Tel: +86 139 0166 8748

Special Economic Zones

by Anton Graham in Beijing

When the words “Special Economic Zone” are mentioned in the same breath as China, people usually think of Shenzhen, the town just next to Hongkong which has undergone startling development since l979 thanks to large injections of capital by Hongkong Chinese businessmen. But Shenzhen is just one of a number of places along China’s south coast which have been designated “Special Economic Zones” by the Beijing government in the hope of attracting foreign investment and technology.

The others, in order of dimishing importance, are Zhuhai just north of Macao, Xiamen, (Amoy) in Fujian Province, Shantou (Swatow) in eastern Guangdong province and Hainan Island. (Shanghai has also announced that it intends to establish economic zones, but they will apparently not offer the same benefits as those in south China on the grounds that Shanghai’s well-developed infrastructure and highly-trained workforce should be attractions enough.)

The one thing that distinguishes all the other zones from Shenzhen is the relative lack of interest that investors have so far shown in them. the worldwide recession hasn’t helped, but the creation of the other zones has basically served to prove how much Shenzhen depends for its success on Hongkong next door. Its proximity to the British-ruled territory and the ease of transport and communications that that brings has clearly been the over-riding factor for investors, almost all of whom are Hongkong and overseas Chinese.

All of the zones offer similar advantages to foreign businessmen thinking doing a deal, the most important of which is a lower rate of profit tax than that to which companies operating outside the zones are subject.

Apart from that attraction, China has tried to interest investors in the zones on the basis of the following selling points: cheap land, cheap labour and patriotism. Judging by the placement of the zones, the last is the most important. Every one of the zones is located in an area famous for being a source of overseas Chinese emigrants.

Each area is placing particular emphasis on convincing Chinese businessmen overseas to help their old home town along by building a factory or some such thing. There has been some response to this appeal, but except for Shenzhen, the problems of inadequate communications and infrastructure in the other zones have generally outweighed the patriotism factor, and the race for development has started slowly.

That doesn’t mean that the “poor relation” SEZ`s should be viewed as a failure. The Chinese authorities themselves did not expect a rush of capital into the country, and they have not been proved wrong. After so many years of political instability, investor confidence in China is still low, although it is likely to grow in the future if Beijing can continue to prove its assertion that the days of sudden policy about-turns are over.

The smaller SEZ’s are hampered most by their problems of transportation and backward infrastructure. At first, the Chinese hoped to convince foreign investors to help in the development of a more reliable infrastructure, but the lack of response has spurred the local authorities on to do it themselves. Things like roads, telephones, water supplies and factory buildings are often lacking; electricity supplies can be cut off without warning for hours on end; supplies of raw materials are often erratic. And the smaller the SEZ, the less well-trained the workers tend to be.

To offset these drawbacks, the local authorities have been given permission to use an extraordinary degree of flexibility in the negotiations with potential investors. But it will take time for these smaller zones to take off.

Zhuhai, just over the border from Macao, is the Portuguese territory’s equivalent of Hongkong’s Shenzhen, but it has so far attracted little interest. A wharf capable of handling 5,000 ton boats is being constructed, but at present transportation is far from convenient. Travel to the provincial capital of Guangzhou requires crossing three separate river ferries, while most contacts with Hongkong have to be made through Macao, itself a boat-ride from the British Territory. The Zhuhai SEZ is 6.8 square kilometres in size, but most of it is still paddy field, a stay source of income for the peasants, but not much of a foreign exchange earner. Only two significant deals have been reported so far: a Hongkong company has concluded an agreement with a factory in Zhuhai town, outside the SEZ itself, for the production of woollen fibres, and the Macao Power company has agreed to a joint venture with the Zhuhai authorities to build a power plant in the SEZ to supply electricity to both areas.

Xiamen, with its large number of former sons and daughters living in overseas Chinese communities abroad and its superb harbour, should be well placed to become the second-most important of the SEZ`s after Shenzhen. The central government has placed great emphasis on its development, ever since Wang Guangmei, widow of the former president Liu Shaoqi, went there on a fact-finding mission in early l980 to examine the possibilities. Transport links are being improved and an airport is being built which should be ready for use around the middle of this year (l983). Communist party chief Hu Yaobang also visited the zone late last year (l982) and put his own personal stamp of approval on the work being done there.

Xiamen officials have been trying hard to attract foreign investors, and were the first to designate their whole city as a special economic zone rather than one small portion of it.

Up to October last year, the “total planned investment” by foreign businessmen had reached 40 million U.S. dollars, according to city officials. But its distance from Hongkong is an important factor working against the development of the Xiamen SEZ. Ultimately, however, it could play an important role in Beijing’s plans to lure Taiwan back into the fold. Most of Taiwan’s 18 million people are desendants of emigrants from the Xiamen area of Fujian province, and the Taiwan dialect is almost the same as that of Xiamen. There is nothing the Communist Party would like more than to convince some Taiwanese businessmen to invest in their “ancestral home”.

The third of the Guangdong province SEZ’s is in Shantou, (also known as Swatow) a seaport east of Hongkong, and the main city in Chaozhou county, a major source of emigrants to southeast Asia. The aim of the Shantou SEZ is to attract investment from places like Thailand and Singapore which have big communities of Chaozhou people.

The Shantou SEZ, described by its director as being a “little brother” of Shenzhen and Zhuhai, was established in 1980, but in its first year of existence only four agreements were signed between the zone authorities and foreign businessmen: one for carpet manufacturing, one for the construction of a hotel, another for handicrafts and the last for animal fodder production. As with all the “little brother” zones, one of the basic problems is transportation. Shantou has a good harbour, and there are regular shipping services linking it with Hongkong and even Singapore, but its links with the rest of China are not good. There is no railway, and the roads to Guangzhou and Xiamen (Amoy), the nearest major cities, are reported to be second-rate at best.

Nevertheless, the 1.6-square kilometre zone at Longhu Cun (Dragon Lake Village) to the east of Shantou town, has been levelled and prepared for factory construction. The plan is complete the preparation of this re-processing factory area by 1985, providing space for 200 factories. At the moment, however, things are pretty primitive. There is a road linking the zone to Shantou, but no wharf for ships to dock, and the infrastructure is effectively non-existent.

The last of the SEZ’s, Hainan Island, has in fact not been formally declared an SEZ, although it has been given permission to operate under much the same rules. Although the least developed of the zones, Hainan, a sub-tropical island in the South China Sea complete with palm-fringed beaches, has great tourist potential and could one day become China’s Hawaii. It could take a while, however, firstly because of the island’s economic backwardness, and secondly due to its proximity to Vietnam. Substantial Chinese military forces are based on Hainan, particularly naval and air force units, and large portions of the island are therefore out of bounds to foreigners.

Officials on the island told visiting journalists last November that 16 contracts had been signed with foreign businessmen worth about 200 million U.S. dollars, although only five of them had so far got off the ground. Projects include poultry and livestock breeding and rubber plantation development.

As a special aid to development, Hainan has been given permission keep all its foreign exchange earnings, while other SEZ’s are generally required to remit 30 per cent to the central government in Beijing.

Leave a Reply

Close Menu
%d bloggers like this: