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Backgrounders> Nation
UPDATED: May 26, 2009
China's Special Economic Zones
Xu Dixin

The Chinese Government has set up four special economic zones. They are located in the cities of Shenzhen, Zhuhai and Shantou of Guangdong Province and the city of Xiamen of Fujian Province .

Politically, the special economic zones are based on assurance of China's state sovereignty and governing authority is entirely in China's hands. Economically, they are essentially based on state capitalism.

APPROXIMATELY 300 special economic zones have been established in about 75 countries and regions in the world today (some are called free trading zones, some processing-exporting zones and some tax-free trading zones). Practices vary between countries. Special economic zones are set up when a country delimits a special area where, through exemption of customs duty, it formulates various preferential conditions and provides public facilities so as to attract foreign investors to set up factories whose finished products are mainly for export. Insofar as capitalist social systems are concerned, few problems arise for those countries which set up special economic zones because the characteristics of such zones are essentially compatible with the development of capitalism.

Some people wonder why China, a socialist country, has set up special zones which permit the manoeuvre of foreign capital. They ask: Concessions were eliminated a long time ago, why are a few areas with foreign investment being operated in the manner of concessions? They also want to know whether the four special economic zones represent a revival of the former concessions.

Although important, such concerns are oversimplified and superficial. The situation can be best understood within context of the past and the nation's present state of development. At the end of the 19th century, foreign capital poured into China. This was a result of invasion by imperialist powers which used "gunboat diplomacy" to impose unequal treaties on China and infringed upon its state sovereignty. The foreign capital presently being invested in China is not based on "unequal treaties," but on the assurance of China's state sovereignty. The special economic zones do not represent the revival of former concessions because authority over them is entirely in China's hands. Be they joint ventures with Chinese and foreign investments set up in the special zones or enterprises run exclusively by foreign or overseas Chinese capital, they must observe the Chinese Government's decrees and regulations, pay business and income taxes according to provisions and abide by China's labour laws.

Although they represent a minor change in state economic policy, the special economic zones are not in basic conflict with China's socialist economic system. The economy in the special zones encompasses the socialist state economy, the collective economy and the individual economy, but state capitalism has the lion's share. Processing materials for foreign countries, compensatory trade, co-operative enterprises and joint ventures are all state capitalist economic activities. Strictly speaking, the enterprises run by foreign or overseas Chinese capital constitute a kind of capitalist economy, but the activities of such enterprises are subject to control and regulation by the governments of the special zones. As a result, they are special kinds of capitalist enterprises. Lenin clearly said: "State capitalism is capitalism which we shall be able to restrict, the limits of which we shall be able to fix." This provides us with a theoretical explanation of the nature of the enterprises financed individually in the special zones.

Some people worry that the capitalists will exploit the surplus value of the labourers. It should be admitted that some exploitation does exist in the joint ventures or individually financed enterprises in the special zones. According to China's regulations, joint ventures or enterprises individually financed by foreign capital or overseas Chinese capital can remit their share of profits abroad after they have paid their income tax according to relevant provisions and with the approval of the authorities concerned. The profits remitted abroad and the profits retained for reinvestment in the special zones obviously represent the surplus value of the labourers. But allowing foreign or overseas Chinese capital to gain profits is, in a sense, a policy of redemption (that is, a policy of gradually nationalizing the means of production of the exploiting classes at a certain price).

Shortly after the founding of the People's Republic, the government adopted a redemption policy towards the national bourgeoisie in order to win its co-operation. Now we are employing a redemption policy to win the co-operation of foreign and overseas Chinese capital. This is necessary for the development of the economies of the special zones.

One of the characteristics of special zone economies is the fact that they open the door to foreign countries. Take Shenzhen and Zhuhai for example, their economic ties with Xianggang (Hongkong) and Aomen (Macao) are much closer than with the interior. This situation may result in the close relationship and mutual-effect between the role of regulating production according to market demands and the market fluctuations of Xianggang and Aomen. Within the special zones, it cannot be said that the regulation of production by state planning does not exist or does not function. However, if regulation of production by planning is made to cover too large an area, if it becomes the main body of the economy of the special zones, then it will be disadvantageous to absorbing foreign capital and developing the economies of the special zones.

