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An historical perspective of Hong Kong, Shenzhen and the special zones in China Low, Robert 1989

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AN  HISTORICAL  PERSPECTIVE  OF HONG  SPECIAL ZONES  KONG, S H E N Z H E N  IN C H I N A  by ROBERT  A  LOW  THESIS S U B M I T T E D IN P A R T I A L F U L F I L M E N T O F THE  REQUIREMENTS MASTER  FOR T H E D E G R E E OF  OF  ARTS  in THE  F A C U L T Y OF GRADUATE  STUDIES  History  We  accept this thesis as conforming to the required  THE  UNIVERSITY  standard  O F BRITISH  December 23 1988  © Robert Low, 1989  COLUMBIA  AND  THE  In presenting degree  this  at the  thesis  in  partial fulfilment  of  University of  British Columbia,  I agree  freely available for reference copying  of  department publication  this or of  and study.  thesis for scholarly by  this  his  or  her  HlSToRV  The University of British Columbia Vancouver, Canada  Date  DE-6 (2/88)  )8  JAti  ' W  .  requirements that the  I further agree  purposes  representatives.  may be It  thesis for financial gain shall not  permission.  Department of  the  that  advanced  Library shall make it  by the  understood be  an  permission for extensive  granted  is  for  that  allowed without  head  of  my  copying  or  my written  ABSTRACT  The latest  Special  economic  Economic  Zones  development  modernization. In many  (SEZs)  strategy  ways, they  in  are an important  part  its long  and  are as much  history  of China's drive  a product of China's  for  past as  they are a product of the post-Mao Open Door Policy and economic reforms, and a precursor of things to come in China. Specially designated zones contact  with  foreigners  China conducted  have  existed  in China  since  the Tang  a frontier trade with its neighbours. The Canton  treaty  ports were  subsequent  versions of special  treaty  ports were abolished by the Chinese  for trade and  zones  dynasty system  in China.  Communist  Party  when  and the  Although the  (CCP) after 1949,  Hong Kong and Macau continued to exist and flourish as special zones in China, albeit under foreign control, as the treaty ports were.  In  order  to understand  China  today,  zones  in China  as well  Since  the Third  Plenum  towards  it is necessary  increasing  the reason(s) for the existence of the SEZs in to see them  in the historical  as in the context of the post-Mao in 1978, the main  liberalization  trend  and decentralization  However,  despite  the  are  reforms. has been  of trade and other economic the radical leftist  promise  of  economic  growth  and  and the other post-Mao changes,  development  they  also raise  political, ideological and economic problems for China. The political and  economic stakes riding on the SEZs  economic  politics and economics in China for three decades.  throught the Open Door Policy some new  of special  of the reforms  activities. These developments constitute a sharp departure from policies which have dominated  context  enormous.  What  success or failure of the happens  to  the ii  SEZs,  economic reforms and  and  the  Shenzhen  the  S E Z in  particular, would have profound Door  Policy, the stability  Chinese  leadership,  this study  and prosperity  modernization  is to discuss  the SEZs  zones in China, the post-Mao between most  the Shenzhen  active  implications  investor  SEZ, in  and  of Hong Kong  even  within  reforms, China's  Shenzhen  for the post-Mao  socialism  reforms, the Open  after July  in China.  the greater historical  and  to discuss  most  successful  and  China.  The  purpose of  context of special  the economic  SEZ,  The  1, 1997. the  and  political  relationship  Hong  Kong, the  and  ideological  dimensions of the SEZs and Hong Kong's relationship with Shenzhen will also be briefly  discussed in this study.  in  TABLE  OF  CONTENTS  Abstract  ii  Table of Contents  iv  List of T a b l e s  v  List of F i g u r e s  v.i  INTRODUCTION  1  I. The Historical and Economic Background A. The Early Special Zones in China B. The Creation and the Economic Transformation of Hong Kong C. Hong Kong: The Goose that Lays Golden Eggs for China 1. Remittances and Other forms of Unrequited Transfers 2. Hong Kong as a Trade Partner and Entrepot 3. Hong Kong as a Financial and Investment Centre II. Post-Mao Reforms and Modernization in China A. The Historical Setting B. The Creation of the Special Economic Zones C. The Shenzhen Special Economic Zone III. Hong A. B. C. IV.  Kong and Shenzhen The Economic Factors "The Cantonese Connection" Hong Kong as a Special Administrative Region of China  The Politics of Reform  3 3 14 17 18 23 28 35 35 41 53 62 63 85 90 101  CONCLUSION  123  Bibliography  127  iv  LIST Table  OF  TABLES  1. Shenzhen: Basic Economic Statistics 1979-86  v  LIST  Figure  OF  FIGURES  1. The Treaty Ports  13  Figure 2. China's SEZs and Open Cities  52  Figure 3. Proposed Planning  56  Districts of the Shenzhen SEZ  vi  INTRODUCTION  Special zones  in China  are an  interesting phenomenon in China  because  they represent the conflict between the need for greater contact with the outside world, while unique to  and  at the  different from  preserve  foreign  same time, the need  greater  openness  preserve  the  order, based  to the  existing  shield from  The focusing on of  the  as  order  the  Shenzhen  rapidly  Hong  in  in,  and  investments related be  and  in  active  open  by  China sought  tenets, from foreigners. In  at the  Ironically,  Kong,  this  need  to  it  is  time,  abroad.  SEZs  SEZ,  the  in China  and  largest,  in it. In  several  China  until and  looking  by  the creation Hong  at  questions demand  today  the  Kong's  relationship  special  attention,  questions this  study  will  address  are: (1) why  do  invest in Shenzhen?, (2) what areas are they investing  (3)  what  does  Aside  Hong  from  to the economic reforms, which study are:  China?,  the  import, not Confucianism, that  also  investor  time,  however,  is to discuss the  1988,  same  deadline for the turnover of Hong Kong back to China  Shenzhen?  socialism i n  philosophical  forced  the most important in  Hong  1997  discussed in this  affect  SEZ,  most  and  while  political  study  SEZ  businessmen  why?,  later  China.  and  of this  approaching. The  Kong  was  the disruptive influences from  Island  especially since the is  Confucian  outside world,  the Shenzhen  Hainan  involvement between  purpose  makes  of the desire for modernization, there is a similar need for  socialism, a foreign ideological seeks to  upon  Nevertheless, China  China today, because  which  the rest of the world. In earlier times, China  its imperial  influences.  to preserve that  (1) how  (2) do the  Kong  these have  three an  will the  SEZs 1  in  offer  to  China  questions,  impact  on  the  other  questions  SEZs,  that  economic reforms  China  also mean  through its  the  and  will  the S E Z s  re-emergence  of  foreign  zones  them?, and  like  (3) how  which  are, in part,  future  of the SEZs  at  the treaty will new also and  the past performance  a  ports, and  problems result  all of the problems  such  as increased  of China's  new  crime  reform  associated and  corruption,  policies,  the economic reforms? This study will  with  affect  the  also briefly look  of the SEZs since they were created in 1979  to about  1986.  The  first  chapter of this  study  will  discuss  the  early  special  zones in  China's history as well as Hong Kong's role as a special zone for China, mainly as  a  supplier  of foreign  exchange, an  with the outside world. Chapter which  Two  entrepot, a  Three  economic  will  perspective.  discuss  Hong  However,  Kong's Hong  and  relationship  Kong's  the other SEZs. with  cultural  the  SEZs  within  questions and  (PRC)  will also be  will  reforms  and  (SAR)  discussed briefly. Chapter  the context of the economic  issues which  Shenzhen  ties  relationship with China as a Special Administrative Region Republic of China  centre, and  a  link  will discuss the post-Mao reforms in China  set the stage for the creation of Shenzhen  Chapter  financial  and  Most of from  its  an  future  of the People's Four  deals with  some of the related  affect the future of the SEZs  and  the economic  reforms in China.  The  romanization  words is pinyin. or of  system  used  However, names and  in this  (Xianggang)  used  and  understood  for Chinese  places that appear  other systems, will not be changed to pinyin. commonly  study  names  and  names  as references in Wade,  Furthermore, the pinyin places  and  such  as  Hong  version Kong  will not be used in this text unless they are quoted or translated  such from the original source.  2  as  I. THE HISTORICAL AND  ECONOMIC B A C K G R O U N D  A. THE E A R L Y S P E C I A L ZONES IN CHINA  Specialty designated foreign zones in China because  thej' represent both  the  need  for more  are an  interesting phenomenon  openness  and  contact with  the  outside world, while at the same time, the need to quarantine these influences in order to minimize  and  control their impact  on  the existing political, economic  and  social institutions. It is thus, interesting to note that in this respect, there is a continuity between the earlier in Chinese coastal  cities  SEZs  in China  today  and  the  special zones that existed  history. Michael Oborne noted that the SEZs and  that  are  open  historical roots in the early  to  foreign  investments  in China  the  today  14 open  have  their  special foreign trade zones in China's past, and that  they  ...are located in the same areas as those cities reserved for foreign contact and trade in the 19th century, as well as those traditional areas for trade and contact with Arab merchants under the Tang, Yuan and Ming djmasties. 1  China's trade was  with  It was  an  Western  traders (the Portuguese,  in Canton (Guangzhou). The  operated  and  first special zone created specifically for the purpose of handling  was the  known  as the  institutionalized  foreign trade and outward  expression  Dutch, and  later, the  British)  trading arrangement, under which the foreigners  "Canton product  its Confucian of  the  system," which lasted  of China's  order  1757  to  1842.  earlier experiences with foreigners  social ethics. China's  its internal  from  based  on  external relations Confucianism  in  was which  Michael Oborne, China's Special. Economic Zones (Paris: The Development Centre of the Organisation for Economic Co-operation and Development, 1986), pp. 28-29. 1  3  4 social also  relations an  were  outgrowth  hierarchical  of traditional  Sinocentric world order in which of Heaven," was mankind.  unequal.  Chinese  The  trading  attitudes towards  outsiders and  the Chinese emperor, who  was  that  Chinese  civilization  foreigners and had  grown  up  trade was  Son  China's the  "Son  the ruler of all  also conditioned by the  surrounded  by  less  sophisticated  trade with them often took the form of gifts brought to the  emperor, in the form of tribute, in exchange for gifts from exchange of gifts had  bestowing  called  were  2  neighbours in which  The  arrangements  considered to be at the apex of civilization and  China's attitude towards fact  and  the Chinese emperor.  another symbolic significance in that it represented the  of generosity, compassion,  and  the blessings of civilized  contact by  the  of Heaven to the foreign "barbarians." Rhoads Murphey noted that 3  ...the tribute system was in one sense a polite, formal cloak for a limited trade between China and her neighbours...this exchange served to regulate and control relations with foreigners. It kept them from disturbing the country as a whole. It also preserved the notion of China's superiority."  Although also  "trading  China.  5  tribute was  countries"  that  important part of foreign relations, there were  traded  with  China  but  did  not  send  tribute  to  Joseph F. Fletcher also observed that China's relations with Central Asia  through the tribute system often  an  submitted  were often misleading in that Central Asian kingdoms  to the formalities  of the  tribute  system,  even  though  they did  Mark Mancall, "The Ch'ing Tribute System: An Interpretive Essay," in The Chinese World Order: Traditional China's Foreign Relations, ed. John King Fairbank (Cambridge: Harvard University Press, 1968), p. 64. Oborne, pp. 28-29. "Rhoads Murphey, China Meets the West: The Treaty Ports (New York: Macmillan Publishing Company, Inc., 1975), p. 17. Mancall, p. 75. 2  3  5  5 not  regard  emperor, China.  