Special Economic Zones of China


Chinese Economy  Updated: Sun, Jul 22, 2012 03:42 AM   By HugChina


SEZ,Special Economic Zone


Special Economic Zones of China were introduced in early 1980s. The first four SEZs are Shenzhen, Zhuhai, Shantou,Xiamen in 1980. In 1990, Shanghai Pudong New Area was opened as a SEZ.

Special Economic Zones of the People's Republic of China were introduced in early 1980s. SEZ are given by the central government special economic policies and flexible governmental measures. This allows SEZs to utilize an economic management system that is especially conducive to doing business that does not exist in the rest of mainland China.


The development of SEZ went through several stages:

Since the late 1970s, and especially since the 3rd Plenary Session of the 11th CPC Central Committee in 1978, the PRC government has decided to reform the national economic setup.

In 1980, the first four SEZs were established in proximity to Hong Kong (Shenzhen), Macau (Zhuhai) and Taiwan (Shantou and Xiamen). Their location was aimed at attracting "overseas" Chinese capital and also as a showcase for the potential impacts of such a reform, which was dramatically different from the centrally planned policies that have taken place since the setting of the People's Republic of China in 1949. These SEZs were also close to Hong Kong, the only modern port facility of the time that had effective access to the global shipping network.

By 1984, the SEZ model was judged to be successful and could be expanded. The initial setting of the four SEZs was solely concerning southern China, so 14 coastal port cities, from the Dalian to Beihai, were selected to become SEZs. This triggered the development of modern port infrastructures, particularly container ports, that were essential to support an export-oriented strategy.

The importance of specific economic clusters was acknowledged in 1985 when the status of SEZ was expanded to the Yangtze River Delta, the Pearl River Delta, and the Xiamen-Zhangzhou-Quanzhou Triangle (Min River delta). This also provided additional space for the setting of industrial districts. In time, the Pearl River Delta would become the world's most important manufacturing cluster.

In 1988, the status of SEZ was expanded to Hainan Province which mostly developed the touristic and agribusiness sector.

In June 1990 the PRC 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.

Primarily geared to exporting processed goods, the five special economic zones are foreign-oriented areas which integrate science and industry with trade, and benefit from preferential policies and special managerial systems. In 1999, Shenzhen's new-and high-tech industry became one with best prospects, and the output value of new-and high-tech products reached 81.98 billion yuan, making up 40.5% of the city's total industrial output value. The same story happened for Shanghai. Since its founding in 1992, the Shanghai Pudong New Area has made great progress in both absorbing foreign capital and accelerating the economic development of the Yangtze River delta. The state has extended special preferential policies to the Pudong New Area that are not yet enjoyed by the special economic 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 Zone came to 80 billion yuan, and the total industrial output value, 145 billion yuan.

List of SEZs

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 and designated the entire island province of Hainan a special economic zone.

In 1984 China opened 14 other coastal cities to overseas investment (listed north to south): Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang, and Beihai.

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

In 1990 the Chinese government decided to open the Pudong New Zone in Shanghai to overseas investment, as well as more cities in the Yangzi 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.

Role played by SEZs of China

Special economic zones (SEZ) played an instrumental role in the integration of China to the global economy and its economic development. Their setting aims at attracting foreign investment and technology, many through the setting of joint ventures. The bulk of the output is to be exported to foreign markets, underlining that SEZ are part of an export oriented strategy that has characterized many Asian economies. The following incentives are offered to foreign investors:

* Labor. The ability to use the Chinese vast pool of low cost labor was a powerful incentive. Foreign firms have also the right to hire and fire labor, which was different from the prevailing lifetime system of public or collective firms.

* Land use. A planned zone with infrastructures and access to a port complex. The protection of private property is also significant since until 2004, there was no constitutional protection of private property outside SEZs.

* Tax incentives. Reduced corporate income tax rate. No custom duties on imported materials and parts as long as they are for re-exports. Income tax exemptions for foreigners working in SEZs.

Economic policies of SEZs

1. Special tax incentives for foreign investments in the SEZs.

2. Greater independence 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 legislation authority.
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