Special economic zones of China

Special economic zones (SEZs) in mainland China are granted more free market-oriented economic policies and flexible governmental measures by the government of China, compared to the planned economy elsewhere. This allows SEZs to utilize economic management which is more attractive to foreign and domestic businesses. In SEZs, "...foreign and domestic trade and investment are conducted without the authorization of the Chinese central government in Beijing" with "tax and business incentives to attract foreign investment and technology".[1]

Special Economic Zones
A map showing the locations of the Special Economic Zones
Simplified Chinese经济特区
Traditional Chinese經濟特區

History

In the late 1970s, and especially at the 3rd Plenary Session of the 11th Central Committee of the Communist Party of China in December 1978, the Chinese government initiated its policy of reform and opening up. As a response to the failure of Maoist economic policy that failed to produce economic growth which would allow China to be competitive against not only industrialized nations of the west but also rising regional powers: Japan, Korea, Singapore, Taiwan, and Hong Kong.[2] Officials in Guangdong Province led by Provincial Party Secretary Xi Zhongxun seized the initiative, starting with an investment project in Shekou prepared by Yuan Geng on behalf of the Hong Kong-based China Merchants Steam Navigation Company. This project, initially a ship breaking facility, was approved by Li Xiannian on January 31, 1979. In April 1979, Xi Zhongxun and other Guangdong officials presented in Beijing a proposal to give broader flexibility to the coastal provinces of Guangdong and Fujian to attract foreign investment, with additional exemptions in four cities, namely Shenzhen in the Pearl River Delta region, Zhuhai and Shantou in Guangdong and Xiamen (Amoy) in Fujian Province. For these, Chinese Paramount leader Deng Xiaoping coined the name "special zones"[3][4] with reference to the designation of another border region during the Chinese Civil War. The proposal was approved on July 15 and the four special zones were officially established on August 26, 1979.[5]

In 1984, China further opened 14 coastal cities to overseas investment: Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang and Beihai. Since 1988, mainland China's opening to the outside world has been extended to its border areas, areas along the Yangtze River and inland areas. First, the state decided to turn Hainan Island into mainland China's biggest special economic zone (approved by the 1st session of the 7th NPC in 1988) and to enlarge the other four special economic zones.

Shortly afterwards, the State Council expanded the open coastal areas, extending into an open coastal belt the open economic zones of the Yangtze River Delta, Pearl River Delta, Xiamen-Zhangzhou-Quanzhou Triangle in south Fujian, the Shandong Peninsula, the Liaodong Peninsula (in Liaoning Province), Hebei Province and Guangxi autonomous region. In June 1990, the Chinese government opened the Pudong New Area in Shanghai to overseas investment, and additional cities along the Yangtze River valley, with Shanghai's Pudong New Area as its "dragon head."

Since 1992, the State Council has opened a number of border cities, and in addition, opened all the capital cities of inland provinces and autonomous regions. In addition, 15 free trade zones, 32 state-level economic and technological development zones, and 53 new and high-tech industrial development zones have been established in large and medium-sized cities. As these open areas adopt different preferential policies, they play the dual roles of "windows" in developing the foreign-oriented economy, generating foreign exchanges through exporting products and importing advanced technologies and of "radiators" in accelerating inland economic development.

Primarily geared to exporting processed goods, the five SEZs are foreign trade-oriented areas which integrate science, industry and innovation with trade. Foreign firms benefit from preferential policies such as lower tax rates, reduced regulations and special managerial systems. In 1999, Shenzhen's new-and high-tech industry reached an output value of high-tech products of 81.98 billion yuan, making up 40.5% of the city's total industrial output value.

Since its founding in 1992, the Shanghai Pudong New Area has made progress in both absorbing foreign capital and accelerating the economic development of the Yangtze River valley. The government has extended special preferential policies to the Pudong New Area that are not currently enjoyed by the special economic zones. For instance, in addition to the preferential policies of reducing or eliminating Customs duties and income tax common to the economic and technological development zones, the state also permits the zone to allow foreign business people to open financial institutions and run tertiary industries. In addition, the state has given Shanghai permission to set up a stock exchange, expand its examination and approval authority over investments and allow foreign-funded banks to engage in RMB business. In 1999, the GDP of the Pudong New Area came to 80 billion yuan, and the total industrial output value, 145 billion yuan.