so  that  standard  of Chinese  as vassals, or recognize  they  Furthermore,  6  double  themselves  could  the  benefits  Fletcher also pointed  in its myth  world  enjoy  of world  the suzerainty of  out that  a  of the  lucrative  China  Chinese  trade  with  often maintained  supremacy in that it preserved  a  the notion  supremacy within the empire, but often made exceptions to this  principle in its foreign relations when it became single most influential and dominant theme  a hindrance.  shaping  China's  Nevertheless, the  7  foreign relations  was  its desire to control foreign contact and to keep it at an arms length.  Consequently, establish  trade  when  relations,  the  China's  Europeans response  arrived  in  to them  was  China  and  largely  sought  conditioned by  these desires and its earlier foreign relations experiences. According to John Fairbank,  China's  attitudes  and  Western  contact  phenomenon, Chinese  reaction to the West  stereotypes because  of barbarians.  was  Therefore,  it did not treat  but as a new  form  also  of Inner  hampered China  the Westerners Asian  by  was as  barbarian.  8  to  King  its traditional unprepared for  an As  entirely  new  a result, the  emperor limited all foreign trade to a single port city-Canton, where all  trade activities were supervised and tightly  controlled. The Westerners were only  permitted to trade during set trading seasons-and then, only with the Cohong, a guild  of Chinese  traders were  merchants  with  a monopoly to trade  also subject to a number  of other  strip along the Canton waterfront and expected  with  them. The foreign  restrictions, confined to a thin  to leave once the trading season  was over. By making Canton into a special quarantined  trading zone (or port) to  Joseph F. Fletcher, "China and Central Asia, 1368-1884," in The Chinese World Order: Traditional China's Foreign Relations, ed. John King Fairbank (Cambridge: Harvard University Press, 1968), p. 207. Fletcher, p. 224. John King Fairbank, Trade and Diplomacy on the China Coast: The Opening of the Treaty Ports. 1842-1854 (Cambridge: Harvard University Press, 1953), pp. 7, 6  7  8  9.  6 deal  with  European  merchants,  the  Chinese  emperor  was  able  control the "negative" or disruptive influences of the traders and the rest of the country.  The proposed  British  to open  trade with  with  China  had  very little to gain but much  and  opening  up  that  foreign  relations outside of China's  on  a  the country  more  equal  because  it threatened  between  the  "Middle  an unequal basis.  After means (and  and  (in 1793  Nanking  Opium of  1842  by  to lose by  the  it on  Chinese,  changing  a  more  who  as  China's  proposed  world  Kingdom"  and  ideological  felt that  the existing  order,  by  and the  which  China  arrangement the fact  political framework British)  was  necessitated  its "uncivilized"  and  equal basis.  to trade. More importantly, however, was  basis  and  by  Britain  1816)  later smuggling) opium  first  conduct  system  neighbours  unacceptable that  be  (and  relations  conducted  on  0  efforts  Disputes between the  1  and  foreign trade on  the terms of the Canton  However, Britain's proposals were rejected  trade  limit  9  were dissatisfied  up  to  China War  in  ended  to open  had  China  up  failed, the British  to trade merchants  in order to help balance  and  Britain  1839, the  and  over  the  China's  restrictive  issue  turned  their trade with of opium  defeat in  Canton  through diplomatic  1842.  system,  to trading China.  1 1  eventually led to 1 2  opened  The  Treaty of  China  up  to  China Meets, p. TT. J o h n King Fairbank, "A Preliminary Framework," in The Chinese World Order: Traditional China's Foreign Relations, ed. John K. Fairbank (Cambridge: Harvard University Press, 1968), p. 2. Trade, pp. 14, 30. There are different views on the cause(s) of the First Opium War. For example, compare the views advocated by John King Fairbank in Trade, p. 74, and Rhoads Murphey in Shanghai: Key to Modern China (Cambridge: Harvard University Press, 1953), pp. 57-61, with Chang Hsin-pao. in Commissioner Lin the Opium War (Cambridge: Harvard University Press, 1964). 9  10  1  1 2  1  7 Western  commercial  (Canton  [Guangzhou], Amoy  Shanghai) for England  for  foreign  the  as  in  China's  more  relations with  cities  included  modern  to  naval  status,  the  more than  foreign  West and  80  The  did 1  3  leading  infrastructure and  foreign  powers  wave of the  which  would  influence by  1  Out  4  of  treaty trade 1  parts  Ningpo  [Ningbo],  island of Hong base,  and  the  the  connections.  the  Britain  1  give  it  any  a new  era  of more  and  3  opening  powers. According  to  opened to trade, of which  treaty  By  to  laws) in the treaty ports,  foreign  possessing  and  Kong  gave  a turning point and by  ports  ports  and  emerged  China's  free market principles.  the 1861,  most  developed  and  it accounted for over  5  in the  treaty  future, representing  of Southeast  treaty  automatically  free trade  port,  five  other nation.  characterized  all of China, which they felt was  in other  China  its own  cities were eventually  settlements.  the  the  commercial  governed by  half of China's total export trade.  were the  ceded  and  of  [Fuzhou],  subsequently give to any  foreign trade  became  sophisticated  across  trade,  economic sector, which thrived on  Shanghai  establishment  opening of the treaty ports marked  Michael Gasster, 17  and  a  nation  privileges that China may  the  [Xiamen], Foochow  (the right to be  most-favoured  The  with  residence  development  extraterritoriality and  exploitation  Asia.  1 6  ports  believed  that  the  treaty  progress that would eventually "backward," as  other  However, despite  the  ports sweep  Western outposts fact  that  these  Meets, pp. 26-27.  "Michael Gasster, China's Struggle to Modernize, 2nd ed. (New York: Alfred A. Knopf, 1983), p. 12. Gasster's figure was much larger than the one given by Ramon Myers, of 48 port cities. See The Chinese Economy: Past and Present (Belmont: Wadsworth, Inc., 1980), p. 152. Shanghai, p. 65. Rhoads Murphey, "The T r e a t y Ports and China's Modernization," in The Chinese City Between Two Worlds (Stanford: Stanford U n i v e r s i t y Press. 1974), p. 17. 1  1  5  1  6  8 special zones flourished, their impact on China's hinterland insignificant.  Ramon  Myers  noted that  the influence  economy  of the modern  mainty restricted to the city-ports and its surrounding communities mile  radius.  almost  a  Therefore,  17  despite  the fact  century, they had failed  that  the treaty  to modernize  was  port  or transform  largely  sector  within  was  a fifty  era lasted for the rest  of the  Chinese economy.  Why century  China  is still  anafytical  to modernize  the subject  of much  the  attributed  China's  characteristics  tradition-modernity  to foreign  society,  approach, to  which  encroachment. This  writing.  in question,  under-development  of Chinese  in the nineteenth  historical  framework for the period  approach,  China  failed  and  the  The as  the  was  a  V. Moulder  challenged  this  twentieth  Western  historical  the impact-response  social  more  approach  and  vigorous  cultural  reaction  by  advocated in various writings by  such scholars as John King Fairbank and Rhoads Murphey.  Frances  early  imperialism  traditional  inhibited  view  such  and  traditional  18  view  of modernization in  China by comparing the different reactions and results to Western  imperialism in  China and Japan. She argued that it was the differences in the .extent in which China  and  differences  Japan in their  were social  different results of foreign  incorporated and  cultural  economic  by  the  Western  characteristics,  aggression  powers, which  rather  resulted  in China and Japan.  19  than  in the Moulder  Myers, pp. 139-140. For example, see John King Fairbank and Ssu-yu Teng, China's Response to the West: A Documentary Study. 1839-1923 (Cambridge: Harvard University Press, 1954), and Rhoads Murphey, "The Treaty Ports and China's Modernization," in The Chinese City Between Two Worlds (Stanford: Stanford University Press, 1974). Frances V. Moulder, Japan, China, and the. Modern World Economy: Toward a Reinterpretation of East Asian Development ca. 1600 to ca. 1918 (Cambridge: Harvard University Press, 1964), pp. vii-viii, 8. 17  18  19  9 pointed  out  that  China  and  Japan  had  more  in  common  cultural spheres than they did with the foreigners, and China  was  Japan,  more  which  strongly  prevented  industrialize as Japan  The problem The  scope  "incorporated" by  China  did.  from  modernization  to the  ethnocentric distortion historical  analysis  within its own,  and  Although the  interesting and  of  and  biases,  China.  The  conceptual  relevant points about  arguments  Experience  in  Moulder  which thrust  presented  India  and  it needed to  is a  more  or the traditional in China  by  China,  has of  dominated the  new  Modernization," to explain why  theorists.  by  Western  much  of the  approach  analysis of China  framework,  is to  he  22  has  raised  following is a summarization Murphey  his article,  in "The  the treaty ports had  The  2 1  is based  the treaty ports which can  Rhoads and  complex  to see China not as a static society, but  Rhoads Murphey's historical  to the SEZs phenomenon today. The main  that  not a Western context, as a dynamic society.  impact-response  nations than  the de-emphasis of what Paul A. Cohen calls  reassess the West's role in China, and  on  question in China  question of modernization  historians today is characterized by Western  and  the fact that  capitalist  autonomy  social  2 0  of the  approach  the  that it was  Western  developing the  than the explainations presented by  analytical  earlier  the  in  largely  some  also be  very applied  of some of the  Outsiders:  The  British  Treaty Ports and  China's  failed to modernize  the rest  of the Chinese economy. The  purpose of summarizing  his arguments is to provide  a basis for some comparison  of the treaty ports with the special zones in China  ibid. See Paul A. Cohen, Discovering History in China: American on the Recent Chinese Past (New York: Columbia. University 1-6. F o r example, see "The Treaty," p. 18. 2  0  2 1  2 2  Historical Writing Press, 1984), pp.  10 in Chapter  Four.  Murphey sector  argued  to change the traditional  ports  were  an  artificial graft economy  isolated which  of  compared pointed China  failed  contact they  "...helped  both  size  with  a  coast  that  the treaty  which  were  essentially  enclave  economies,  relatively content with  the  rest  of  the  Chinese  economy.  to  influence  24  He  and  absorb  handful  further  China's  and  economy  deflect  economj\ was  of foreigners,  and  the huge  European  by  however  the sheer total  efforts  Murphey  small because  let alone transformed  pointed out that  economy,  marginal  vigorous  bulk  2  2 5  or  of China's  of its production at  penetration  or  2 5  economy  to develop  because  the needs of the Chinese were  on  of the Chinese  often equal  China's  any significant linkages with the rest traditional  economy  still  able to  traditional  Chinese  goods in quality, and  usually  in the countryside. Because  or superior to foreign  was  Rhoads Murphey, The Outsiders: The British Experience in India and (Ann Arbor: The University of Michigan Press, 1977), p. 104. * Outsiders, p. 132. "The Treaty," p. 26. 2 3  "...an  with the late traditional  economy, which was  of the rest  relative  treaty ports failed  of the Chinese  products  Chinese  were  too vast to be moved,  were."  transformation."  satisfy  ports  transform  the Western  demographics,  The  the fact  into an organic union  treaty  to  to the immense  geography,  was  and institutions. Because of this isolation, the influence of  "...was simply  effective  the  for the failure of the modern  the treaty ports were only small pockets of foreign influence when  out that  seacoast  on  the rest of the Chinese  ports  Furthermore,  grew  The  23  its existing technology treaty  sector in China  phenomenon  never  China."  isolated from  the  that one of the reasons  China  cheaper,  the  economy.  sector  ports. Instead,  Lastly,  was  nominally) over ports, 99 ports  per  was  due  the  cent  still  colonial  in  of the  ports. area  of  did  an  not  impact  spread  the  failure  of  the  Even  though  population 28  the  foreigners  era  As  a  result,  the  people were still a part of China and  treaty  ports.  able  Moreover,  to  treaty ports on  of the  economically,  pointed and  ports  socially and  ignore  the  in  and  it had  because  the  treaty  ports  to  culturally.  and  ran  reject  the  the  vast  was  treaty  not  and  the  such  as  ports  the  coolie trade.  