The theory of “embedded autonomy” suggests that a developmental state needs to maintain a balance between autonomy and embeddedness to succeed. This paper argues that such a balance is not stable but contingent on an alignment of local, national, and global factors. With the local developmental state of Dongguan, China, as an example, we see how the global economy's search of low-cost labor and the national government's encouragement of decentralized local growth since the 1980s created a successful, autonomous local state that was benignly embedded in a network of foreign investors and local residents. This balance brought about more than two decades of phenomenal economic growth. However, starting in 2006 both the central and provincial governments shifted their priority from economic growth to industrial upgrading. The central government also adopted a new bureaucratic rotation rule to prevent long tenure of local officials at the same locality. In these new circumstances, Dongguan found itself trapped in the short-sighted vested interests of traditional foreign investors and rentier local residents. The result was stagnation in both economic growth and industrial upgrading. The paper suggests that the reproduction of embedded autonomy cannot be taken for granted, and that embeddedness of the state at one stage of development can become a hindrance to its autonomy at another stage.

The rise of the Pearl River Delta (PRD) as a “world factory” in China has been attributed to export-oriented industrialization driven by foreign direct investment (FDI). During the process, local states became active participants in building institutions and providing market incentives favorable to foreign investments. In the 1970s, Dongguan was still an agriculture and fishery town. With the beginning of market reform in 1978, Dongguan underwent rapid industrialization. In two decades, Dongguan was transformed into an export-oriented manufacturing hub with phenomenal economic growth—GDP per capita grew at an average of 10% annually, faster than China's average (Yeung 2001a). But even with this vibrant local economy, Dongguan has lagged behind other industrial hubs in China in endogenous R&D and industrial upgrading, especially in the 2010s.

This paper argues that Dongguan's rise in the 1980s and 1990s, and its failure in industrial upgrading in the 2010s, is connected to the rise and demise of the local developmental state. This paper not only illuminates the dynamics shaping the rise and fall of a local economic powerhouse in the context of China's economic ascendancy, but also fills a gap in the literature on the Asian developmental state by looking at how a developmental state is made and unmade amid the contingent interactions of local, national, and global forces. We argue that in the early stage of reform, Dongguan's strong local state capacity put the town in a unique position in the global value chain and fostered symbiotic relations between the local government and the local economic elites as well as foreign investors. But these relations became entrenched and constrained the local state's response to the provincial government's later call for industrial upgrading. The constraint was further compounded by new bureaucratic rules on rotation and promotion, which stimulated local officials to take a more short-term view on local economic development. In contrast, some other localities (e.g. Shenzhen and Chengdu) were less entrenched in their prior development model and were more successful in pursuing industrial upgrading, albeit not without their own respective issues. A study of the stagnant upgrading process of Dongguan, nested within the sovereign national state of China, can therefore shed light on the internal institutional forces that impede upgrading, as its external environment (i.e., the national government policies and China's position in the world economy) is controlled for.

This paper has four sections. First, we review the literature on the concepts of developmental state and embedded autonomy, and their application in the study of China's economic development. Then, we examine how Dongguan's rise as “factory of the world” is related to strong local state capacity. Following that, we provide an account of how this capacity was undermined and how the decline of local state autonomy eventually restrained structural upgrading and economic development in Dongguan. We then compare Dongguan with more successful local developmental states in China.

EMBEDDED AUTONOMY AND LOCAL DEVELOPMENTAL STATES IN CHINA

In the study of economic development in East Asia, the developmental-state thesis has been the most prominent paradigm (Amsden 1989; Haggard 1990; Wade 1990). According to this literature, the rise of Japan, South Korea, and Taiwan as economic powerhouses after World War II is attributable to their developmental states, which have both high capacity and autonomy (Johnson 1990). “High capacity” refers to the resources at the state's disposal to steer economic growth, as well as the competence of bureaucrats in making strategic decisions and enforcing those decisions to foster rapid economic growth. The developmental state is key in forging market institutions and picking the winning sectors that will receive state financial resources to develop their competitive edge in the world market. However, if the bureaucrats are tied to specific factions of capital or landowning elite, as in many Latin American countries during their import-substitution-industrialization phase, the state's economic decisions will be captured by segmented elite interests rather than producing long-term economic growth, even if the state has high institutional capacity (Kohli 2004). The state's autonomy from any particular interests is therefore another condition for a successful developmental state that can make optimal decisions for the long-term and collective good of the economy.

Furthering the developmental-state theory, Peter Evans (1995) formulated the “embedded autonomy” thesis to explain the success and failure of industrial upgrading in various semi-periphery countries, including South Korea, Brazil, and India, in contrast to the “basket case” of Zaire's predatory state. What he found is that high capacity and autonomy are not sufficient for a state to foster continuous economic development, as a capable and autonomous state might still be disconnected from business communities. This would hinder its ability to make the right economic judgments and to convey economic decisions to the relevant sectors effectively. A successful developmental state therefore also needs to be embedded, meaning it must have effective institutional links to the industrial sector for information gathering and policy transmission (14–17). Evans examined the embedded and autonomous state in South Korea, which achieved successful industrial upgrading, as a poster child. And in between the successful case of Korea and the failed case of Zaire, Evans suggested that Brazil and India are the intermediate cases, in which the state is either embedded but not autonomous or autonomous but not embedded.

Evans discusses in great detail how the delicate balance between autonomy and embeddedness is the key to an effective developmental state. Autonomy is maintained when the recruitment of state bureaucrats is based on formal competence, strong informal networks among state bureaucrats foster institutional coherence, and their individual maximization as well as their long-term career paths conform to the bureaucracy's long-term goals (49–50, 59, 71–72). But autonomy does not mean isolation from society. An effective developmental state has to be embedded in a “concrete set of connections” of market players that link the state “intimately and aggressively” to organized social groups that favor transformation, rather than “loose-knit webs of local power holders with vested interest in the status quo” (41, 59).

Evans's arguments leave open two gaps for further exploration. First, if autonomy depends on bureaucratic coherence as well as alignment between bureaucrats' career goals and the long-term goals of the state, then an external shock that brings institutional changes and dissociates bureaucrats' career paths from the state's developmental goals might cause confusion, shirking of responsibility, and lack of initiative in promoting economic transformation. Such changes might include reshuffling of political leadership, changing of incentives and rewards mechanisms within bureaucracies, and alterations of rules of appointment and promotion. Second, social groups that initially benefited from state bureaucracies' transformative policies could become vested interests that resist further transformation. In such circumstance, the state is vulnerable to social pressure and might prioritize maintaining the status quo over innovation and reforms.

In most works in the developmental-state literature, comparison is cross-national, and the successful developmental states are often the same group of economies (like Japan, South Korea, and Taiwan) regarding both industrial takeoff and industrial upgrading. What is left to explore, then, is how a successful developmental state arises, when and whether it might decline, and how its rise and fall proceeds at the subnational/local level. Some works have explained the historical rise of developmental states in East Asia under the influence of Cold War geopolitics (e.g. Arrighi 1996). There are also studies addressing how developmental states in East Asia entered into crisis under the new global financial conditions leading up to and in the wake of the Asian Financial Crisis from 1997 to 1998 (Pempel 1999). These works mostly focus on external forces fostering or impeding developmental states, paying little attention to how these external forces interact with internal dynamics within developmental states to foster their rise and fall.

