a The Special Economic Zones SEZs atracted foreign investment at a tme when

A the special economic zones sezs atracted foreign

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a. The Special Economic Zones (SEZs) atracted foreign investment at a tme when private property rights generally were not protected by the legal system . b. From near-zero amounts at the beginning, FDI in China increased massively to become in tme the 2 nd largest infow to any country in the world economy. 6.The most dynamic part of the Chinese economy in the frst two decades of reform werethe township and village enterprises (TVEs), largely under the control of localgovernments, which provided the leadership in the labor-intensive rural industrializatonof China. 2 Downloaded by Vicky Gupta ([email protected]) lOMoARcPSD|3929542
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a.From less than 6% of gross domestc product (GDP) in 1978, TVEs' share climbedb.Their average annual rate of growth was 28% in the 1980s (sometmes even to 26%by 1996. higherin some of the coastal provinces). 7. Sproutng under the shadow of the command economy, TVEs represented an insttutonal innovaton (more a form of improvising) that employed the incentves of a market economy without privatzing ownership (at least in the inital stages) [Note: If they had to eventually privatze them then naturally it did not completely workout without the right to property]. a. They benefted from the ability to retain most of the profts from the business, plentful rural labor available locally, and cheaper credit from the local rural credit cooperatves (and other informal local sources) fush with the high savings of farmers (as the later started prospering under agricultural reforms and as they increasingly felt secure against the danger of state confscaton of their surplus), and local ofcials ofen acted as informal guarantors or sponsors of credit to the TVEs. 8. But unlike state-owned enterprises (SOEs), theTVEs were not coddled or subsidized by higher-level governments ; failing TVEs were ofen not bailed out. In any case, the lower- level governments or rural credit cooperatves ofen did not have enough fnancial resources to bail out failing TVEs, even if they wanted to do so. In this sense the budget constraint was relatvely "hard," so that not merely were the TVEs of diferent localites competng with one another, but the competton had some teeth in it, as the local people had to bear the brunt of failed enterprises . 9. Afer the mid-1990s, as markets developed and as outright privatzaton was no longer taboo , the special advantages of local government ownership in terms of protecton and access to resources declined; in many of the TVEs the managers and associated local 3 Downloaded by Vicky Gupta ([email protected]) lOMoARcPSD|3929542
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ofcials openly staked their claim to ownership . Such insider privatzaton, of course, gave rise to many opportunites for manipulaton and corrupton. 10. Even though collectve and private frms were the mainspringsof growth, there were important reforms that made SOEs leaner and more productve .
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