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Print Edition> Business
UPDATED: January 15, 2007 No.3 JAN. 18, 2007
Transitioning Development Zones
Once supported by preferential government policies, development zones must learn how to flourish independently

China's development zones, once aimed at attracting foreign investment, are now being transformed into export-oriented pioneers.

At a recent award ceremony jointly held by the Ministry of Commerce and the Ministry of Science and Technology (MOST) on December 4 in Beijing, 18 regions and parks, including Beijing Zhongguancun Science Park and Mianyang City of Sichuan Province, were heralded as national export innovation bases for rejuvenating trade through science and technology.

The 18 export innovation bases represent China's new hi-tech industries, covering eight sectors including electronic information, biomedicine, aerospace and aviation, new materials, modern agriculture, refined chemicals, new energy sources and electromechanical industry. Statistics show that the annual sales volume of the 18 national export innovation bases amounted to 1.26 trillion yuan in 2005, while most of them injected 3-5 percent of their sales revenue into research and development.

The establishment of the national export innovation bases aims to push forward the transformation of China from a big "manufacturing country" to a large "innovation country," said Yu Guangzhou, Vice Minister of Commerce, at the ceremony.

Special treatment

In order to implement the strategy of reform and opening-up, the Chinese Government approved the establishment of four special economic zones in Shenzhen, Zhuhai, Shantou and Xiamen in south China in 1979 where preferential and flexible economic and taxation policies were adopted. After five years' operation, the four special economic zones achieved great success in utilizing foreign investment and promoting exports. Hence the Chinese Government decided in 1984 to open another 14 coastal cities and set up economic and technological development zones in 12 of them. Preferential policies similar to those performed in special economic zones were granted to these development zones, including exempting 15 percent of business income tax and exempting tariffs on imported construction equipment, with the aim of attracting foreign investment.

By the end of 2003, some 49 national-level economic and technological development zones had been set up, together with five national-level industrial parks that enjoy similar treatment to national-level development zones, said Jin Bosheng, Director of the Department of Foreign Investment Utilization of the Chinese Academy of International Trade and Economic Cooperation affiliated with the Ministry of Commerce. According to him, national-level economic and technological development zones have played an important role in introducing overseas investment, advanced technology and management expertise.

To date, most development zones contribute more than 5 percent to the gross domestic product of the cities where they are located, helping boost the local economy. Take the Dalian Economic and Technological Development Zone as an example. In 2000 alone, its GDP accounted for 15 percent of the city's total, while its industrial output value, fiscal revenue and exports made up 32.4 percent, 21 percent and 43 percent of the city's respective totals.

"The past two decades have witnessed swift development of China's economic and technological development zones, with their major economic indicators growing at an average annual rate of 25 percent," said Bo Xilai, Minister of Commerce. "In particular, national-level development zones have become the pioneer of reform and opening-up, as well as the growth point of regional economic development."

Transformation is a must

"However, currently development zones are faced with difficulties and challenges," said Li Yong, Director of the Administration Committee of the Tianjin Economic and Technological Development Zone. "It will be hard for us to continue development just by following the development pattern of depending on introducing foreign investment and technology with favorable state policies, low production costs and competing in the low end of international industrial chains," Li added.

According to Jin Bosheng, after China joined the World Trade Organization (WTO), policies unable to conform to WTO rules were abolished step by step, including preferential policies granted to national-level development zones. Therefore, development zones are faced with the challenges of creating new competitive advantages, and it is urgent for them to transform from depending on policy advantages to relying on comprehensive investment environment advantages.

Moreover, most of the manufacturing industries in development zones lack independent technologies for turning out brandnames. In Jin's opinion, the industrial structure in China's development zones needs to be adjusted since the manufacturing industry lacks key components and production links, while the existing service industries tend to register low added value.

Openness, innovation and service are the three medicines prescribed by Bo. In his opinion, openness means to actively attract transnational companies to set up research and development centers, foster industrial convergence and receive the support of high-quality international industries. Reformation of the administrative licensing and management mechanisms is required in order to better connect foreign technologies and independent innovation.

According to Jin of the Ministry of Commerce, China's development zones should optimize their export structure, export destinations and product mix, and expand their exports of technologies and services. They should expand their overseas markets, increase the number of export destinations and encourage domestic companies to cooperate with transnational commercial chain networks. Exports of hi-tech and electromechanical products and other products with high added value should be expanded in order to speed up the transformation of the export growth pattern. Moreover, development zones should exploit overseas markets of technology and service industries and increase their proportion of service exports.

"National-level economic and technological development zones should become important bases for receiving hi-tech and high-added-value manufacturing links transferred by transnational companies, as well as their research and development centers and service outsourcing," according to the goal set jointly by the Ministry of Commerce and the Ministry of Land Resources for national-level economic and technological development zones during the 11th Five-Year Plan (2006-10) period. "By the end of 2010, the total industrial output value of all the national-level development zones shall reach 5.1 trillion yuan with an average annual growth rate of 17 percent. The output value of hi-tech enterprises shall arrive at 2.3 trillion yuan with an average annual growth rate of 20 percent."

According to Vice Minister Yu, to strengthen the implementation of the strategy of revitalizing trade through science and technology, the Ministry of Commerce and the Ministry of Science and Technology have decided to take three years, as of 2006, to set up 100 national export innovation bases and a batch of industries with self-innovation capacities.

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