To fill these gaps in the literature, it is useful to consider the rise and fall of local developmental states in China. The rise of China both converged with and diverged from the earlier rises of Japan and the East Asian Tigers. As with its East Asian neighbors, the rise of China as the workshop of the world relied on strong intervention by the state, as well as export-oriented industrialization. But the continental size of the Chinese economy means that the logic of its governance is very different from its East Asian neighbors. Over the course of its transformation from a centralized redistributive socialist system into a market system, China's economic governance developed into an array of competitive local developmental states nested within the central state (Hung 2016, ch. 3). In fact, there is an established literature that empirically studies the relation between local governments and economic growth in China, seeing the former as operating somewhat like the developmental states in smaller East Asian countries like South Korea and Singapore (Hung 2016, ch. 3) Works comparing developmental outcomes in different regions of China find that the different institutional structures of local states and their different relations with business communities are key determinants of the diverging outcomes (Chen 2018).

China's market reform since the late 1970s has been characterized by the devolution of economic initiatives to local governments. Municipal governments are delegated the responsibility and power to devise policies and strategies that boost economic growth. Many local states promote local development through such classical developmental-state measures as making discriminatory rules and constructing appropriate infrastructure to facilitate the growth of select types of private industrial enterprises, on which the local governments rely for tax revenue. In this sense, China's local developmental states are not fundamentally different from the national developmental states in smaller countries. The biggest difference is that in national developmental states, the function of steering industrial growth is usually concentrated in a particular branch of the government known as the pilot agency, such as the Ministry of International Trade and Industry (MITI) in Japan (Johnson 1990), while in a local developmental state, the whole government can be seen as the pilot agency, as economic growth has been the overarching goal of all local officials who seek rising fiscal revenues and personal income as well as career advancement. It has been a conscious policy of the Chinese government to promote local economic growth by tying the promotion of local officials mostly to local economic performance (Li and Zhou 2005). Attracting FDI for manufacturing and fostering export-oriented industrialization has been the magic formula for prosperity in many municipalities (Hung 2016, ch. 3).

The literature on China's local developmental states, like the general literature on Asian developmental states, focuses on the conditions for the rise of a successful developmental state, paying little attention to how the developmental state is reproduced, and whether it can degenerate into something else. The early success of Dongguan's local developmental state in the 1980s and 1990s, and its recent failure in the 2000s and especially after 2008, can help us fill this gap in the literature. As we shall see in the next section, the local government of Dongguan was one of the most successful local developmental states in China, hosting a boom of foreign capital and export-oriented manufacturing industries for two decades. In the 1980s and 1990s, Dongguan's local government had broad autonomy to experiment with different pro-growth and pro-foreign-investment policies. It was also well embedded in the communities of investors from Hong Kong and Taiwan, as well as the local residents who lived on land rent by leasing their farmland for industrial use.

Starting in the 2000s, however, under the provincial government's initiative to promote industrial upgrading, and in the aftermath of the global financial crisis of 2008, Dongguan's export sector fell far short of successful transformation. The local developmental state's embeddedness in labor-intensive manufacturers and local resident rentiers fostered a propensity to maintain the industrial status quo rather than take risks to nurture new sectors. Further, the central government's new policy of rotating local officials made them more interested in short-term performance rather than long-term viability of the local economy. As a result, the capable and proactive local developmental state of Dongguan became a conservative, change-resisting actor.

BUREAUCRATIC COMPETENCE AND RAPID ECONOMIC GROWTH, 1978 TO 2005

Thanks to its proximity to Hong Kong and preferential policies granted by the central government, the PRD, consisting of nine municipalities under the jurisdiction of Guangdong, has been the largest destination for the relocation of low-cost, export-oriented and labor-intensive manufacturing enterprises from Hong Kong and Taiwan since the late 1970s (for an overview of this process, see Yeung and Shen 2008). Dongguan is located between the provincial capital of Guangzhou and the Special Economic Zone of Shenzhen, the latter bordering Hong Kong. Dongguan itself is a prefectural-level municipality, with four township-level sub-districts and 28 townships, and a total area of 2,460 square kilometers. It is also a major hub of railroad and maritime transportation as well as the hometown for a large population of overseas Chinese diaspora.

Official documentation of Dongguan's economic prosperity revealed the local authority's efforts toward marketization and industrialization while maintaining the integrity of the party-state. A market economy required reforms in both the role of government and the ability of local officials to “rein in” the market (GO-CCPMCDG 1994:134). Recognizing that manufacturing industries were gradually shifting from developed countries to developing countries with lower land and labor costs, Dongguan's local government consciously promoted the export sector as a major pillar of industrialization (PD-CCPMCDG 1993:59–60, 86–87).

As early as 1978, the municipal government began to concentrate administrative processes related to investment sanction and factory construction into one office to “accelerate [foreign] investment introduction” (Southern Daily 1988). Introduction of foreign capital and equipment was deemed vital in reviving the local economy (GO-PMGDG and DMA 1992:380–82). In 1978, Dongguan set up a municipal leadership team with an attached office in charge of export processing and manufacturing, tasked with streamlining administrative processes, unifying regulations, and sanctioning FDI contracts. The efficiency and services of the office were praised as attractive to foreign investors (RGGO-CCPCC 1989:41–43, 186). In the villages, Communist Party members “took the lead” in contracting out collectively owned farmland for industrial and other uses. Party members encouraged local villagers to follow suit and explore more lucrative uses of their own land (17–18); together, they actively sought to attract investments and construct factory facilities (PD-CCPMCDG 1993:59–62). “Township and village enterprises” mushroomed across the entire municipality, replacing state-owned enterprises as the most lucrative export sector, with annual export value growing by 20% from 1980 to 1988 and employing over 300,000 local peasants by 1988 (RGGO-CCPCC 1989:50–54).

Dongguan also used its new autonomous administrative power to search for a development model by experimenting with its administrative branches and reorienting subordinate administrations. In January 1988, to further boost economic development in Dongguan, the Guangdong provincial government promoted the municipality from a county-level municipality (xianji shi) to a prefecture-level municipality (diji shi), but without the usual county-level (xian) administration in between municipal (shi) and township (zhen) governments (SLSHZK 2008). This promotion in administrative level gave the municipal government greater financial, legislative, and administrative autonomy. With the new power of “establishing long-term economic plans, formulating industrial policies, and employing economic/market levers in macro-adjustment of the local economy,” the municipal government was to “manage the market and let the market guide firms” (GO-CCPMCDG 1994:114–15). Using its new autonomous power as a prefecture-level municipality, Dongguan encouraged townships to mobilize their respective advantages and resources to attract different investments and develop different industries, and gradually transferred the power of sanctioning foreign investment projects to township governments (GO-CCPMCDG 1994:38; PD-CCPMCDG 1993:49–50). Propaganda and official materials included comparisons and praises for specific townships and villages as examples for others to follow (GO-CCPMCDG 1994; PD-CCPMCDG 1993). Dongguan also used its new authority over municipal custom to exempt a variety of factories and products from arduous customs inspection before export (GO-CCPMCDG 1994:10; RGGO-CCPCC 1989:6–8). The municipal government also granted certain levels of administrative and financial autonomy to districts and townships (GO-PMGDG and DMA 1992:49–50). In extraordinary circumstances, district and township authorities could move resources between factories or enterprises to guarantee completion of goods for export (RGGO-CCPCC 1989:43–45). “Letting each township compete and develop” was a miniature of the interjurisdiction competition model of China, and seen as key to the success of the “Dongguan model” (Wang 2008:77). Dongguan also received provincial support in advancing township competition. Starting in 2000, the provincial government encouraged local cities to develop “specialized towns” that concentrated on the production of specific industrial products, for which the provincial government would award separate titles. The absence of county-level authority gave Dongguan a huge advantage by allowing township governments to be flexible in introducing specific types of private enterprises (Wang and Qiu 2013:171–76). Dongguan's 30 townships and sub-districts had 34 specialized towns, the famous ones including Houjie (furniture), Shijie (electronics manufacturing), and Shatian (port and logistics). Some even developed two specialized industries: Changping had logistics and semiconductor illumination (Sina News 2016).