Newly built harbour in the Shekou industrial area managed by a Xianggang (Hongkong) company.

Special Zones' Functions

Because the special economic zones in Guangdong and Fujian Provinces have only been established for a short period of time, their role has not been brought into full play. The following points address the concerns most frequently expressed regarding their operation:

They serve as bridges for introducing foreign capital, advanced technology and equipment and as classrooms for training personnel capable of mastering advanced technology. Both in the process of production and circulation, and in the joint ventures with Chinese and foreign investments in the special zones, we can learn the latest techniques and scientific methods of management.

To develop the national economy and expedite China's enterprise production and management, it is imperative to promote competition between regions, between trades and with-in a certain trade. In the development of the economies of the special zones -and during their competition with Xianggang and Aomen - it is possible to win in the competition by learning how to make comparisons regarding the regulation of production according to market demands. improve the quality of goods, develop new products and reduce production costs.

It is possible to absorb considerable amounts.of foreign exchange. It is also possible to transfer part of the foreign capital, technology and equipment through the special zones to other regions concerned and set up new enterprises there.

The country's special zones can serve as experimental units in economic structural reform and as schools for learning the law of value and the regulation of production according to market demands.

By developing the economies of the special zones, it is possible to employ many young people waiting for jobs.

Some people wonder why it is necessary, more than 30 years since the founding of the People's Republic, to set up special economic zones. They also wonder whether the special zones signify that China is seeking help from capitalist countries. Such concerns are understandable, but unwarranted. Since its establishment, New China has scored brilliant achievements in many fields of work, including economic construction. But it has also traversed a tortuous path. Compared with the world's most advanced nations. China's level of production is still rather low. Its funds and technology are incompatible with the requirements of the modernization drive. Furthermore," while implementing its policy of self-reliance in economic construction, China does not exclude co-operation with capitalism. Facts will prove that through developing the economies of the special zones, we will be able to make use of foreign and overseas Chinese capital, as well as state capitalism, to develop China's socialist economy. Economic construction in the special zones will possibly become a special form of supplement to the development of China's socialist economy. The total economies of the special zones will only constitute a very small portion of the national economy. Although the socialist economy will continue to dominate, the role of the special zones must not be overlooked.

Japanese technician passing on technical know-how to a Chinese worker at a joint Sino-Japanese TV company.

Policies and Measures

1. The development of the special economic zones requires emphasis on the word "special." For instance, in opening the door to foreign countries, it is necessary to simplify procedures for entry and exit and make things easy for visitors. In tax rate, it is essential to give preferential treatment to imported goods in customs duties. Tax exemptions for some goods are needed. A portion of the profits gained by foreign financed enterprises is allowed to be remitted abroad.

2. The essence of developing the special economic zones lies in the import of foreign capital; making foreign capital serve China's socialist modernization drive. Given this, the lives of the people residing in the special zones are bound to change. Capitalist ideology is bound to increase. This will require us to devote special attention to the ideological education of people in the special zones. Of course, education and training in science and technology should not be neglected, either.

3. The currency used in the special economic zones is mainly Renminbi (people's currency), the use of foreign currencies is limited to designated areas. Renminbi represents the currency of the People's Republic of China, but in view of the characteristics of special economic zones, it may prove necessary to issue different currency for them. This is a very complicated problem which calls for further study.

4. It would be impossible for the special zones to develop without the support of China's interior regions. Only when they operate in cooperation with the interior can the special zones gain necessary materials. Of course, such cooperation is based on mutual benefit. And it can be successful only when the special zones produce commodities needed by the interior. This co-operation must be carried out in a planned way.



The author is vice-president of the Chinese Academy of Social Sciences and concurrently director of its Institute of Economics.

(Beijing Review No.50, 1981)

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