China's Policy of Opening Up to the Outside World - The Economic and Technological Development Zones

Table of Contents

1. A Survey of China
1.1. Geography
1.2. Population
1.3. Government

2. The Economic Policies in China
2.1. The Central Planning Period (1949-78)
2.2. The Market-oriented Reforms Period (since 1978)
2.2.1. The Establishment of Special Economic Zones
2.2.2. The Establishment of Economic and Technological Development Zones
2.2.2.1. Characteristics of Economic and Technological Development Zones
2.2.2.2. The Economic Development in Economic and Technological Development Zones
2.2.2.3. Qinhuangdao Economic and Technological Development Zone
2.2.2.4. The Impacts of Economic and Technological Development Zones on the Chinese Economy

3. Critical Analysis of China’s Opening Up Policies and the Economic Situation in China Today

Appendix

1. A Survey of China

1.1. Geography

Zhonghua Renmin Gongheguo, the People’s Republic of China (PRC) is the world’s fourth largest country (after Russia, Canada and the United States) covering an area of about 9.6 million square kilometers and stretching from the temperate to subtropical zones.

In size and climate one can compare China with the United States, but its topography is quite different with more mountains and hills and a shorter coastline. These topo-graphic features result in higher transportation costs and in a greater requirement for physical infrastructure construction. Hence, the economic development in China is more challenging than, for instance, in the United States.

However, the natural resources China is endowed with are favorable to its development. One cannot only exploit coal, iron ore, or natural gas, but China is also blessed with the world’s largest hydropower potential.^[1]

1.2. Population

About 1.3 billion people (July 2004 est.) live in the PRC, with a population growth rate of 0.57% (2004 est.). The life expectancy at birth of the total population comes to 71.96 years (male: 70.4 years, female: 73.72 years, 2004 est.).

Moreover 90.0% of the Chinese population is literate, meaning that only 9.1% of the population of age 15 and over cannot read and write.^[2]

1.3. Government

In 221 BC the country was unified under the Qin Dynasty. On January 1st 1912, the Manchu Dynasty was replaced by a republic, and eventually, on October 1st 1949, the PRC was established, a communist state with Beijing as capital.

Hu Jintao is the present President of China and present Premier is Wen Jiabao.

There are only nine parties in existence in China: The Communist Party of China or CPC and eight registered small parties that are controlled by the CPC.^[3]

2. The Economic Policies in China

China’s subsequent economic development may be divided into two phases: The first, lasting from 1949 until 1978, was characterized by common ownership, central planning, and regional economic self-sufficiency; the second phase, lasting since 1978, is characterized by un opening up of the Chinese economy.^[4]

2.1. The Central Planning Period (1949-78)

When the CPC rose to power in 1949 the industrialization was shallow and restricted to the coastal areas. Agriculture accounted for nearly 70% of national income, absorbing 92% of the total labor force.^[5] Domestic commerce was constrained by geography, and social, political, and economic chaos had destroyed the values of currency and financial assets. Furthermore, foreign trade played an insignificant role in the Chinese economy with a value of total trade of US$1.1 billion in 1950 or about 9.8% of national income in that year. In addition, the PRC suffered high inflation, widespread unemployment, and starvation. Thus, the primary concern of the new leadership was the restoration of political and social order.^[6]

After achieving this objective, in 1952, the Chinese regime began to modernize the country by installing a central-planned economic system. Private ownership was transformed into semi-private, and, then, collective or state ownership. After 1950, private ownership of productive means was strictly prohibited.

In the following, the Chinese policymakers interpreted the term modernization interchangeably with industrialization, and the process of industrialization was understood as the promotion of heavy industry. Therefore, strategic items, such as iron, steel, coal, petroleum, and heavy machinery, were signaled as targets of top priority, and resources were channeled into these sectors rather than into competitive uses.

In consequence, the heavy industry grew at a much faster pace than the rest of the Chinese economy.^[7]

This development triggered a structural imbalance: The pace of development in other sectors slowed, eliciting serious shortages of consumer goods, antiquated production methods in the agricultural sector, and bottlenecks in construction and transportation. This inadequate economic structure caused the pace of industrial growth to decelerate.^[8]

In addition, international economic relationships were handled according to the principle of regional economic self-sufficiency^[9], resulting in a kept low reliance on foreign markets and assistance. Consequently, during the pre-reform period, China was not a member of any major international or regional organization. The main form of international economic connection was merchandise trade, where the exports expanded form US$0.82 billion in 1952 to US$9.75 billion in 1978. Primary goods made up a large proportion of exports, whereas, capital goods remained the most important item on the import list^[10], most of which, according to the strategy pursued, were destined to the heavy industry.^[11] The degree of China’s openness to the outside world hardly improved during the pre-reform era.^[12]

But the isolation of the Chinese economy was not only self-imposed. It was also a consequence of responses by the outside world to Chinese behavior, such as the UN trade embargo or the split between the Soviet Union and China.

