Township-Village Enterprise in China - Essay Example

Township-Village Enterprise in Chinese Introduction The extraordinary expansion of the non sector has changed the countryside of China’s economy. It is particularly known as Township Village Enterprises (TVE) in China. These innovative ventures have impacted the industrial revolution where as early as 1978, the TVE’s contributed 57% of Chinese growth domestic product output (Tsui et al., 2006:48). In a more formal way, TVE’s refers to a business sector that belongs to all residents of rural population. In Chinese, they were in form of locally built industries. As the name suggests, they are locally sited and are run by the local natives in generating their livelihood and towards the state wealth. The presence of TVE’s has contributed a lot in he state-run market. In the community side, the TVE’s contributed greatly to countryside improvement both in cost-effective and societal fields (Yueh, 2010:75). This reduced greatly the country side unemployment pressure the government had to deal with. This paper will endeavor to examine the inclusive factors driving the growth of TVE’s and the barriers in their continuous growth. First, the TVE’s have been integrated into the world economy. The location of these enterprises sits deep in the rural town of china. In such areas as the coastal l province of Guangdong, Fujian, Zhejiang and Jiangsu were majority are concentrated, the areas have a rich historical background. They possess prominent historical archives and are closely linked to Chinese capitals such as Hong Kong, Taiwan and Southeast Asia (Yueh, 2010:142). The close ties between the TVE’s have created the requirement of international division of labor and this forms an added advantage to rural china. They thus attract overseas Chinese investors. This has in consequence pumped a lot of money and real development and expansion plans have been initiated leading to their uncontrollable growth. The growth and [potential avenues of exploitation is the reason these TVE’s have emerged so strong. These rural setting have again contributed to importance of TVE’s growth. In these locations, the locals have provided well- disciplined and affordable Chinese work force (Tsui et al., 2006:201). This contributes to the successful operation the industries. The output per the TVE’s considerably keeps on going up as a result of dedicated work force. The provisions of tax exemption, currency conversion, and other open door policy as preferential treatment have attracted other international investors. This brings in more developments of these local TVE’s and new initiatives which have seen their rapid growth. The international attraction in investing in these enterprises has been boosted by flexible and relative approval procedures for their investment (Lin et al., 2001:164). As a result, this has seen much enterprise spring up for a very short period of time. The foreign investors have brought in scarce foreign capital and relatively up to date technology. Management skills from these investors have initiated the current means of wealth creation and they thus provide market net works from their countries and the international fields. The exports of TVE’s products have generated a lot wealth since any international market link guarantees prompt payment. The creation of all this wealth goes back to the community and the national economy, the reason why the government has heavily support such enterprises (Yueh, 2010:102) Moreover, the TVE’s have assumed distinctive market line of attack. Chinese market liberalization, purposely the lessening of state domination over industry has contributed to the astounding growth of TVE’s (Tsui et al., 2006:94). When the government opened such avenues, many industries were abruptly established. Needless to say, this move has protected the industrial sector hence the reason for their growth. Those industries which were earlier instituted reaped a lot from this government policy. They created other windows of opportunity which led to emergence of others. The ready market for TVE’s products such as food and clothing resulted in gradual improvement of the industries as capital for further development was created. This was ultimately boosted by the country wide fiscal development, both rural and urban (Yueh, 2010:89). As a result, market was available for, the products of TVE’s and many investors monopolized this opportunities. In 1980s, china was in the process of renovation of its cities and towns. This move required supplies which by then TVE’s were producing in large quantities. Products such construction materials were heavily required and the only reliable source was the TVE industries. The industries generated a lot of turnover and this is the reason for their current growth and stability. The market and planning structures have also had an impact to smooth developments of these industries. The plan created easy access to raw materials which in turn were used to produce large amount of out put to meet the ever increasing demand for the final products of TVE’s. Such policies in market gave the reasons for the growth and development of TVE’s in china (Lin et al., 2001:176). The move by Chinese Government to support community government has been the other reason why the TVE’s have seen such a period of successful growth. The communities have the Township-Village Governments. Like any other institution, the government of the local community has been working hard to stabilize their counties. The autonomy for decision in such areas also ensures that then TVE’s have been shielded from external interference (Onyemelukwe, 2005:65). This enables the industries and other enterprise to operate in ease as the market regulation and security of operations are guaranteed by the TVG’s. Moreover, the TVG in these areas have been motivated by profitable economic bureaucracies such as revenue generation, employment creation and the improvement in social welfare for its people. Like any other government, reliable source of revenue is an assured source of capital growth. The TVE’s get maximum support and approval for they form the bulwark to the sustainable governing of these local counties. The operating environment is humble and the TVG government in investment policies protects the TVE’s from any malicious endeavors. As a result, these enterprises operate with ease and it has resulted to their multiplication (Yueh, 2010:87). The security guarantee has yielded plans for the investors who are initiating and working more long-term development goals. This is because the TVG’s have been vetted with broad powers from the central authoritarian government of the China people. The TVG’s further have organized for economic, investment and political forums within its county to create awareness among its people and the external investors. High and profitable government policies and business ideas have been brought down to the