central government. It also highlighted the necessity to see local
revenue generation as an important factor in China’s rural transitions.
Local state corporatism arose from a specific historical context in which the rural reform
introduced a market economy but still allowed local authorities – townships and villages – to
retain control of collective assets, including collective enterprises established in the Mao era.
After the mid-1990s, however, local state corporatism declined as collective rural enterprises
lost the momentum of rapid growth, and local governments tried to free themselves from the
liability of loss-making collective enterprises.
Nevertheless, the incentive of local government to pursue revenue has not gone away
with the decline of local state corporatism. In the past decade or so, a new method to
generate revenue has taken hold and been widely practiced across the country; that is, local
governments taking in revenue by expropriating rural land and selling it to developers or
very large corporations. This method of revenue generation is called land revenue
(tudi caizheng in Chinese). It has been reported that local governments raked in 4.1 trillion
yuan from land sales in 2013, accounting for 60.2 per cent of total local revenue (Zhang
2014). National statistics show that land sales made up about 50 per cent of local revenue
in the 10 years between 2004 and 2013.2 Deriving revenue from rural land is an important
factor behind ongoing massive urban expansion in China, and has exerted profound
impacts on the rural economy and society. Like local state corporatism, expropriating land
for revenue has contributed positively to economic development, since it has allowed local
governments to increase infrastructure investment and provide funds to promote strategically
important industries. However, it has also deprived millions of rural residents of access to
land and become the most reported cause of rural unrest (Sargeson 2013; Zhang 2015).
However, few studies have been conducted to examine the impacts of land revenue on rural
industry. This is puzzling, given that the generation of local revenue was regarded as one of
the most important factors behind rural industrial development in the early reform
period.
2
Data sources: the China Land and Resources Statistical Yearbook for 2012 (p. 6), the China Land and Resources
Statistical Bulletins for 2012 and 2013, and the China Statistical Yearbook for 2013 (ch. 9-1).
© 2015 John Wiley & Sons Ltd
Urbanization and the Transition of Rural Industry in China 415
This study seeks to fill this gap by examining how ongoing urbanization based on land
revenue has affected rural industry in China. I will compare the current accumulation regime,
what I call the land revenue regime, with the one based on local state corporatism in the 1980s
and 1990s. By accumulation regime, I refer to a dominant mode of surplus generation that is
often led by local government and serves to increase local revenue, but nonetheless involves
and benefits other actors such as rural residents and private investors. At the centre of my
analysis is the question of how an accumulation regime defines and affects small rural producers’ livelihood and property rights (broadly defined), which are important themes in studies of
rural transitions (Bernstein 2010, 8–9).
My research is based on a case study of W county in Changzhou Prefecture of Jiangsu
Province,3 a place that was renowned for rural industry in the 1980s and 1990s. I also draw
on national data, media reports and secondary sources to locate the case in the national
context. A major finding is that the impact of the land revenue regime on rural industry has
been almost the opposite of that of local state corporatism. While local state corporatism
promoted rural industry by supporting and involving most rural residents in industrial production, the land revenue regime forced almost all village-based rural enterprises to close and
replaced them with a small number of very large corporations, which were concentrated in
industrial parks. As a result, rural residents lost their enterprises and jobs while at the same
time they were excluded from large industrial corporations and profitable urban sectors.
Why did the two accumulation regimes, both serving to generate local revenue, differ so
greatly in their impacts on rural industry? The answer lies in how an accumulation regime
regulates the property rights and livelihoods of rural residents. Under the regime of local state
corporatism, rural residents were entitled to access land and means of livelihood based on
village resources. When a local government took village resources such as land, water and raw
materials for the development of rural industry, it had to involve the rural residents because
the latter’s rights and livelihoods were attached to those resources. Under the land revenue
regime, however, the rights and livelihoods of rural residents are separated from village
resources. After village land was expropriated, for example, the land became the property of
local government, and the rural residents were no longer entitled to profits or employment
opportunities generated from village resources. The separation of rural residents from village
resources has undergone two phases: the first was the privatization of collective enterprises in
the late 1990s and early 2000s; and the second, sequential phase is the ongoing process of land
urbanization.
By comparing the two accumulation regimes, this paper extends the literatures on both
local state corporatism and land urbanization. It shows that the incentive of local government
to increase revenue can produce divergent outcomes: while it promoted broad-based rural
industry in the early reform period, when the rights and livelihoods of rural residents were
tied to village resources, it has undermined it during recent land urbanization, as such
institutional connections have been severed. It is argued here that the incentive alone cannot
explain the rise and fall of Chinese rural industry over the past three decades. One must take
into account how rural residents were incorporated or excluded from the process of revenue
generation. In addition, the difference between local state corporatism and the land revenue
regime reveals that ongoing urbanization is an exclusionary process that prioritizes the needs
of government revenue, real estate developers and large corporations while undermining
rural residents’ rights and livelihoods in the long run. Finally, the evidence suggests that the
3
The names of places below prefecture level are anonymized for the privacy and protection of local informants, and so are the names of interviewees.
© 2015 John Wiley & Sons Ltd
416 Shaohua Zhan
contemporary land revenue regime is not a sustainable alternative to local state corporatism,
abandoned in the late 1990s, as the former’s capacity for generating surplus either for revenue
or profit has started to decrease in recent years.
The next section introduces research methods and data collection. After that, I discuss the
accumulation regime based on local state corporatism in W county, and the subsequent
abandonment of the regime and the first separation of rural residents from village resources;
that is, the privatization of collective enterprises. I then proceed to discuss the land revenue
regime and urbanization, and show how the further separation of rural residents from the land
has led to the decline of village-based industry. The final section reveals how the land revenue
regime is unsustainable both socially and economically.
