ABSTRACT
In the late 1990s, China’s rural industry underwent radical property rights reforms with millions of township and village enterprises (TvEs) being privatized. While the methods and speed of reform varied widely between regions, the privatization of TvEs was achieved mainly through the transfer of ownership rights from local governments to enterprise insiders, i.e., managers and employees. As in other transition economies, the goal of privatization of TvEs is primarily to increase economic efficiency; however, the ownership restructuring has important distributional consequences. Studies have shown that privatization in transition economies is often accompanied by significant increases in income inequality (see Aghion and Commander, 1999). The rise in inequality has raised social tensions, posing a threat to social stability. In this chapter, we examine the impact of the privatization of TvEs on earnings inequality using a unique data set from Jiangsu and Shandong provinces.
