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The Chinese community-based development model

Otto Kolbl (follow on facebook, twitter), created: 2013-03-14, last modified: 2017-11-17

The performance of the Chinese economy in the last 30 years has been quite impressive. Much of it has been achieved through a very flexible system of local governance where collective management plays an important role. However, this system is poorly understood by Western experts.

Most specialists have acknowledged past successes, while at the same time predicting an imminent collapse. When economic growth did not go away, many of them tried to come up with an explanation. Some tried to trace it back to the authoritarian nature of its regime: the fact that the Communist Party could arbitrarily decide new policies and impose them all over the country is sometimes seen as a possible explanation. However, other states ruled by this kind of control-freak regimes have not done well in the economic field. Given the extremely dynamic character of the Chinese economy and the impressive diversity of its society, it seems obvious that there must be a lot of room for individual initiative.

Other experts tried to trace China's recent economic growth back to Western-style economic liberal reforms and to the opening up to Western influence. Although this is not completely wrong, it does not explain why it is not the special economic zones or private enterprises, but collective village enterprises in the countryside which have contributed most to GDP growth in the 1980ies. In a liberal economic model, this would not have been possible.

In the last three decades, many modern Western style companies have emerged in China; some are privately owned, some are state-owned. However, a huge part of the economic activity is still in the hands of small family enterprises called "getihu" which work according to a model which is poorly understood in the West.

China: A Chinese urban family takes a meal in a one-table-restaurant in a small village near Baoji, Shaanxi. Such activities are a typical entry-level activity for farmers to get additional income.

A Chinese urban family takes a meal in a "one-table-restaurant" in a small village near Baoji, Shaanxi. Such activities are a typical entry-level activity for farmers to get additional income.

In Western terminology, we could call it a "community-based model", especially in the countryside. The attribution of resources like land is managed by the local community, in a way which favors local families over big companies. The rule of law is only in the process of being built up; as a consequence, business transactions are less risky in closed business communities than when you operate in regions where you don't know anybody. Labor laws are similarly weak and difficult to enforce; working for local entrepreneurs who are integrated in the community is therefore advantageous from many points of view. This development model is based neither on a hierarchical authoritarian regime nor on Western liberalism; it is a third model which few specialists have ever considered as a possible explanation of China's economic rise.

After the 1990s when the wealth gap between cities and the countryside has widened to a critical level, recent years have seen fast economic growth in towns and villages. To a considerable extent, this is due to the policy called "harmonious society", especially to the following measures:

  • Progressive abolition of the land tax
  • Introduction of a heavily subsidized health care scheme; this has freed savings which otherwise would have been kept in anticipation of a medical problem
  • Streamlining of the administrative procedure to set up a getihu business
  • No or very low taxes for small getihu
  • Low interest credits provided  or guaranteed by the local government
  • Improved infrastructure in remote areas

In the valleys in the south of Baoji, many countryside restaurants have become flourishing family businesses.

In the valleys in the south of Baoji, many countryside restaurants have become flourishing family businesses.

Another factor has hugely facilitated this process, but it is nothing new: the unique Chinese system of agricultural land management has always favored the establishment of complementary economic activities in the countryside. The collectivization of all the land in the 1950ies has never been reversed. Since the reforms in the early 1980ies, land is still collectively owned, but is entrusted to individual families for cultivation. Each family has also got a small piece of constructible land in the village with a house. This system makes sure that almost all have got housing, food, some health coverage and a small income.

China: A lonely chimney in a corn field is all that is left from a brick factory in rural Henan province

A lonely chimney in a corn field is all that is left from a brick factory in rural Henan province

Their basic needs are covered with relatively little effort which is concentrated on sowing and harvesting time. They can therefore dedicate much time to a new business activity, even if it does not immediately generate a considerable income. The recent increase in food prices has provided them with some additional income and therefore the possibility of capital accumulation. In addition, China has recently seen a sharp increase in salaries for unqualified factory workers; this is the work farmers take for a limited time to get the capital for starting their own business.

The success of this development model is most apparent in the numerous factories which have emerged everywhere in the countryside, allowing farmers who did not set up their own business to find jobs while staying in their village. Smaller getihu are active in the services sector like shops, restaurants, transportation etc.

Industrializing the countryside is actually nothing new. It was originally the driving idea behind the Great Leap Forward (1958-1962, a terrible disaster) and the Cultural Revolution countryside policy (a moderate success). Mao's dream came true post mortem in the early 1980ies, when rural collective enterprises contributed more than any other sector to economic growth. However, in the 1990ies, rural economic activity was eclipsed by growth in the cities; the rural-urban income gap sored. Many rural low-tech factories closed.

A first turn-around came when many debt-ridden state-owned enterprises in the cities were "restructured" in the 1990ies. They were often relocated to places which allowed an increase in competitiveness. Some were restructured using Western capital and knowhow, generally in coastal regions. Others were moved to the countryside, where farmers were willing to work for low salaries, especially if they could take unpaid leave during sowing and harvesting times. Recent policy changes (see above) and the increase in food prices have reinforced this trend and led to a huge construction boom in the countryside. It is not rare to see villages where almost all the houses have been rebuilt or renovated and fit with one or two more floors within the last five years.

It is quite obvious that this development model has achieved impressive results in the densely populated areas inhabited by Han Chinese. The question is to what extent it can be applied to other circumstances like the Tibetan society with its extremely low population density and specific culture.

China: A quite isolated village in rural Henan province, where almost all the houses have been rebuilt within the last few years.

A quite isolated village in rural Henan province, where almost all the houses have been rebuilt within the last few years.

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