Grounded Globalization: Foreign Capital and Local Bureaucrats in China’s Economic Transformation LING CHEN * Johns Hopkins University, Washington, DC, United States Summary. — How does a globalized context influence domestic development policies and the allocation of government resources in an authoritarian country like China? This study explores the coalitional politics in China’s transition from foreign direct investment (FDI) attraction to domestic technology upgrading, which created winners and losers in the local allocation of government resources. Drawing on comparative case studies, semi-structured interviews and newly compiled data at the city level, the study finds that the varied levels of government support for domestic upgrading are shaped by coalitions for or against the transition. The major obstacle for bureaucrats within a city government to garner resources for domestic technology does not directly depend on the overall level of FDI. Rather, it comes from the vested interest of international commerce bureaucrats. These bureaucrats are more likely to form a cohesive coalition when the export share of foreign firms is large. At the same time, such a coalition is more likely to gain political influence when industrial sales are concentrated in large firms. The direction and magnitude of foreign capital influence, therefore, is channeled and manifested through local bureaucratic coalitions. This study sheds light on the politics of implementing development policies in an era in which globalization has cultivated fragmented interests within the local bureaucracy. Ó 2017 Elsevier Ltd. All rights reserved. Key words — Asia, China, foreign capital, development policy, technology policy, local bureaucrats 1. INTRODUCTION How does an increasingly globalized context influence the implementation of development policies in an authoritarian country like China? On the one hand, the penetration of for- eign direct investment (FDI) into the country changes the dynamics of domestic politics, as some local bureaucrats start to form coalitions with foreign capital. On the other hand, given that China is an unelected but decentralized autocracy, both the formation and strength of such coalitions have been enabled or constrained by its fragmented bureaucratic systems at the local level. This article brings to the forefront the local manifestation of foreign influence on the government’s allocation of support for industrial transformation. It contends that the interplay of China’s globalized economic context and its local bureau- cratic institutions is essential for explaining policy coalitions and outcomes. It shows that the direction and magnitude of foreign influence is exerted, filtered, and reflected through local bureaucracy. Foreign influence on government support is most significant when it sharpens bureaucratic struggles between winners and losers, and such influence is most power- ful when it has political value to local elites. More specifically, the article examines the local response to the rise of China’s new paradigm promoting indigenous tech- nology competitiveness in the mid-2000s, in contrast to the previous paradigm of FDI-attraction and export promotion. 1 The transformation was announced as a crucial step to over- come the potential middle-income trap, and just as other developing countries have attempted, China planned to utilize the earlier stage of FDI-attraction to achieve a smooth transi- tion to the later stage of domestic upgrading. However, local implementation has varied and has been fraught with tension between beneficiaries of the previous and current paradigms. As the central state started providing beneficial policies (such as government funding and tax cuts) to domestic firms and discontinued similar policies for foreign firms, anxiety and opposition often followed, but the effort to garner local gov- ernment resources for the new initiative encountered far more obstacles in some cities than others. This article argues that the new initiatives are most likely to be impeded by a vested interest coalition comprised of city government bureaucrats in charge of international commerce. These bureaucrats are likely to form a cohesive coalition to combat and/or manipulate the new policy when the export share of foreign firms is high in a city. At the same time, such a coalition is likely to gain political influence over top city leaders when industrial sales of foreign firms are concentrated in large firms. Taken together, these two conditions contribute to cohesive and strong vested interests. Such circumstances make it more difficult for agencies advocating for domestic upgrading to push for new policies or to provide government support. Two sets of institutions governing local politics, the rule of fragmented bureaucratic competition and the cadre evaluation system, have enabled and channeled foreign capi- tal’s influence. These two institutions have created competitive pressure among peer departments and motivated bureaucrats to fight for resources and beneficial policies. The cadre evalu- ation system, moreover, grants greater bargaining power to bureaucratic agencies who have the ability to maximize eco- nomic indicators benefiting the careers of top city leaders. * I wish to thank Deborah Brautigam, Xun Cao, Andrew Cheon, Dan Honig, Kyle Jaros, Xiaojun Li, Eddy Malesky, Melanie Manion, Matthias Matthijs, Jean Oi, Jeff Pugh, Susan Shirk, Dario Sidhu, David Steinberg, Pavithra Suryanarayan, Heiwai Tang, Kellee Tsai, and Andy Walder for commenting on various versions of this article. I also thank participants of my presentation at Duke University, Stanford University, Harvard Kennedy School, the University of California San Diego, and Johns Hopkins School of Advanced International Studies. This research is supported by the Chiang Ching-kuo Foundation Junior Scholar Grant and the Stanford Shorenstein Postdoctoral Fellowship. Final revision accepted: May 6, 2017. World Development Vol. 98, pp. 381–399, 2017 0305-750X/Ó 2017 Elsevier Ltd. All rights reserved. www.elsevier.com/locate/worlddev http://dx.doi.org/10.1016/j.worlddev.2017.05.001 381