3 0  of  what  reduced  to  ports  as  an  always existed. Although  the  economic  was  limited, they  change  the  face  of China  alien  were  bring an  end  the to  political^,  2 9  of criminal  treaty  treaty  majority  out  the  (albeit  of the treaty  not affected by  China  Chinese economy  1949  the  with  Creation of the Treaty  that  of  linkages  John King Fairbank, in his article, "The  dissidence,  piracy  treaty  China's  outside  that existed outside  hotbed for revolutionary change in China which would eventually the  on  2 7  control.  continue to exist as  impact of the  model  that  and  Chinese  status, it was  influence and  much  to China's maintenance of territorial sovereignty  under  the  make  port  explained  treaty  China's territory and happened  treaty  with the West.  Murphej'  China  not  they became outward-oriented, developing  other treaty ports, and  influence  did  Consequently, the  26  treaty  modern  were centres  orgainization  of  secret  activities,  societies,  opium  System," corruption smuggling,  Moreover, because these activities were conducted  Outsiders, pp. 104, 122., and "The Treaty," pp. 27, 30. Outsiders, p. 105. Outsiders, p. 135. S e e "The Treaty", pp. IS, 71. John King Fairbank, "The Creation of the Treatj- System," in The Cambridge History of China, vol. 10, part 1, Late Ch'ing. 1800-1911, eds. Denis Twitchett and John King Fairbank (Cambridge: Cambridge University Press, 1980), pp. 2  6  2  7  2  8  2 9  3 0  12 under  foreign  Consequently,  protection, this  was  they  were  another  outside  reason  of China's  why  attractive models for economic development. The Kong  as  a  independent  3  0  remenant  of the  special zone.  (cont'd) 235-237.  treaty  port  era  the  treaty  jurisdiction ports  and  were  control.  not  very  next section will deal with Hong and  how  it serves  China  as  an  13  Source: Rhoads Murphey, The Outsiders: The Western Experience in India and China (Ann Arbor: The University of Michigan Press, 1977), back inside cover.  14  B. THE CREATION AND  THE ECONOMIC TRANSFORMATION  OF HONG  KONG  The  present  political  area  which  makes  up  the British  colony  of Hong  Kong was the product of British colonialism in the nineteenth century. The island of in  Hong Kong was ceded in perpetuity to Britain through 1842, while  Britain  the Kowloon Peninsula  Stonecutters' Island  in 1860, as the result of The Convention  ninety-nine year Peking in 1898.  The up  and  on the New  Territories  from  of Peking.  China  through  were  Britain The  ceded to obtained a  Convention  of  31  acquisition of Hong Kong was  the Chinese  the Treaty of Nanking  the result of Britain's desire to open  market to trade. Hong Kong was  place of trade," and a launching-pad  to serve  as an anchorage, "a  for British traders to the southern  Chinese  coast. However, the colony in the nineteenth century was, as the British Minister to  Peking  in 1868  put it, "little  more  than  an immense  smuggling  depot."  32  Nevertheless, despite Hong Kong's unsavory reputation, it thrived on its entrepot trade,  which  nurtured  the  early  devlopment  of  banking,  broking,  shipping,  ship-building and a host of other support industries.  Perhaps suffer the same  the most amazing  fact  about Hong  Kong was  fate as the treaty ports when the C C P  took  that it did not over  mainland  in 1949. Since its creation in 1842, when Hong Kong was  than  "barren  a  rock"  with  a  tiny  population  struggling to  the Chinese little more  survive,  it has  1an Kelly, Hong Kong: A Political-Geographic Analysis (London: The MacMillan Press Ltd, 1987), pp. 26-33. D. K. Lewis, The Prospects for Hong Kong (London: Institute for the Studj of Conflict, 1982), p. 4. " 3 1  3 2  7  15 emerged was  a  as one  of the world's  remarkable  largest manufacturing  achievement  because  before  and  1949  Hong  infrastructure based  mainly on its entrepot activities. After  China's largest and  most developed commercial  taken and  over  by  the  Chinese  Communists,  technical talent which fled from  Hong  Kong. As  a result, after  role as the main commercial more important was the  world's  on  of the  Kong  1949,  Hong  had  a  when  weak  Shanghai,  the rest of China  Kong, in many  found  refuge in  ways, resumed  centre for doing business with China. Perhaps Kong became China's  China.  In  33  a  sense,  was  business, entrepreneurial  the modern sector in China  1949,  that Hong  window  centre, and  much  financial centres. This  window on  Hong  Kong  the even  the world became  and  China's  surrogate independent modern sector to replace the treaty ports.  In  1950,  China  because  trade  was  link  when the United Nations  of its involvement  effectively  with  the  wiped  (UN)  in the Korean  out. Although  outside world,  trade embargo was  it had  to  Hong turn  Conflict, Hong Kong  to  laid  the  foundations for the  industry to follow. The and  exporting was  labour and  plastic  possible  largely  and  electronic  of  the  industrial talent from  China  into Hong Kong between  Kong  with  necessary  because  1948-1951.  industrial  34  base  and  continued  In a the  to serve  as  its own  goods  textile manufacturing  shift in economic strategy from  entrepreneurial and  the  products  on  Kong's entrepot  manufacturing  (chiefly textiles) for export in order to survive. The  imposed  goods  a  industry  manufacturing  entrepot to manufacturing massive  Shanghai  influx and  sense, China initial  of  capital,  other parts of provided Hong  momentum  to develop  Jack F. Williams, "Big Dragon. Little Dragon: The Economies of Hong Kong and Taiwan and Their Future Relationship with the People's Republic of China," in The Future of Hong Kong and Taiwan, ed. Jack F. Williams (East Lansing, Michigan: Michigan State University, 1985), p. 66. Edward K. Y. Chen, "The Impact of China's Four Modernizations on Hong Kong's Economic Development," in China- and Hong Kong: The Economic Nexus, ed. A. J. Youngson (Hong Kong: Oxford University Press, 1983), p. 85. 3 3  3 4  16 into one of the world's largest manufacturing centres.  D.  K.  Lewis  commented  on  3 5  the remarkable  and  somewhat  surprising  success of Hong Kong when he wrote  that no one in 1842 could have imagined that [the] Chinese mainland] would flow into Hong Kong in such numbers and impetus and energy that they would change the original the settlement utterly. Eventually the place became not trading post serviced by Chinese labour but a Chinese community serviced by a British administration.  [from the with such concept of a British industrial  3 6  Living in China's shadow  has manj' important consequences  for Hong  most significant of which  is its precarious existence, which  makes it particularly  vulnerable  and  Besides living  sensitive  any  without other  foundation. Other  significant natural  the goodwill  The advantageous  can easily  devour it.  Kong also has  than its people and its harbour, Hong  resources. As  of China, and  consumer goods which  world levels.  neighbour, who  in an extremely fragile political environment, Hong  a weak economic lacks  to its enormous  Kong. The  a result, Hong  the food, water,  it provides Hong  Kong  fuel,  Kong raw  cannot  Kong  survive  materials, and  at prices much  lower than  3 7  relationship  between  China  one. A. J. Youngson described  and  Hong  Kong  is  the mutually beneficial  a  mutually relationship  Graham Johnson, 1997 And After: Will Hong Kong Survive? (Toronto: University of Toronto-York University, Joint Centre on Modern East Asia, 1985), pp. 5-6.. and Gregor Benton, The Hong Kong Crisis (Australia: Pluto Press Ltd, 1983), pp. 19-20. D. K. Lewis, p. 4. Walter E. Gourlay, "Hong Kong and Taiwan: The Colonial Heritage," in The Future of Hong Kong and Taiwan, ed. Jack F. Williams (Michagan: Michagan State University, 1985), pp. 10-12. See also L. C. Lau, "Imports of Consumer Goods from China and the Economic Growth of Hong Kong," in China, and Hong Kong: The Economic Nexus, ed. A. J. Youngson (Hong Kong: Oxford University Press, 1983), p. 184. 3 5  3 6  3 7  17 between  Hong  allows Hong  Kong  and  China  as a  "unique  symbiotic  relationship."  Kong to exist, and subsidizes its economic growth and development,  in return for the many services and benefits that it enjoys from a  relatively  1949, Hong  China  38  independent, modern Kong has served  Hong Kong as  and extreme^' successful economic entity. Since  China faithfully  as a supplier of foreign exchange,  a trading partner, and an international trade intermediary. In 1959, Mao stated that "it is better to keep Hong Kong the way to take it back. It is useful to us right now."  39  it is. We  Zedong  are in no hurry  It is interesting to note that  before the Open Door Policy, China found it useful to maintain and help support Hong from  Kong  because  the British  of the economic and  colony. The  some of the many  purpose  non-economic benefits  of the next  section  benefits and advantages that Hong  that  it derives  is to briefly  explore  Kong, as an independent  political and economic special zone offers to China in order to set the stage for looking at the relationship between Hong Kong and the Shenzhen SEZ.  C. HONG KONG: T H E GOOSE THAT LAYS G O L D E N EGGS FOR  CHINA  Perhaps one of the most important and obvious benefits that Hong offers to the PRC is  generally  foreign  Kong  is that of a steady and reliable source of foreign exchange. It  acknowledged that  exchange."  0  Although  Hong there  Kong  is China's  has been  much  single  largest  speculation  over  supplier of the exact  A. T. Youngson, "Introduction," in China and Hong Kong: The Economic Nexus, ed. A. J . Youngson (Hong Kong: Oxford University Press, 1983), p. 11. Ma Hong, "How to Use the Hong Kong to Serve the Acceleration of China's Four Modernizations," Economic Studies Reference Materials (March 1979), as quoted in Joseph Y. S. Cheng, Hong Kong: In Search of a Future (Hong Kong: Oxford Universury Press, 1984), p. 61. Economic Studies Reference Materials is a publication for senior Chinese cadres. "°See John C. Hsu, "Hong Kong in China's Foreign Trade: A Changing Role," in China, and Hong Kong: The Economic Nexus, ed. A. J. Youngson (Hong Kong: Oxford University Press, 1983), pp. 156-183. Also, Y. C. Jao, "Hong Kong's Role in Financing China's Modernization," in China and Hong Kong: The 3 8  3 9  18 figure  of  China's  government has  foreign  exchange  not published a  this  subject. Therefore, the  how  much  important  benefits  entity. The the  that  Hong  Trade, and  of Hong  1. Remittances and  The  PRC  of this  Kong  Kong  (3) Investment  Hong  section  Kong,  statistical  is not  the  Chinese  information on  to determine  exactfy  Hong Kong, but just to discuss some of the most  categories that will be  importance  from  great deal of detailed  purpose  China earns from  earnings  provides China  as  an  independent  economic  anatyzed in this section in order to illustrate  to China  are: (1) Remittances  and  Donations, (2)  Centre.  Other forms of Unrequitted Transfers  has  recognized  the  many  significant  contributions  that  the  overseas Chinese (including Hong Kong and Macau residents) have made to China in  the past. A t this point, it is important to point out that the term, overseas  Chinese  (huaqiao),  Chinese  living  outside of China. However, as relations between the overseas Chinese and  China  became  more  was  used  complex,  at one  there  distinctions that this broad, and the  Chinese-speaking  huaren  or huazu,  themselves  as  ethnic  was  time  a  to refer  need  to  to all ethnic  differentiate  often confusing term  Chinese  in Southeast  meaning ethnic Chinese.  4 1  the  many  finer  encompasses. For example,  Asia  refer  to  themselves  as  Other ethnic Chinese groups refer to  Chinese-Malaysians, Chinese-Americans  etc., in order to emphasize  their local national identity and  the fact that they are different from the Chinese  in  awkward  China. *  2  Macau, which  Because are  of  the  presently  governed  by  political Britain  situation and  of  Hong  Portugal respective^,  (cont'd) Economic Nexus, ed. A. J. Youngson (Hong Kong: Oxford Press, 1983), pp. 12-76. " Leo Suryadinata, China, and the ASEAN States: The Ethnic Chinese (Singapore: Singapore University Press, 1985), pp. 2-3. Suryadinata, p. 3. 4 0  1  4 2  Kong  and the  University Dimension  19 PRC  refers  to  Interestingly, tongbao)." Chinese  3  them  as  Taiwan  Hong  Kong  residents  are  Technically, the term  nationals  that  are  the usage of the term  and  Macau  also  compatriots  referred  to  as  (Gangao  tongbao). (Taiwan  compatriots  overseas Chinese today is used to refer only to  residing  or  travelling  outside of China." "  However,  overseas Chinese in this study will be used in its broader  context to include Hong Kong  and  Macau  residents, as well as other groups  of  ethnic Chinese living outside of China.  