The role of special eonomic zones in China

History, measures and impact


Research Paper (undergraduate), 2007
9 Pages, Grade: 2,0

Excerpt

Contents

Introduction

1. Inception: Special Economic Zones

2. The Economic and Technological Development Zones

3. The Tianjin Economic and Technological Development Zone as vital example

4. Evaluation of the achievements of the ETDZ’s

References

Introduction

Remarkable specialties of the Chinese economic system are zones with special frameworks and rules concerning business. On the following pages, the development of these zones will be described. Furthermore, the particularities of the Economic and Technological Development Zones will be pointed out at the example of the Tianjin Economic- Technological Development Area and ultimately the achievements of the ETDZs and their impact on the economic development of China during recent years will be evaluated.

1. Inception: Special Economic Zones

In the late 1970s, China realized that it cannot develop in isolation- that it has to import technology, capital and management skills from the outside world. In the course of the open- door policy, China established four Special Economic Zones in the provinces of Guangdong and Fujian. In these zones, China started experimental preferential policies to attract foreign direct investment. The SEZs received a greater decision- making power in shaping their economic framework.[1]

Special Economic Zones were able to offer special incentives for foreign investors. Components and raw materials can be imported without customs duties and administration- formalities were eased. Exports can leave the zone without export or sales taxes. Concerning taxation, company income tax holidays are granted for a period of three to ten years and the taxes are at lower rates than outside the SEZs. Moreover, administrative proceedings are simplified and often with the exemption of restrictions on FDI.[2]

For the Chinese government, the Special Economic Zones were kind of test beds, in which the market economy could be tested and successful strategies could then be applied in other regions of the country. In case the experiment would have failed, the negative consequences would have been manageable, as these zones were far away from the industrial centers of China.[3]

Despite the fact that “in relation to the high hopes they had inspired, the SEZs got off to a slow start”[4], the overall strategy was successful in the medium- term in triggering the inflows of FDI, in advancing reform projects and in establishing an export-oriented economy in these zones.

At the example of the zone of Shenzhen, this becomes obvious. The city changed from a village into a city in a decade and in 1991 the four SEZs accounted for 14.23 percent of the national export value. Moreover the average personal income in the SEZs was 6.37 times higher than in other regions in 1990.[5]

Today, there exist five Special Economic Zones in Shenzhen, Shantou, Hainan, Zhuhai and Xiamen.[6]

2. The Economic and Technological Development Zones

The second step to attract foreign investors to establish businesses in special zones was the opening of fourteen cities on the coast of China, including Shanghai, Tianjin and Dalian in 1984. The Chinese regard this as “a significant and strategic step of [their] opening-up policy and [as] a successful practice as well as an important element of the socialist construction with Chinese characteristics”.[7] The central government gave permission to local administrations to launch Economic and Technological Development Zones. These zones had the permission to draw a certain amount of FDI without the control of the central government. China aimed to utilize its abundant labor force to attract labor-intensive production from abroad, as there was a worldwide trend in industrialized countries to outsource their labor-intensive production. Moreover, China tried to advance the import of raw materials and especially step up export to receive foreign currencies.[8]

To give an idea of how the Chinese have furthered the development of their Economic and Technological Development Zones, the ETZD in Shanghai is an extraordinary example. In 1990, the Chinese government added further weight to the development of the ETDZ in Shanghai.[9] The strategy “is based on the concept of a world-city and its natural tendency to concentrate and generate wealth at relatively low transaction cost”.[10] Until then, China’s growth mostly derived from labor-intensive production - but in the case of Shanghai zone - the intention was to stimulate a high-technology industry. For instance, the strategy gives precedence to the production of integrated circuits, computers, modern biotechnology and medicine. By the same token, the zone encourages the so-called six-pillar-industries. This means encouraging the establishment of automobile manufactures, steel and petrochemical production, telecommunication and power station equipment and household electric products. In addition, the government seeks to establish Shanghai as the most important financial center in the Asian-Pacific region.[11]

Due to the success of these zones, a remarkable proliferation of ETDZs began.[12] By 2005, 54 Economic and Technological Development Zones were established by the State Council with a total area of 841.72 square kilometers.[13]

[...]


[1] cp. Zhang (2000) p. 20

[2] cp. Naughton (2007) p.406f.

[3] cp. Zhang (2000) p. 21

[4] Naughton (2000) p. 407

[5] cp. Zhang (2000) p. 21

[6] cp. WTO (2006), Trade Policy Review by the Secretariat, People’s Republic of China, p.123

[7] National Economic and Technological Zones Development Report 2005, Chapter I

[8] cp. Zhang (2000) p.21

[9] cp. Zhang (2000) p. 21f.

[10] Zhang (2000) p. 22

[11] cp. Zhang (2000) p. 22f.

[12] cp. Naughton (2007) p.409

[13] cp. National Economic and Technological Zones Development Report 2005, Chapter I

Excerpt out of 9 pages

Details

Title
The role of special eonomic zones in China
Subtitle
History, measures and impact
College
University of Applied Sciences Hof
Course
International Trade
Grade
2,0
Author
Year
2007
Pages
9
Catalog Number
V94422
ISBN (eBook)
9783640110131
File size
362 KB
Language
English
Tags
China, International, Trade, special economic zones, economic growth, trade policy, foreign direct investment
Quote paper
Andreas Bauer (Author), 2007, The role of special eonomic zones in China, Munich, GRIN Verlag, https://www.grin.com/document/94422

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