Interesting new article by MIT professor Yasheng Wang in the Journal of Economic Perspectives (ungated pdf here)

There are two prevailing explanations of what caused China’s rate of economic growth to take off. The first view gives the pride of place to globalization. According to this view, Chinese growth started when Deng Xiaoping liberalized trade and foreign investments by setting up special economic zones in the in the coastal provinces. In this view, China’s export-oriented manufacturing, largely foreign-funded, employed millions of rural migrants, boosted their income, and reduced poverty far and wide. The second perspective emphasizes the importance of internal reforms—especially in rural, interior regions—of the agricultural pricing system, land contracting, and the entry of rural businesses known as township and village enterprises.

Huang argues that township and village enterprises were the key to China’s take-off

 … the economic contributions of foreign investments do not remotely match those of China’s rural industry. At their peak, firms funded by foreign capital employed 18 million people (in 2010). By contrast, at their trough in 1978, township and village enterprises employed 28 million people. Between 1978 and 1988 China’s poverty headcount declined by 154 million, by far the most impressive  record during China’s three decades of reforms.

And he dismantles some “myths” about China’s village enterprises

 Many China scholars believe that township and village enterprises have a distinct ownership structure—that they are owned and operated by local governments rather than by private entrepreneurs. That these firms could be so dynamic and efficient, yet government-owned, is often treated as a paradox in the economics literature.

But my own historical narrative—formulated on the basis of voluminous government and bank documents and data from the 1980s—directly contradicts this heterodox interpretation of Chinese reforms. I will show that township and village enterprises from the inception have been private and that China undertook significant and meaningful financial liberalization at the very start of reforms.

Source (PDF)