TVEs are under the direct jurisdiction of their TVGs. The government-enterprise relationship is much simpler and more direct than that of SOEs.
Because the residual control rights of TVEs within a community is held by TVGs, the community becomes a de facto corporation or "mini conglomerate", facing a hard budget constraint (Section 3.1).
In addition, this monitoring is bound to be weak because of the communication difficulty in rural areas and there being usually a large number of TVEs and TVGs in a county.
The TVG usually has close relationships with the managers of the TVEs.
Although the residual control rights exercised by TVG may imply a certain risk of bureaucratization, the control by the government over implementation and coordination of internal reorganization, or over the takeover process, does sidestep the social and economic costs of bankruptcy through court action or of takeover by outsiders.
The community as a collective equity holder and the TVG as the executive equity holder may still possess comparative advantages.
Second, bureaucratization and corruption among TVG officials and TVE managers are growing.