Trade Integration and the Prospects for Rural Enterprise Development in China

Historically, the rapid growth of Township and Village Enterprises (TVEs) has played a key facilitating role in the process of structural transformation in China, with millions of farmers benefiting from new employment opportunities in the non-agricultural sector. Due to their export orientation and adaptability, TVEs could benefit from China's WTO accession. However, TVEs' uneven patterns of development and recent poor performance have raised questions about whether they can provide income-earning opportunities to rural labourers in the future. This paper assesses the effects of WTO membership on TVE development based on four main areas of analysis. First, it assesses the reasons for the recent poor performance of TVEs, as well as other institutional changes (especially ownership) occurring in the TVE sector. It examines, in particular, the economic environment for TVEs with respect to several key markets - output, credit and labour. Second, the international linkages of the TVE sector are examined in terms of concentration, especially of tradables, and recent trends. Third, the paper analyses regional aspects of TVE performance and linkages to the international economy. Fourth, the likely effects of trade integration on agriculture, textiles, and other products, as well as the market environment for TVEs, are assessed. Finally, the paper provides policy priorities for maximising the development contribution of TVEs in light of trade integration, especially in the areas of improved access to credit, more integrated labour markets, a better environment for the private sector, and ownership and contract reforms.