RESEARCH METHODS AND DATA COLLECTION
The data used in this paper mainly come from a case study of W county in Changzhou
Prefecture of Jiangsu Province. In addition to data collected from the county, I consulted
national statistical data, policy documents, media reports and secondary sources to show how
the experiences of W county were different from or similar to general trends in rural industry.
W county is located in Changzhou Prefecture, southern Jiangsu Province, where the
development of rural industry was called the ‘Sunan model’ and characterized by the prevalence of collective enterprises in the 1980s and 1990s (Figure 1). The Sunan model represented the general situation of Chinese rural industry in the early reform period, in which
collective enterprises were the major organizational form of production. In contrast, another
two famous models, the Wenzhou model, which was characterized by private enterprises, and
the Pearl River Delta model, which refers to the wedding of rural enterprises in Guangdong
Province with foreign capital from Hong Kong as early as the 1980s, did not represent the
national situation (Naughton 1995, 156–7). It should be noted that the highly developed
nature of rural industry in southern Jiangsu owed much to its geographical and social
proximity to Shanghai and Nanjing, two of the most important urban industrial centres in
China. This situation could not be generalized to the rest of the country.
My first fieldwork in W county took place between August 2010 and January 2011, during
which time I made three field trips to the county, each lasting about a month. I collected
local statistical data and policy documents, and interviewed officials at both county and
township levels. To further understand changes in rural industry, I selected Z village in the
county for village-level investigation.
The population of Z village was about 1,500 in the early 1980s and has remained at about
this number for the past three decades. However, from the mid-1990s onwards, Z village
started to see migrant workers arrive and the migratory population reached about 3,000 in
the village, twice that of the local population. Rural industry started very early in the village.
Its first factory was established in 1963, to make aluminium labels on machines. After that, the
village tried to establish several factories: some succeeded and some failed. In 1981, when Z
village adopted the Household Responsibility System, it was running three factories making
shoe accessories, machine labels and textiles. Z village established another three collective
enterprises in the 1980s. The shoe accessory factory and an electric motor factory were the
most successful, and both of them remained profitable throughout the 1980s and 1990s.
Half of the labour force of the village (almost 500) was employed in collective enterprises
including TVEs in the early 1980s, attesting to the high level of TVE development in the
area. The rural residents were still engaged in farming in the 1980s and 1990s, but the role of
farming was only subsidiary and its main function was to provide food for local rural
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Urbanization and the Transition of Rural Industry in China 417
Figure 1 The approximate location of W county
households. Private enterprises in the village emerged in the 1980s and grew thereafter. By
the time of my fieldwork, there were 135 private enterprises in the village. However, as we
shall see, the expropriation of the village land that started in 2010 would shut down almost all
of the enterprises.
I interviewed all four incumbent village officials and selected about 50 households for
in-depth interview. Among the households I selected, about 20 households were running their
own private enterprise at the time of interview, and another 10 households had owned an
enterprise previously. For the rest that did not run a private enterprise, most had worked in
collective enterprises. In addition, I also performed on-site observation of factory production,
social activities and everyday life in the village. In August 2014, I revisited W county and Z
village, and conducted follow-up interviews with village officials and five households. I also
visited six government agencies and four large enterprises to collect information on local
governments’ urbanization and industrial policies.
LOCAL STATE CORPORATISM IN W COUNTY
Jean C. Oi (1992, 1999) coined the concept of ‘local state corporatism’ in Chinese rural
industry and used it to illuminate the control and management of rural industry by local
© 2015 John Wiley & Sons Ltd
418 Shaohua Zhan
Table 1. Industrial enterprises and workers in W county, 1985
Number
Number of workers (thousands)
Percentage of workers employed
Total
County
enterprises
Township
enterprises
Village
enterprises
Household enterprises/
private enterprises
3,564
298.8
100
178
40.2
13.5
1,360
116.5
39.0
2,026
115.6
38.7
No data
26.5
8.9
Source: the W County Gazetteer for 1988.
government. Many other scholars have subsequently employed the concept in their own
research (Peng 2002; Edin 2003; Wen 2011). However, these studies have concentrated
more on the role of local government than on those rural institutions that conditioned
government actions and policies, such as collective landownership (Pei 2002). This section will
emphasize, based on the case of W county, that rural industrialization, though led and
managed by local governments and serving to increase local revenue, also involved and
benefited rural residents in the 1980s and 1990s under the rural institutions. This can be seen
from how collective rural enterprises recruited workers as well as from how rural households
set up private enterprises.
According to W county’s 1988 gazetteer, there were approximately 3,564 industrial enterprises (excluding private household enterprises) in 1985, of which 3,386 – that is, 95 per cent
of the total – were collective TVEs. In addition, 299,000 labourers worked in industrial
enterprises in 1985, accounting for 37.8 per cent of the total labour force. Most industrial
labourers, 77.7 per cent of the total, were working for collective TVEs. A small number of
households had set up private enterprises, which employed about 8.9 per cent of industrial
labourers (Table 1). These data thus showed that rural accumulation in W county was predominantly based on collective enterprises.
Collective enterprises provided a way for local governments and village authorities to
control and manage collective resources: they appointed TVE managers, supervised enterprise
production, provided financial support and even went as far as to market TVE products
(Naughton 1995; Walder 1995; Oi 1999). However, rural residents were also involved, and in
many cases it was they who created the enterprises. In the 1980s and early 1990s, collective
enterprises mainly employed rural labourers within the county, with residency-based hiring
practices; that is, a township enterprise employed rural labourers from the township, and a
village enterprise hired people within the village. This was so because rural residents had the
right of access to village resources. When a collective enterprise took these resources – for
example, a plot of land – it had to hire the rural labourers who were living off the resources.
