Financing China's Rural Enterprises

Citation

Matlay, H. (2006), "Financing China's Rural Enterprises", Journal of Small Business and Enterprise Development, Vol. 13 No. 2, pp. 286-288. https://doi.org/10.1108/14626000610665980

I first read this excellent book when it came out in print, in autumn 2002. Having followed the impressive rise of entrepreneurship in China, I became both intrigued and fascinated by this exciting socio‐economic and political phenomenon. At the time, Jun Li and I were working together on various projects in the now defunct Enterprise Research and Development Centre (ERDC) at the UCE Business School in Birmingham, UK and he kindly let me have a complementary copy of his newly published book. The volume is based on his doctoral work and I am pleased to report that, unlike other PhD theses, this lends itself admirably to the task at hand. The text is usefully divided into seven chapters, which represent a logical structure and progression through this interesting topic of research.

 In the first chapter, Li introduces the topic and sets out the objectives, methodology and the case studies related to his in‐depth analysis of rural enterprises in China. This is an informative chapter and I found it very useful in conceptualising and contextualising this complex topic. It contains a wealth of useful and up‐to‐date statistical data, relevant information and insider knowledge into the intricacies of rural entrepreneurship and its role in China's “economic miracle”. The author acknowledges both general and specific methodological challenges appertaining to research into the financing of rural industrial enterprises. The use of detailed case study work is justifiable and has, in my opinion proved a wise and fruitful methodological choice.

The second chapter is dedicated to the wide‐ranging debate relating to the financing of rural industrial enterprises in China. It also contains a well‐grounded and empirically rigorous discussion on the usefulness of western European analytical tools, when applied to the investigation of Chinese rural enterprises. There are also four relevant hypotheses formulated in this chapter and these form the basis for the author's investigative work. Chapter three provides a basic overview of rural industrial enterprises, their main characteristics and financing issues as well as their initial growth pattern between 1978 and 1994. It focuses upon a well‐grounded analysis of resource allocation and financial management of this type of enterprise, within the context of growth instability and fluctuation. The next three chapters focus upon expanding the relevant levels of analysis, in order to allow for a better understanding of the major and minor factors that affected the financing pattern of rural industries in China.

In chapter four, Li evaluates the financial management approach as applicable to rural industrial enterprises in China. He identifies the critical factors responsible for the debt‐dependence exhibited in this type of enterprise. Furthermore, relevant data is also presented on how highly geared rural enterprises absorb financial risk internally. The scope, purpose and activities of rural financial institutions are reviewed in chapter five. We are introduced to the extent and purpose of financial reforms in general and their impact upon the rural financial system in particular. The author shows his in‐depth knowledge and versatility by taking the reader through the intricacies of a very complex system, its reform and the impact of dynamic change upon credit management in financial institutions, as well as their shifting relationship with rural enterprises and local government. The importance and role of local governments in the emergence of rural entrepreneurship in China is discussed in chapter six. Interestingly, the author chose to review the full extent of the financial relationship between rural enterprises and local government, including important aspects related to community risk absorption. There are complex issues relating to local financial capacity and relevant responsibilities, flexible policies and institutional development – all of which proved pertinent to the success of rural entrepreneurship.

Chapter seven outlines the concluding section of the book and presents a summary of the main findings. I found the book as a whole very useful and the conclusion brought the narrative together in a well written, structured and formulated final chapter. The author has identified an important paradox associated with the patterns of financing rural industrial enterprises in China. It involves a conflict between hard budgetary constrains on rural enterprises and the over‐dependence of this type of enterprise upon debt financing. Furthermore, the apparent paradox covers a variety of relevant local government strategies that were employed in order to organise and manage a very practical and largely successful local community risk‐sharing mechanism. I do not wish to summarise the many pertinent and original findings of this book, so I will stop here, except to say that it provided me with the basis for further reading and a better understanding of what proved to be a complex and rapidly changing topic of research.

As stated above, this is a well‐researched, structured and written book, and it contains a wealth of useful data and information appertaining to a rapidly expanding topic of interest. I would strongly recommend it as required reading for anyone who is contemplating a study of Chinese entrepreneurship in general and rural industrial enterprises in particular. The book could provide not only a foundation to these important topics but also an example of an empirically rigorous approach to a difficult and rapidly shifting body of knowledge. Finally, I would suggest that the author considers an update and perhaps also a companion text that would bring the topic up‐to‐date, with all the changes that have taken place in Chinese entrepreneurship over the last few years.