Local Communist Party organizations reoriented themselves from political indoctrination to organizing party members as a vanguard for economic development. Party members began to criticize local political and administrative barriers, and even actively participated in corporate management of foreign-invested firms (PD-CCPMCDG 1993:180–87; RGGO-CCPCC 1989:168–77). Local officials now talked about profits and GNP, and asked investors what their desired policies would be, explicitly expressing their enthusiasm for attracting investment by all means (Lin 1997). The main contents of the “political education” of local party organizations had switched from Marxist dogmas to understanding the Communist Party's policy of focusing on developing productivity (GO-PMGDG and DMA 1992:137–40). Factory directors, rural land contractors and developers, and local officials credited for the thriving local economy were heralded as “exemplary party members” (RGGO-CCPCC 1989:168–70). One particular township party committee was praised by the municipal committee for its active role in cooperating with foreign investors in boosting production, coordinating the relationship between workers and investors, and training party members to become outstanding figures in the production and management of various factories. Another was highlighted for remaining thrifty and fair in the face of massive income from finance and taxation and sharing the benefits of economic development with the people by providing welfare stipends, building local infrastructure, and helping the poor (PD-CCPMCDG 1993:188–95). A district committee was recognized for its efforts in combining state and local laws and regulations as well as the will of the people in distributing the income from land leasing (217–18).

The “corporatist” nature of development was best reflected in the government's monetary incentivization of public goods provision. In the 1980s, the municipal government would divide the annual economic development scheme into numerical indicators for each administrative department, and at the end of each year, offer bonuses or reduce salaries based on these indicators. In 1987, for example, official records indicate that most municipal officials received bonuses amounting to several months of regular salary for exceeding development targets (RGGO-CCPCC 1989:19–20). One township even indexed the salaries of local officials and party members to a set of economic and social indicators (GO-PMGDG and DMA 1992:208–09). In terms of public goods investment, from 1978 to 1988, Dongguan invested over RMB 1 billion in infrastructure and RMB 1.7 billion in building factory facilities (Southern Daily 1990). Investment in infrastructure further rose to RMB 2.4 billion in just two more years, from 1988 to 1990, with another RMB 147 million invested in primary and secondary education. In the meantime, from 1978 to 1991, the proportion of industrial output in Dongguan's GDP rose from 12% to 30% (GO-CCPMCDG 1994:5).

The stability of local administrative leadership had contributed to the sustainability of local state capacity: up to 2001, both the chief party secretary and the mayor, who was also the vice-chief party secretary by default, were all born and raised in Dongguan and had worked there for more than 20 years. The party secretary who took over in 2001, Tong Xing, also served in Dongguan's government for over 15 years before being promoted to deputy governor of Guangdong Province in 2006 for his achievements in economic development in Dongguan. Before 2006, the Chinese Communist Party still lacked a concrete, binding limitation on officials' length of tenure, so such long tenures were generally permitted by the party's cadre-placement branch (see OD-CCPMCDG 2009). The “economic” incentivization of local officials and such long tenures inevitably caused corruption. But periodic official campaigns by the central government in the 1980s and 1990s, such as “spiritual civilization construction” and “party education” (GO-CCPMCDG 1994:140; RGGO-CCPCC 1989:18–19), put some checks on the problem, and the remaining corrupt activities never turned the local government into a predatory state. After all, local officials' incomes and promotion were closely tied to local economic performance. Corruption in Dongguan is therefore a type of developmental corruption, as it is elsewhere in China (Wedeman 2012). On the upside, long tenures encouraged local officials to focus on long-term local development. They also nurtured officials' familiarity with local conditions and strong ties with market players. Moreover, the practice of promoting mayors to party secretaries ensured continuity and coherence in policies and goals.

In 2007, Dongguan's export volume reached USD 60 billion, which was 4.9% of the total export volume of China and 16.3% of that of Guangdong Province. From 1996 to 2007, Dongguan remained one of China's top five export cities. The city alone had absorbed over 6 million migrant workers (Wang 2008:124). According to the municipal government, these achievements would have been impossible without the active industrial policies initiated by the local party and administration (129–32).

Stable tenure of officials and greater autonomous power were the fundamental political sources of Dongguan's success. Stable tenure allowed continuation of development-friendly policies, while autonomy from higher authorities allowed implementation of flexible add-ons to provincial policies and experimentation by local regulatory agencies (Yeung 2001b:69–72, 93–96). Expecting stable and favorable conditions, foreign investors invested in Dongguan and forged ties with government departments and officials via chambers of commerce and business associations; grass-roots private enterprises also thrived, taking advantage of local knowledge (RGGO-CCPCC 1989:43–45, 67–68; Yeung 2001b:110–15, 125–28). Years of continuous development and government propaganda reoriented local residents as well as migrant workers toward a profit-seeking mindset (RGGO-CCPCC 1989:14–16, 92–114; Yeung 2001b:188–96). The result was a “symbiosis” of government officials, capital (especially foreign capital), and the population (Yeung 2001b:207–14).

All in all, from the early 1980s till around 2006, Dongguan created an economy highly reliant on FDI and export-oriented industry. The result was that the city experienced phenomenal growth in both local GDP and government revenue (Table 1).

TABLE 1.

Major economic indicators of Dongguan in five-year periods, 1980 to 2005

198019851990199520002005
GDP (RMB billions) 0.72 2.26 8.04 29.63 82.03 218.32 
Annualized GDP growth n/a 25.64% 28.91% 29.79% 22.58% 21.63% 
Local financial revenue (RMB billions) 0.07 0.11 0.36 1.80 10.36 33.19 
Annualized revenue growth n/a 10.62% 26.32% 38.22% 41.88% 26.23% 
Foreign direct investment used (USD billions) 0.009 0.03 0.24 1.06 1.65 3.75 
Annualized FDI growth n/a 26.37% 51.83% 34.16% 9.30% 17.89% 
Export volume (USD billions) 0.08 0.18 0.57 7.80 17.16 40.93 
Annualized export volume growth n/a 17.84% 26.55% 68.86% 17.08% 18.99% 
198019851990199520002005
GDP (RMB billions) 0.72 2.26 8.04 29.63 82.03 218.32 
Annualized GDP growth n/a 25.64% 28.91% 29.79% 22.58% 21.63% 
Local financial revenue (RMB billions) 0.07 0.11 0.36 1.80 10.36 33.19 
Annualized revenue growth n/a 10.62% 26.32% 38.22% 41.88% 26.23% 
Foreign direct investment used (USD billions) 0.009 0.03 0.24 1.06 1.65 3.75 
Annualized FDI growth n/a 26.37% 51.83% 34.16% 9.30% 17.89% 
Export volume (USD billions) 0.08 0.18 0.57 7.80 17.16 40.93 
Annualized export volume growth n/a 17.84% 26.55% 68.86% 17.08% 18.99% 

Notes for Tables 1 and 2: Local financial revenue includes customs taxes collected on behalf of the General Administration of Customs, People's Republic of China, after 1995. The cutoff year of 2006 reflects the paper's emphasis on pre- and post-2007 research periods. Moreover, starting from 2005–06, Dongguan's Statistical Bureau used different calculation methods for all its statistical yearbooks. FDI volume is from the “Foreign Capital Actually Used within Year” (dangnian shiji liyong waizi) column in the “Foreign Capital Actually Utilized over Years” (linian shiji liyong waizi) table in the yearbooks. All statistics take into account the periodic revisions of statistics typical in the yearbook series, and the latest figures are used. For example, the GDP figure for 2010 was first recorded in the 2011 yearbook 2011 and revised upward in the 2015 yearbook, and we use the figure in the 2015 yearbook. Export volume for 2016 was recorded in 2016 yearbook as RMB, and converted to USD with an exchange rate of USD 1 = RMB 6.937 as of December 30, 2016. This exchange rate is the state-sanctioned foreign exchange rate of the respective year, available from the State Administration of Foreign Exchange (SAFE) (http://www.safe.gov.cn/wps/portal/sy/tjsj_hlzjj_inquire). This exchange rate applies to all tables and figures.

