Energy Efficiency and Profitability Differences: State-Owned Versus Township-and-Village Enterprises

Virtually all productivity studies of SOEs and TVEs in China during the 1980s and 1990s conclude that productivity in the TVE sector has grown faster than in the SOE sector. These analysts have not, however, attempted to compare the paradoxical nature of TVEs superior economic performance as compared to their inefficient utilization of energy. In this chapter, I show that a majority of TVEs sectors exhibit the paradoxical characteristics of being less energy efficient and more profitable than SOEs in both Shanxi Province and China as a whole. Using Structural Decomposition Analysis, I show that 28 out of 29 TVE sectors in Shanxi Province and China as a whole are less energy efficient than their SOE counterparts. This occurs despite the fact that TVEs in China have enjoyed a far better economic performance than SOEs. In order to reconcile this paradox, I examine the direct and indirect labor and other material inputs between the TVE and SOE sectors in China and Shanxi Province. In order to explain the differences in direct and indirect energy, labor, and materials inputs between SOEs and a TVEs, I have extended previous theoretical discussions of ambiguous property rights in the TVE sector to explain some of the findings in this study. My primary argument is that vaguely defined relationships among owners, workers, and local administrators allow TVEs to establish informal contract arrangements that give them access to cheaper inputs.