Chinese Rural Enterprises in Transformation: The End of the Beginning

Abstract

This paper argues that China`s rural enterprise are currently undergoing a second phase in transformation. In contrast to the first-phase transformation, which involved shifts in user rights, the second phase has been characterized by the transfer of asset rights from the collectives to local corporate leaders. The process was accelerated particularly after the Chinese Communist Party`s Fifteenth National Congress which opened the door for diversified forms of public ownership. The argument is supported by a case study conducted in an enterprise in Daqiuzhuang in rural Tianjin. The case clearly shows that toward the end of the first phase, the enterprise transformed itself from a collectively-owned entity into a shareholding system. Yet, the asset ownership was not tied to share. Since September 1997, however, this ownership has been tied to shared, remaining nominally public, as the majority of the shares remain under control of the local community, the enterprise, and other cooperative enterprises. In essence we see a dramatic increase of shares controlled by corporate leaders in the new ownership structure, as they sever as representatives of the community and enterprise shares and own a substantial portion of the individual shares. It is argued that the ultimate objective of this transformation is to move the control of enterprise assets into the hands of corporate leaders. We also speculate, based on available information, that this phenomenon is not idiosyncratic to Daqiuzhuang but is rather a nationwide trend currently under way in China`s rural enterprises.