The booming TVE sector also benefited from the favorable macroeconomic situation at
the time. After the success of rural reforms, farmers’ income experienced an
unprecedented increase, as did the demand for many daily consumer products. The TVEs
could produce a broad range of products. However, because SOEs were accustomed to
privileged access to a variety of scarce materials and capital goods through quotas, they
were irresponsive to changing market conditions. Without any favorable access to inputs,
TVEs had to compete in the marketplace for survival. The dual pricing reform, which
immediately followed the successful rural reform, allowed SOEs to sell unused input
quotas at market price to the TVEs, which were outside the command economy. Such
exchanges not only protected the original privileges of SOEs but also presented TVEs
with a window of opportunity to access industrial inputs via market channels and expand
their market share.