Introduction: The Unexpected Revolution

When Deng Xiaoping reflected on the first decade of reform in 1987, he admitted with rare candor that the greatest success of the era was one that the central leadership had neither planned nor predicted. He was referring to the Township and Village Enterprises (TVEs). While Beijing’s technocrats were fixated on reforming the lumbering State-Owned Enterprises (SOEs), a dynamic, chaotic, and aggressively competitive industrial sector emerged from the rice paddies and the alleyways.

This sector—comprising rural collectives, small private vendors (getihu), and eventual private conglomerates—represented the “urbanization of the countryside” and the “marketization of the city.” It was a transformation driven by necessity. The collapse of the commune system released millions of surplus laborers; the stagnation of the state sector left vast gaps in the supply of consumer goods. Into this breach stepped the Chinese entrepreneur, initially stigmatized, legally precarious, but ultimately unstoppable.

The rise of the private sector and the transformation of urban life in the 1980s was not a top-down project of “design.” It was a bottom-up explosion of energy that the state alternately encouraged, tolerated, and sought to control. It involved the greatest migration in human history, the commodification of shelter, and the birth of a propertied middle class from the ashes of proletarian egalitarianism.

The “Strange Army”: The Rise of TVEs

The bridge between the agrarian reforms and the urban industrial boom was the Township and Village Enterprise (TVE). In the early 1980s, these were not strictly “private” firms. They were collectively owned by local communities—the direct descendants of the commune’s brigade industries.

Under the logic of “leaving the land but not the countryside” (li tu bu li xiang), farmers who were no longer needed in the fields (thanks to the efficiency of the Household Responsibility System) moved into small factories owned by their townships. They produced bricks, cement, textiles, and simple machinery.

Economically, TVEs operated under “hard budget constraints.” Unlike SOEs, which could rely on state bank bailouts, a TVE that lost money went bankrupt. This forced them to be hyper-efficient. Politically, they thrived due to what political scientist Jean C. Oi termed “Local State Corporatism.” Local cadres acted as the board of directors, using their political connections to secure resources while allowing professional managers to run the business.

By the mid-1980s, this “strange army” (yijun tuqi) employed over 70 million people and accounted for nearly 30% of China’s industrial output. They outcompeted the SOEs by flooding the market with cheap consumer goods that the state plan had neglected. They were the training wheels of Chinese capitalism—teaching a generation of peasants the rules of manufacturing, marketing, and supply chain management.

The Return of the Petty Bourgeois: The Getihu

While TVEs industrialized the countryside, the cities witnessed the return of the private vendor. This began as a solution to a social crisis. In the late 1970s, millions of “sent-down youth” returned from the countryside to cities like Shanghai and Beijing. The state sector could not absorb them. To prevent social unrest, the Party grudgingly allowed these unemployed youths to start small businesses—repairing shoes, selling noodles, or cutting hair.

They were designated getihu (“individual households”). Legally, they were restricted to employing no more than seven workers (based on a reading of Marx’s Das Kapital regarding the definition of exploitation). Culturally, they were pariahs. In the Confucian-Leninist hierarchy, the private merchant was at the bottom. The catchphrase of the time was: “A surgeon makes less than a barber; a nuclear scientist makes less than a tea egg seller.”

Despite the stigma, the getihu sector exploded. It introduced the concept of “service” to a sullen socialist economy. For the first time in decades, customers could choose between restaurants. The iconic case of Nian Guangji, the “Fool’s Melon Seed” merchant who became a millionaire, tested the political limits. When conservatives demanded Nian’s arrest for capitalism, Deng Xiaoping intervened, arguing that arresting him would spook the whole sector. This signaled that it was safe to get rich.

The Floating Population: Migration and the Hukou Wall

The economic boom in the coastal cities and the SEZs created a voracious demand for cheap labor, while the countryside held a vast surplus. The result was the mangliu—the “blind flow” of humanity. Millions of peasants packed onto trains and buses, heading toward the construction sites of Shenzhen and the textile mills of Guangdong.

This migration collided with the hukou (household registration) system. Established in 1958, the hukou bound every Chinese citizen to their place of birth, strictly separating the “agricultural” from the “non-agricultural” population.

In the 1980s, the state allowed peasants to move to cities to work, but it did not grant them urban rights. These migrants became a “floating population”—economically essential but socially invisible. They built the skyscrapers and staffed the assembly lines, yet they were denied access to urban healthcare, public education for their children, and subsidized housing.

This created a caste system within the Chinese city. On one side were the urban citizens with their “iron rice bowls”; on the other were the migrants, vulnerable to exploitation and police harassment, yet earning wages far higher than they could in the village. This facilitated rapid industrialization by keeping labor costs artificially low, as the state did not have to pay for the social reproduction of the workforce.

Housing Reform: From Welfare to Wealth

The creation of an urban middle class required more than just income; it required assets. In the Maoist era, housing was a welfare benefit provided by the danwei (work unit) at a nominal rent. It was practically free, but it was crowded, dilapidated, and in short supply. There was no housing market.

Reform began tentatively in the 1980s with the realization that the state could not afford to house everyone. Experiments in “commodification” began, where SOEs sold apartments to their workers at heavily discounted rates.