In  1983,  Lian  Guan, the Vice Director of the Overseas  Office of the State Council praised participation and that they  active  significant financial support to China in times of need. He  noted  involved  struggles such as the overthrow War  from  1937-1945, as  remittances foreign are  exchange  invisible  formal  and  and  well  in funding and  donations  are  from  overseas  sources  the  of foreign  two  the  rebuilding  of the  most  exchange  important  eventually  the  after  Sino-Japanese 1949."  5  invisible  remittances and  for China, which reach  flow  donations manj'  their recipients, it is  personal networks,  record . of them. Nevertheless, there are many  Cash  sources of  through  exact figure of such earnings. Moreover, because  sources of foreign exchange often flow through no  in 1911,  of China  Chinese. Because  informal channels before they  difficult to obtain an  supporting various revolutionary  of the Qing dynasty as  because  Affairs  of their  were actively  the overseas Chinese  Chinese  studies and  these  there is often  estimates on  subject which provide a rough idea of their significance to China."  two  this  6  " ibid. 3  " " Suryadinata, p. 4. " China Official Yearbook, 1983-1984 (Hong Kong: Dragon Pearl Publications Ltd., 1983), pp. 458-460. " For example, see Wu Chun-hsi, Dollars, Dependents and Dogma: Overseas Chinese Remittances to Communist China (Stanford: The Hoover Institution on War, Revolution and Peace, 1968)., H. B. Morse, An Inquiry into the Commercial Liabilities and. Assets of China, in International Trade (Shanghai: Chinese Maritime Customs, 1904)., C. . F. Remer, Foreign Investments in China (New York: The 5  6  20 A principal  number avenue  especially after an  important  already  a  in  for  1949. centre  vital  because it had was  of  focal  factors the  difficult."  prohibited  sending  next  donors  because  remittances  also  have  with  Hong  Kong  remittances  to the  and  geographic  Controlled  Banks  the  must  of  the  traverse, and  difficult  to provide  the a  of  8  u 9  5 0  and  was  not only  China,  of remittances  but  was  into  China  1949,  Hong Kong's role  assumed doners  many to  China,  in  had  immensely  shared  a  as  Kong  increasingly  restrictions  naturally  Kong,  of  the and  well as time, 5  who  on,  became  would  C. Jao  for  closer  for a  dense  unavailability  became  imposed  Lastly, Y.  responsible  were  China  the  a  forward reason  share  more immediate  channel  of  cultural  fact that Chinese  State  through  0  networks  through  statistics  from  picture, or an  Many  attributed the  only  or  major  8  help  predominant  the  and  because  sent to be relayed to China." Hong  9  China,  Kong,  Hong  was  even greater importance  and  countries  abroad  with  an  which  many  accurate figure  " (cont'd) Macmillan Co., 1933)., and The United Nations, The of Asia and the Far East (The United Nations, 1950). "Wu, pp. 151-156. " Wu, pp. 84-88, and 155-156. ibid. J a o , p. 39. . 6  before,  to China. Secondly, after  were  complete  coast  transfer  which remittances could officially enter into China.  Because  Kong  the  in the world  fact that they  in Hong  mainland  Kong  cities  relatives  residents  relationship  the  Hong  all of the major  remittances to their final destinations. * why  making  to  on  inward  overseas  centre where remittances from overseas  funds  operations  remittances to China  Moreover,  7  economic  between  for  in the pre-1949 period, Hong  direct connections  communications  of  point for the  conveniently situated forwarding  responsible  retransfer  Firstly, of  were  on  remittances  sources, the  it is  amount of  Economic  Survey  21 remittances that China has received. Therefore, the estimates cited by sources  in this  study  can,  at best, onty  amount of remittances that China has and  1964,  average  cent  about  avenue  inordinate share  83  27  per  through  of all remittances).  to China  (about  from  per cent.  5  1950  other  or  approximation  of the  estimated that between  US$12.23million/year),  remittances  According  to  passed  Y.  C.  and  into  Jao,  was  China  Hong  per cent) of all remittances  and  the  (about  Kong  68  provided  1950  most per an  unrequitted transfers  This amount declined somewhat in 1979  it is impossible to determine  were  a  transfers  main  or only  source  than  ten  million  1957,  of income  government  governments  in  overseas  remittances  that China  valuable source  example,  both  51  to 1972.  economy. For  Chinese  cent, which  93  unrequitted  times, they  Nationalist  received. Wu  rough  to about  2  Although and  a  Hong Kong residents were the largest single source of remittances (an  of  important  provide  the various  as were  and  Chinese  and an  the  in  recipients  that  for about  source wooing  and  remittances  that at the were  one-third of the Consequently,  53  government  asset and  involved  for the  dependants.  Communist  amount, of remittances  received, it is known  estimated  livelihood  family  important  actively  has  of income  it was  the exact  have  regarded  of foreign overseas  both  the more the  overseas  exchange,  Chinese  local  and  support.  Stephen Fitzgerald noted that  Averages derived from figures in Table 47 of Wu, p. 142. Table 1.10 in Jao, pp. 40-42. The sources upon which Jao based his study are Mah Feng-hwa, The Foreign Trade of Mainland China, (Edinburgh: University of Edinburgh Press, 1972)., Japan External Trade Organization, China: A Business Guide, the Japanese Perspective on China's Opening Economy, (Tokyo: Tokyo Press International Ltd., 1979)., and unpublished information from the Census and Statistics Department in Hong Kong. Table 1.10 also provided some estimates of remittances received in the form of gifts and donations. Qiaowubao, 27 February 1957, p. 10. 5  1  5 2  5  3  22 ...the huge volume of overseas Chinese remittances before the Second World War was possibly the single most important factor influencing the KMT's attempts to prevent any weakening of the overseas Chinese attachment to China. In 1949, [after the communist victory on the mainland] the CCP appears to [also] have anticipated that the overseas Chinese would provide a major source of foreign exchange in the first years of its rule. " 5  Because southeastern two  most  overseas  Chinese  provinces of Guangdong  have  and  their  ancestral  roots  Fujian, it is not surprising  provinces are also the major beneficiaries of remittances and  unrequitted China  transfers  receives  investment capital.  over  funds The  55  recipients  from 80  as  per  well  home  of  overseas. cent  as  provinces  donations  and  According of  other of  other  to  Yuen-fong  all overseas projects  the  supported  overseas  forms  of  Chinese by  Chinese  the  that these  other forms of Woon,  southeast  remittances overseas  were  contributions  in  also  used  Chinese  the  to  and  fund  main the  improvement or construction of public facilities such  as hospitals, bridges, schools,  theatres,  running  roads,  nursuries. than and Delta  56  In  cultural 1987,  US$300 million  and  it was  education  centres,  reported that  Guangdong  between Yearbook,  1980 Hong  projects  province received  in donations since the beginning of the Open  that Henry Fok, a Hong Kong billionaire, who area, donated  water  US$50  and Kong  1985. and  million 57  and  According Macau  invested to  residents  the  was  donated  more  Door Policy,  born in the Pearl River  US$100 1986  and  million  in Guangdong  Guangdong an  enormous  Statistical Rmb5.57  Stephen Fitzgerald, "China and the Overseas Chinese: Perceptions and Policies," China Quarterly, no. 44 (1970), pp. 12-13. Yuen-fong Woon, "The Voluntary Sojourner Among the Overseas Chinese: Myth or Reality?" Pacific Affairs 54 (Winter 1983-84): 681. Guangzhou Nianjian, 1986 (Hong Kong: Xianggang Jingji Daobao Sheyinshua, 1986), p. 85., and Guangdong Sheng Tongji Nianjian, 1986 Guangzhou: Guangdong Sheng Tongji J u b i a n , 1986), p. 50. G e n e Linn, " J e w e l in the C r o w n , " China Trade Report 25 ( M a y 1987): 8-9. L i n n also noted that the close cultural, linguistic and familial ties between H o n g K o n g residents and the inhabitants of the P e a r l R i v e r Delta region was the major factor in the donations and investments. 5 4  5 5  5  6  5  7  23 hundred million to their home villages (jiaxiang)  Remittances, Hong  donations  Kong and the overseas  exchange  and  other  Chinese  for China. The large  share  in 1985.  forms  58  of unrequitted  constituted  an important  of remittances from  transfers  from  source of foreign  Hong  Kong, and the  intermediary role that Hong Kong plays in the transfer of remittances into China from  abroad  supplier  has made Hong Kong an extremely valuable asset to the PRC  of foreign  exchange. The  trading partner with China  next  section  will  look  at Hong  Kong  as a as a  as well as an entrepot in China's international trade  relations.  2. H o n g K o n g as a Trade  Partner and Entrepot  Today, Hong Kong is China's largest trading trading p a r t n e r often  been  called  the gateway into  Kong's largest trading  59  and has  China. China, on the other hand, is Hong  partner, followed closely  by J a p a n .  It is therefore not  6 0  surprising that these two roles have deep historical roots in Hong Kong. Between the  two  World  Wars,  short-lived expansion 1941,  with  control taxation  the Hong  and  economy  experienced  Kong,  laissez-faire  invasion and  of Hong  guided  by  Kong. After  the principles  government policies,  Hong  period of reconstruction and recovery. However, the U N had  an  incipient, but  of its industrial activities, which came to an abrupt halt in  the Japanese  of Hong  Kong  WWII, Britain resumed of free  Kong  enterprise, low  underwent a  rapid  trade embargo on China  all but destroyed Hong Kong's post-war entrepot role with China  and forced  Guangdong, p. 50. Business China, 20 June 1988, p. 84. Xianggang Jingji Nianjian, 1986 (Hong Kong: Xianggang Jingji Daobao Chuban, 1986), sec. 4, p. 30. 5  8  5  9  6  0  24 it to embark survive.  a  new  economic path  towards export  the  low  early  level of trade between Hong Kong  1970s  was  the  result  of  the  restrictive internal policies towards trade. During partners  were  the  Soviet  Union  and  the  hostile  attitude towards trade, and  caused  events  like  by  maintained  reasons  the  Great  Leap  its trade relations with  for this was  and  trade  to estimates to  by  1979  China's cumulative  was  a  and  the  increase  1981.  to 1981.  6  Forward  Bloc  countries.  and  the  an  extremely and  between  Hong  of the  62  Kong  and  of China.  The  source of  According Kong  new  was  China  main  the balance  surplus against Hong million.  China  Revolution,  valuable  1951,  always in favour  US$17,295.6  own  Nevertheless,  Cultural  the West in the post-Mao leaders in China in trade  1950s  China's  Hong Kong. Perhaps one  trade  the  from  attitude  reflected  from  1977  by to  US$13,032.80  half of China's trade surplus against Hong Kong from  1950  3  Closely  1  staggering  and  China's trade surplus against Hong Kong in that period was  million, more than  6  was  Jao,  towards trade dramatic  China  from  1950s, China's main trading  of trade surplus for China. With the exception of 1950  1950  in order to  the internal turmoil within  the fact that Hong Kong was  trade between Hong Kong and  China  embargo  the  Eastern  despite the  China  industrialism  6 1  The to  on  related  to Hong Kong's role as  a trading partner with  China is  Kelly, pp. 46-54.  Jao, pp. 14-17. Jao warned that due to the absence of reliable and systematic balance of payments data for both China and Hong Kong, his estimates should be regarded as an educated guess. ibid. On China's new trade policy in the post-Mao era, see Y. Y. Kueh and Christopher Howe, "China's International Trade: Policy and Organizational Change and their Place in the 'Economic Readjustment'," China Quarterly 100 (December 1984): 813-S48. 