In other words, the distribution of jobs in collective enterprises was a reflection of the rights
of rural residents to village resources.
This form of institutional connection was the most pronounced in the case of village
enterprises, because both the collective enterprises and the village resources were within the
boundary of the village. By the late 1980s, Z village had established six collective enterprises,
and all these enterprises were built with village resources such as land and collective funds
and employed rural labourers within the village. Thus, villagers regarded these enterprises as
their common property, cared about their development and even became emotionally
attached. When I interviewed some of the workers in 2010, a decade after the enterprises
© 2015 John Wiley & Sons Ltd
Urbanization and the Transition of Rural Industry in China 419
were privatized, they still loved to share with me how they together created and contributed
to these enterprises.4
In the case of township enterprises, the recognition of the entitlements of rural residents to
village resources was indirect but nonetheless detectable. In the 1980s and early 1990s,
township governments in W county often pooled village resources to establish collective
enterprises. In exchange, the township enterprises had to offer jobs to rural labourers from
the villages. According to my interviews in Z village, a township government often gave a
quota of jobs to each village based on the contributions of the villages; and the villages would
decide who should get the jobs.5 In addition, a township enterprise had to offer jobs to the
households if that township enterprise took their lands.
Collective enterprises brought enormous benefits to local rural residents because TVE jobs
were much more remunerative than farming. In Z village, a worker in a collective enterprise
could earn 500–1,000 yuan a year in the mid-1980s, whereas a person who farmed could
make only 100 yuan at most.
The accumulation regime based on local state corporatism also benefited rural households
that ran private enterprises. A small but increasing number of households started small factories in the late 1980s and early 1990s. Z village’s archives recorded 23 private household
enterprises in 1991. These households usually had members who worked for collective enterprises as technicians or salespeople, and thus obtained the technical know-how or marketing
skills necessary to run an enterprise.
Another important reason why rural households were able to establish private enterprises
was their access to village resources. In the 1980s and early 1990s, many rural households used
their own houses as factories. State policy regulated that every rural household was entitled to
a plot of housing land (zhaijidi in Chinese). With the expansion of household business in the
late 1980s and 1990s, the demand for housing land surged. To obtain more land, rural
residents split a household into two or more so that they could apply for land to build extra
houses. While the population of Z village remained at around 1,500 people, the number
of households jumped from 420 in 1988 to 596 in 1992.6 Another kind of land that
rural households could use for private enterprises was the small private plots owned by every
household. This land, which was called ziliudi – literally, self-kept land – was given to rural
households in the early 1960s after the failure of the Great Leap Forward. However, these
plots were very small. In Z village, they amounted to less than 0.1 mu per person. Thus only
a few households in Z village managed to build a factory on this kind of land.
In summary, the accumulation regime based on local state corporatism involved and benefited the majority of the rural residents under rural institutions that protected their entitlements to village resources. By the mid-1990s, however, local state corporatism had started to
decline, leading to the first separation of rural residents from village resources; that is, the
privatization of collective enterprises.
PRIVATIZATION AND THE FIRST SEPARATION OF VILLAGERS FROM
VILLAGE RESOURCES
In the 1990s, local state corporatism based on collective enterprises ran into a crisis. Change
first came from the top. Following Deng Xiaoping’s southern tour in 1992, the Chinese
4
Interview no. 8, 5 September 2010; interview no. 14, 8 September 2010; and interview no. 17, 10 September
2010.
5
Interview no. 14, 8 September 2010.
6
Data source: the Z village archives.
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420 Shaohua Zhan
Communist Party announced in November 1993 that it would establish a pure market
economy and reform public ownership, including both State-Owned Enterprises (SOEs) and
collective TVEs.7 The emergence of new forces at the local level also worked against collective TVEs. This section will discuss how changes at both central and local levels undermined
local state corporatism and led to the privatization of collective enterprises.
The Declining Capacity of Collective TVEs
Deng’s 1992 southern tour gave a boost to TVEs. With the influx of foreign capital, the
ballooning of exports and a new wave of investment frenzy, TVEs grew rapidly in the first
half of the 1990s, particularly in coastal areas such as southern Jiangsu. The national gross
output of TVEs more than tripled, jumping from 1.18 trillion yuan in 1991 to 3.83 trillion
yuan in 1995.8 This rapid growth sustained the accumulation regime of local state corporatism
well into the mid-1990s.
However, behind the facade of the growth was the declining capacity of TVEs to generate
sufficient surplus to sustain the regime. In 1994, TVEs in W county experienced robust
growth, with gross output increasing by 36 per cent, according to the county’s annual
industrial report. However, the report also showed that the number of loss-making collective
enterprises had reached 964, accounting for 18.1 per cent of all collective enterprises. The
increasing number of loss-making enterprises worried local governments and village authorities, because these enterprises started to become a liability rather than a source of revenue (see
also Oi 1999). Mr Pan, aged 56 at the time of interview, had been the Party secretary of Z
village for more than 20 years. He explained to me why the village authority wanted to
privatize loss-making collective enterprises: ‘From our standpoint, we should sell loss-making
enterprises if possible, and close them down if no one wants to take them. Otherwise benefits
go to managers but debts would be left to the village [which collectively owned the enterprises].’9 His words reflected the general situation at the time. If the government did not get
rid of these enterprises, it would have to keep pouring resources into them to keep them
alive.
