widespread in much of southern Jiangsu and three cities,namely Wuxi,Suzhou,and Changzhou, are considered to be the progenitors of this model.The other is the "Wenzhou model"which is characterized by a heavy reliance on private initiatives,a non-interventionist style by the government in the management of firms,and a supportive credit policy stance towards private firms.Wenzhou,a city in southern Zhejiang province,is the best known example of this model (hence its name).13 The Sunan and Wenzhou models differ in several dimensions.First,government control of firms was far more restrictive in Jiangsu.In 1985,the Wuxi government adopted the following measures:(1)penalties for skilled workers who left collective TVEs for other jobs and for barring their family members from jobs in TVEs;(2)deliberately checking entrepreneurial registration documents and procedures;and(3)limiting managerial staff's pay to a maximum of three times of the average payroll (Luo 1990:150).Wenzhou favoured a far more laissez-faire policy stance and did not exercise this kind of micro-management. Second,Jiangsu mildly suppressed the development of private firms.Tight labour regulations led to a reduction of availability of quality human capital which was drawn to the private sector.Strict procedures of registration prevented private entrepreneurs from registering their firms as collective firms,which is a common mechanism to evade restrictions on private firms.Jiangsu wanted to conserve raw materials and energy and to protect TVEs as much as possible from competition for human and financial resources.Private enterprises"are tolerated, 1This paper takes the difference between these two models as given rather than exploring their origins.Jin and Qian(1998)have found evidence that stronger ties with the central government tend to be associated with higher collective to private output ratios.This explanation fits the Jiangsu/Zhejiang story.Historically,the central government retained stronger ties with Jiangsu than it did with Zhejiang. 1212 widespread in much of southern Jiangsu and three cities, namely Wuxi, Suzhou, and Changzhou, are considered to be the progenitors of this model. The other is the “Wenzhou model” which is characterized by a heavy reliance on private initiatives, a non-interventionist style by the government in the management of firms, and a supportive credit policy stance towards private firms. Wenzhou, a city in southern Zhejiang province, is the best known example of this model (hence its name).13 The Sunan and Wenzhou models differ in several dimensions. First, government control of firms was far more restrictive in Jiangsu. In 1985, the Wuxi government adopted the following measures: (1) penalties for skilled workers who left collective TVEs for other jobs and for barring their family members from jobs in TVEs; (2) deliberately checking entrepreneurial registration documents and procedures; and (3) limiting managerial staff’s pay to a maximum of three times of the average payroll (Luo 1990: 150). Wenzhou favoured a far more laissez-faire policy stance and did not exercise this kind of micro-management. Second, Jiangsu mildly suppressed the development of private firms. Tight labour regulations led to a reduction of availability of quality human capital which was drawn to the private sector. Strict procedures of registration prevented private entrepreneurs from registering their firms as collective firms, which is a common mechanism to evade restrictions on private firms. Jiangsu wanted to conserve raw materials and energy and to protect TVEs as much as possible from competition for human and financial resources. Private enterprises “are tolerated, 13 This paper takes the difference between these two models as given rather than exploring their origins. Jin and Qian (1998) have found evidence that stronger ties with the central government tend to be associated with higher collective to private output ratios. This explanation fits the Jiangsu/Zhejiang story. Historically, the central government retained stronger ties with Jiangsu than it did with Zhejiang