6 2  6 3  25 its  entrepot  countries; relations unique  role.  even with.  a  ones  which  Because  political  conducting  Through  Kong,  it does  of Hong  status,  hidden  Hong  not have  Kong's  its entrepot  trade,  and  a  political obstacles to trade. During  world  Kong  for China  to China  even  declined  steadily  trickle (US$37 million) in 1969. " 6  down still  the entrepot  trade  imports  from  of the trade  than  was  China and  with  a vital channel  days  through  China,  with  a  and its  means  of  awkward  served as a vital link and a window on exports  US$1,260  and  million  re-exports  from  Hong  in 1951, to a  mere  the trade embargo effectively closed  Kong  and China,  through  felt. Nevertheless,  the dark  with  other  or trade  of getting around  China, than  in 1950, was  two-thirds  of its  Hong Kong before the full effect after  1952, re-exports  Kong to China, although drastically reduced, still found  Throughout  diplomatic  China  half, and in 1951, more  the non-Communist world embargo  way  with  trade embargo on China, Hong Kong's  Although  between Hong  able to obtain more  provides  domestic from  to trade  an}' formal  convenient  the U N  though  is able  close relationship  trade  role as a trade intermediary with China the  China  of China's  their way  isolation,  Hong  from  Hong  into China.  Kong  6 5  provided  which it could funnel its goods for re-export  earn foreign exchange. According to Jao,  ...even when xenophobia was at its height, the Chinese authorities thought it wise to export as much as possible in order to build up foreign exchange reserves. ...Hong Kong's facilities as an entrepot—an excellent harbour, fully modernized container terminals, and an efficient international network of transport, communications and commercial ties-were so attractive to China that re-exports through Hong Kong survived even the most bitter period of domestic struggles and policy  J a o , p. 15. Alexander Eckstein, Communist China's Economic Implications for United States Policy (New York: 1966), pp. 197. b a  6 5  Growth and McGraw-Hill  Foreign Trade: Book Company,  26 debates.  In  6 6  1970, when China  non-Communist  world, Hong  started  to improve  trade between Hong  until  today  Kong  market,  followed  China's  entr}' into  Nevertheless, trade. trading which  Hong  company  Japan.  UN,  Kong  still  that  Kong  single  China  has  handles  "...it  built  over  up  developed  being  its own  international  China's  financial,  reputation  the West. Hong  most  banking,  as the prime Kong  is also  important  steadily  and  export  trade  and  contacts.  of China's  total  were  acting  as a large  of one-tenth of PRC  trade, and  Kong  world  6 9  and  outlet,  shipping  point of commercial the third  partner  its own  export  insurance  increased  of the embargo,  one-fifth  took charge  has  trading  the lifting  is as if Hong  [for China] which  China  largest  Since  6 7  and  kept for itself another one-tenth of its trade."  Besides  and  by  the  Oborne noted  68  is China's  closely  relations with the  Kong's entrepot trade with China also began to rise  again. Since then Hong  its external  largest  Hong  Kong  facilities,  and  has an  contact between China  container port,  the third  largest financial centre and the seventeenth largest trading unit in the world. ° 7  Furthermore,  Hong  Kong  is the largest, deepest  and  most  modern  port  facility  Jao, p.19.For a d e t a i l e d breakdown of Hong Kong's entrepot trade with China, see Table 1.3 on p. 18. Statistical Yearbook of China, 1984 (Hong Kong: Economic Information Agency, 1984), p. 383. See also, China Newsletter 68 (May-June 1987): 20., and The Hong Kong and Shanghai Banking Corporation, Business Profile Series: The People's Republic of China, 7th ed. (Hong Kong: The Hong Kong and Shanghai Banking Corporation, 1987), pp. 24-25. Business Profile Series: The PRC, p. 26. Oborne, p. 53. Victoria, B. C. China Economic Overview: A British Columbia Perspective (Victoria: Ministry of International Trade, Science and Investment, 1986), p. 24. See also, Peter P. F. Chan, China: Modernisation and. its Economic Laws (Hong Kong: The Hong Kong Economist Newspaper Limited, 1982), pp. 228-233. 6 6  6  7  6 8  6 9  7  0  27  along China's coast, something Hong Kong's many  that the PRC  assets and  superior  is in great need of.  natural  In view  71  of  endowments, it is therefore not  surprising that it is the intermediary for the trans-shipment of a large share of goods entering  into  China  from  abroad,  and  for China's  exports destined for a  third country trading partner.  Y.  C. Jao  activities was  due  pointed out that Hong  Kong's involvement  an  unofficial trade with countries like Taiwan  the  by  China  with foreign t r a d e . amounted  to  Furthermore, and  72  about  exports), most  to minimize  because  exchange  In 1983, it was US$34  of which  specialized  billion  was  bulk-handling  lack  million in 1983,  But,  South  other financial  three  form  Korea,  risks  associated  times  of goods  the  value  of  trans-shipped to  its  one  of  the  own  China.  China  of PRC  often  uses  Hong  Kong  7 3  most  as  a  one part of China to another. It goods by  China  came  to US$127  or about five per cent of all goods re-exported to C h i n a .  perhaps  and  of deep-water berths, warehouses, facilities  equipment,  estimated that the "repurchase"  and  estimated that Hong Kong's entrepot trade  (almost  in the  of China's  and  trans-shipment centre for re-shipping goods from was  trading  partly to the inadequacies of China's port facilities, the desire  to conduct desire  in China's  interesting  aspects  of  74  Hong  Kong's  entrepot trade with China is the "unofficial" or "silent" trade with countries that do  not recognize the Communist  regime  in China. The  silent trade agreement is  a testimony to the fact that despite political differences, countries can  Alvin Rabushka, HongKong: A University of Chicago, 1979), p. 25. Jao, p. 20, and note 7, p. 62. China Economic, p. 24. "Oborne, p. 53. 7  1  7 2  7  7  3  Study  In  Economic  Freedom  still share  (Chicago:  The  28 a  mutually  neutral  beneficial trade relationship, albeit, a covert one.  third  conduct their  party  intermediary, provides  trade. It is in such  both  sides  a  situations that the  Hong Kong, as  convenient  a  vehicle to  usefulness and  value  of  Hong Kong's unique status can be fully appreciated. It has often been noted that "Hong Kong's usefulness to China has of China yet apart from  In  1978  and  China."  1979,  PRC  exports  about 90  per  through  Hong  75  Hong  Taiwanese exports to the PRC,  Kong  Kong.  In  76  a  1983  cent of Taiwan's exports to China  from  HK$0.107  US$21  through  billion  probably  appropriate that since Hong Kong was  through  HK$2.2  worth  of  US$57 million worth of that  Singapore.  7 7  Hong From  Hong Kong increased  billion.  originally created as  an entrepot with China, that it is still performing  estimated  went through  Japan, Macau and  to  million  study, it was  to 1981, re-exports from Taiwan to the PRC  dramatically  and  re-exported  while Taiwan obtained  Kong, while the remainder passed 1979  always arisen from it being both a part  78  It  is  therefore  "a place of trade"  this role over  140  years  later.  3. H o n g K o n g as. a F i n a n c i a l and  Investment Centre  Hong Kong's amazing rise, in the major financial centre in Asia, was  due  late  1960s and  early  1970s, as  largely to China's desire to enter a  era of peaceful economic development where trade and  a new  international finance would  The Economist, ITHvTay 1985, p. 4., and Johnson, p. 4. Johnson went as far as saying that " i t is the very uniqueness of Hong Kong that will likely ensure its existence be5 ond 1997." 7  5  7  6  7  China  News  Analysis  ,  13  March  J o h n L. Scherer, China Facts and International Press, 1983). p. 257. ibid. 7 7  7 8  1981,  p.  Figures  6.  Annual,  1983  (Florida: Academic  29 play  a  new  direction in China's foreign and  Hong  greater role  Kong  financial  and  in its economic  the  entire  institutions  Pacific  converging  activities  than  it did in the  economic policies had Basin, and  on  Hong  resulted  Kong  as  past.  a stabilizing effect on  in foreign a  This  79  investors  desirable  place  to  and do  business. Edward  Chen pointed out that the revival of the China  to the expansion  of financial services in Hong Kong to support and finance the  increasing  volume  that  there not been  have  "had  undergone  years."  of the  the  Hong  Kong-China  China's  structural  new  change  trade. Moreover,  Chen  economic policies, Hong that  it has  trade also led  Kong  pointed out would  not  in the past  few  of Four,  was  experienced  80  After  the  by  Deng  realized  death  of Mao  Xiaoping  and  and  the  fall  of the  his  supporters  that  Gang China's  ambitious  Modernizations programme could only be achieved with substantial foreign assistance  and  increased foreign  negotiating loans and organizations. The made  it an  especially  since  of Hong  centre  Hong  at China's disposal. China has  obtaining credit from  rise  ideal  trade. As  8 1  for  Kong  Kong's banking Aside from  also sought  its modernization effort.  result,  China  became  various foreign banks and  as  financing  a  an  international  China's  facilities  and  foreign  financial  trade  financial  it  and  Four  financial  involved in international centre also investment,  services are  always  increasing its exports to earn foreign exchange,  to attract foreign investments  into China  to help finance  8 2  J a o , pp. 24-26.  7 9  Edward K. Y. Chen, "The Impact of China's Four Modernizations on Hong Kong's Economic Development," in China and Hong Kong: The Economic Nexus, ed. A. J. Youngson (Hong Kong: Oxford University Press, 1983), p. 89. Jao, p. 25. See David L. Denny, "Recent Developments in the International Financial Policies of the People's Republic of China," in China's Changing Role in the World Economy, ed. Bryant. G. Garth (New York: Fraeger Publishers, 1974), pp. 163-186., and Lawrence Freedman, The World and the Modernization of China 8  0  8  1  8 2  30 But  perhaps the  new  attitude towards  and  deposit-taking  role  was  trade.  insurance second  international finance  companies  build  But  8 3  increased  of  to  up  around  1970,  dramatically from companies,  and  branches) in  broaden  CSCB  considerable  Door Policy, Ma  13  is the  exchange  number  joint-venture  group in Hong The  8(1  in  of  resources.  In  Kong  to  1979,  presence  reserves  Chinese  1970,  and  banks  banks,  (after the was  in  make  extensive  a  13  shortly after China  of  Kong  DTCs, five China Bank  new  use  China's  Hong  Kong  of  CSCBs,  their chief  making  Hong  part  of  finance  branches in 1981,  merchant  expansion  order  enormous  Kong. Prior to  branches to 193  two  operations  financial  foreign  the  1981.  conspicuous embodiment of China's  (DTCs) in Hong  China's  largest banking  350  most interesting and  the  Group  strategy Hong  to  Kong's  announced its Open  Hong advocated that  Hong Kong should be used as a centre to raise the capital needed for speeding up China's modernization, especially since most Hong Kong Chinese are willing to contribute to their motherland. China should make good use of their assets, estimated to be in the order of US$30 b i l l i o n . 85  Aside the  Chinese  Hong  Kong  from  the  government and  has  expansion also  of China's  increased  become  estate outlets,  agencies,  real  newspapers,  estate, theatres,  a  its investment  heavily  economy. Some of China's considerable huge film  financial  involved holdings  department  in  activities activities  nearly  in Hong and  every  holdings facet  include travel, shipping store  studios, industrial  chain, and  a  Kong,  of and  shipyard,  manufacturing  in the real  retail plants,  (cont'd) (London: The Royal Institute of International Affairs, 1979), pp. 26-31. Oborne, p. 87. "Jao, p. 31., Oborne, p. 86., and The Economist 11 May 1985, p. 20. According to China Economic, p. 25, the number of CSCBs in 1986 was 239 branches. Ma Hong, as cited by Cheng, p. 64. 8 2  8 3  8  8 5  31  warehouses  and utilities.  86  Again, it is difficult  has  invested in Hong Kong because  on  the  extent  exacerbated conceal  by  or  China's  to use  the identitj'  of the real  how  much  China  China has not disclosed any complete  of its activities tendency  to determine  assets  owners.  in the  Hong 8 7  colony.  Kong  Although  This  residents  problem  as  is  "fronts" to  it is estimated  CSCBs control roughly one-third of all deposits in Hong Kong,  figures  that the  the total value  88  of China's assets in Hong Kong is still a subject of speculation.  Although was  not until  shortty  it is unknown  concerns  before  the  received  widespread  labelled  China's  economy  as  strategy,  within."  89  much China has invested in Hong Kong, it  China's  plans for the future of the British colony  Sino-British public  variation that  negotiations began  attention  aggressive  subtle  border"  about  how  policy  in Hong  Kong  of investing  of the Chinese  is, to "attack  from  in  1982  and  abroad.  