Sources: GDP data: Table 1-7, Statistical Bureau, People's Municipal Government of Dongguan (SB-PMGDG), 2002–2009; Table 1-9, SB-PMGDG, 2009–2017. Financial Revenue data: Tables 10-2 and 10-3, SB-PMGDG, 2002–2017. FDI Data: Table 9-8, SB-PMGDG, 2002–2008; Table 9-10, SB-PMGDG, 2008–2017. Export data: Tables 9-2 and 9-3, SB-PMGDG, 2002–2017

DECLINING EMBEDDED AUTONOMY AND FAILED UPGRADING, 2006 AND BEYOND

Despite its early success, Dongguan's local growth started to lose steam around 2006. The two most apparent issues are industrial upgrading and sunk costs. In Dongguan's economy, even the most skill-intensive industries, such as electronic manufacturing and assembly, have low levels of added value. Their possibilities for endogenous upgrading are precarious and parochial at best (Sturgeon and Kawakami 2011). The Dongguan economy has been dominated by industrial clusters specializing in manufacturing components and a range of finished products (Tong and Wang 2003). While Dongguan's clustering and integration of electronic and information technology firms at various nodes of the commodity chain for specific products provided advantages over other industrial towns by linking related and supporting firms, the town lagged far behind in local research and development facilities (Lai, Chiu, and Leu 2005). Moreover, the factories these industries operate in, the workers and employees they hire, and the equipment they use were suitable only for the production of a specific type of product. While the factory owners can shift production to lower-wage regions (like Southeast Asia) with relative ease, and started doing so in the 2000s, the factory buildings and equipment cannot easily be repurposed for other industries (Wang 2008:121).

As early as the mid-1990s, the municipal government stipulated that Dongguan should eventually move from labor-intensive to high-tech manufacturing (GO-CCPMCDG 1994:139–42). However, the local state, foreign investors, and local residents now had a joint interest in keeping concentrations of low-value-added industries in Dongguan. Initially an enforcer of active industrial policies, the local state gradually degenerated into the role of a defender of vested interests and showed institutional resistance to the national and provincial priority of industrial upgrading. The local elites generated by Dongguan's economic development have also constrained the capacity of the municipal administration. Most city dwellers (about 60%) are rural migrant workers from the interior of China (SB-PMGDG 2010), who tend to live in the cities only temporarily, when the factories are at their peak season. Many of the residents of the rural parts of Dongguan had quit agriculture and relied on land dividends long ago, as their farmland had either been requisitioned by the municipal and township governments, or rented out by village authorities (sometimes without their full consent) to manufacturers. The more urban residents work in businesses, export-trade companies or local government, and their welfare and income depend on the existing economic structure (Yeung 2001b). The local population lacks the entrepreneurship that could generate endogenous upgrading, and they are afraid that the turbulence of economic transition might damage their immediate interests. It is not surprising that they are at best lukewarm toward industrial upgrading. The wealthiest and most influential actors, including foreign investors, local and foreign factory owners (including those from Hong Kong and Taiwan), and local real estate developers, are powerful interest groups that also resist upgrading policies by threatening to reduce their investments (Cheng and Zheng 2001). In the 1980s, there was a single large Foreign Investors Association in Dongguan to represent all the foreign investors. But over the years, investors from Taiwan, Hong Kong, South Korea, Japan, USA and Europe have formed over 20 such associations, and they all have powerful influence over local officials.

In 2005, official documents began to show anxiety. Municipal governments realized that “the availability of land, questionable sustainability of migrant labor forces, environmental concerns and the momentum of local officials sitting atop a prosperous economy … pose questions for Dongguan's future” (Chen 2005:67–68). Since some townships and villages were using up all their available land, starting in 2006 the municipal government tightened rules on leasing land for factory construction and limited sanctioning of land uses for projects with an initial investment less than USD 5 million (SLSHZK 2008).

In the 2000s, China's central government also gradually tightened its authority over local administration as well as the export-oriented market. Since September 2006, the central government has made several changes to its processing trade regime, including the removal as well as reduction of certain export value-added tax rebates and expansion of the prohibited and restricted categories of the processing trade. Moreover, the Labor Contract Law, introduced amid the global financial crisis and economic recession at the end of 2008, was widely considered an effort by the central government to push labor-intensive industries away and upgrade the economic structure to one focused on industries with higher added value. A significant consequence of this new law was that Dongguan would no longer have the abundance of low-wage migrant laborers that it had before the crisis (Figure 1). The global financial crisis and the world-wide economic recession also hit the local economy hard.

FIGURE 1.

Number of temporary laborers in Dongguan, 2001 to 2016

FIGURE 1.

Number of temporary laborers in Dongguan, 2001 to 2016

But neither the new law nor the global economic downturn could fully explain Dongguan's stagnation in industrial upgrading. The impact of the law was highly sector- and time-specific, and many enterprises weathered its application by a series of defiant tactics. For example, enterprises would hire lower-cost, temporary laborers typically with no written contracts (for example, low-wage school interns) in their low-value-added departments and reassign whatever contracted labors they could hire to high-value-added departments. Some factories also refused to renegotiate their contracts with workers after implementation of the Labor Contract Law. Local officials often tolerated these violations for fear of driving firms away (Lan, Pickels, and Zhu 2015). Employment in large-scale enterprises remained relatively stable despite the exodus of migrant workers (Figure 2).

FIGURE 2.

Number of employees in industrial enterprises above designated size in Dongguan, 2004 to 2016

FIGURE 2.

Number of employees in industrial enterprises above designated size in Dongguan, 2004 to 2016

The global financial crisis severely constrained Dongguan's export-oriented economy, but recent economic trends show that Dongguan continued to rely on traditional export strategies and industries to sustain its economic growth. Despite a severe downturn during and immediately after the 2008–09 economic crisis, both FDI and export volumes not only bounced back but surpassed pre-crisis levels. GPD growth and government revenue growth soon recovered from their sharp drop, though they never regained their pre-crisis levels (Table 2). The number of large-scale enterprises rebounded after a wave of factory closures during the crisis (Figure 3).

TABLE 2.