In May 2010, the PRC designated the city of Kashgar in Xinjiang a SEZ. Kashgar's annual growth rate was 17.4 percent in 2009, and Kashgar's designation has since increased tourism and real estate prices in the city. Kashgar is close to China's border with the independent states of former Soviet Central Asia and the SEZ seeks to capitalize on international trade links between China and those states.[6]

List of the SEZs and Open Coastal Cities

As part of its economic reforms and policy of opening to the world, between 1980 and 1984 China established special economic zones (SEZs) in Shantou, Shenzhen, and Zhuhai in Guangdong Province and Xiamen in Fujian Province as well as designating the entire island province of Hainan as a special economic zone.

In 1984, China opened 14 other coastal cities to overseas investment (listed from north to south): Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang, and Beihai. These coastal cities have been designated as the "Open Coastal Cities" (simplified Chinese: 沿海开放城市; traditional Chinese: 沿海開放城市; pinyin: Yánhǎi Kāifàng Chéngshì).

Then, beginning in 1985, the central government expanded the coastal area by establishing the following open economic zones (listed from north to south): the Liaodong Peninsula, Hebei Province (which surrounds Beijing and Tianjin; see Jing-Jin-Ji), the Shandong Peninsula, Yangtze River Delta, Xiamen-Zhangzhou-Quanzhou Triangle in southern Fujian Province, the Pearl River Delta, and Guangxi Zhuang Autonomous Region.

In 1990, the Chinese government decided to open the Pudong New Area in Shanghai to overseas investment, as well as more cities in the Yang Zi River Valley.

Since 1992, the State Council has opened a number of border cities and all the capital cities of inland provinces and autonomous regions.

In addition, 15 free-trade zones, 32 state-level economic and technological development zones, and 53 new and high-tech industrial development zones have been established in large and medium-sized cities. As a result, a multilevel diversified pattern of opening and integrating coastal areas with river, border, and inland areas has been formed in China.

Type City Province
Special Economic Zone – Province – Hainan
Special Economic Zone – City Xiamen Fujian
Shantou Guangdong
Shenzhen Guangdong
Zhuhai Guangdong
Kashgar Xinjiang
Open Coastal City Shanghai –
Tianjin –
Fuzhou Fujian
Guangzhou Guangdong
Zhanjiang Guangdong
Beihai Guangxi
Qinhuangdao Hebei
Lianyungang Jiangsu
Nantong Jiangsu
Dalian Liaoning
Qingdao Shandong
Yantai Shandong
Ningbo Zhejiang
Wenzhou Zhejiang

Economic policies of the SEZs
  1. Special tax incentives for foreign investments in the SEZs.
  2. Greater independence from the central government on international trade activities.
  3. Economic characteristics are represented as "4 principles":
    1. Construction primarily relies on attracting and utilizing foreign capital
    2. Primary economic forms are Sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises
    3. Products are primarily export-oriented
    4. Economic activities are primarily driven by market forces

SEZs are listed separately in the national planning (including financial planning) and have province-level authority on economic administration. SEZs local congress and government have authority to legislate.

Leong (2012) investigates the role of special economic zones (SEZs) in liberalizing the Chinese and Indian economies and their impact on economic growth. The policy change to a more liberalized economy is identified using SEZ variables as instrumental variables. The results indicate that export and FDI growth have positive and statistically significant effects on economic growth in these countries. The presence of SEZs increases regional growth but increasing the number of SEZs has negligible effect on growth. The key to faster economic growth appears to be a greater pace of liberalization.

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See also

Notes
  1. "Special economic zone (SEZ) - Chinese economics". Encyclopedia Britannica.
  2. Worden, Robert L.; Savada, Andrea M.; Dolan, Ronald E. (1987-07-01). "China: A Country Study". Fort Belvoir, VA. doi:10.21236/ada205396. Cite journal requires |journal= (help)
  3. Stoltenberg, Clyde D. (1984). "China's Special Economic Zones: Their Development and Prospects". Asian Survey. 24 (6): 637–654. doi:10.2307/2644396. ISSN 0004-4687. JSTOR 2644396.
  4. Holmes, Frank (21 Apr 2017). "China's New Special Economic Zone Evokes Memories Of Shenzhen". Forbes. Retrieved 22 March 2019.
  5. Vogel, Ezra F. (2011). Deng Xiaoping and the Transformation of China. The Belknap Press of Harvard University Press. p. 398.
  6. Fish, Isaac Stone (2010-09-25). "A New Shenzhen". Newsweek. Retrieved 2011-07-29.

References
  • Chee Kian Leong, 2007, A Tale of Two Countries: Openness and Growth in China and India , Dynamics, Economic Growth, and International Trade (DEGIT) Conference Paper.
  • Chee Kian Leong, (forthcoming), Special economic zones and growth in China and India: an empirical investigation, International Economics and Economic Policy.
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