The evolution of shareholding enterprise reform in rural China : A manager empowerment thesis

The paper aims to explain the evolution of shareholding reform in rural China in terms of the changing balance of power over economic management at grassroots level. It highlights the importance of distributional consequences in shaping the pattern of ownership reform. The major argument forwarded here is that two different worlds of enterprise managers emerge amidst the process of rural industrialization, and the bargaining position of those running key enterprises vis-à-vis the local government has been dramatically enhanced. Managers' ability to deliver a stable revenue, economic benefits to the local community and the growing incapability of local governments in monitoring enterprise operation have provided these managers with leverage to bring pressure on local government. During the early stages of rural enterprise development, a half-way house reform was acceptable for both parties, but the balance was upset with further growth of enterprises. The renegotiation of respective rights over enterprises was necessary to accommodate the empowered managers and this was the catalyst for the further dilution of local government's control over rural enterprises in the late 1990s.