Major economic indicators of Dongguan by year, 2006 to 2016

20062007200820092010201120122013201420152016
GDP (RMB billions) 262.80 316.01 370.36 378.58 427.82 477.19 503.92 551.75 588.13 627.51 682.77 
Annualized GDP growth 20.37% 20.25% 17.20% 2.20% 13.01% 11.54% 5.60% 9.49% 6.59% 6.69% 8.8% 
Local financial revenue (RMB billions) 40.65 53.95 60.11 62.78 78.51 83.85 84.56 97.47 106.62 115.55 156.92 
Annualized revenue growth 22.46% 32.74% 11.40% 4.45% 25.05% 6.80% 0.85% 15.26% 9.39% 8.37% 35.8% 
Foreign direct investment used (USD billions) 4.34 5.04 3.23 2.94 3.16 3.22 3.72 4.03 4.62 5.47 3.98 
Annualized FDI growth 15.62% 16.30% –36.04% –8.83% 7.55% 1.74% 15.57% 8.34% 14.70% 18.32% –27.14% 
Export volume (USD billions) 47.38 60.23 65.54 55.17 69.60 78.33 85.07 90.86 97.07 103.72 94.68 
Annualized export volume growth 15.75% 27.14% 8.81% –15.82% 26.15% 12.54% 8.60% 6.82% 6.83% 6.85% –8.71% 
20062007200820092010201120122013201420152016
GDP (RMB billions) 262.80 316.01 370.36 378.58 427.82 477.19 503.92 551.75 588.13 627.51 682.77 
Annualized GDP growth 20.37% 20.25% 17.20% 2.20% 13.01% 11.54% 5.60% 9.49% 6.59% 6.69% 8.8% 
Local financial revenue (RMB billions) 40.65 53.95 60.11 62.78 78.51 83.85 84.56 97.47 106.62 115.55 156.92 
Annualized revenue growth 22.46% 32.74% 11.40% 4.45% 25.05% 6.80% 0.85% 15.26% 9.39% 8.37% 35.8% 
Foreign direct investment used (USD billions) 4.34 5.04 3.23 2.94 3.16 3.22 3.72 4.03 4.62 5.47 3.98 
Annualized FDI growth 15.62% 16.30% –36.04% –8.83% 7.55% 1.74% 15.57% 8.34% 14.70% 18.32% –27.14% 
Export volume (USD billions) 47.38 60.23 65.54 55.17 69.60 78.33 85.07 90.86 97.07 103.72 94.68 
Annualized export volume growth 15.75% 27.14% 8.81% –15.82% 26.15% 12.54% 8.60% 6.82% 6.83% 6.85% –8.71% 
FIGURE 3.

Number of industrial enterprises above designated size in Dongguan, 2005 to 2016

FIGURE 3.

Number of industrial enterprises above designated size in Dongguan, 2005 to 2016

The post-2008 slowdown of Dongguan's growth did not alter the city's industrial structure, which continued to rely on several labor-intensive “pillar” industries, including communication, computer and electronic equipment manufacturing; electrical equipment and instrument manufacturing; textiles and garments; pulp and paper; furniture; toys; food and beverage; and chemical product manufacturing. These industries continued to provide the overwhelming majority (over 60%) of industrial value added in Dongguan; their weight even increased significantly (Figure 4).

FIGURE 4.

Percentage of pillar industries in total industrial value added of industrial enterprises above designated size in Dongguan, 2009 to 2016

FIGURE 4.

Percentage of pillar industries in total industrial value added of industrial enterprises above designated size in Dongguan, 2009 to 2016

In sum, Dongguan's growth slowed down after 2006, and its local economy continued to be dependent on labor-intensive export manufacturing. Industrial upgrading was not happening, despite the call by higher authorities.

To make matters worse, the strict implementation of the rotation rule for chief party secretary and mayor eliminated the leading local officials' incentive to maintain long-term sustainable growth. The central government proposed term limits for local leaders in 1999 and implemented them in 2006 (GO-CCPCC 1999, 2006). Leading officials of a municipality could now serve a maximum of two terms, meaning no more than ten years (GO-CCPCC 2006), before they were promoted, transferred to another municipality, or demoted to secondary positions in the same municipality (usually when they were close to retirement age), such as chair of the local People's Congress. Moreover, the new chief secretary and mayor should preferably not be local municipal (or even provincial) residents, and experience in the locality was not required. The new rules were established by the central government to maintain political control over local officials while allowing economic decentralization and inter-regional competition (Landry 2006), and to curb local cliques of officials, businessmen, and their relatives. Since 2006, Dongguan's local leadership positions have been staffed mostly by bureaucrats who arrive from somewhere else and then depart for other places after a few years (Tables 3 and 4).

TABLE 3.

Mayors of Dongguan since 1988

NamePrevious position and tenureTenure as mayor of Dongguan (including acting mayor)Position afterwardsTotal years as cadre in Dongguan
Zheng Jintao County mayor of Dongguan, April 1984 to April 1987* April 1987 to January 1991 Chairman, Dongguan Municipal Political Consultative Conference, February 1992 to April 1997 More than 30 (local resident; career started in 1965) 
Ye Yao Deputy party secretary of Dongguan, January 1986 to December 1990* December 1990 to September 1994 Director of Kowloon Office, New China News Agency in Hong Kong, September 1994 to January 1999 More than 19 (local resident; career started in 1975) 
Li Jinwei Deputy party secretary, party secretary, and mayor of Huizhou Municipality, March 1987 to August 1994* September 1994 to January 1997 Party secretary of Dongguan, April 1994 to April 2001 More than 35 (local resident; career started in 1965) 
Tong Xing Deputy party secretary of Dongguan, October 1994 to January 1997 January 1997 to April 2001 (acting mayor, January to May 1997) Party secretary of Dongguan, April 2001 to February 2006 11 
Liu Zhigeng** Deputy party secretary of Qingyuan Municipality, April 2002 to February 2004 February 2004 to April 2006 (acting mayor, March to May 2004) Party secretary of Dongguan, March 2006 to November 2011 
Li Yuquan Vice mayor and deputy party secretary of Dongguan, March 1995 to April 2006 (vice mayor, March 1995 to April 2004) April 2006 to October 2011 Chairman, Dongguan Municipal Political Consultative Conference, January 2012 to February 2016 More than 45 (local resident; career started in 1972) 
Yuan Baocheng** Vice mayor of Shenzhen City, May to June 2010 October 2011 to April 2016 Vice governor of Guangdong Province, February 2016 to January 2018*** 
Liang Weidong** Party secretary of Nanhai District, Foshan Municipality, November 2014 to March 2016 April 2016 to March 2018 (acting mayor, April 2016 to May 2016) Party secretary of Dongguan since March 2018 2 years, 1 month (as of April 2018) 
Xiao Yafei** Party secretary of Futian District, Shenzhen City, April 2016 to March 2018 Incumbent since March 2018 n/a 1 month (as of April 2018) 
NamePrevious position and tenureTenure as mayor of Dongguan (including acting mayor)Position afterwardsTotal years as cadre in Dongguan
Zheng Jintao County mayor of Dongguan, April 1984 to April 1987* April 1987 to January 1991 Chairman, Dongguan Municipal Political Consultative Conference, February 1992 to April 1997 More than 30 (local resident; career started in 1965) 
Ye Yao Deputy party secretary of Dongguan, January 1986 to December 1990* December 1990 to September 1994 Director of Kowloon Office, New China News Agency in Hong Kong, September 1994 to January 1999 More than 19 (local resident; career started in 1975) 
Li Jinwei Deputy party secretary, party secretary, and mayor of Huizhou Municipality, March 1987 to August 1994* September 1994 to January 1997 Party secretary of Dongguan, April 1994 to April 2001 More than 35 (local resident; career started in 1965) 
Tong Xing Deputy party secretary of Dongguan, October 1994 to January 1997 January 1997 to April 2001 (acting mayor, January to May 1997) Party secretary of Dongguan, April 2001 to February 2006 11 
Liu Zhigeng** Deputy party secretary of Qingyuan Municipality, April 2002 to February 2004 February 2004 to April 2006 (acting mayor, March to May 2004) Party secretary of Dongguan, March 2006 to November 2011 
Li Yuquan Vice mayor and deputy party secretary of Dongguan, March 1995 to April 2006 (vice mayor, March 1995 to April 2004) April 2006 to October 2011 Chairman, Dongguan Municipal Political Consultative Conference, January 2012 to February 2016 More than 45 (local resident; career started in 1972) 
Yuan Baocheng** Vice mayor of Shenzhen City, May to June 2010 October 2011 to April 2016 Vice governor of Guangdong Province, February 2016 to January 2018*** 
Liang Weidong** Party secretary of Nanhai District, Foshan Municipality, November 2014 to March 2016 April 2016 to March 2018 (acting mayor, April 2016 to May 2016) Party secretary of Dongguan since March 2018 2 years, 1 month (as of April 2018) 
Xiao Yafei** Party secretary of Futian District, Shenzhen City, April 2016 to March 2018 Incumbent since March 2018 n/a 1 month (as of April 2018) 

Notes for Tables 3 and 4: “Total years as cadre in Dongguan” is the approximate time as a government cadre in Dongguan, starting from the first entry in the available materials giving a specific position in Dongguan's government or party apparatus. Some positions may have overlapping tenure. Some of the officials listed have served separate or continuous tenures as mayor/acting mayor and party secretary.

