Stability in Instability - China’s TVEs and the Evolution of Property Rights

Abstract

For two decades economic and social stability in China's rural areas has been based on the successful evolution of township village enterprises. These enterprises, however, feature property rights structures which according to conventional property rights theory should make these enterprises highly inefficient and prone to quick dissolution. But as closer analysis indicates, exactly these ambiguous property rights structures may be the recipe for success. They constitute highly flexible best practice solutions for corporate survival in the context of rapidly changing environments in a transition economy. But as the Chinese market economy matures, these ambiguous property rights structures will nevertheless have to make way for clearly defined — stable — property rights structures. The paper introduces some hypotheses concerning the forces underlying these evolutionary processes.