The declining capacity of TVEs was closely linked to the expansion of private enterprises
dating back to the 1980s. By the 1990s, private enterprises in southern Jiangsu had emerged
as an important force in the rural economy. According to the statistics of the township where
Z village is located, private enterprises in 1998 accounted for half of the industrial output and
two thirds of the market share of services, including but not limited to retail trade, transportation, hotels and restaurants. The expansion of private enterprises not only heightened the
competitive pressure on collective enterprises but also drained the latter’s resources. More
importantly, it led two key sets of actors to abandon collective enterprises. One was talented
employees in collective enterprises, including technicians and sales personnel, who wanted to
establish private enterprises of their own. The other was TVE managers, who felt that their
rewards in the collective system were unacceptable, as the owners of private enterprises were
making much more money than they did.
7
Deng, apparently backed by the military, made a series of speeches during the tour and urged for the reform
and opening up to be pushed further. The conference refers to the Third Plenary Session of the 14th Central
Committee.
8
The calculation is based on data from MOAC (2003, 9), adjusted for inflation.
9
Interview no. 21, 12 September 2010.
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Urbanization and the Transition of Rural Industry in China 421
The Exodus of Talented TVE Workers and the Rise of Management Interest
In the 1980s, TVE workers who ran private enterprises usually did not resign from collective
enterprises because their private enterprises were small and vulnerable. By the 1990s, however,
these workers, who were usually talented technicians and sales people, were ready to leave the
collective enterprises. In Z village, the number of private household enterprises increased
from 23 in 1991 to 65 in 1999. Countywide, the number of private industrial enterprises,
mostly household enterprises, increased to 9,614 in 1998, producing 56.4 per cent of the
gross output and absorbing 73.2 per cent of industrial labourers.10
It had become a trend in the 1990s for TVE workers, particularly those with knowledge
and skills, to resign and start private enterprises of their own. Their leaving not only drained
the resources of collective enterprises but also heightened competitive pressure on them, since
worker-started private enterprises usually followed collective enterprises and produced the
same products. The success of private enterprises also affected another key actor: the TVE
manager.
TVE managers played a very important role in local state corporatism during the 1980s.
By the 1990s, however, more and more of them had started to pursue personal interests in
ways that undermined the collective system. The reason was that profits from private enterprises had become more attractive than salaries in collective enterprises. It was not rare for a
successful private enterprise to make tens of thousands of yuan a year in the 1990s, which
could be several times a TVE manager’s annual salary. Attracted by the allure of private profits,
many managers started their own enterprises with the resources of collective enterprises, such
as money, raw materials and trade networks. This was, of course, against the law. A common
strategy was to set up a private enterprise in the name of their families, relatives or friends,
and divert collective resources to the private enterprise. A document released by W county
government in 1993 revealed that this problem had become increasingly serious.
The First Separation of Villagers from Village Resources
With both central and local forces at work, local governments started to privatize collective
enterprises in the late 1990s. In 1997, the central government issued a document demanding
the change of collective TVEs to joint-stock companies.11 After only 2 years, many provincial
governments started to push for full privatization (Zhang and Yuan 2003, 241–3). Jiangsu
Province, which was renowned for collective enterprises, was particularly active in privatization, with statistics showing that privatization advanced faster in that province than in the rest
of the country (Figure 2).
The method of privatization was the management buyout (MBO). The government sold
collective enterprises to incumbent managers at evaluated prices that were often much lower
than the market prices. Afterwards, the collective enterprises became private, under the absolute control of former managers. The government compensated the workers with a proportion of the money from the sale of the enterprises, and the workers lost all entitlements to the
enterprises.
To workers in collective enterprises, particularly those whose enterprises were still running
well, privatization was an arbitrary process to separate them from village resources. As noted in
the previous section, for rural residents, collective enterprises were an extension of village
10
11
Source: the W County Statistical Gazetteer for 2001.
The serial number of the document was Zhong Fa (1997) No. 8, which was released on 11 March 1997.
© 2015 John Wiley & Sons Ltd
422 Shaohua Zhan
Figure 2 The number of collective TVEs in China and Jiangsu, 1997–2004
Source: the China TVE Yearbooks for 1998–2005.
resources, to which they had the right of access. By privatizing collective enterprises, the
government deprived TVE workers of this entitlement. As a result, they lost lifelong employment and shares in enterprise assets, and only received a modicum of compensation.
The majority of rural residents, particularly those who had worked in collective enterprises, were angry about the mandatory privatization. Ten years after the privatization, former
TVE workers I interviewed still complained about the arbitrariness of the process. In their
opinion, collective enterprises were built with village resources through collective efforts. Thus
every worker should have a share in the enterprises and a say in privatization. The use of
MBOs did not reflect this reality.
The privatization, on a massive scale, of the rural collective enterprises in China has
attracted the attention of some Marxist scholars. For example, David Harvey (2003, 153–4)
depicted the privatization of the TVEs as a part of the global process of accumulation by
dispossession, along with the spread of neo-liberalism. More recently, Michael Webber (2008)
included the privatization of TVEs in a long process of primitive accumulation in China that
started at the onset of the rural reform.
As noted previously, this privatization process was not simply a top-down or outside-in
process that aimed to dispossess TVE workers. Rather, it was derived from a multiplicity of
forces: local governments wanted to get rid of loss-making collective enterprises; talented TVE
workers exited and set up private enterprises; and the managers of collective enterprises were
drawn to private profits. As a result, a number of key actors, including local governments and
village authorities, TVE managers and talented TVE workers, all turned away from local state
corporatism in the 1990s.
More importantly, the separation of villagers from village resources was only partial,
because rural residents still had access to land, housing and jobs within the village. This
allowed former workers of collective enterprises either to establish small private enterprises of
their own or to find jobs in those private enterprises. In other words, continued access to
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Urbanization and the Transition of Rural Industry in China 423
village resources incorporated rural residents into an accumulation regime based on household
enterprises, which started to emerge as early as the 1980s.
