Local governments in China have influenced both the success and failure of economic growth in their jurisdictions, and have shaped the transition process itself through their behaviour and response to Central government incentives. This study investigated the behaviour of China's local governments through the transition period, from a planned economy with state ownership, through the "duel track" economy and hybrid ownership, to the market oriented development today. Creating a nuanced classification of local government behaviour, this study attempts to explain the success or failure of their economic development policies. Two cities, Wenzhou and Yangzhou, were studied and compared to highlight the role of local governments in their development.