Stanford postdoc fellow explores patterns of Chinese bureaucratic competition and the influence of foreign firms

picture 4 Ling Chen (at Right), a postdoctoral fellow at Shorenstein APARC, interviews a Chinese bureaucrat.

Globalization is a commonly cited process in the study of political economy, but its complexities can be easily overlooked. When examined with a comparative lens across many Chinese cities, the story of globalization becomes one of institutional tension and individual ambition. 

According to emerging research by Ling Chen, a 2013­–14 Shorenstein APARC Postdoctoral Fellow in Contemporary Asia, the connection between government and industry, particularly in an authoritarian country like China, reveals a web of competition among, and within, city bureaucracies. These agencies coordinate relations between foreign and domestic firms, sometimes leading to policy manipulation.

 Ling Chen

China’s increasing interest and interaction with foreign firms is clear, but the creation of policies affecting industry, and their patterns of implementation on the ground, remain vague. What happens after industrial policy is created? How does policy affect the way that local governments allocate resources among businesses? What are the implications for foreign and domestic firms going forward?

Chen, a scholar of comparative politics and political economy of East Asia, seeks to uncover the decisions and flow of resources related to foreign direct investment, and its impacts on local government and domestic firms. She finds that bureaucracies in many Chinese cities have industrial policies that favor certain firms over others, for example, in government funding, tax breaks and land allocation. And as resource competition in China rises, rivalry among and within Chinese bureaucracies is only destined to grow.

Chen gathered qualitative and quantitative data through intensive fieldwork between 2008 and 2011 on China’s east coast, and did additional follow up interviews this past June. In total, she has conducted about 270 interviews with Chinese bureaucrats and firms, and even observed a few official bureaucratic meetings, an opportunity not afforded to many. Chen’s research at Shorenstein APARC furthers her dissertation work, which she is expanding into a full book manuscript. Before her departure, she spoke with Shorenstein APARC about her research. 

Can you tell us about China’s system of local governance? What are bureaucrats competing for, and what institutional rules exist?

China’s bureaucratic system is very complicated, and being a successful bureaucrat means you are selected for promotion among the 8,000 people working for the government in a typical large city. This implies that bureaucrats compete with each other in order to improve their own status. The party branch and city governments, which are always under pressure for cadre evaluation, appoint bureau leaders based on an assessment of their performance in terms of policy targets each year. Typically, bureaucrats compete for political survival, control over policies, and resources associated with these policies. These factors can help create opportunities for political achievement and facilitate their promotion. So, in general, the institutional rules encourage competition. Whether such competition is good or bad is another question. Interestingly, I found through text analysis of interview transcripts that inter-department and intra-department competition have different influence on the implementation of policies, with the former impeding the process of policy implementation, and the latter facilitating the process. And the types of foreign firms that the government attracts precisely affect such patterns of competition.

Chen visited the Global Center in Chengdu, the largest building in the world, which houses businesses and various recreation centers. 

What is policy manipulation, and which policies concern both government and foreign firms?

The policies that interest both sides include: government funding (who gets funding for projects), tax breaks (exemption or reduction), and land (who gets access to economic development zones). Policy manipulation occurs when an agent outside of the issue area diverts resources from its original purpose to another purpose. For example, the government has set up high-tech economic zones and incubators for innovation purposes. But, if bureaucrats utilize the advantages of these zones for other purposes, like attracting foreign firms interested in cheap labor, this reflects policy manipulation because the original goal of the policy is not fulfilled. Bureaucrats are the immediate agents implementing industrial policies, but foreign firms are important as business clients of particular bureaus. Foreign firms’ outsourcing strategies affect the division of labor among government agencies and their local perception regarding who to gain and lose from certain economic policies.  

How do patterns of government-foreign firm interaction and power seeking differ in the rural versus urban settings?

My work mainly concerns the urban areas, but there are interesting variations between rural and urban areas. Due to limited land availability in China, many firms now locate their manufacturing in rural areas, while their headquarters remain in urban areas. In cities that host leading global firms, such as Intel and Foxconn, the firms’ leadership and top city bureaucrats interact directly and often. Typically, the government gives those firms land in top-ranked development zones, whereas rural areas are no longer allowed to host industrial parks to attract foreign firms. If the government allowed rural areas to attract investment, those areas would garner some smaller foreign firms (guerilla investors), and cause messy overlaps with industrial park policies, especially those concerning the hiring of immigrant labor. During the early reform days in the late 1980s and early to mid-1990s, some of these firms were registered as collectively-owned firms under government corporations and only later became independent foreign-invested firms. Interestingly, they didn’t hire local peasants because their village could rent land to earn money. In this situation, you see highly planned bargaining and formal negotiation on the one hand, and on the other hand, informal deals tailored for the firm through various dense networks.

What is the business environment like for foreign firms in China? What does the future hold?

In the eyes of many Chinese bureaucrats, few countries can compete with China in providing services to foreign firms. China attracts firms by setting up “hotel-style” hospitality to cater to the firms’ needs. Some bureaucrats, in my earlier interviews in Jiangsu in 2009, showed that accommodation of foreign firms was written into city rules in the 1980s. If you ask bureaucrats to rank who comes first in the business environment, the answer will often be foreign firms and state-owned enterprises. Domestic private firms are located on the other side of the scale. According to my later research, the situation is slowly starting to change today. Two main reasons are behind this change. First, as land resources become scarce, the city government, particularly on China’s east coast, has been more selective in its preferences. Officials are now mostly focused on the number of global Fortune 500 companies there. Second, the government now has increasingly shifted its focus to innovation and technology capabilities. In contrast to the 1990s, when local governments focused on attracting foreign firms, the support for local R&D by China’s own enterprises has steadily increased. However, the Chinese government is very cautious in saying that they promote domestic firms, at least to external media, because they don’t want to lose investment or violate any World Trade Organization rules.