massivel}'  Red  Army's  without,  that  this  subject  Gregor  Benton  in the  Hong  Kong  well-know "vanishing  [and to] co-ordinate  from  China's desire to keep a low profile in its financial activities in Hong  Kong seems well-founded because  its heavy involvement in Hong Kong's economy  has  for consternation and concern from  generated  residents. A n  not a little cause  News  Kong  example of the sense of uneasiness that China's activities in Hong  Kong has generated can be illustrated by an excerpt from China  Hong  Analysis,  the Hong Kong based  which reported that  Philip Geddes, In the Mouth of the Dragon: Hong Kong—Past, Present, and Future (London: Century Publishing Co., 1982), p. 62., see also, Oborne, p. 88., Jao, p. 45., Rabushka, pp. 92-93., and Christopher Howe, "Growth, Public Policy and Hong Kong's Economic Relationship with China," China Quarterly, no. 95 (1983), pp. 154-155. J a o , p. 45. China. Economic, pp. 24-25., and The Economist, 11 May 1985, p. 20. Benton, p. 41. 8 6  8 7  ea  8 9  32 shops owned by the Mainland are mushrooming all around the city. ...It is difficult to assess how deeply China is involved in the business life in Hong Kong [because] China keeps a low profile. ...the whole business power [sic] of Hong Kong is gradually sliding into the hands of the Peking Government. 90  Because  the year  1997  was  looming  close  on the horizon, and  made its intentions for the future of Hong  Kong known, many  Kong  in Hong  interpreted  China's  economic  activities  Kong  China  had not  people in Hong  as a prelude to an  eventual takeover of the colony.  Estimates is  generally  company Kong 1985,  of China's  agreed  with  that China  Japan  Economic  holdings in Hong  and  Yearbook,  Kong differ greatly. However, it  is one of the biggest investors in the colony, in  the United  China was  States.  91  to the 1986  According  Hong  the largest foreign investor in the colony in  accounting for 25.5 per cent of all foreign investments. China was followed  closely by Japan, with 23.1 per cent. The United States came in a distant third at  9.5 per cent.  Although  92  it is generally  accepted  that  the foreign  exchange  that  China  earns from Hong Kong is an important factor in helping it finance its balance of payments with other countries, there is a great deal of speculation over just much  foreign  attributed  exchange  to the fact  it earns that  prior  from  Hong  to  1981,  Kong. This China  has  phenomenon released  little  how  can be or no  financial statistics regarding its foreign exchange earnings and balance of payment schedule. However, after China's and  90  Bank  in 1981, China  into the International Monetarj' Fund  has  released  China News Analysis, 21 May 1982, p. 4. See Williams, p. 68., The Economist, 11 May Xianggang, pp. 13-15.  9 1  9  the World  admission  2  some  1985, p. 20.  of this information.  33 Nevertheless, a common consensus  or a complete  does not exist. Forty per cent of China's  picture of China's finances still  total foreign exchange earnings is the  figure that is most often cited by many sources.  This  figure  seemed  to have  emerged  before the  over the future of Hong Kong began in 1982. colony  after  because Kong." cent. cent  "China  earns  of  its annual 96  total  Speculators on  the future of the  the prospects for Hong Kong's future were good 40  1979  Sino-British negotiations  per  cent  of  its foreign  figures which vary from  Chinese  foreign  source, China  exchange  25  earns  earnings  exchange  Kong, or  of investment income,  immensely from  Because foreign  how  much  China  benefits  approximately  from  from  income, trade surplus, remittances and there  is no  controversy  over  the  in  Hong  per cent to 40  Hong  Despite the great differences in estimates over how  in Hong  exchange  that  about  According to a  95  invested  with  argued  Other studies proposed  9<t  Macau).  form  1997  9 3  Kong  much  Hong  30  per (and  China  Kong  per  has  in the  other forms of foreign  fact  that  China  benefits  a prosperous and relatively independent Hong Kong.  Hong  Kong  plays  exchange, it has  golden eggs for China." It was  often  such been  an  important  referred  role  to as  in supplying China  "the  goose  that  lays  pointed out in this chapter that Hong Kong, as  For example, see Chu-yuan Cheng, "The Potential Impact of Mainland China's Modernization on the World Economy," in Chinese Modernization, ed. Yu-ming Shaw (San Francisco: Chinese Materials Center Publications, 1985), pp. 345-346., D. K. Lewis, p. 8., China Economic, p. 24., and Rabushka, p. 25. "77ie Economist, 31 July 1982, p. 16. Frank Ching, Asian Wall Street Journal, 18 February 1983., as cited in Lucian W. Pye, "The International Position of Hong Kong," China Quarterly, no. 95 (September 1983), p. 461. According to Kueh and Howe, pp. 819 and 823, the trade surplus generated for China by Hong Kong during 1978-1980 was sufficient to cover four-fifths of the total trade deficit with the U. S., Western Europe and Japan in the same period. Ma Hong, as cited in Cheng, p. 63. 9 3  9  9 5  9 6  34 an  independent  economic that  and  Hong  section  modern economy, provided China  non-economic  Kong  modernization next  and  would  effort, and  benefits. However, it wasn't until  become  an  particularly  is to discuss the  which set the stage for a new the rest of the world.  with a number of valuable  active  participant  in the Shenzhen  post-Mao  political  and  and SEZ.  the  post-Mao  investor The  economic  era  in  China's  purpose  of the  events  in China  era of economic co-operation with Hong Kong  and  II.  A.  POST-MAO  T H E HISTORICAL  REFORMS  AND MODERNIZATION  IN  CHINA  SETTING  Since the death of Mao Zedong and the fall of the Gang of Four, the post-Mao  leadership  in China  has been  faced with  the monumental  task of  reviving a stunted economy as well as embarking upon the Four Modernizations programme  (in agriculture, industry, defence  and science and technology) which  was proclaimed in 1978 under the leadership of Premier H u a Guofeng. The goal of  the Four  Modernizations, to put China in the same league as the modern,  industrialized nations of the world by the year 2000, was i n i t i a l ^ Zhou Enlai in 1975.  The  announced b}'  2  pre-1978  economic  strategy  had been  characterized  by  heavy  bureaucratic control and unbalanced growth which favoured the rapid build-up of the  heav}' industrial sector. The Chinese leaders believed that a large, modern,  heavy be  industrial base, built up through large capital construction projects, would  able to pave the way for the modernization of the rest of the economy.  Although country  there was a proliferation under  the pre-1978  realized. The diversion  of heavy  industrial  strategy, the economic  of resources from  results  the traditional  industrial) sectors into the building of a modern, heavy only  resulted  2  expected  were not  (agricultural  and light  industrial infrastructure  industrial initiative indefinitely. According to a World Bank Staff  Paper,  Chu-yuan  throughout the  in a weakened traditional sector that was unable to sustain the  ambitious heavy Working  activity  China's  Cheng,  (Boulder: Westview  China's  total  factor  Economic  productivity  Development:  Press, 1982), pp. 274-276. 35  in industry  Growth  and  had essentially  Structural  Change  36 stagnated since 1957.  3  Despite a change in leadership, the immediate post-Mao period was in  many  leaders  ways, a  still  continuation of the  sought  to realize  economic  growth  investment  priority. Premier  a  capital  massive  for  and  Hua  investment  continued  to  receive  a  lower  Guofeng's Ten-Year Plan (1976-1985) called for  and  construction  4  The  new  program  twist to Hua's strategy, however was  outward-looking technology  policy, in which foreign capital  would  play  a  significant  modernization goals. However, it was Law  sectors  heavj' industrial  with  a  proposed  budget  the 1978-1985 period to be equal to the total investments of the previous 28  years. an  industrial  The  huge  still allocated a disproportionate share of the investment capital, while light  growth.  through  sector was  and  economic  modernization  Chinese  programmes  agricultural  unbalanced  and  strategy. The  investment  the  and  previous economic  still,  and  the  SEZs  in  1979  role  the Open Door Policy, or  (mainty in the form  in helping China  to  of loans)  achieve its  not until the creation of the Joint Ventures  (which  made  possible  the  investment  of  foreign  capital in China) that the Open Door Policy began to play a more pivotal role in  China's modernization efforts.  The  announcement  foreign machinery projects and  with  and  foreign  equipment  would  of the  Ten-Year  equipment and companies help  resulted  in a  the concluding of many  because  realize  Plan  it was  China's  believed  modernization  that  rush  to obtain  major construction foreign  technology  goals. However,  the  Gene Tidrick, Productivity Growth and Technological Change in Chinese Industry (Washington: The World Bank, 1986), pp. 1-5. "Samuel P. S. Ho and Ralph W. Huenemann, China's Open Door Policy: The Quest for Foreign Technology and. Capital: A Study of China's Special Trade (Vancouver: University of British Columbia Press, 1984), p. 7., and China's Economic, pp. 276-277. 3  37 sudden buying-spree resulted in many created in the  a  tremendous  rush  strain  to carry out  on  the  wasteful  "much  equipment  of it [the  was  underutilized  imported  other  reform  It was  problems  According  laid  [sic] on  inputs."  was  also  necessary  within  the  in  1978,  Hua  and  Four Modernizations and  announced  that  order  to  economy, and  period  of  and  recover  correct  from  the  economic house-cleaning, intended  its feet again, as well as  development strategies by  agricultural investments  was and and  also light  docks  Wang, and  the  caused  Eleventh  Central were  Open Door Policy were  economic  period  It  the  T.  the Ten-Year Plan  the  period  of political and  of the  a  address to  N.  5  1977-1978 period. The  on  to  installed fell victim to bottlenecks  Committee, which convened in December  retained.  wasted.  the Third Plenum of the Chinese Communist Party's  ousted but the goals of the  they would  a result, much of the expensive,  equipment] actualty  shortages of electricity and  At  Furthermore,  of their suitability, or how  or  warehouses. Even the equipment already by  reserves.  and  Ten-Year Plan, a great number of purchases were  integrated into the overall economic plan. As  imported  indiscriminate purchases  China's foreign exchange  hastily made without careful consideration be  and  readjustment  some  of  damage  Readjustment (1979-1981) was  the  caused  serious by  the  essentially a  to get the economj  a time for reassessment and  and  r  back  rethinking of economic  China's leaders.  recognized industrial  resource  at  the  sectors  allocation  Third must if  they  Plenum receive were  that high to  the  long-neglected  priority help  in  capital  support  the  N. T\ Wang, China's Modernization and Transnational Corporations (Lexington: D. C. Heath and Company, 1984), pp. xxiv. See also Yuan-li Wu, "The Rockj' Road to Beijing's Economic Reforms: Can Trial and Error Lead to Dynamic Equilibrium?" Journal of Northeastern Asian Studies IV (Fall 1985): 4. 5  38 modernization drive. Plenum  freed  As  6  various  a result, the  segments  mechanisms which had, also  designed  order  to  to  in the  release  increase  the  economic  of the  The  product  agricultural sector.  of  these  sector,  initiative efficiencj'  reforms the  from  some  of the  Third  bureaucratic  and  was  was  productive  forces  productivity.  As  permitted, which  the  expansion  a  the  result, a  play  autonomy  limited  market, or  in the  Responsibility  of enterprise  masses in  also enabled  forces, greater  Production  of  were  economy.  System in the  in  the  industrial  8  The  strategy  wholesale purchase and emphasis and  and  for  transplantation  was  no  longer  simply  of whole foreign plants and  modernization effort now  was  on  through hardware.  the The  increasing economic  efficiency through the transformation of China's existing industrial  infrastructure  techniques-not  modernization  thrust of the  productivity and base  and  than admininstrative  and  7  economy  at the  past, made economic growth difficult. They  degree of economic decentralization economic forces, rather  economic reforms announced  the  with  foreign  technology,  wholesale grafting of imported  and  modern  whole plants  and  management sophisticated  and  expensive foreign equipment onto China's existing industrial infrastructure.  