Tuesday, August 12, 2014

Special Economic Zones: Center of Growth in China

Deng during his visit of Johnson Space Center
After the death of Mao Zedong, a new more powerful China emerged. With new leadership, conservative and hardline communism was abandoned in favor of a more liberal and reformist attitude. “To be rich is glorious” became the motto of the paramount leader of China in the 1980’s – Deng Xiaoping. With the aim of improving China to maintain Party control he established Special Economic Zones to provide new jobs and propel China to new heights.

1976 was a momentous year for China. Mao Zedong just died. As the people mourns, within the Chinese Communist Party, the search for his successor was on the way. Hua Guofeng appeared to have gained the upper hand. But with the death of Mao, another strong man appeared to challenge Hua’s leadership. A victim of the Cultural Revolution, Deng Xiaoping returned to Beijing. In few years, by 1979, Deng took over and became the paramount leader of the Chinese Communist Party and the whole of China.

When Deng came to power, China was in bad shape. Many Chinese lived in poverty. The disasters of the Great Leap Forward, Great Famine, and the Cultural Revolution left the country demoralized and ruined. Hunger was a constant problem in the countryside. Furthermore, the country was isolated. The United States supported the Nationalist Kuomintang government in Taiwan. The Sino-Soviet Split in the late-1950’s divided the communist world. The Cultural Revolution led China into further isolation. In most ways, China was in deep trouble.

Deng moved to revive his country in belief that it would maintain party dominance. In order to keep the one party system, to keep dissidents in check, China must have prosperity. Prosperity in means of food, jobs, and wealth. Thus, he instituted an open door policy and a more liberal approach to private ownerships. In 1979, to return vigor in agricultural production, the Household Responsibility System was initiated. To provide jobs for the urbanized Chinese, new jobs must be created.

However, problems aroused in providing jobs. State capital was not enough to provide more jobs for the Chinese people. And so they must look elsewhere. So Deng started a charm offensive towards its rivals and neighbors. He toured Southeast Asian countries. He also made in 1979 a historic and unprecedented visit of a Chinese Communist leader to the staunch enemy of communism - the United States. Prosperity and technological advances of capitalism in his visits.  He wanted to emulate it to his country.

He looked for a way to bring in foreign capital and technology without abandoning entirely the Communist political system. He then got an idea from his predecessor Hua Guofeng. The idea was the establishing of special zones that would allow the flow of private foreign capital.

Other communist leaders supported the idea. Provincial communist party leaders in the south, like Yang Shangkun and the father of President Xi Jinping – Xi Zhongxun pushed for the establishing of Special Economic Zones. These leaders saw the advances made just a water away, in Hong Kong, Macao, and Taiwan. They proposed to Deng to establish this Special Zone. Leaders, like Hu Yaobang and Zhao Ziyang also supported the idea.

And so in July 15, 1979, the establishing of 4 Special Economic Zones (called such in order not to be confused with the Special Processing Zones of Taiwan) or SEZs was approved and carried out.  The sleepy towns of Shantou, Xiamen, Zhuhai, and Shenzhen. These towns in the provinces of Fujian and Guangdong were strategically chosen. This towns were near to prospering cities of Macao and Hong Kong and the pledging island of Taiwan. Shantou and Xiamen were near Taiwan. While Shenzhen was close to Hong Kong. Zhuhai in the other hand was close to Macao. They were chosen in hope that investments coming to the nearby booming location would spill over and come to the Special Economic Zones.

The Chinese government also provided wide range of incentives to attract foreign investors. From low tax rates, to tax breaks and other tax privileges were given. In addition fewer import restriction were placed. Alongside generous tax and customs policies, the cheap Chinese labor and sound infrastructure were hoped to bring the desired capital.

The establishing of the Special Economic Zones, however, were not cheap. From the start, the chosen location were quiet fishing towns. The government then had to raise a city from this towns. Roads, drainage, plumbing system, and transportation systems were to be laid. Ports and harbors were to be constructed. Residential areas, government complexes, and commercial establishments were also to be established. All worth more than a million, if not, billions of dollars.

But the cost were worth it. Soon foreign investors flood the SEZs. The numerous foreign business led to the establishment of more SEZs. In 1984, 14 other cities and towns were designated as SEZs. Beihai, Dalian, Fuzhou, Guangzhou, Lianyungang, Nantong, Ningbo, Qinhuangdao, Qingdao, Tianjin, Wenzhou, Yantai, Zhanjiang, and finally, Shanghai, were made into SEZs. In 1988, Hainan was detached from Guangdong Province and made into another SEZ. By the late 1980’s huge areas were made into Special Development Zones. These area included the Pearl River Delta, Min River Delta, Yangzi River Delta, Liaodong Peninsula, and the Shandong Peninsula. Then in 1992, the Pudong New Area in Shanghai was also inaugurated.

The success came, however, with problems. In the side of the foreigners, a bulwark of problems were had to be passed before cashing in China. Red tape hampered the approval and establishing of companies within the SEZs. With red tape, bribery and corruption became rampant as well. After being pestered by the government, disappointments in labor followed. Although cheap, Chinese labor lacked skills. Moreover, quality standards were low, even today, this remains a concern. For the Chinese government, there were also problems. First and major problem, establishing an SEZ was very expensive. When foreigners arrived, the pace of technological transfer were not as plentiful or as fast as they expect. Also, importation rose. With the entry of foreign influences, moral issues and problems became concerns. Black market for many items, like drugs, human trafficking, street crimes, and prostitution started to become major matters. Crack downs were launch against such problems, but remained persistent.

But even with problems, the remarkable results appeared obviously. With the Special Economic Zones, many Chinese had jobs and came out of poverty. Soon, this SEZs became center of manufacturing and exports, driving the Chinese economy forward. With the SEZs, China transformed from an impoverished isolated country into one of the biggest economy in the world.

Coase, R. & H. Wang. How China Became Capitalist. Hampshire: Palgrave Macmillan, 2012.

Ebrey, P. Walthall, A. & James Palais. East Asia: A Cultural, Social, and Political History. Massachusetts: Cengage Learning, 2012.

He, H. Dictionary of the Political Thought of the People's Republic of China.New York: M.E. Sharpe, 2001.

Maluste, R. Endogenous Origins of Economic Reforms in India and China: The Role of Attitudinal Changes. Florida: Dissertation.com, 2010.

Spence, J. The Search for Modern China. New York: Norton, 1990.

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