(Chang and Wang, 1994; Jin and Qian, 1998). On the other hand, private property rights
tended to give private enterprise owners and managers more of an incentive to improve tech-
nical efficiency and seek ever more efficient ways to secure scarce inputs. Also, in order to
achieve their community objectives, local governments often induced TVEs to adopt output
targets or labor hiring goals that pushed TVEs away from profit-maximizing or technically
efficient production practices.
The above observations suggest at least three ways in which the relationship between
local governments and TVEs might yield the TVE an economic advantage or disadvantage
over private enterprises: credit access, technology adoption and input allocation, and out-
put/labor distortions. Accordingly, between 1979 — 1993, even if private enterprises adopted
superior technologies, the overall efficiency of TVEs could be at least as good as that of
private enterprises due to the possible institutional advantages of easier access to capital
and input supplies.
The second period began in 1994, and continues through 2002. Qian (1999) notes:
By the end of 1993, living standards had significantly improved on a widespread
basis, the state sector was no longer the dominant part of the economy, and
most old revolutionaries were gone from the political scene. All of these changes
facilitated a strategic shift in the official ideology to completely abandon central
planning and embrace a market system with private ownership. Since 1994,
particularistic contracting is being replaced by universalistic rules2 and market-
supporting institutions based on the rule of law and incorporation of international
best practices being established.
Hence, in addition to governmental and market institutions having become more evolved
and sophisticated, TVEs started to lose the relative advantages associated with the previous
2 Universalistic rules refer to uniform rules like tax reform and ownership reform that apply to all enter-
prises regardless of ownership structure.