Since 1978 the People's Republic of China has allowed small businesses in rural areas under the title township and village enterprises (TVEs). These were intended to absorb excess rural labour and initially they used locally available agricultural and industrial raw materials. Since the 1980s TVEs have expanded dramatically and they now employ 27 per cent of the rural workforce, and contribute half China's industrial value added. This article discusses how this remarkable growth came about, and charts the rising contribution of TVEs to the rural economy, and the importance of the TVEs to the economic growth of China. The TVEs can be classified into three patterns of growth. Comparison between TVEs and state-owned enterprises shows that although TVEs have received little subsidy and financial support over the years they have higher economic efficiency.