Studies of the Walter H. Shorenstein Asia-Pacific Research Center. Stanford: Stanford University Press, 2018. xviii, 207 pp. (Tables, graphs, figures, maps.) US$50.00, cloth. ISBN 978-1-5036-0479-7.
In one of his last tours of China, the great reformer Deng Xiaoping expressed his puzzlement concerning the unique ability of local governments to effectively calibrate developmental policies that the all-powerful centre had initiated. Ling Chen’s Manipulating Globalization: The Influence of Bureaucrats on Business in China is perhaps one of the most systematic and up-to-date treatises addressing Deng’s puzzlement.
Chen turns first to the national dimension of development. With its “opening up and reform” in 1978, China abandoned autarky to become a proactive globalizer. Beijing consequently saw in FDIs an inexorable source of modernization. In the early years, however, the major strategic argument was based on the rather simplistic idea that foreign investors would simply transfer technology in exchange for market success. That argument was a political maneuver for the party in its effort to calm ideologues who viewed FDIs as a source of structural capitalism that could turn China into a peripheral economy dependent on Western technological good will. Economic and technology development zones were explicitly set up to promote joint ventures and accelerate technology absorption. However, that policy was mostly a failure. Instead it was only later in the 1990s, when Beijing toned down tech transfer and singularly focused on FDIs, that more conducive conditions for domestic competitiveness eventually arose.
Chen then shifts from the national level to the domestic political level: bureaucratic competition for FDIs amongst the prefecture cities. This level of analysis is Chen’s major intervening variable that interprets the national policy of FDI attraction into China’s ultimate national goal of increasing domestic competitiveness. Chen’s core argument is that there existed a strategic continuum between, on the one hand, local governments that strategically attracted large multinationals at the top of the global value chain, the so-called dragon’s head approach, and on the other, cities attracting guerilla investors (i.e., relatively small-scale foreign firms).
Suzhou and Shenzhen are located at the two ends of this continuum. After an exhaustive engagement with both quantitative and qualitative data, Chen disproves the established narrative that positions large-scale FDIs, undertaken by Fortune 500 behemoths, as the drivers of domestic competitiveness in China. Shenzhen, with its guerrilla investors, ultimately outperformed Suzhou’s dragon head approach in advancing domestic competitiveness. This is squarely an outcome of bureaucratic politics. Large-scale foreign investors tend to become major exporters in a certain region. Consequently, they cultivate long-term strategic relations with international commerce bureaucrats, who then become entrenched into further supporting those large multi-national corporations. As a result, domestic competitiveness suffers. On the other hand, in regions where FDIs are sourced into small- and medium-sized investors that do not account for a large share of regional exports, then bureaucrats with technological portfolios prevail over those of international commerce. Domestic competitiveness thus advances.
This counterintuitive finding, however, begs the question regarding the reasons why Suzhou and Shenzhen followed such strategically different approaches in the type of FDIs that they prioritized in the first place. Here, an economic-historical perspective sheds light. The bureaucratic preferences in choosing their respective business constituencies were ultimately shaped by the varieties of local capitalism developed in China during its century of modernization from late Qing to Mao. For example, Yangtze River bureaucrats, driven mainly by political priorities, focused on large-scale industrial projects. In contrast, bureaucrats in the Pearl River region prioritized small-business networks of local development. Over time, these divergent paths further consolidated regional bureaucratic preferences. A strategic signal by the top leadership in Beijing—first to attract FDIs and then to promote indigenous innovation—ultimately led to two different outcomes based on the path-dependency of local capitalism in the Yangtze and Pearl River regions, respectively.
Chen’s magnum opus acquires increased strategic significance as Sino-US relations have become increasingly securitized. The US Department of Commerce has accused China of forced technology transfers, induced by the “access for market initiative.” Yet, in Chen’s book it is clear that China did not manipulate American investors. The process of advancing domestic competitiveness, although a goal since the late Qing, was ultimately facilitated by local bureaucrats whose preferences were to a degree influenced by the historical type of local capitalism in the Pearl Delta to prioritize small-business networks and attract small-size FDIs in the 1990s. Gradually, “as investors in those regions outsourced low-to-mid value production to local companies, independent domestic suppliers emerged” (46). A process of what Joe Stiglitz has framed “learning by doing” then kicked in, advancing regional know-how and productivity, and thus setting the foundations for China’s electronic industry.
Rich in its data, authoritative in its argumentation, thorough in its investigation, and important in its findings about globalization and structural economic transformation of China, Chen’s work constitutes an essential reading on Chinese political economy. The biggest difficulty of Chen’s treatise, however, is the generalization of her research findings into clear-cut policy suggestions applied universally. While Chen herself attempts to do so in her last chapter, the problem is that her work is so rich in detail that the required parsimony in building generalizable suggestions is hard to accomplish. Works that therefore focus primarily on the level of national government tend to be more successful in that dimension (see Wang Shaoguang, Barry Naughton).
Most importantly, the first image of analysis is not adequately investigated. Deng’s reformist leadership and his economic pragmatism, as well as his capacity to win domestic political debates, was fundamental in transforming China’s autarchic economy. As underutilized capital, talent, and land were ultimately put in more efficient use and as FDIs over time advanced the industrial understructure of China, the national competitiveness increased. To be sure, this crucial developmental change did not happen automatically simply because Deng navigated the ship of state from atop. The provincial bureaucrats intervened: they shaped and shoved, slowed or catalyzed the developmental process, but it was Deng’s reform that set the first-order condition (Chen acknowledges that Shenzhen bureaucrats were closer to the spirit of Deng [44]).
Chen’s book describes exceptionally well and in unmatched intellectual depth the second-order condition of bureaucratic intervention and adaptation. While this does not suffice to present a new generalizable theory of FDI-focused development, it nonetheless adds a comprehensive and important case study advancing our understanding of the complex relationship amongst an investment-seeking state, bureaucratic politics, globalization, and industrial transformation. Crucially, it qualitatively enriches theoretical works that focus on SMEs as drivers of national innovation, such as Edmund Phelp’s Mass Flourishing (Princeton University Press, 2013).
Vasilis Trigkas
Schwarzman College, Tsinghua University, Beijing