According to official statistics, the number of rural private industrial enterprises in
Changzhou Prefecture, where W county is located, increased from 10,563 in 1999 to 17,359
in 2005.12 However, according to my fieldwork, many household enterprises were too small
to be included in the official statistics. Thus the actual increase in rural private enterprises in
this period must be larger than reported. In Z village, the number of private enterprises
increased rapidly, from 65 in 1999 to 134 in 2003, and further to 177 in 2006, before it
decreased.
Not all rural households could establish factories because that required a large amount of
investment.13 Approximately 140 out of 400 households in Z village owned factories in 2006,
and they were considered the better-off households. For those that did not own factories, job
opportunities were ample due to the flourishing of small private enterprises. And as natives,
they could find well-paid jobs and work as managers, accountants and technicians, whereas
manufacturing work was now carried out by migrant workers.
While privatization extricated local governments from the liability of loss-making collective enterprises, it also motivated them to seek new sources of revenue. In the past 10 years, as
with many other local governments in China, the W county government has found a new
source of revenue: rural land. The next section will show how the land revenue regime has
driven the process of urbanization in W county, and how this new method of revenue
generation has fundamentally changed the nature of rural industry by separating villagers from
village resources.
URBANIZATION AND THE LAND REVENUE REGIME
The early 2000s was a golden age for small, village-based rural enterprises in southern
Jiangsu: while collective enterprises were privatized, rural residents still had access to village
resources such as land; a great amount of farmland was turned into factories; and migrant
workers from hinterland regions swarmed in, providing rural enterprises with abundant cheap
labour. However, the golden age did not last long. In the mid-2000s, many small rural
enterprises had to close down due to the emergence of the land revenue regime. This section
will focus on how local governments played a leading role in this transition, and it will show
how land urbanization forced out village-based rural industry by separating villagers from
village resources.
The Rise of Land Revenue
The expansion of small private enterprises and the increase in taxes collected from these
enterprises provided a new source of revenue, but it did not seem to be enough to satisfy the
demand. This was probably because small enterprises, though large in number, could not
generate as much tax income as local governments desired, and the administrative cost of
collecting taxes from such a large number of enterprises was high, with some of them not
even officially registered. In addition, the 1994 tax reform, which gave the central government
12
Data source: the Changzhou Statistical Yearbooks for 2000 and 2006.
I estimate, based on my interviews, that a household must spend at least 300,000 yuan to open a small textile
factory.
13
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424 Shaohua Zhan
Figure 3 Real estate investment and sales in Changzhou, 2000–12
30
25
billion yuan
20
15
10
5
0
2000
2001
2002
2003
2004
2005
2006
investment
2007
2008
2009
2010
2011
2012
sales
Source: the Changzhou Statistical Yearbooks for 2001–13.
the lion’s share of tax income (60–70%), undercut the amount of tax revenue for local coffers
(Shao 2010). These factors motivated local governments to seek new sources of revenue.
In addition to the need for revenue, the emergence of the land revenue regime was also
made possible by a combination of the following factors. The 1998 housing reform established
an urban housing market and provided a precondition for the real estate boom in the 2000s.
In addition, the expansion of private enterprises in southern Jiangsu during the 1990s
increased the demand for land to build factories, giving rise to a market for land transactions.
In the 1980s, rural households used their own houses as factories. But they started to rent or
purchase land from local governments and village authorities in the 1990s. This turned rural
land into a source of revenue for local governments and village authorities, paving the way for
local governments to sell land to developers at much higher prices in the 2000s. Another
factor was that rural industrialization in the region, based on local state corporatism in the
1980s and 1990s, accumulated a considerable amount of wealth for a large number of rural
households, which became potential buyers of urban real estate.
In the 2000s, the government of W county, and most other local governments in China as
well, started to expropriate and sell rural land to developers. Between 2000 and 2012, annual
real estate investment in Changzhou Prefecture, where W county is located, increased from
0.6 billion yuan to 13.5 billion yuan, and the sales of real estate grew even faster (Figure 3). In
the meantime, the average housing price had increased from less than 2,000 yuan per square
metre to more than 6,000 yuan. The average price of land that the government offered to sell
also shot up, from 1.4 million yuan per mu in 2007 to 3.7 million yuan per mu in 2013,
suggesting that the local government could reap an enormous amount of revenue from land
sales.
As noted in the introduction, land sales across the country made up 50 per cent of local
revenue between 2004 and 2013. In Changzhou, the dependence of local government on
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Urbanization and the Transition of Rural Industry in China 425
land sales was even higher than the national average, taking up a reported 80 per cent of the
revenue of the prefecture in 2012 (Li 2014). Perhaps, then, it is no surprise that the local
government has embraced the land revenue regime enthusiastically. It initiated land expropriation in the name of urban planning and urbanization. After land was purchased by a developer
or industrial corporation, the local government would assist the developer in taking the land
from the rural residents. In many cases, the local government would act alone and expropriate
the land first, and then look for potential buyers. When I was conducting fieldwork in Z
village in 2010, local officials paid frequent visits to the village to make sure that land
expropriation went as planned. They forced village officials and their relatives to sign the
consent form first and tried to neutralize any resistance from villagers. A township official told
me that most of her colleagues were sent to villages as task forces to supervise land expropriation, and that this bore directly on their performance evaluation.14 The land revenue
regime also amplified the power of local government, because it controlled key material and
institutional resources in the regime, including land, bank loans, infrastructure funds, urban
planning and real estate transactions.
