The sustainability dilemma of China's township and village enterprises: An analysis from spatial and functional perspectives

The spectacular development of China's township and village enterprises (TVEs) has been highly praised by both Chinese and western scholars. The TVEs and rural non-agricultural sector were widely regarded as the most dynamic sector in the Chinese economy during the reform era. However, such a successful story and optimistic view had changed tone since 1997, seemingly from the robust boom to a deep recession. Evidently, China's present TVEs development must be confronted by deep-seated problems that created the fundamental sustainability dilemma. To better understand China's unusual process of TVEs development, this paper focuses on the sustainability dilemma from the functional and spatial perspectives. It analyses the internal conflicts between TVEs development and agricultural production and explains why the present mode of China's TVEs development cannot be sustained. Within the rural economy, agricultural production and the TVEs themselves have created severe conflicts that have led to a fundamental sustainability dilemma: further encouragement of TVEs or maintaining a stable agricultural output, especially of food supply. The underlying causes for the sustainability dilemma are diagnosed, primarily based on a consideration of functional and spatial division. The paper argues that the conflict is inevitable due to the dysfunctional nature created by TVEs in the rural sector. That is, farmers simultaneously perform two different functions: agriculture and industry, both of which should be functionally and spatially separated. According to Lewis's Two-sector Structural-change Model, this paper attempts to seek a possible solution that aims at an overall functional clarification between the urban and rural sectors.