people. This has given rise to many entrepreneurial ventures since people feel part of the bigger government which guarantees security in market share and operation. The TVG’s further provide a fare ground for each investor in this field. They ensure disputes are settled amicably-especially those which involve bank loans and other higher government provisions. They in particular act as guarantors for the TVE’s in their counties to access loans for further investment and enlarging of existing business. If any TVE is faced with repayment procedures, the TVG steps in to stand and secure the continuity of such enterprises in its county (Yueh, 2010:72). The availability of such provisions from the TVG has given rise to many enterprises in these local areas of China. The size and flexibility of TVE’s has been linked with its gradual growth in investment industry. These investments of TVE’s are small in size and engage in businesses which require less mechanical assets but concentrate more in labor intensive ventures (Yueh, 2010:65). The production in these enterprises is human oriented and less mechanical. This has created more and more job opportunities motivating the locals to invest their time I running the enterprises rather than moving to the capitals in search for better jobs. Their small size is a secure ground because if any is largely affected by market changes, they easily switch to the current ripe venture. This will avoid the loss which could be accrued if the investment was so heavily mechanized. As a result, the enterprises are able to react to market changes, to switch products as well as identifying and utilizing new market ventures (Onyemelukwe, 2005:59). The size of these ventures has ensured manageable accounting policies. The accounting system, though less standard, it is less strict when you compare it with State Owned Enterprises (SOE’s). The owners account for the financial management, and book keeping records without the necessity of involving banks which are more stringent and limiting (Lin et al., 2001:172). This ensures a localized management and uncontrolled investment expansion which has seen the growth of the TVE’s in China. Barriers to continued growth of TVE’s The latter years of intensifying market competition has been seen as one of the barriers the TVE’s are struggling with. Due to the benefits, which the early innovators tapped from TVE’s business, it attracted private sector, who also wanted to reap the benefits of the time. The two paralleled inventors resulted into competition for market, raw material and shifted interest in favor of one another (Yueh, 2010:65). As a result, market rivalry came to be. The tensional business operating environment replaced the cordial grounds the TVE’s had enjoyed for years. The TVE’s resulted into over spending in mechanical assets, adjusting labor force policies and stiff marketing techniques, something they had not done before. AS a consequence, the continual pressure yielded less and fewer profits as other companies invented. The surrounding circumstances handicapped the TVE’s to generate high rate of revenues and local off-farm employment went down. The TVE’s were not enjoying the monopoly they had before. Competition in product quality was another blow to TVE’s. The private firms had invented modern technological inputs and their products were of quality (Yueh, 2010:143). Nonetheless, the quantity of output in these private firms out numbered that of TVE’s and thus they dominated the market, creating a significant cut of profit which the TVE’s enterprises had amassed for years. The competition also created brain drain in its labor force. The experienced workers and managers who were not well paid in TVE firms shifted jobs to work with the well paying new private firms. It was an opportunistic behavior which dealt a big blow since the TVE’s were reduced into working with inefficient staff hence the quality and dominance of its market; product was spiraled down (Yueh, 2010:94). This contributed as a big barrier for TVE’s growth. The regime, in addition, relaxed the conventions in favor of private firms. The government engaged in privatization even to some of these TVE’s firms. The private sector wrapped the chance. The immense privatization, exclusion of rigorous rules and favoring market policy on private firms dented the motives of the TVE’s (Yueh, 2010:75). It was difficult for TVE’s to maintain its labor force, as big spending private firms were on the rise. During the early 1990’s, most of the TVE’s were struggling financially due to relatively cut sales. A number of looming liquidations were recorded as more energy and investment was directed to the private sector. By this time, private investment had become the important edge of Chinese growth. The emerging private firms, through government policies were just sprouting from former TVEs’. Many of these had seen their stock be sold to private people or associations. The government had opened the door for privatization of its state property in the argument that by retaining shares in such firms, they will still control the private firms operations. It was largely viewed that the TVE firms could no longer stand the wake of privatization hence TVE’s firms were sold out (Yueh, 2010:89). This was a big barrier as the existing TVE’s struggled to retain their status quo. Moreover, the government had engaged itself in protecting the alien direct investment. By privatizing and changing market rules in favor of these new firms, they were protecting the private property right. This was a move to contain them in the country since they had threatened to pull out if not protected as they complain of TVE’s were not treating them fairly. Finally, the TVE’s had a trouble in accessing finance and this contributed to their decline. The banking system of China was unreformed and never at all favored the TVEs (Tsui et al., 2006:187). While private firms could get cash for further investment from their savings and foreign investments, the TVEs relied on bank loans which were not easy to get. As a result, their expansion was, cut down and new ventures were easily given or tapped by private firms. As the private sector sky rocketed, the TVEs diminished. The stagnation and eventual decline remains speculative and the major problem TVEs was that they failure to attract investors while their businesses boomed (Yueh, 2010:74). However, though the percentage to output contribution has of late seen a decline, the overall impact of TVEs still continues to impact China’s growth up to date (Onyemelukwe, 2005:74). It is arguably said that the TVEs did not fail, but rather what should be attributed to their decline should be the question of unfavorable choices directed towards them. Bibliography Tsui, A. et al. 2006. Chinas Domestic Private Firms: Multidisciplinary Perspectives on Management And Performance. Beijing: M.CE. 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