and  Huenemann  described  the  technology that  China  was  interested  in  Ho  acquiring  as  ...not only technology that is embodied in machinery and equipment and technology that is codified (that is, documented in blueprints, drawings and engineering specifications), but also disembodied and undocumented technology (that is, information, skills, and know-how "The Potential," pp. 442-443. Greg O'Leary and Andrew Watson, "Economic Co-operation Revisited: New Directions in Chinese Agriculture," in China: Dilemmas of Modernisation, ed. Graham Young (London: Croom Helm, 1985), pp. 12, 22. Thierry Pairault, "Industrial Strategy (January 1975-June 1979): In Search of New Policies for Industrial Growth," in China's New Development Strategy, ed. Jack Gray and Gordon White (London: Academic Press, 1982), p. 145. 6  7  8  39 stored i n the minds of individuals).  9  These forms of technologies could not be obtained exchange,  but could  co-operation.  only  Consequently,  be acquired manj'  contracts that were concluded cancelled. achieve  Furthermore,  10  its ambitious  Plenum that China  close  of the investment  with foreign  international  economic  projects and development  during the 1977-78 period were either postponed or  the Chinese  leaders also realized that China could only  modernization  technological co-operation  through  simply  goals  with  substantial  foreign financing,  and assistance. Thus, i t was proclaimed  at the Third  would be "actively expanding economic co-operation on terms  of equality and mutual benefit with other countries ... [and would be] striving to adopt the world's advanced technologies and equipment...."  11  The China and  Open  DoOr  Policy  provided  could interact with the West cultural  12  the necessary  in order  co-operation. The promulgation  channel  1 3  of China's  first Joint Venture law  9 1 0  1  Using Chinese and  and the State Council's authorization of Guangdong and  Fujian Provinces to establish SEZs with broad July  which  to increase economic, scientific  (the L a w of the People's Republic of China on Joint Ventures Foreign Investment),  through  1979, " laid the necessary 1  trade and economic autonomy i n  foundations and provided the necessary vehicles  Ho and Huenemann, p. 23. China's Economic, p. 452. ^Beijing Review, 29 December 1978, p.  11.  The term "the West" is used i n this study to refer to the modern, industrialized, or "westernized" nations in the world. Although Japan is a F a r Eastern nation, i t is also a member of the international community of modernized, industrialized nations. Therefore, the term "the West" will hereafter also refer to Japan. See Hood and Lau. "Michael J . Moser, "Law and Investment in the Guangdong Special Economic 12  13  1  Zones,"  China, 143.  in Foreign  ed. Michael  Trade.  Investment  J. Moser  and  the  Law  (Hong Kong: Oxford  in  the  People's  University  Republic  Press,  of  1984), p.  40  upon which China would embark upon its latest path to modernization.  The and  Joint Venture L a w and the SEZs created the necessary environment  conditions  which would allow  China to interact closely, in various  beneficial economic ventures, with foreign investors to acquire technology. To increase in  the two coastal  mutuallj  7  foreign capital and  the chances of the SEZs to succeed, they were situated  provinces  with  the most extensive  international trade and  non-trade links and experience with foreigners. The SEZs, like the Canton system and  the treaty ports, were to be special zones in China where foreign investors  could do business. one  of greater  However, although China's present policy towards the West is  openness, China  is not totally  opened to foreigners. Thus, the  need for "special zones," where foreign influences ma}' be localized and regulated.  Although the doctrine of self-reliance has not been totally abandoned, this new its  approach to modernization was possible only earlier  notions  after China  of economic independence and its previous  trade as an exploitative relationship.  5 1  had reinterpreted convictions  about  According to Zhao Ziyang,  [The] expansion of exchange is a basic feature of large-scale socialized production, and it has extended from internal trade in China to trade with the world at large. By linking our economj^ with the world market, expanding foreign trade, importing advanced technology, utilizing capital and entering into different forms of international economic and technological co-operation, we [China] can use our strong points [comparative advantages] and make up for our weak points. ... Far from impairing our capacity for self-reliant action, this will only serve to enhance i t . 1 6  15  See  Susan  Shirk,  "The Domestic  Political  Dimensions  Economic Relations," in China and the World: Chinese Post-Mao Era. ed. Samuel S. Kim. (Boulder: Westview Press, Beijing Review, 21 December 1981, p. 3. ye  of China's  Foreign  Foreign Policy in 1984), pp. 57-58.  the  41 B. T H E C R E A T I O N  The  OF T H E SPECIAL  present  concept of the SEZs  process of various earlier view Open should in  Policj'  was  ZONES  the result  of an  evolutionary  special zone models. Moreover, it is also important to  the SEZ phenomenon Door  ECONOMIC  in China todaj' as an important  and economic  reforms.  C. K.  Leung  part of its present  added  that  the SEZs  also be seen as an important part of China's latest development strategy  its long-standing  important  part  drive  for modernization  in China.  of China's re-emphasis on coastal-led  17  The SEZs economic  are also an  development and  the first step in China's desire to eventually create "economic zones" on China's coast. The economic . lead to  zones are to be high  the pace of economic  serve  as nodes  where  could be disseminated development.  development within appropriately  growth  areas  which  would  its sphere of influence. They are  assimilated  advanced  foreign  technologies  to the rest of the country, and help co-ordinate economic  1 8  Two regions have which  economic  includes  been identified as economic zones—the Shanghai region,  Anhui, Jiangsu, Jiangxi  and Zhejiang  Provinces, which  presently  accounts for 26.6 per cent of China's industrial enterprises and about the same percentage  of the country's  Guangzhou  region,  which  total  includes  agricultural the Pearl  and River  industrial Delta  output—and the  area.  19  Guangdong  Province is expected to control about half of China's total foreign trade activities  C. K. Leung, "Spatial Redeployment and the Special Economic Zones in China: An Overview." in China's Special Economic Zones: Policies, Problems and Prospects, ed. Y. C. Jao and C. K. Leung (Hong Kong: Oxford University Press, 17  1986), p. 8. 18  19  Oborne, p. 81. ibid.  42  by the year  1990.  co-operation  zones  Jan S. Prybyla pointed out that the two regional economic  20  are, in the future,  present limits.  21  reforms  China's  fluid,  and  and  to carry  concept beyond its  Thus, as seen in the greater, long-term context of the economic development  transitional  strategj',  phenomena...."  the SEZs  Deng  22  are an  Xiaoping  reform policies and the SEZs as "experiments."  The  the SEZs  even  "...experimental, referred  23  earliest specially designated zones where Europeans could operate in  China  were,  of course, Canton, under  treaty  ports  (1842-1949). Although these earlier zones could, in many  regarded  as  differences between  the forerunners  between  foreign  technological of foreign  to the  of the SEZs,  them. While  investors  and  the SEZs China  co-operation, the Canton  trade  the Canton  system  there  were  system  and influences on the rest  are also  created  to promote  (1757-1842), and the  and  many  to serve facilitate  was created  ways, be important  as a bridge economic  and  to restrict the impact  of the country. Under  the Canton  system, trade and contact between  China and the foreigners was limited to only  one  ports  city  port-Canton. The treaty  were  not created  by  China, but were  actually concessionary zones to the militarily superior Western powers. China had no  jurisdiction  Western trade  over  powers.  centres  the treaty  Although  in China,  ports,  the treaty  their  which ports  were became  created  and  important  impact on China's economic  run by the  commercial and  development  was, in  the end, insignificant. * 2  2  0  China  Trade  Report,  June  1988, p. 6.  J a n S. Prybyla, "Mainland China's Special Economic Zones," in Mainland China: Politics, Economics and Reforms, ed. Yu-ming Shaw (Boulder: Westview Press, Inc., 1986), p. 368. "Mainland," p. 369. "Deng Calls Reform an 'Experiment'," Beijing Review, 15 July 1988, pp. 6-7. This was the main theme of many books on the treaty ports by Rhoads Murphey. For example, see China Meets, pp. 52-54., and The Outsiders, pp. 104, 2 1  2 2  2 3  2 4  43 The  next important predecessor for the SEZs concept were the 27 special  economic commodity production bases (ECPBs) and the specialized export factories in  Guangdong, Jiangsu, Shandong, Zhejiang, Liaoning, and Hebei provinces and  some autonomous regions, that were created after the Cultural Revolution by the Ministry  of Foreign Trade to help rebuild China's  agricultural  and light  industrial  exports  trade networks and stimulate  and earn  foreign  exchange.  25  The  rationale for creating these special production bases and export factories was to utilize the comparative country areas.  advantages (resources and skills) of selected areas of the  and to concentrate 26  on developing  Testimony to the enormous success  export  of these  export factories was the fact that they accounted total export earnings i n 1984.  Although  activities  in these  special  special export bases and  for about one-third of China's  27  these special export-oriented factories and bases were still under  the control of the central and local governments, the central government felt that if they were to succeed, that they must be able to ...cut through artificial administrative divisions and establish economically meaningful links between the government's various foreign trade organizations...for the purpose of encouraging [and facilitating] the export of certain targeted commodities. 28  In order to create the ECPBs, selected prefectures were transformed  into special  foreign trade zones, under the collective control of local foreign trade bureaus and sub-branches of the national foreign trade corporations.  92  2 25 26 27 28 29  "(cont'd) 122, 132, 135. Oborne, p. 81. ibid. ibid. "Mainland," pp. 368-369. John . Kamm, "Importing Some of Hong Kong...Exporting  China  1  Business  Review,  March-April  1980, pp. 29-30.  It is important to note  Some of China," The  44 that  the  Chinese  government recognized  mechanisms in order to create an to increasing exports. Therefore, tightly controlled, they were an they  set the  the  need  to  that  is more  or  bureaucratic  economic environment that would be conducive although  the  important  ECPBs  forerunner  were limited in role  of the SEZ  less  free  from  many  bureaucratic mechanisms that the rest of the country  of  the  operate in constraints  is subject to in the  next step in the evolution of the SEZs in China was  and  PRC.  However,  the most interesting aspect of the one  square kilometre industrial estate was  it was  operated entirely by  but Chinese-controlled China Merchants Steam Navigation  an  the creation  of the Shekou Industrial Zone in Guangdong Province in January 1979.  to be developed, managed and  and  concept because  precedent for creating economic zones that would  environment  The  simplify the  that  the Hong Kong-based,  Company,  30  and  that it  would offer a number of investment benefits to foreign investors to invest in the zone.  The  3 1  China was  decision to create special zones and a  self-reliance and  remarkable one  because it reversed  technology countries  transfer have  was  employed  not  economic growth and a  such  Chinese an  the  The  Hong Kong and  People's  Republic  of  3  2  to  Shenzhen  including  because  stimulate  and  many  economic  Consequently, when China  Shanghai Banking Corporation. Special China:  development  innovation  approach  growth long before the SEZs were created in China. 3 0  policy of  the idea of creating special zones of the economy in order  to attract foreign investments to speed up  developing  Mao's long-standing  keeping the country closed to the outside world.  