Impacts on Rural Industry
The land revenue regime depends much less on industrial production than did local state
corporatism. By turning rural land into urban areas, it has created a wide range of surplusgenerating activities including, but not limited to, infrastructure investment, the production of
building materials, construction, real estate sales, mortgaging, house remodelling and urban
services. These activities have fundamentally altered the rural landscape in W county. In 2002,
there were 407 villages in W county. By 2012, that number had fallen to 246. In short,
the government had turned 161 villages into urban areas, accounting for nearly 40 per cent of
the total.15 By the time of my fieldwork in 2010, all of the villages between Z village and the
city had disappeared due to urban expansion. In August 2010, the government notified the
village that it would expropriate one third of the village area to build high-rise apartment
buildings, and that it was only a matter of time before the rest of the village land would be
expropriated.
The separation of villagers from village resources. The disappearance of villages was an indication
that villagers were separated from village resources. As noted previously, village land is owned
collectively under the Chinese village system, and rural residents hold rights to farmland,
housing land and other natural resources within the village. Rural industrialization did not
change this relationship between villagers and village resources. For example, Z village no
longer engaged in farming after it had turned all the farmland into factories in the early
2000s. However, it continued to be classified as a village in the official statistics and government documents, because it still held the ownership of the land, which allowed rural residents
in the village to access land or share benefits arising from the land. In contrast, residents in an
urban neighbourhood do not hold landownership, which belongs to the state. Thus by
turning rural land into urban areas and rural residents into urban residents, the local government had separated villagers from village resources and seized the ownership of these
resources; after which, local government could sell newly expropriated lands to developers and
large corporations for revenue.
14
15
Interview no. 18, 10 September 2010.
Data source: the Changzhou Statistical Yearbooks for 2002 and 2013.
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426 Shaohua Zhan
After villages were turned into urban areas and rural residents lost access to village
resources such as land, almost all of the small factories had to close. It is very difficult for the
small factory owners to relocate elsewhere, not only because rent in other places is often too
high for them to afford, but also because land in the village is associated with social resources,
which are important to the success of the factories. For example, community social networks
make it easier for rural enterprises to borrow money, obtain market information, exchange
labour and access up-to-date technology (Liu 1995; Peng 2004). With land being expropriated, these social resources were also gone. I interviewed a few enterprise owners whose
villages were already urbanized. They all told me that more than 95 per cent of the small
enterprises in their villages had closed.16 In Z village, dozens of factories that were located in
the to-be-expropriated area were planning to shut down. Most rural residents, the owners of
rural enterprises in particular, were resentful of land expropriation because of its negative
impacts on their livelihoods. I learned from my interviews and local online forums that at
least five protests had been launched in W county, in September and October 2010, all due to
land expropriation. In particular, there was a murder case that sparked social outcry. A
middle-aged rural resident, who refused to move out of his house, which was scheduled to be
demolished, was killed by a group of unidentified attackers while he was sleeping in the
house at night. His family staged a public memorial at the roadside and accused both the real
estate developer and the local government of this crime.
The closing of rural small enterprises due to urban expansion has not been limited to W
county or southern Jiangsu, but has been observed in many other areas undergoing urban
expansion. In Xi’an, Shaanxi Province, urban expansion has swallowed surrounding villages
and forced small enterprises in those villages to close, according to media reports and government documents (Ma 2011; Weiyang Industrial and Commercial Association 2011). In
Zhengzhou, Henan Province, while the government was wooing large manufacturers such as
Foxconn, it was forcing small rural factories to close by expropriating village land for urban
expansion (Zhongyuan District government 2013).
However, it should be noted that access to village resources such as land is a necessary
rather than a sufficient condition for rural households to start industrial enterprises. Other
factors, such as a good policy environment and favourable market conditions, must also be
present. That so many rural households in southern Jiangsu were able to start rural enterprises
should be attributed to local state corporatism during the early reform period, which provided savings, work experience, entrepreneurial skills and market information for rural residents. Under the land revenue regime, however, local governments threw their support behind
very large corporations while discriminating against small enterprises. This created an adverse
policy environment and unfavourable market conditions for village-based enterprises.
Pro-large-scale industrial policy. In August 2014, more than 3 years after my first fieldwork, I
returned to Z village to conduct a follow-up investigation. A dozen high-rise apartment
buildings were now standing next to the village. Part of the village was still there, but it was
almost encircled by high-rise buildings from every side. Many factories were still running. To
my surprise, however, in contrast to the strong resentment in 2010 towards land expropriation, many owners now wanted their factories to be expropriated, because governmentsponsored expropriation would compensate their factories and provide them with an exit. The
shift in attitude had much to do with the impacts of pro-large-scale industrial policy on these
small enterprises, which made their sheer existence increasingly difficult.
16
Interview no. 48, 23 October 2010; and interview no. 49, 24 October 2010.
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Urbanization and the Transition of Rural Industry in China 427
From the late 1990s onwards, industrial policy in China has been shifting consistently
towards pro-large-scale. ‘Grasping the large and letting go the small’ (zhuada fangxiao in
Chinese) was not only a slogan in the reform of state-owned enterprises, but became a
guiding principle for all industrial policies. This can be seen from changes in national and
local official statistics. While, in the 1980s and 1990s, the government collected data on small
enterprises, in the 2000s they only included large enterprises whose annual output exceeded
20 million yuan. In other words, small enterprises became so unimportant that they were not
considered worthy of being shown in the statistics. The trend towards supporting large
enterprises in industrial policy has continued unabated to the present.
In the late 1990s, W county established a systemic pro-large policy framework, which
included the following aspects:
(i) The government will establish a structural adjustment fund to help a few large enterprises with technological upgrading and the introduction of new lines of production and
marketing.
(ii) The government will establish more ad hoc funds for large enterprises, prioritize their
credit needs and allocate at least 50 per cent of bank loans to them.
