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The aim of this paper is to explain the relationship between economic performance and labour manoeuvrability of township‐village enterprises in the Jiangsu province, People's Republic of China.

After a concise general overview of recent economic developments in the Chinese economy and the functioning of labour markets, a statistical analysis was performed on economic performance and labour market conditions based on a sample of 103 enterprises in the area considered.

The analysis shows that the flexibility to fire employees has a considerable impact on the rise in added value of the enterprises, whereas hiring flexibility appears to have negligible effects.

Although the paper has a limited scope related to one Chinese province, it seems plausible that the results – a positive economic effect of deregulation – have a more general validity, but this would call for a broader comparative study across sectors and regions.

The paper thus offers a novel contribution to a better understanding of the economic performance after the fast changes in the Chinese economy.