Business in township enterprises began growing during mid-1980s.

By 1997, the added value created in township enterprises was 2,074 billion yuan (US$249.88 billion), nearly 28 per cent of the gross domestic product of China, according to the Ministry of Agriculture. The industrial added value produced by township enterprises was 1,504 billion yuan (US$181 billion), or 47 per cent of the national total.

Taxes handed over to the national coffers were 20 per cent of the State revenues in 1997.

Meanwhile, their export volume was 695 billion yuan (US$83.73 billion), making up 36 per cent of China's total exports in 1997.

Unfortunately, the growth of township enterprises has been, on the whole, declining since 1993.

For the five years from 1993 through 1997, the growth rate of township enterprises' output was 65 per cent, 35 per cent, 33 per cent, 21 per cent and 15.4 per cent.

Compared with 1995, losses of township enterprises increased by 70 per cent, or 80.6 billion yuan (US$9.7 billion) in 1997.

"Behind these figures are Chinese township enterprises' profound transformations from businesses closely attached to local authorities based on collective ownership to ordinary entities forced to abide by the normal games rule of the market," said Bai Nansheng, a research fellow with the Centre for Agriculture Research under the Ministry of Agriculture.

Most township enterprises in China retained collective ownership as their basic form of property rights when they began to flourish during the mid-1980s.

By retaining collective property rights controlled by village or town authorities, township enterprises could be assured of their legality when both government officials and entrepreneurs were still too timorous to want to be labeled as "proceeding with capitalism."

The legality made it easier for township enterprises to make purchases of then scarce raw materials, techniques, capital, management expertise and cheap land, which were usually under government control in a planned economy.

These advantages, along with a shortage economy which created a huge market vacuum, helped accelerate rapid development of the township enterprises.

But things began to change during the early 1990s.

In his inspection tour of South China during the spring of 1992, the late leader Deng Xiaoping told the whole country to brush aside the "debate of capitalism or socialism" in economic development.

When the 14th National Congress of the Communist Party of China convened in October 1992, the leadership decided to build a market-oriented economy in China.

All these have given an impetus to the growth of township enterprises.

The market has also turned from one of pervasive shortages to a well-supplied one that sometimes even suffers from a diffuse oversupply of goods.

"Township enterprises will now have to surpass several hurdles before regaining the impetus of development," Bai said.

They must figure out how to obtain technologies suitable for their actual needs.

Inadequate technology reserves have become, in fact, a salient crippling factor for township enterprises' further development.

They must also figure out how to scientifically assess investment projects and ensure profitable decision-making.

Most township enterprises lack updated techniques, ample market information and well-trained managerial staffs with professional know-how.

They must learn how to get around capital bottlenecks.

With the deepening reform of China's financial sectors, the discrimination against medium and small-sized enterprises, to which the overwhelming majority of township enterprises belong, will naturally wane.

But their comparatively small economic scales have placed them in an unfavourable position.

Existing State-owned banks are reluctant to do business with them because of the higher costs involved in project assessment and supervision, which results in higher risks.

Meanwhile, there are, so far, few medium and small-sized banking institutions orientating towards medium and small-sized firms.

The enterprises must learn how to make contact between township enterprises and international markets and to channel foreign investment into township enterprises.

The existing foreign trade regime has, in a sense, blocked the smooth exchange between township enterprises and the international market place.

Sometimes, those who have received foreign order for their products have not been able to obtain bank export credits.

On the other hand, some who have obtained bank loans have no profitable projects at hand.

"What most township enterprises lack are market-based and market-oriented intermediaries who can substitute for the role formerly played by local authorities," said Bai.

"These intermediaries should not be funded by government, neither should they undertake any form of direct investment. They should serve exclusively as go-betweens."

These intermediary services should cover wide areas including technology support, credit assessment, investment consultation, export promotion and management training.

To solve township enterprises' capital deficiencies, township enterprises development foundations should be created to provide guarantees for their bank loans, noted Bai.

Another thorny problem faced by township enterprises is how to organize themselves: In line with a share-holding system or in line with joint stock co-operative system?

The former advocates a distribution of enterprises' profit and decision-making power in accordance with the principle of "one share one vote," while the latter emphasizes a combined consideration of the rights of both management and labour.

The key is to find a replacement for the role formerly played by village or town administrations.

"The process of reforming township enterprises' property rights should not proceed too quickly and result in the erosion of collective assets," said Yu Jianguo, a research fellow at the Institute of Economic Research under the State Development Planning Commission.

(China Daily)