This process, which accelerated in the late 1980s and culminated in the full privatizationPrivatization Full Description:The transfer of ownership, property, or business from the government to the private sector. It involves selling off public assets—such as water, rail, energy, and housing—turning shared public goods into commodities for profit. Privatization is based on the neoliberal assumption that the private sector is inherently more efficient than the public sector. Governments sell off state-owned enterprises to private investors, often at discounted rates, arguing that the profit motive will drive better service and lower costs. Critical Perspective:Critics view privatization as the “enclosure of the commons.” It frequently leads to higher prices for essential services, as private companies prioritize shareholder returns over public access. It also hollows out the state, stripping it of its capacity to act and leaving citizens at the mercy of private monopolies for their basic needs (like water or electricity).
Read more of the housing market in 1998, fundamentally altered the Chinese social contract. It transferred massive amounts of state wealth (in the form of real estate) to urban residents. The privatization of housing became the primary engine of middle-class wealth accumulation. A family that bought their allocated apartment in Beijing for 20,000 yuan in the late 80s would sit on an asset worth millions two decades later. This created a propertied class with a vested interest in social stability and the status quo, while simultaneously locking migrants out of the urban dream.

The Emergence of the Middle Class: The Consumer Revolution

As the private sector grew and the “dual-track” economy offered opportunities for arbitrage and bonuses, urban incomes rose. With money came the desire to consume. The 1980s saw a shift in status symbols from the “Three Old Items” (watch, bicycle, sewing machine) to the “Three New Items” (fridge, color TV, washing machine).

This consumer revolution was transformative. It marked the end of the ascetic, egalitarian ethos of the Maoist era. Advertising reappeared on television. Fashion shows replaced struggle sessionsStruggle Sessions Short Description (Excerpt):A form of public humiliation and torture used by the Red Guards against “class enemies.” Victims were forced to admit to various crimes before a crowd of people who would verbally and physically abuse them. Full Description:Struggle Sessions (or thamzing) were a primary weapon of terror. Intellectuals, landlords, and party officials were dragged onto stages, forced to wear dunce caps or heavy placards detailing their “crimes,” and beaten by their former students, colleagues, or neighbors until they confessed to counter-revolutionary thoughts. Critical Perspective:This practice weaponized the community against the individual. It was designed to break the psychological will of the victim and to implicate the crowd in the violence. By forcing colleagues and neighbors to participate in the abuse to prove their own revolutionary fervor, the state successfully destroyed social trust and interpersonal bonds.
Read more. Western suits replaced Mao jackets.

This new class was defined not just by consumption, but by professionalization. The reinstatement of the university entrance exams created a technocratic elite. The private sector rewarded skills—English language, engineering, management—that had been devalued during the Cultural Revolution. By the end of the decade, urban China was stratifying. The uniform “comrade” was gone, replaced by the manager, the entrepreneur, the bureaucrat, and the worker, each with distinct lifestyles and economic interests.

Conclusion: The Hybrid Society

By the end of the 1980s, urban China had undergone a metamorphosis. It was no longer a monolithic collection of state-run compounds. It was a hybrid society where the state still held the commanding heights, but the streets belonged to the market.

The rise of the TVEs and the private sector proved that the Chinese people possessed a latent entrepreneurial dynamism that no amount of planning could replicate. However, this transformation came at a cost. The cities became engines of inequality. The Hukou system cemented a divide between the urban privileged and the rural migrant that persists to this day. The commodification of housing and labor created a vibrant, restless, and anxious society—one that had traded the security of the iron rice bowl for the opportunity, and the risk, of the open market.

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Historiographical Note

1. The “Local State Corporatism” Thesis
Jean C. Oi remains the preeminent scholar on TVEs. Her theory of “Local State Corporatism” argues that the rapid growth of the 1980s was driven by local officials who acted as entrepreneurs. Because of fiscal decentralization, local governments kept the revenue from their enterprises, giving cadres a powerful incentive to promote industry. This challenges the view that the state was merely an obstacle to private growth; at the local level, the state was the growth engine.

2. The Nature of the Private Sector
Scholars like Susan Shirk (The Political Logic of Economic Reform) and Kellee Tsai (Back-Alley Banking) explore the informal institutions that supported the private sector. Tsai’s work is particularly important in explaining how private entrepreneurs financed themselves (through underground lending and family networks) when state banks refused to lend to them.

3. The Hukou and Citizenship
Dorothy Solinger’s Contesting Citizenship in Urban China is the seminal text on the floating population. She frames the migrant experience not just as an economic phenomenon, but as a political struggle for citizenship rights, comparing the Hukou system to other forms of institutionalized discrimination.

4. The “Sneeze” Theory
Yasheng Huang (Capitalism with Chinese Characteristics) offers a revisionist view. He argues that the 1980s were actually more capitalistic and entrepreneurial than the 1990s. He posits that the 1980s fostered true private (peasant) entrepreneurship via TVEs, whereas the 1990s saw a crackdown on rural finance and a pivot toward state-led urban development, effectively strangling the vibrant rural private sector of the 80s.

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Further Reading

• Oi, Jean C. Rural China Takes Off: Institutional Foundations of Economic Reform (University of California Press, 1999).
  • The definitive analysis of how local governments fueled the TVE boom.
• Solinger, Dorothy J. Contesting Citizenship in Urban China: Peasant Migrants, the State, and the Logic of the Market (University of California Press, 1999).
  • A critical examination of the social and political exclusion faced by the migrant workforce that built the modern Chinese city.
• Tsai, Kellee S. Back-Alley Banking: Private Entrepreneurs in China (Cornell University Press, 2002).
  • Investigates the shadow finance mechanisms that allowed private businesses to thrive despite being starved of capital by the state banking system.
• Huang, Yasheng. Capitalism with Chinese Characteristics: Entrepreneurship and the State (Cambridge University Press, 2008).
  • Challenges standard narratives by arguing that the 1980s was the “golden age” of bottom-up entrepreneurship, which was later reversed by the state-centric policies of the 1990s.
• Davis, Deborah S. (ed.) The Consumer Revolution in Urban China (University of California Press, 2000).
  • A collection of essays detailing the cultural and social shifts accompanying the rise of consumerism and the middle class.