Abstract
This study examines the industrial preferences of local governments in China through the lens of land allocation. We analyze industrial land transactions from 2007 to 2019, a period marked by both expanding industrial policy and intensifying land market competition. Using a border discontinuity design that compares land transactions near county borders, we separate local government preferences from firm demand. We find systematic industrial favoritism: localities offer deeper price discounts to industries aligned with their existing specialization. This favoritism persists over time, is more pronounced in industries with substantial unrealized agglomeration potential, and is stronger in regions with well-developed market institutions. We further show that local governments comply with upper-level industrial policy only when it aligns with their own specialization. Together, these findings point to a bottom-up process in which local governments use land allocation to attract firms that reinforce local industrial strengths through agglomeration spillovers.