Key Takeaways
- • Works in Progress argues that China's economic rise is driven by provincial and city governments operating as venture capitalists, with Beijing acting as rulemaker rather than picker of winners.
- • Hefei's 2008 $500 million investment in BOE Technology, which took an 81 percent stake in a subsidiary, helped make BOE the world's largest display panel manufacturer, supplying about a quarter of smartphone screens worldwide.
- • Hefei invested roughly $25 billion of public funds over the decade to 2023, generating reported earnings of nearly $9 billion, and holds a stake in CXMT, which has 7 percent of the global DRAM market.
- • Local cadre promotions are tied to economic performance scores, and provinces retain most marginal revenue, creating strong incentives for growth.
- • Li Qiang's career from Wenzhou to Shanghai to the Politburo Standing Committee in 2022 is presented as the clearest example of this incentive system.
Summary
An essay published by Works in Progress Magazine contends that China's industrial success stems less from central planning than from the competition among its thousands of local governments. According to the article, Beijing sets priorities in strategic sectors such as batteries, electronics, and electric vehicles through subsidies, tax rebates, and sales tax exemptions, but local administrations decide which firms and regions win. The article notes that subnational governments account for around 85 percent of public expenditure, according to the IMF, with most spending at city level.
The article cites several examples. Huawei, BYD, and DJI are described as leaders in their fields, with DJI making over 90 percent of consumer drones. Hefei's 2008 investment of $500 million in BOE Technology, for which the city took an 81 percent stake in a subsidiary, is presented as the central case study. Hefei also backed carmaker NIO in 2020 for a 24 percent stake, which the article says has yielded an internal rate of return exceeding 30 percent. Wuhu's stake in Chery is valued at around $3.7 billion, and Ningde's support helped CATL, now the largest battery producer, scale its capacity to 330 gigawatt hours per year.
The article attributes these outcomes to incentive structures. Officials are evaluated on economic metrics, and promotion depends on growth performance. Since 1994, reforms have allowed provinces and cities to keep most of the upside from state-owned enterprises and land-use rights revenue. The article uses Li Qiang's career, from Wenzhou party secretary to Shanghai and then the Politburo Standing Committee, to illustrate this dynamic.
The piece presents these findings as an argument that Western governments seeking to compete with China should consider the decentralized, competitive model rather than top-down industrial policy alone. Figures are drawn from the article and attributed to sources it cites, including the IMF.
The article cites several examples. Huawei, BYD, and DJI are described as leaders in their fields, with DJI making over 90 percent of consumer drones. Hefei's 2008 investment of $500 million in BOE Technology, for which the city took an 81 percent stake in a subsidiary, is presented as the central case study. Hefei also backed carmaker NIO in 2020 for a 24 percent stake, which the article says has yielded an internal rate of return exceeding 30 percent. Wuhu's stake in Chery is valued at around $3.7 billion, and Ningde's support helped CATL, now the largest battery producer, scale its capacity to 330 gigawatt hours per year.
The article attributes these outcomes to incentive structures. Officials are evaluated on economic metrics, and promotion depends on growth performance. Since 1994, reforms have allowed provinces and cities to keep most of the upside from state-owned enterprises and land-use rights revenue. The article uses Li Qiang's career, from Wenzhou party secretary to Shanghai and then the Politburo Standing Committee, to illustrate this dynamic.
The piece presents these findings as an argument that Western governments seeking to compete with China should consider the decentralized, competitive model rather than top-down industrial policy alone. Figures are drawn from the article and attributed to sources it cites, including the IMF.
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