* Dongguan's administrative level was raised from county-level to prefecture-level municipality in January 1988. Zheng Jintao, Ouyang De, Ye Yao, and Li Jinwei served in positions in the Dongguan government when it was still a county-level municipality. Zheng Jintao, Ouyang De, and Li Jinwei were transferred to Huizhou Municipality / Huiyang Regional Administrative Office briefly, and transferred back to Dongguan after its administrative level promotion.

** These officials had not lived or served in Dongguan before their positions in Dongguan.

*** Yuan Baocheng's promotion from mayor to vice governor of Guangdong Province is considered extraordinary. Typically, vice provincial governors are promoted from party secretaries of important municipalities within a province, but Yuan never held such a position.

Sources: SLSHZK (2008); OD-CCPMCDG (2009); Dongguan People's Government (http://www.dg.gov.cn/cndg/rsrm/list2.shtml), retrieved April 18, 2018; People's Web (Renmin Wang), “Database of Local Government Leaders” (http://ldzl.people.com.cn/dfzlk/front/firstPage.htm), retrieved April 22, 2018; Dongguan People's Political Consultative Conference, “Summary of Composition of Standing Committee,” (http://dgzx.dg.gov.cn/publicfiles/business/htmlfiles/dgzx/s41526/), retrieved April 22, 2018; Dongguan Municipal People's Congress, “Summary of Composition of Standing Committee,” (http://dgrd.dg.gov.cn/business/htmlfiles/dgrenda/prdcwhjj/), retrieved April 22, 2018; Guangdong Provincial People's Congress, “Summary of Composition of Standing Committee,” (http://gdpc.gov.cn/pub/gdrd2012/rdgzxgnr/ljcwwyh/), retrieved April 22, 2018.

TABLE 4.

Local party secretaries of the CCP Committee of Dongguan since 1988

NamePrevious position and tenureTenure as party secretary of DongguanPosition afterwardsTotal years as cadre in Dongguan
Ou'yang De Deputy director and director, Huiyang Regional Administrative Office, March 1981 to August 1988* September 1988 to March 1994 Deputy director, Standing Committee, Guangdong Provincial People's Congress, March 1994 to January 1996 (arrested on corruption charges in February 1995; sentenced to 15 years in in January 1996) More than 40 (local resident; career started in 1950) 
Li Jinwei Mayor of Dongguan, September 1994 to January 1997* April 1994 to April 2001 Deputy director of Standing Committee, Guangdong Provincial People's Congress, May 2001 to February 2008 More than 35 (local resident; career started in 1965) 
Tong Xin Deputy party secretary and acting mayor/mayor of Dongguan, October 1994 to April 2001 April 2001 to February 2006 Vice governor of Guangdong Province, March 2006 to July 2011 11 
Liu Zhigeng Deputy party secretary and acting mayor/mayor of Dongguan, February 2004 to April 2006 March 2006 to November 2011 Vice governor of Guangdong Province, November 2011 to February 2016 (arrested on corruption charges in April 2016; sentenced to life in prison in May 2017) 
Xu Jianhua** Director and party secretary, Guangdong Provincial Development and Reform Commission, November 2010 to December 2011 December 2011 to April 2016 Director and party secretary, Standing Committee, Dongguan Municipal People's Congress, April 2016 to January 2017 
Lü Yesheng** Director and party secretary, Guangdong Provincial State Asset Supervision Commission, August 2013 to April 2016 April 2016 to January 2018 Deputy director, Standing Committee, Guangdong Provincial People's Congress, since January 2018 10 months 
Liang Weidong Deputy party secretary and acting mayor/mayor of Dongguan, April 2016 to March 2018 Incumbent since March 2018 n/a 2 years, 1 month (as of April 2018) 
NamePrevious position and tenureTenure as party secretary of DongguanPosition afterwardsTotal years as cadre in Dongguan
Ou'yang De Deputy director and director, Huiyang Regional Administrative Office, March 1981 to August 1988* September 1988 to March 1994 Deputy director, Standing Committee, Guangdong Provincial People's Congress, March 1994 to January 1996 (arrested on corruption charges in February 1995; sentenced to 15 years in in January 1996) More than 40 (local resident; career started in 1950) 
Li Jinwei Mayor of Dongguan, September 1994 to January 1997* April 1994 to April 2001 Deputy director of Standing Committee, Guangdong Provincial People's Congress, May 2001 to February 2008 More than 35 (local resident; career started in 1965) 
Tong Xin Deputy party secretary and acting mayor/mayor of Dongguan, October 1994 to April 2001 April 2001 to February 2006 Vice governor of Guangdong Province, March 2006 to July 2011 11 
Liu Zhigeng Deputy party secretary and acting mayor/mayor of Dongguan, February 2004 to April 2006 March 2006 to November 2011 Vice governor of Guangdong Province, November 2011 to February 2016 (arrested on corruption charges in April 2016; sentenced to life in prison in May 2017) 
Xu Jianhua** Director and party secretary, Guangdong Provincial Development and Reform Commission, November 2010 to December 2011 December 2011 to April 2016 Director and party secretary, Standing Committee, Dongguan Municipal People's Congress, April 2016 to January 2017 
Lü Yesheng** Director and party secretary, Guangdong Provincial State Asset Supervision Commission, August 2013 to April 2016 April 2016 to January 2018 Deputy director, Standing Committee, Guangdong Provincial People's Congress, since January 2018 10 months 
Liang Weidong Deputy party secretary and acting mayor/mayor of Dongguan, April 2016 to March 2018 Incumbent since March 2018 n/a 2 years, 1 month (as of April 2018) 

One predictable outcome of the new rotation system is that it undermined the symbiosis between local officials and local market players. With little prior knowledge of the locality and applying only short-term interests, party secretaries and mayors have incentives to maintain the existing economic prosperity in pursuit of a promotion, rather than to initiate transformations and upgrading that could slow growth in the short term but benefit the local economy in the long run. Bureaucratic coherence and the alignment of individual maximization with the long-term goals of sustained local development have been disrupted. This new reality exacerbated the local economic elite's resistance to industrial upgrading; instead of being beneficiaries of Dongguan economic transformation, they now have more interest in preserving the status quo.

The Dongguan government's loss of embedded autonomy was shown in how it executed the industrial upgrading goals pressed by higher authorities over the last decade. Following the central government's initiatives, in May 2008 the Guangdong provincial government announced the “Directive Guidelines on Regional Distribution of Industrial and Labor Relocation in Guangdong” (also known as “dual relocation”). The “relocation” here refers to relocation of labor-intensive, low-value-added, energy-and-resource-intensive, and polluting industries from the central PRD to less developed eastern, western, and northern Guangdong. The ambition was to “empty the cage for new birds” (teng long huan niao), with the “birdcage” of the PRD releasing labor-intensive industries (“the old birds”) and letting in advanced manufacturing (“the new birds”).

