Institutional Transition, Improvement of Investment Environment, and Poverty Reduction: The Models of Sunan and Wenzhou

__Institutional Innovation Case Study For Shanghai Poverty Conference

Main purpose for the case study

To show that the Institutional innovations have long been a major instrument for reducing poverty in China through the successful story of TVE Models of Sunan and Wenzhou.

Main contents

1.Implementation2. Impact3. Driving Factors4. Lessons Learned

1.Implementation Introduction Sunan : includes Suzhou, Wuxi, and Changzhou, 14 million. lo

cated in the Yangzi River Delta Plain. Close to Shanghai. Traditional industrial base.

Wenzhou:7 million, located in the mountainous region of the south of Zhejiang Province. remote from big cities, poor transportation system.

Both regions: arable farmland per head has been minimal. one of the highest population densities in China.

ModeIs Sunan Model developed large-scale collective processing indu

stries initiated and run by local governments Wenzhou model developed low-end light products individual inia

tative based, relying on small private businesses within a favorable environment created by local government

Development of the Sunan Model Started up before the reform Motivation: Solve the serious unemployment problem, the low

income. Fast-paced growth during mid 80s-mid 90sAlmost at least one member in the local families working in a T

VE, half of family income came from TVEs promoted the upgrading and optimizing of industrial struct

ure after the reform of ownership since mid 90sConstructing a unified social security system for urban and rur

al residents so as to eliminate poverty institutionally

Evolution of the Wenzhou Model

Up to mid 1980s:family-based, sole trading handcraft industry.

Local government just focused on creating favorable investment environment by instead of involving running TVEs

Mid-80s to mid-90s:development of corporations and industrial associations and promotion of competitiveness of Wenzhou’s industries

Mid-90s to present: Innovation and brand development for “Credible Wenzhou”

To build the region into an international light industrial production and exchange center

2. Impact

Speeded up the process of China’s market-oriented reform and provided new ways to reduce poverty caused by poor institutional arrangements.

Speeded up the transition of local economic structure

Generally solved the rural unemployment problem Greatly increased the income of farmers and impro

ved their living standards Greatly increased regional GDP per capita Contributed to rural modernization and to urbaniz

ation

3.Driving Factors

Commitment and Political Economy for Change. Innovative spirit_ looking for opportunitiesProactive role of local government

Institutional InnovationProtecting property rights. Forming an effective mechanism for capital formation. Ag

riculture_Trade; Formal _ Informal;Establishing market-oriented product development

mechanism. Technology importing system for pushing the enterprises upgr

ading constantly. I

3.Driving Factors (continue) Learning and experimentationTechnology diffusing path: innovation—imitation

—extension Effective breeding ground for entrepreneurFrom farmer-entrepreneurs to young professional

managers External CatalystsSunan and Wenzhou quite benefited from historic

al opportunities

4.Lessons Learned

Institutional innovation is the fundamental instrument for poverty reduction based on a spirit of self-reliance and of continuously trying new ideas ahead of others; building on their comparative advantages.

Government leadership is the institutional guarantee for poverty reduction. Effective regulations provides a guarantee that respects people’s actions, brings order and stability to complicated economic relations.

A virtuous cycle of Learning and experimentation is an effective way for poverty reduction.

Sunan_ driven by government; Wenzhou_ spontaneous process. driven from the grassroots

upwards.