China's Economic Growth
By David Henderson
The spontaneous reforms in agriculture meant that new supplies of food products needed markets and that markets needed infrastructure. Rural dwellers created a private trade network, and, within one year, most state food stores were out of business. Rural entrepreneurs then created new businesses, such as hotels, services, private restaurants, and small-scale manufacturing, through the three Fs (friends, family and fools). They bribed local officials to register their companies as “township and village enterprises.” They created fake “red hat” enterprises, that is, private companies masquerading as state companies, and sham collective enterprises, or they used state enterprises to issue receipts and open bank accounts. Large private manufacturing firms developed first in predominantly agricultural provinces. China’s largest agribusiness was founded by brothers who left the city to found their company in rural Sichuan. Rural entrepreneurs built the largest refrigeration and air-conditioning companies in China.
This is from Paul Gregory, “China’s Growth: Planning or Private Enterprise?”, the August Feature Article on Econlib.
The CPC [Chinese Communist Party] is, therefore, at a crossroads. To date, it has played the “leading role” in politics, economics, and civic life. If people are allowed to make their own decisions in relatively free markets, the CPC will lose much of its leading role. The control of economic resources is what gives party leaders power and personal wealth. An authority on Chinese finance characterizes credit markets as a “bountiful source of political resources…. [T]he enormous pool of savings in the banking sector made it an indispensible policy and political instrument.”
The remarkable feature of China is that despite the private sector’s disadvantages in credit markets, it has advanced and outgrown the privileged state sector. Perhaps, one day, we will see what it can accomplish on a level playing field.