The provincial government put forth a set of indicators, such as the number of firms relocated, “outdated” firms shut down, and new high-tech projects introduced, as criteria for senior officials' evaluation and promotion at both provincial and city levels in the PRD (Zhao 2014), though safeguarding continuous economic growth is still presented as the most important (PPGGD 2011). The provincial government's campaign to promote upgrading was not deterred by the global financial crisis in the fall of 2008. Guangdong party secretary Wang Yang even remarked that the crisis was a good thing, as it could drive out labor-intensive industries and speed up the necessary transition (Phoenix News 2008).

PRD cities like Dongguan enjoyed some favorable preconditions for industrial upgrading, such as clusters of firms that had forged formal and informal ties over three decades (Eng 2009). Still, the relocation strategy initiated by the central government and the Guangdong provincial government encountered resistance from lower-level authorities, such as township and village leaders. The labor-intensive, low-value-added, energy-intensive, and polluting manufacturing industries have been the major targets of the provincial government's restructuring strategy. Foreign and Taiwanese/Hong Kong investors' organizations have complained directly to local officials and asked for protections and exemptions from the Labor Contract Law during special meetings on implementation of the law. In a survey conducted in Dongguan in April 2008, 48.8% of the surveyed firms declared that they would not consider relocation at all because of high transportation and production costs; 43.8% claimed that “relocation may be an option in the long run, but not right now” (Yang 2012). Many enterprises were unwilling to give up the institutional, infrastructural, and transportation benefits of the PRD (Yang 2013). In another 2008 survey, only about 7.7% of the firms interviewed were willing to move into designated industrial parks in Guangdong (Liao and Chan 2011:632). The Dongguan government was at best lethargic in implementing the higher authorities' call to push out labor-intensive industries.

The difficult process of industrial upgrading is reflected by Table 5: Dongguan's advanced manufacturing sectors such as information technologies, robotics, and electric cars, has shown no consistent trajectory of growth in either number of large-size enterprises or industrial value added.

TABLE 5.

Indicators of advanced manufacturing enterprises above designated size in Dongguan, 2009 to 2016

Number of enterprisesTotal industrial output value added (RMB billions)Total industrial output value added growth
2009 2,333 n/a n/a 
2010 2,335 69.22 n/a 
2011 1,706 68.75 –0.69% 
2012 1,809 83.43 21.36% 
2013 2,174 112.00 34.24% 
2014 2,239 113.75 1.56% 
2015 2,417 120.86 6.25% 
2016 2,588 150.52 24.55% 
Number of enterprisesTotal industrial output value added (RMB billions)Total industrial output value added growth
2009 2,333 n/a n/a 
2010 2,335 69.22 n/a 
2011 1,706 68.75 –0.69% 
2012 1,809 83.43 21.36% 
2013 2,174 112.00 34.24% 
2014 2,239 113.75 1.56% 
2015 2,417 120.86 6.25% 
2016 2,588 150.52 24.55% 

Notes for Table 5: “Number of advanced manufacturing enterprises” (xianjin zhizaoye qiye) became available in Dongguan's yearbooks of statistics in 2010 with statistics starting from 2009, and industrial output value added statistics became available in 2011 with figures starting from 2010. “Advanced manufacturing enterprises” include three major categories: bulk equipment, steel manufacturing and processing, and oil and petroleum chemicals. “Above designated size” means enterprises with annual operation income above RMB 20 million (about USD 2.88 million as of 2016).

Sources: Table 4-32, SB-PMDGD, 2010; Table 4-31, SB-PMGDG, 2011–2017.

This failing industrial upgrading and economic restructuring suggests that the high capacity and embeddedness of the local state have become obstacles to economic transformation, as the local state became resistant to change and unwilling to take short-term economic pain to improve the prospects of long-term growth. To make things worse, the term limits imposed by the central government encouraged local officials to emphasize short-term GDP growth, making them more susceptible to the influence of the local economic elites, who were also fixated on short-term interests. As a result, the local government was unenthusiastic in pursuing the reforms urged by the provincial government. This inertia has locked Dongguan to its original path of labor-intensive manufacturing.

DONGGUAN'S IMPASSE IN COMPARATIVE PERSPECTIVE

Are the lessons from Dongguan applicable elsewhere? Comparing the PRD and another major industrial and economic center in China, the Yangzi River Delta (YRD), is popular among students of China's development. Especially since the PRD has showed signs of slowing and stagnation, the YRD is often heralded as an area with a concentration of high-tech, high-value-added firms with both export and domestic market competitiveness (Chen 2007). The YRD is also said to surpass the PRD significantly in terms of endogenous upgrading and knowledge creation and dispersion (Lai, Chiu, and Leu 2005). Listed as conditions favoring the YRD over the PRD are active and articulate top-down industrial policies that promote industrial linkages and upgrading, more effective government institutions, more favorable tax and land policies toward high-tech manufacturing, a higher concentration of technological and entrepreneurial talent, and better support for R&D (Yang 2009). But it has also been noted that the YRD actually suffers from the same set of problems as the PRD with respect to industrial upgrading, such as shortage of energy and resources, corporations' and local governments' preference for short-term profit over long-term investment, and entrenched local interests inhibiting upgrading (Chen 2007).

Two other, more viable comparisons are discussed here. First, Dongguan can be compared with other “success stories” in the PRD, with similar geographical locations and timelines of development. Second, Dongguan can be compared with some “latecomer” local states that managed to take advantage of the central government's priorities and incentives to jump directly to high-value-added manufacturing.

The “success story” of Shenzhen is an interesting case for comparison. In view of its proximity to Dongguan and a parallel timeline of economic takeoff, Shenzhen is often proposed as a model for Dongguan's industrial upgrading. After a special economic zone (SEZ) was established in 1979, Shenzhen's GDP grew at an annual rate of 22% from 1980 to 2016 and is now heralded as the Silicon Delta of technological innovation, R&D, and high-tech start-ups (The Economist, 2017). Even before the industrial upgrading incentives came in 2008, Shenzhen enjoyed a significant edge over Dongguan in science, technology, and R&D. As of 2006, the total expenditure of the Shenzhen government and enterprises on science and technology was nine times of that of Dongguan, while its R&D spending was 43 times as great (Arvanitis, Jastrabinsky, and Black 2006:17–18). In 2008, the industrial output value of high-level high-tech companies in Shenzhen reached over RMB 500 billion, more than three times that of Dongguan (Fu 2015).

Undeniably, many of Shenzhen's advantages derive from its SEZ status. Shenzhen started out with far more leeway in policy experimentation and the restructuring of the administrative hierarchy, as Guangdong's provincial government had relatively little authority over Shenzhen's economic policies (Bach 2017). Its position as a national “model” of economic development and its proximity to Hong Kong (the two places are separated only by a narrow river) helped it combine an early start of marketization with less restrictions on connecting with global markets and capital. The SEZ also legitimized Shenzhen's incorporation of adjacent areas to gain new land for development (O'Donnell 2017), preventing the rise of a class of rent-seekers living on short-term rental of their land to labor-intensive factories, as in Dongguan.

Recent studies attribute Shenzhen's relative success in industrial upgrading to the initial reliance on smaller-scale enterprises from Hong Kong and Taiwan and the lack of strong state-owned enterprises, which allowed more room for local enterprises to grow (Chen 2018). The centrally sponsored local innovation in Shenzhen helped embed smaller foreign investments in large domestic private firms, and the alliance of local government with foreign and domestic firms facilitated technological diffusion and innovation, contributing to the rise of local technological giants with national support, such as Huawei (telecommunications), ZTE (telecommunications), and BYD (telecommunications and automobiles). This “dirigiste” model, with its carefully crafted state intervention and its concentration on high-value-added firms from the start, differed from the Dongguan model, in which grass-roots, low-value-added firms were pitted against each other (Fu, Diez, and Schiller 2012:544). In sum, Shenzhen's early industrialization path, which was more reliant on smaller foreign investors and local enterprises and less on global transnational giants, allowed Shenzhen's local government to maintain significant autonomy in pursuing industrial upgrading.