(iii) The government will increase tax returns for large enterprises to the extent that one
third of taxes will be returned at the end of year.
(iv) Large enterprises will be exempted from a number of fees and will pay reduced management fees to the government.
(v) The government will push to establish large enterprise corporations by merging and
purchasing small enterprises, making arrangements for workers laid off in this process.
The land revenue regime pushed pro-large industrial policy even further because it was
believed that large enterprises would use land intensively and thus save land for urban
expansion. The government of W county established a few new industrial parks, which only
admitted large enterprises. To qualify for entry to the parks, an enterprise must invest at least
24 million yuan (about US$4 million). In practice, the scale of enterprises that were allowed
into the industrial parks was often larger than the minimum criterion, according to my
interviews with local officials.17 This was a common practice in southern Jiangsu and many
other areas, and was highly approved of by the Ministry of Land and Resources in 2013
because of its economical use of land (Yang 2013). In recent years, W county has issued a new
round of policies to attract super-large capital, preferably foreign capital, into its industrial
parks.18
Pro-large industrial policy has further empowered already competitive large enterprises
while weakening small rural enterprises. As a result, many small enterprises were verging on
bankruptcy. According to my interviews, the problems facing these enterprises were legion:
lack of bank credit, land expropriation, electricity shortages, the dominance of large enterprises, declining rates of profit, rising labour costs, unreasonable government regulations and
so on.19 As a result, some of the small rural enterprises were willing to accept the compensation package offered by the government to close down their factories.
In addition, under the land revenue regime, commercial banks poured much more money
into large corporations and the real estate industry, leaving fewer loans for manufacturing. As a
17
18
19
Interview no. 68, 25 August 2014.
Interviews nos. 68 and 70, 25 August 2014.
Interview no. 52, 26 October 2010; and interview no. 59, 23 August 2014. Also see Zhan and Huang (2013).
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428 Shaohua Zhan
result, not only small factories but also medium-sized manufacturing enterprises found it
difficult to obtain bank loans in southern Jiangsu and elsewhere (Minshang 2011).
Urbanization on Shaky Ground
The land revenue regime has been a major force behind ongoing rapid urbanization in China
because the more rural land is urbanized, the more local revenue will be generated. In recent
years, southern Jiangsu, including W county, made a plan to push urbanization to new heights.
In April 2013, the State Council approved a document drafted by the governments of
southern Jiangsu, which aims to increase the region’s rate of urbanization to 75 per cent by
2020.20 However, the process of urbanization based on the land revenue regime has produced
adverse social and economic outcomes, making it increasingly unsustainable.
Under local state corporatism in the 1980s and 1990s, rural industrialization incorporated
the majority of rural residents into the accumulation regime through rural institutions that
attached villagers to village resources. Under the land revenue regime, however, local governments separated villagers from village resources and excluded them from the most profitmaking activities. The previous small-scale, village-based, local resident-run enterprises were
closed down and replaced by large-scale, industrial park-based and often foreign-invested
industrial corporations. In other words, the rural industry that transformed the Chinese
countryside during the 1980s and 1990s had been wiped out by land urbanization.
Upon losing their jobs and enterprises, rural residents were deeply concerned about their
future livelihoods and launched a series of collective actions to protest against land expropriation, according to my fieldwork and several other studies (O’Brien and Li 2006; Sargeson
2013; Chuang 2014; Zhang 2015). However, in the face of powerful local governments, the
rural residents seemed unable to reverse the process of land revenue-based urbanization. In
light of this, they shifted their strategy to fight for a better compensation package.
Compensation
After being pushed by a series of rural protests over the past decade, the government of W
county provided rural residents with a compensation package that consisted of three parts.
The first was social insurance for landless peasants (called shidi nongmin baozhang). The government established an insurance fund in 2006, which provided a monthly retirement stipend for
rural residents who had lost their land and had reached retirement age (60 years old for males
and 55 for females). The stipend, about 800 yuan (about US$130) a month at current prices,
could only cover very basic living expenses, though it was much higher than those in
hinterland provinces.
The second part of the package consisted of urban apartments, which were used
to compensate rural residents whose houses had been demolished as a result of land
expropriation. A household of five in Z village could receive two two-bedroom apartments,
but if it wanted to upgrade to three-bedroom apartments, it had to pay extra. A common
strategy for rural households in Z village was to upgrade one apartment to three bedrooms,
which would be used by the household, while leasing out the other for a subsidiary income.
The third part was cash compensation for factories. As noted earlier, not every household
in Z village owned factories, and thus this type of compensation only applied to a proportion
20
Document number Fa Gai Diqu [2013] No. 814; date 25 April 2013; available at http://www.gov.cn/zwgk/
2013-05/06/content_2396729.htm.
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Urbanization and the Transition of Rural Industry in China 429
of households, which was about one third in Z village. The size of a common factory in Z
village is between 700 and 1,000 m2, and the government compensated with 330 yuan for
1 m2. That is to say, a factory owner could receive a total amount of compensation between
231,000 and 330,000 yuan (between approximately US$37,500 and US$53,500).
After being compensated, most former rural households would have an extra apartment to
rent out. A small number of rural residents, usually those who were better-off, even invested
in urban real estate in the hope of reselling at a profit in the future. Some rural residents took
jobs in urban service sectors: they either run a small business, mostly in the retail trade, or
work for urban service companies such as supermarkets, hotels and restaurants.
