Capitalism with Chinese Characteristics: Entrepreneurship and the State

by Yasheng Huang

The best example of the market-based view of the Chinese reformers in the 1980s is the financial innovation called rural cooperative foundations. The background to the RCFs was the large-scale privatization of collective assets in the early 1980s. Although rural China privatized the control rights of collective land, some of the assets, such as plow animals or heavy-duty equipment, either were too expensive to be acquired by individual households or were indivisible assets – a donkey cannot be divided in two. So these assets still remained on the books of the villages, but they became illiquid as the collective entities shed their production role and the ability to generate revenue. The RCFs rose in response to this problem. Villages securitized the collective assets by selling ownership shares to the members of the villages.