However, these studies ignore the broader contexts of the industrial upgrading. For instance, Dongguan, like Shenzhen, attracted a large number of firms from foreign countries as well as Hong Kong and Taiwan and initially lacked large state-owned enterprises and giant transnational firms. Yet the spill-over gains from processing trade encouraged the village and township governments, as well as local peasants, to sit on rents and taxes paid by local firms. Local officials in Dongguan, pressured by investors and rentier peasants, preferred to maintain the status quo rather than engage in active innovation. Shenzhen, on the other hand, appeared to be freed from this worry by its SEZ status, which attracts more dynamic local firms and a smaller indigenous local population. The lack of concentration and the low export share of foreign firms' output, together with the much smaller group of rentier local residents, prevented the emergence of a powerful alliance between local vested interests and officials which resisted changes (Chen 2017).

Moreover, despite Shenzhen's early lead in high-tech manufacturing, new evidence suggests that Shenzhen is not immune to bureaucratic infighting and vested interests' backlash against the top-down scheme of upgrading and bureaucratic evaluation. Some of the dynamic local firms in Shenzhen that matured into conglomerates have begun to cast a shadow on Shenzhen's long-term perspective. For example, starting in 2014 or 2015, Huawei, one of Shenzhen's most critical engines for high-tech manufacturing, started relocating to Dongguan. By 2016, Huawei's new manufacturing base in Dongguan had become the city's largest taxpayer (Sohu News, 2016). Huawei's CEO openly blamed high real estate prices in Shenzhen for driving up enterprise costs and driving away talent (Netease News 2016). Recent statistics also paint a less rosy picture of industrial upgrading in Shenzhen. The latest official statistics (PMGSZ, various months) show that beginning in fall 2017, Shenzhen saw a steep decline in volumes of industrial products, including several high-tech products, such as base station equipment, new energy vehicles, hard drives, and PBX machines. Some saw their annual volume decline by over 70%. Investments in retail and consumption, as well as hospitality, also fell sharply. On the other hand, investment in real estate and the volume of internet sales continued to rise. The industrial decline might be explained by transferring of manufacturing capacity elsewhere (including Huawei's move to Dongguan). The combination of high real estate investment and prices and declining industrial output (including for high-end products) is certainly not a favorable condition for a city heralded as the PRD's innovation and manufacturing hub.

For the second type of comparison, let us look at Chengdu, the provincial capital of Sichuan Province, in southwestern China. Chengdu might seem to have an unfair advantage here, as it is a provincial capital as well as a regional hub critical to China's grand Western Development Strategy (PMGCD 2014:16). But scholars note that in terms of economic, social, and environmental conditions and external connections, the two cities started off at roughly the same level, with Dongguan ahead of Chengdu from 1995 to 2000. Still, since 2000 Chengdu's performance has been gradually rising, while Dongguan's scores fell sharply on all aspects (Shen and Yang 2014:373–74).

In contrast to Dongguan's resistance to releasing land for industrial upgrading because of the entrenched interests of local rentier residents, Chengdu was more successful in coordinating urban and rural development and concentrating resources in particular geographical locations. Starting in 2009 and 2010, Chengdu began to experiment with “coordinated urban-rural development planning.” The city government eliminated administrative barriers to ensure free entry into the labor market and smooth transition of migrant workers to urban-resident status (Chen and Gao 2011:510; see also Zhao and Yang 2016). A household registration (hukou) reform allowed rural residents to give up the use-right of their farmland in exchange for urban-resident status. In contrast to Dongguan's difficulties in convincing local residents to bear temporary reduction in rents when old industries are replaced by new ones, the Chengdu municipal government could easily obtain new land for development without being held hostage by local rentiers. The Chengdu government now promotes three zones as primary venues for high-tech foreign investment: the city-level Tianfu New District, the state-level Chengdu High-Tech Industries Development Zone and Chengdu Economic and Technological Development Zone (PMGCD 2014:80). In terms of performance, a study has found that as of 2016, 229 of the world's top 500 companies had settled in the city, and more than two-thirds of foreign-invested companies had growth rates exceeding 200% (Taylor, Ni, and Liu 2016:174–75).

Studies suggest that amid these successes, Chengdu's government managed to maintain its embedded autonomy. In the process of urban–rural development coordination, the government allowed grass-roots residents and local NGOs to participate in the planning process (Ye and Le Gates 2013; Zhao and Yang 2016). To attract investment, at the end of 2013 the government announced that it would streamline the administrative process for approval (PMGCD 2014:63). The Chengdu government's encouragement of and investment in local R&D projects and infrastructure were highlighted as instrumental in integrating the city into the global production chain (Taylor, Ni, and Liu 2016:183–84). The municipal government was also well embedded in market players, as connection between officials and private entrepreneurs facilitated entrepreneurs' access to loans (Zhang 2008).

The comparison suggests that it is primarily the path-dependent internal institutional structure of Dongguan's developmental state and its ties to local interests that became hindrances to upgrading. We see that an embedded and autonomous local state effective in bringing rapid economic development in one time period became a short-sighted, non-autonomous political instituion focusing on short-term gains in another period. Its early embeddedness with local interests mutated into capture of the state by foreign and local elites, who oriented local policies and local officials' priorities toward short-term GDP growth. This shows that the reproduction and perpetuation of a viable developmental state cannot be taken for granted. Further research is needed to look at how persistently effective developmental states elsewhere actually reproduced their embedded autonomy through different historical periods and under different macroeconomic conditions.

CONCLUSION

This study fills a gap in the literature on the developmental state by showing how the capacity, autonomy, and embeddedness of a state can be made and unmade under contingent historical conditions. While the embeddedness and autonomy of developmental states were long regarded by the literature as stable, coherent, and conducive to economic development and innovation, this study shows that such features can change over time. The autonomy of the state rests on internal coherence and convergence of individual and collective goals. The embeddedness of the state fosters the effective implementation of the state's transformative policy when the social groups in which the state is embedded support innovation and industrial upgrading. However, state autonomy is susceptible to disruption by external or internal shifts in institutions and the rules regarding selection and promotion of bureaucrats. Embeddedness of the state can also result in capture of the state by local vested interests, which reject the temporary setbacks necessary for long-term growth. The failure of reproduction of the state's embedded autonomy can impede the upgrading of early successful cases of industrialization.

In the case of Dongguan, after three decades of rapid industrialization driven by labor-intensive, export-oriented FDI, the local state embedded itself in the foreign manufacturing capital and local vested interests that emerged during the era of prosperity. The close ties with these elites, aggravated by the changing incentives for leading officials under the rotation system and term limits, created institutional inertia that makes local leaders resist the call from higher-level administrations to reformulate and upgrade local industrial structures.

In the end, we see how an embedded and autonomous local state, effective in bringing rapid economic development in one period, became a short-sighted, non-autonomous local state focusing on short-term gains. This shows that the reproduction and perpetuation of a viable developmental state through different stages of industrial development cannot be taken for granted. Further research is needed to look at how persistently effective developmental states elsewhere prevent their embeddedness from developing into vested-interest capture of the state that undermines its autonomy, and instead successfully reproducing their embedded autonomy through different historical periods and under changing macroeconomic conditions.

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