By 1972, the Chinese government realized that China’s economy was falling further behind the rest of the world. Therefore, the regime reduced its discrimination against investments at least in the coastal regions, and improved its economic interaction with capitalist economies. As a result, the total earnings from exports jumped from US$2.6 billion in 1972 to US$9.8 billion in 1978.^[13]

2.2. The Market-oriented Reforms Period (since 1978)

Improper planning mechanism and practice, isolation from the outside world, and interference of politics and ideology with economic policy-making hindered the pace and quality of economic development during the pre-reform era in China. “By the late 1970s, the Chinese economy, an ill-designed and poorly maintained industrial machine, had essentially exhausted its steam and was on the verge of collapse.”^[14]

The unhappy people called the capability and legitimacy of the leadership into question. Against this backdrop the government decided to switch to policies of economic reform and openness following the Third Plenum of the Central Committee of the Eleventh Chinese Communist Party Congress in December 1978.^[15]

Whereas on the domestic front a decentralization of agricultural production and of the fiscal system and a deregulation of prices were pursued, on the international front the duiwai kaifang zhengce, the policy of opening to the outside world was implemented – sometimes also referred to as open door policy, an American-invented term rejected by the Chinese.^[16]

This policy includes attracting FDI and promoting foreign trade in targeted areas. At the beginning, this opening up was restrained to the two southern provinces Guangdong and Fujian. Later on, it was extended along the coast and to the inland provinces. The implementation of the opening up policies can be divided into three stages:

1. Early 1980s: opening up to a limited extent, establishment of Special Economic Zones (SEZs) in Guangdong and Fujian.
2. Middle to the end of 1980s: coastal preference strategy enforcement, designation of Coastal Open Cities (COCs), which were entitled to set up their own Economic and Technological Development Zones (ETDZs); establishment of Coastal Open Economic Zones (COEZs) and an Open Coastal Belt (OCB).
3. Early 1990s: further extension of the opening up policies to all of China, establishment of Border Economic Cooperation Zones (BECZs), Capital Cities (CCs), further ETDZs, and Bonded Areas (BAs).^[17]

2.2.1. The Establishment of Special Economic Zones

In July 1979, the State Council of China granted special economic power to the provinces of Guangdong and Fujian. Among the privileges guaranteed is an expanded authority over economic planning, investment decision-making, and the conduct of foreign trade. Furthermore, the local governments were permitted to experiment with market-oriented and outward-looking measures in promoting regional economic development. In order to minimize the potential negative effects on the rest of the economy should the SEZ efforts fail, all of the first zones were set up in backward areas.^[18]

Originally, primary objectives of the SEZs were transfer of technology, gain of foreign currency, and creation of employment opportunities. To attract foreign investors the SEZs offered a host of incentives such as preferential tax rates, concessions, and cheap leasing rates for land and production facilities.^[19]

Over time, the objectives of the zones began to change since the scale of employment or foreign currency generated by the zones was very small relative to the entire country. Thus, SEZs were redefined as windows to technology, management, knowledge, and foreign policy. This idea stresses the absorption of advanced technology and advanced management more than expansion of employment or gain of foreign currency.^[20]

2.2.2 The Establishment of Economic and Technological Development Zones

To further open up China to the outside world, at the beginning of 1984, the government decided to establish Economic and Technological Development Zones (ETDZs) by using successful experiences of SEZs in the previous period.

From 1984 to 1988, in 14 coastal cities ETDZs had been founded, followed by 18 other national ETDZs in 1992 and 1993.^[21] In addition, from 2000 to 2002, a third group of 22 ETDZs was created.

[...]

^[1] cp. Démurger et al. (2002), p. 8, CIA (2005), and Table 1

^[2] cp. CIA (2005), and Table 1

^[3] cp. CIA (2005)

^[4] cp. Démurger et al. (2005), pp. 12-15, and Ge (1999), p. 11

^[5] cp. Ge (1999), p. 12

^[6] cp. ibid., p. 13

^[7] cp. Table 2

^[8] cp. Ge (1999), pp. 13-32, and Démurger et al. (2002), pp.12-14

^[9] A region should be self-sufficient not only in food production but in industrial goods as well.

^[10] cp. Table 3

^[11] cp. Ge (1999), pp. 35-36

^[12] cp. Table 4

^[13] cp. Démurger et al. (2002), pp. 14-15

^[14] Ge (1999), p. 40

^[15] cp. ibid., pp. 39-40

^[16] cp. Kleinberg (1990), p. 3

^[17] cp. Démurger et al. (2002), pp. 16-17, and Table 5

^[18] cp. Ge (1999), pp. 46-48

^[19] cp. Park (1997), p. 9, and Ge (1999), pp. 48-52

^[20] cp. Park (1997), p. 9

^[21] cp. Table 5