中国增长引擎

Imagine if Y Combinator owned and ran San Francisco. Too much traffic? That’s bad for business. Highway 101 would be triple- or quadruple-deckered, and the metropolitan area might have a dozen subway lines, more like Madrid’s or Osaka’s networks than the BART as it stands. Heritage buildings? They’re nice, but this is a tech town. Skyscrapers would fill the entire peninsula. Instead of wealth taxes on billionaires, the city might even cut taxes to encourage more founders and companies to move there.

This is only a slight caricature of how city government works in China. Provincial cities like Hefei and Hangzhou have become world-leading centers of commerce in electric vehicles, consumer electronics, solar panels, batteries, and AI, steered by mayors whose career incentives are similar to those of partners in a venture capital firm, getting promoted if their portfolio grows and fired if it fails. The cities they run function as vertically integrated conglomerates that benefit not just from the success of their local champions, but also from the broader growth generated by masses of companies in their slipstream.

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In the West, China’s success is often attributed to the central government’s willingness to pick winners and direct its economy from above. Many Westerners have concluded that a similar top-down approach is needed in their countries to create champions that can compete with China’s. But Beijing’s role is more akin to being a rulemaker in a great tournament. Subnational governments – provinces, cities, towns, villages – are responsible for around 85 percent of public expenditure, according to the IMF, the lion’s share of which is spent at city level.

The heavy state involvement correctly perceived by observers belongs not to Beijing but to those local governments, of which China has thousands, and which compete with one another for investment and prestige. These local growth machines and the competition between them are what drives China’s stunning economic success, and what the Western world must embrace to keep up.

Local heroes

For the initial decades after China’s economic opening in the 1980s, ‘Made in China’ meant cheap goods mass-produced for Western businesses. Today, Chinese companies lead the world in high-tech manufacturing, and many of them are household names in the West. Huawei is arguably the world’s most advanced telecoms company; BYD is the largest electric automaker; and DJI makes over 90 percent of consumer drones. Less familiar but no less important are companies like Geely, an auto giant which began in the 1980s as a refrigerator parts manufacturer and now owns Volvo, Lotus, Polestar and a stake in Aston Martin; and Vivo, now India’s biggest smartphone supplier.

What all have in common is that Beijing played no role in their creation. They were private companies encouraged by local governments. Huawei, BYD, and DJI emerged from Shenzhen’s Special Economic Zone, where municipal bureaucrats could write local regulations without regard for national rules. Geely was quietly supported by Zhejiang province at a time when only state-designated automakers were meant to build cars. Vivo spun off from a company founded in Dongguan, after Zhongshan, the neighboring city, wouldn’t give the company leaders equity.

Some sectors, such as batteries, electronics, and most recently electric vehicles, have received special support from Beijing as strategic industries. Companies in these areas benefited from subsidies, tax rebates, and in the case of electric cars, sales tax exemptions. But though the state was happy to lend its support to certain sectors, it was agnostic as to which specific firms and regions rose to dominance by means of that support. Beijing set a prize, and local bureaucrats competed to win it.

Hefei, the capital of Anhui province in inland Eastern China, is the most famous illustration of this process in action. In 2008, the municipal government invested $500 million in the electronic display company BOE Technology to build a new-generation LCD production line, bringing China to the cutting edge of panel production for the first time. At the time, Hefei was an unremarkable city with no display industry, and BOE was only the world’s ninth-largest manufacturer of LCD displays. The city provided the necessary land, utility connections, and cheap capital (investing almost a tenth of its total revenue that year) to set up a subsidiary company with BOE, in which it had an 81 percent stake. The bet paid off. BOE is now the world’s largest display panel manufacturer and makes about a quarter of smartphone screens worldwide.

The city reinvested the returns from its investment in other venture capital–like bets, which have won big surprisingly often. Hefei’s investment in carmaker NIO, which the city backed in 2020 in exchange for a 24 percent stake, paid off with an internal rate of return exceeding 30 percent. CXMT (Changxin Memory Technologies), 24 percent of which is directly or indirectly owned by the city of Hefei, runs just behind Samsung, SK Hynix, and Micron with 7 percent of the global market for DRAM chips, the short-term memory used in smartphones, PCs, and data centers. Over the decade to 2023, the city had invested roughly $25 billion of public funds, generating reported earnings of nearly $9 billion.

Other cities have followed the venture capital model to bring in similar growth in jobs and tax revenues. The city of Wuhu imported a secondhand Ford engine line from Britain, lured engineers away from state behemoth FAW (First Automotive Works), and copied a Volkswagen design to build a local carmaker. That makeshift venture eventually grew into Chery, today one of the country’s leading carmakers and supplier of Britain’s bestselling car in March 2026, the Jaecoo 7. As well as having seen growth in jobs, exports, and tax revenues, the city of Wuhu retains a 21 percent stake in Chery, worth around $3.7 billion.

Ningde, a relatively modest city in Fujian province in the southeast, is the founding site of CATL, now the world’s biggest battery producer. The city’s leaders made a strategic wager from its founding in 2011, committing land, infrastructure, tax support, administrative coordination, and supplier attraction efforts to help the still-young battery company to scale. CATL’s bases in Ningde now have capacity to produce 330 gigawatt hours of batteries per year – equivalent to almost half the global demand for electric vehicle batteries in 2023.

Growth is the best policy

China’s mayors and provincial governors turn their cities into venture capital portfolios because of the system of incentives in which they operate. Each cadre (the party members and other officials who run the Chinese state) is scored by their superiors in a secret file built up over the course of their career. Prefecture-level party secretaries evaluate county chiefs, who in turn evaluate their juniors heading up townships, who evaluate village leaders, down to the lowest party member.

Promotions – not just for politicians, but across the civil service – are based in large part on scoring the economic performance of the province or city that a cadre is responsible for. For example, the Shaoxing Municipal Party Committee’s 2008 assessment for city leaders featured 100 base points, of which 54 were awarded for economic development, including growth in GDP per capita, local revenue, industrial investment, and exports. Across China in the 2000s, officials who presided over growth 3.3 percentage points higher than their predecessors were 40 to 50 percent more likely to be promoted. Whereas success leads to promotion, failure can mean early retirement, demotion, or disciplinary action.

To further incentivize bureaucrats, promotions are governed by strict, albeit not explicit, age ceilings. A cadre must make the jump from county officialdom t