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.Implementation 2.Impact 3.Driving Factors 4.Lessons Learned

1.Implementation  Introduction Sunan : includes Suzhou, Wuxi, and Changzhou, 14 million. located 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 industries initiated and run by local governments  Wenzhou model developed low-end light products individual iniatative 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 90s Almost at least one member in the local families working in a TVE, half of family income came from TVEs  promoted the upgrading and optimizing of industrial structure after the reform of ownership since mid 90s Constructing a unified social security system for urban and rural 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 improved their living standards  Greatly increased regional GDP per capita  Contributed to rural modernization and to urbanization

3.Driving Factors  Commitment and Political Economy for Change. Innovative spirit_ looking for opportunities Proactive role of local government  Institutional Innovation Protecting property rights. Forming an effective mechanism for capital formation. Agriculture_Trade; Formal _ Informal; Establishing market-oriented product development mechanism. Technology importing system for pushing the enterprises upgrading constantly. I

3.Driving Factors (continue)  Learning and experimentation Technology diffusing path: innovation — imitation — extension  Effective breeding ground for entrepreneur From farmer-entrepreneurs to young professional managers  External Catalysts Sunan and Wenzhou quite benefited from historical 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.