Unlike local state corporatism, however, the land revenue regime excluded the majority of
the rural residents, and many urban residents as well, from the most profit-making activities,
such as infrastructure construction, real estate development and management, mortgaging and
large-scale industrial production. Facing little chance of upward mobility, many rural residents
either took up low-paying odd jobs or did not work at all. An increasing number of them
depended on government welfare and lived off a small amount of rental income. This is in
stark contrast to the situation in the 1980s and 1990s, when rural residents actively participated in production and market competition, and created a growing number of industrial
enterprises.
Signs of decline. In February 2013, a media report by a major national newspaper estimated
that 70–80 per cent of newly built apartments in Changzhou were unoccupied, and thus
labelled it another ‘ghost city’ (Zhang 2013). Figure 3 above also showed that housing sales in
Changzhou Prefecture, where W county is located, started to decrease in 2012. The grim
outlook for the housing market directly affected government revenue. Between January and
August 2014, W county had not sold a single piece of land to developers. The capacity of the
land revenue regime in surplus generation seemed to have declined.
A possible reason for this decline is that by closing down small private enterprises and
excluding the majority of rural and urban residents from profit-making activities, land urbanization reduced effective consumer demand among rural residents, workers and small enterprise owners for urban real estate. Commenting on the economic problems of South Africa,
Arrighi et al. (2010, 434–5) pointed out that, by removing the rural base of indigenous black
populations and excluding the majority of them from jobs and profit-sharing, the country
created high levels of unemployment and increased welfare expenditure, and thus reduced
broad consumer demand in the domestic market.
Under the land revenue regime, a similar process has been taking place: as former enterprise owners have lost factories and local rural residents have lost their jobs in those
factories, a growing number of people in W county have become unproductive and
welfare dependent. In order to cut welfare expenditure, the government of W county
attempted to reduce pensions for landless peasants in 2007, but only met with fierce
resistance from retirees, who occupied the major government buildings and shut down
the government for 2 days. Under this pressure, the government reversed its course and
even increased the pension benefits. W county is now facing a very difficult situation:
on the one hand, it has to increase welfare expenditure to cover the populations who are
newly urbanized; on the other, it is unable to sell land to developers to cover welfare
expenditure due to the low demand for urban real estate. This is reminiscent of local
state corporatism in the late 1990s, when it was unable to generate sufficient surplus to
meet the demands of key actors in the regime, though the causes of the problem were very
different.
© 2015 John Wiley & Sons Ltd
430 Shaohua Zhan
Media reports suggest that what has happened in Changzhou is not a singular, but a
general, phenomenon. The urban housing market started to slide throughout the country in
2014, particularly in small and medium-sized cities such as Changzhou (Zhao 2014). At the
beginning of 2015, eager to revive the housing market and prolong the land revenue regime,
local governments across the country issued another round of stimulation policies, including
reductions in housing taxes, increases in subsidies and the offer of easy mortgages (Huang
2015). Whether the stimulation policies will work remains to be seen. However, based on the
comparison between local state corporatism and the land revenue regime in this paper, if
the land revenue regime does not change its current practices and involve the majority of the
rural and urban residents in profit-making activities, it will not be able to sustain itself in the
long run.
CONCLUSION: RURAL INDUSTRY AND AGRARIAN TRANSITIONS
In many respects, rural transition in W county of southern Jiangsu has been distinct and
cannot be generalized to the rest of the country. For example, the level of rural industrialization in southern Jiangsu was much higher than that in most regions of central and western
China. Therefore, the case of W county only shows a possible path of rural transition in
China. Nevertheless, the post-reform experiences of W county, particularly the comparison
between local state corporatism in the early reform period and the land revenue regime at
present, could inform our understanding of rural transitions in China in general.
First, the case of W county has revealed at least two logics in rural transition: the capitalist
logic to maximize surplus generation and the logic of state power to increase revenue and
control resources. The first logic led to the privatization of collective enterprises in the late
1990s, when the capacity of the collective TVEs to make profits declined. The logic also
suggests that the current land revenue regime might be on the way out, as it is now
generating less and less surplus. The second logic led to the establishment of both local state
corporatism and the land revenue regime. This logic draws attention to the crucial role of
local government in rural transitions in China. On one hand, local governments are the agents
of policy implementation that serve to carry out central policies at the local level; on the
other, they behave as rational actors who pursue their own interests. These two roles have
simultaneously shaped local government action in rural transitions in China, giving rise to a
dual-path model: a national path that reflects the national trend and changes in central
policies, and a local path that reflects local government actions and local changes.
Second, the assumption of a crucial role notwithstanding, local governments must work
through rural institutions that define rural residents’ rights and entitlements. Thus the same
purposive action of local government – for example, local revenue generation – could
produce divergent outcomes as rural institutions vary. Under local state corporatism, rural
institutions such as collective landownership, which tied villagers to village resources, resulted
in rural industrialization in the 1980s and 1990s involving the majority of the rural residents
in W county. Under the current land revenue regime, however, in the process of land
urbanization, local governments have separated villagers from village resources and excluded
them from the most profit-making activities, leading to the replacement of village-based rural
industry by a small number of large industrial corporations.
Third, while the land revenue regime has provided rural residents with a compensation
package in recognition of their previous rights to village resources, it has not established a set
of institutions to mobilize rural residents to work and hence contribute to the new regime
and share the benefits of economic growth. As a result, an increasing number of them have
© 2015 John Wiley & Sons Ltd
Urbanization and the Transition of Rural Industry in China 431
become welfare dependent and/or are relying on a small amount of rental income, or are
taking up low-paying service jobs. This undercuts the capacity of the regime to generate
sufficient surplus due to a lack of consumer demand for urban real estate, particularly in small
and medium-sized cities such as Changzhou. If it cannot revive its ability to generate surplus,
it is probable that the current land revenue regime will be phased out and replaced by a new
accumulation regime, as happened to local state corporatism in the 1990s.
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