SEZs Face A Challenging Future

From a tiny fishing town to a vibrant economic power house, with paddy fields replaced by concrete skyscrapers, the metamorphosis of Shenzhen in the past 20 years has made it a unique incarnation of China's successful reform and opening-up policies.

Its economy has grown each year at a breathtaking average of 31.2 percent from 1980 to 1999.

The farmers there tilling in the rice fields earned an average of 134 yuan (US$16) in 1979. Last year, the average disposable income of the local residents stood at 20,200 yuan (US$2,433), according to statistics released from the local authorities.

When the 20th anniversary of the special economic zone was observed last month and its success was exalted, a question arose: Can Shenzhen, as well as the other special economic zones (SEZs) -- Shantou, Xiamen, Zhuhai and Hainan Province, maintain its momentum in taking the lead in the national economic growth in the next century?

Shenzhen was one of the first reform laboratories established in 1980 under the guidance of the late leader Deng Xiaoping.

With the tax breaks and other special policies, its geographic proximity with Hong Kong and local people's strong links with overseas Chinese, the small town quickly started off based on export-oriented processing and manufacturing funded by overseas investment.

Much of its economic success can be attributed to the inflow of foreign investment, with a real accumulated foreign fund of more than US$20 billion from 1980 to the end of last year.

Their advantages given by the investment-attracting policies are waning when the market economy is penetrating into the whole country and other areas are coming up with similar preferential policies to attract foreign investment.

With the implementation of the national campaign to develop the western region, the central government will allow the region to enjoy more favorable policies.

In the near future, the preferential policies enjoyed by the SEZs may gradually disappear, said Long Guoqiang, deputy director of the Foreign Economic Relations Department with the Development Research Center of the State Council.

It is unlikely for the central government to hand out more preferential policies to the SEZs, as it will place other regions on an unequal footing, and accelerate regional disparity between the eastern coastal areas and central and western regions, he added.

The challenge will be even greater once China enters the World Trade Organization. At that time, corporate tax privileges for all SEZs will be eliminated, said the official.

There are also other challenges, such as increased labor costs and soaring land prices in the SEZs, which will make them less attractive to foreign investors.

However, its lead in terms of a relatively free-wheeling business environment, superior infrastructure and legal framework developed on the basis of the 20-year institutional reforms and innovations, will still be a great plus to the local economy, said Long.

According to rough calculations, during 20 years of economic reform, Shenzhen has initiated more than 200 institutional innovations across the country, including paid utilization of land, market price mechanism and government purchase.

It also boasts the first stock market in China and takes the lead in legalizing property mortgage, company and share trading.

Besides a better developed institutional environment compared with other regions, Shenzhen and other SEZs have less historical burdens left by state-owned enterprises. It will be easier for them to adopt more advanced institutions and adapt to international business practices, said Long.

But the institutional advantages in the near future are not enough to face the fierce domestic and international competition. More advantages are needed to ensure its lead in the national economy.

When President Jiang Zemin visited Shenzhen in 1994, he called the local government to shift from reliance on policies to other engines that can further drive the growth of the local economy.

According to the experience of other SEZs or industrial processing parks in the world, only by shifting from low-value add processing and manufacturing to high-tech industries can they survive the global competition, said Long.

Shenzhen has already moved forward in that direction.

In recent years, it has introduced favourable talent policies to attract professionals and well-educated people.

The high-tech industry has been the pillar of the local economy.

The old factories churning out garments and assembling electronic goods are being rapidly replaced by workshops producing high-tech gadgets.

The high-tech product values have increased from 14.6 billion yuan (US$1.8 billion) in 1994 to 81.9 billion yuan (US$9.9 billion) last year, making a contribution of 40.5 percent to the gross value of industrial output.

Shenzhen is adapting itself to the economic world dominated by information and knowledge and making full use of its current advantages in geographical position, human resources and high technology.

The growth of Shenzhen and other SEZs in the next century will take impetus from the high- and new-technology industry instead of special policies.

As the pioneers of China's reform 20 years ago, Shenzhen and other SEZs have fulfilled their roles in the country's opening-up and transition to a market economy.

Now it is time for them to stand at the frontier of the nation's knowledge economy and win global competition.

The policies that have made the regions special 20 years ago may not exist in the future. But with an advanced institutional environment and their timely reorientation in the knowledge-based economy, Shenzhen, with other SEZs, will continue to present a vision of an infinitely more prosperous China.

(China Daily)

In This Series

City Sees Dawn of Brighter Future

SEZs: China's Modernization Pacemakers



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