Readers may wonder why capitalism in China was rooted in the rural areas. There is a demand-side dynamic – rapid income growth in rural China creating the derived demand for more consumer goods and services (Naughton 2007). The more interesting explanation is on the supply side – why rural entrepreneurs were able to respond to the market changes so quickly and on such a massive scale. One important reason is the radical and market-conforming nature of the reforms initiated by the Chinese leadership in the 1980s.
