The central government still controls the dwindling share of the economy accounted for by state enterprises, while allowing market incentives to take hold in non-state sectors. But as Naughton shows, it has become clear that virtually all cities and provinces have pursued a strategy of industrialization that favors capital-intensive manufacturing over light industry, agriculture, or the service sector. Politics frequently enters the equation, as local bosses with less than enlightened perspectives on economic growth push grandiose plans for accelerated industrialization. This has happened to some degree in the areas that Naughton analyzes. As engines of China's economic growth, local governments are not exactly models of efficiency.
Officials misallocate resources and have hidden political agendas.
These 100,000 industrial behemoths account for one-third of gross domestic product but employ about 70 percent of workers and absorb 75 percent of total state investment in industry. This begs the question of whether the involvement of local officials in industry and their considerable autonomy is favorable. On the one hand, it might take a strong central government dedicated to further liberalization to enforce a tough privatization policy on local officials. On the other hand, local autonomy and experimentation under tight budget constraints could ultimately lead the localities to adopt free-market solutions on their own, without central mandates.