Nevertheless,  promote  to allow foreign investments in  Shekou  Economic  Zones  (Hong Kong: The  of  Hong  Kong and Shanghai Banking Corporation, 1982), p. 3. Ho and Huenemann, pp. 48-49., and Oborne, pp. 76-78. K w a n - Y i u Wong and David K. Y. Chu, "Export Processing Zone and Special Economic Zones as Locomotives of Export-led Economic Growth," in Modernization 3  1  32  in  China:  The  Case  of  the  Shenzhen  Special  Economic  Zone,  ed.  K.  Y.  Wong  and  45 decided  to create special zones  in order to utilize foreign capital  and  technology  in its modernization efforts, the Chinese government set out to study the various special  zones,  and  "export  processing zones"  Mexico, and the Philippines.  In  scope  and  the  Shekou  Industrial  similar to the EPZs that they were modelled are  a  modified  and  zones  on  the  world's  major  goods  without  customs  export-oriented  adapted  version  trading  development  to  3  establish  based  of its domestic  Chinese  government  would  free  and  the  and  base  offer  with  foreign  SEZs  trade  zone  are Chu,  (which  are  trans-ship, store and re-export for  speed  the up  purpose  industrial  foreign  of  economic  specifically, China's  foreign exchange, and  industrial  Zone  bases  starting  growth  and  expectation for its  its understanding of the EPZ  export-oriented manufacturing  create local employment, earn level  on  of the  designed  development in the host country. " More special zones, which was  Taiwan,  after. According to Wong and  routes which  formalities)  industrial  in countries like  3 3  purpose,  EPZs  (EPZs)  concept, was  with  foreign  to  capital,  to upgrade the technological technology.  investors  a  In  35  number  return, the  of  investment  many  developing  incentives which are not available in the rest of the country.  Although countries  are  the  types  generally  of  activities  restricted  labour-intensive manufacturing  to  industries  in  the  relatively involving  EPZs simple  of  assembly  investments  that  work rarely  and exceed  (cont'd) David K. Y. Chu (Hong Kong: Oxford University Press, 1985), pp. 1-6. Moser, p. 143. ""Export," pp. 1-3. D. K. Y. Chu, "The Special Economic Zones and the Problem of Territorial Containment," in China's Special Economic Zones: Policies, Problems and Prospects, ed. Y. C. Jao and C. K. Leung (Hong Kong: Oxford University Press, 1986), p. 21., "Export," p. 1., and Oborne, pp. 76, 78, 83. 3 2  3 3  3  3 5  46 US$1  million,  benefited  from  technological  there  are some  their  transition  countries (ie. Korea  experience  with  into  sophisticated  more  the EPZs  and and  industrial  Taiwan)  have  that  since  activities.  have  made  a  Therefore,  36  when China decided to create its own version of the EPZs, it was in part, also an attempt to emulate  their success. Chinese scholars were particular^' aware of  the EPZs in Taiwan, which  were responsible for its enormous economic  since they were created in 1966.  37  Republic  growth  In the article, "Export Processing Zones in  Taiwan  and the People's  Chinese  leaders were following in the path taken by Taiwan's leaders to attract  foreign investments when they EPZs  in Taiwan,  were  of China,"  created their own  intended  to "...attract  George  Fitting  noted  that the  special zones, which, like the foreign  capital,  improve  the  international balance of payments, help in the development of native industry and serve as a conveyor of up-to-date technology."  3 8  The  next stage in the evolutionary process of the SEZs occurred when  the Chinese  government decided, later in the same year, to create other special  zones which would attract a wider range of economic activities. This decision was probably which  due to China's  was  essentially  recognition  of the the limitations  that of an EPZ. Consequently,  of Shekou's  Guangdong  scope,  and Fujian  Provinces were given formal authorization by the State Council in July  1979, to  take extraordinary measures (including the creation of SEZs) to develop not only industry and manufacturing, but also agriculture, tourism, commerce, real estate development, foreign trade and investment.  39  As a result, the Shantou (Swatow,  a former treaty port) Municipality in Guangdong Province was established as a Oborne, pp. 78-79. Oborne, p. 80. George Fitting, "Export Processing Zones in Taiwan and the People's Republic of China," Asian Survey, no. 8 (1982), pp. 732-733. K a m m . p. 28., and "Export,"p. 2. 3 6 3 7 3 8  3 9  47 "trade and investment established  as "special  zone" in August export  zones"  1979, while  in September  Shenzhen  and Zhuhai  1979. Although  were  these  new  zones were not called EPZs, when they were initially conceived, they were almost a replica of the EPZs, as their names would imply. The main difference between these new  zones and the EPZs  comprehensively  developed  was the fact that these new  and socialist in n a t u r e .  zones were to be  40  It was not until these three special zones in Guangdong collective^  put under  7  the management  Committee of the SEZs called  of Guangdong Province in August  SEZs. The reason  for the change  new zones were to be different from the was  Xiamen  in name  in October  National People's  1980."  Congress  created Administrative 1980 that they  was to emphasize  Shekou and the EPZs. Over  (Amoj', one of the first five treaty  established  Seventh  of the newly  Province were  In April  1  that these  a year  ports) S E Z in Fujian 1988, it was  to elevate Hainan  Island,  were  later,  province  decided  at the  an administrative  region of Guangdong Province, to the status of a province and make it China's fifth  and  encouraged  largest  SEZ."  2  The scope  and form  of investment  activities  to be  in the SEZs were to include  all items of industry, agriculture, livestock breeding, fish breeding ...tourism, housing and construction, research and manufacture involving high technologies and techniques that have positive significance in international economic cooperation and technical exchanges, as well as other trades of common interest to investors and the Chinese side.... 43  D . K. Y. Chu, p. 23. Moser, pp. 143-144. Yang Xiaobing, "Hainan Province-China's Largest SEZ," Beijing Review, 2-8 May 1988, p. 18. 1980 Regulations on Special Economic Zones in Guangdong Province, art. 4, in Shenzhen Jingji Tequ Nianjian. 1985 (Hong Kong: Shenzhen Jingji Tequ Nianjian Weiyuanhui, 1985), pp. 202-203. 4 0  4 1  4 2  4 3  48 Although  there  is  a  wide  export-oriented, light industrial investment in the SEZs.  range  of  activities  economic  activities  in  the  are, by far, the most common  SEZs,  form of  4 4  SEZ, as generally defined by the Chinese, is a certain designated area  A  ...to develop external economic cooperation and technical exchanges and promote the socialist modernization program. In the special zones, foreign citizens, overseas Chinese, compatriots in Hongkong and Macau and their companies and enterprises...are encouraged to open factories or set up enterprises and other establishments with their own investment or undertake joint ventures with Chinese investment.... 4 5  A  separate body of legislation, different from  created  to formalize the special  foreign  investors  treaty  a  stable  characteristics  political  the rest of the country, was of the SEZs  and economic  and guarantee  environment.  4  6  Like the  ports, the SEZs were not to be burdened with the bureaucracy and  regulations which the rest of the country is still subject to. However, unlike the  treaty  interfere, jurisdiction  ports,  let alone  where  the Chinese  government  regulate, the SEZs  of the PRC. Liang  Xiang,  were  had  no  authority  to be completely  the mayor. of Shenzhen  to  under the in 1984,  pointed out that "China's special zones are economic, not political. The word 'special' refers  to the relaxation  of economic  the special zones still possess complete  policies. The governments of  sovereignty."  47  Oborne, pp. 102-126. 1 9 8 0 Regulations on Special Economic Zones in Guangdong Province, ch. 1, art. 1, in Shenzhen Jingji Tequ Nianjian, 1985 (Hong Kong: Shenzhen Jingji Tequ Nianjian Weiyuanhui, 1985), p. 202. Tang Huai, "Guanyu Bianjing Jingji Tequ Fuzhan Fangxiang Chuyi," Gangao Jingji, no. 1 (1981), p. 1. For an English translation of some of the most important SEZ regulations, see Shenzhen, pp. 201-278. L i a n g Xiang, "China's Special Economic Zones," Beijing Review 27 (Januar}' 1984): 26. 4 4  4 5  4 6  4 7  49 The  SEZs  were  to be  channels  through  which  foreign  capital,  advanced technology, and managerial know-how could enter China and would then be funneled into other parts of the country. *  8  Thus, while the SEZs  are foreign and outward-oriented in focus, the}' are also inward-oriented with linkages with the rest of the country. The SEZs were to become centres for the development of export-oriented industries in order to build up the volume of China's earned the  9  by the SEZs would be used to help fund  SEZs.  Aside  manufactured generate on  exports and foreign exchange. *  from  goods  sold  earning on  foreign  foreign exchange earnings in the form  exchange  technological imports in  exchange  the international  The foreign  from  the profits  market,  the SEZs  of also  of rental and lease income  land and buildings, tourism earnings and services provided to the SEZ  enterprises.  50  Another holding  tank  function of the SEZs is that of a testing ground and a  for the vast  array  of foreign  economic  and  non-economic  influences entering into the country. The physical seclusion of the SEZs to the Chinese study  coast provides China with a controlled environment to observe,  and learn  about  capitalism,  new  managerial  techniques  foreign influences while maintaining a degree of isolation from the  and other the rest of  country. J a n Walls believed that the SEZs were created in part, to  avoid  the chaotic  and  wasteful  introduction  of Western  involvement in  China's economic development. Therefore, the SEZs were also intended to be  ' Lynette Kemp, Investing in China: Where, How and W7iy?(London: The Economic Intelligence Unit, 1987), p. 107., and Wang Yanyu, "Yige Yinjin Xianjin Jishude 'Chuangkou'," Gangao Jingji, no. 3-4 (1984), pp. 97-99. " "Exports,", p. 9. Y u Guangyuan, "Tantan dui Shenzhen Jingji Tequ Jige Wenti Renshi," Jingji Yanjiu, no. 2 (1983), p. 32. 8  9  5 0  50 a control device to  ...contain and highlight the results of the new modes of economic co-operation. In other words, if the experiments [in foreign economic co-operation] didn't work, their negative influence might be contained; if the}' did work, they could be easily highlighted and taken as models for imitation elsewhere in China. 5 1  In which  a  sense, the  would  influences Because  strain  while of  out  those  this  function,  He  also mentioned  useful  Deng  through  management techniques  were  to serve  potentially  deemed  {chuangkou)  windows  SEZs  and  gigantic  "harmful" were  which  or  allowed  Xiaoping  policies  as  has  undesirable  to pass  referred  advanced  and  sieves or filters  through  to  the  technology,  other ideas can  that because there are so many new  foreign them.  SEZs  as  knowledge,  enter into  China.  foreign ideas and  practices entering into China that are not yet fully understood, they will be tested  in the  SEZs  first  transfer into the interior.  The grounds  where  implications interior.  SEZs  53  experiment  new  could  are  in order  Consequently,  determine  if they  are  suitable for  are  the  5 2  also  legislative be  to  tested the  or experimental  laboratories initiatives first SEZs  in and  before have  laboratories. * 5  that  they  reforms being  also  with  extremely  transplanted  been  testing  referred  Since the creation  wide  into to  the  as  of the  an  SEZs,  Jan Walls, "China: Industrialization and Modernization-Challenge and Opportunities," in Canada's Strategies for the Pacific Rim, ed. Brian Macdonald (Toronto: The Canadian Institute of Strategic Studies, 1984), p. 114. "Jingji Tequde 'Chuangkou' Zuoyang," Renminribao, 8 March 1985, p. 5. Karl Herbst, "The Regulatory Framework for Foreign Investment in the Special Economic Zones," in China's Special Economic Zones: Problems, Policies and Prospects, ed. Y. C. Jao and C. K. Leung (Hong Kong: Oxford University Press, 1986), p. 124., Moser, p. 144., and Oborne. p. 96 n. 40. ^Beijing Review, 15 July 1985, p. 6. 5 1  5  5 3  5  2  various  measures, which were  introduced duty-free export  to other importation  factories in China. of raw  enterprises, various  practices, and  originally  the extension  14 coastal cities in 1984.  restricted  Some of these  materials necessary bonus  to the SEZs, have been  systems, more  measures  for production flexible  hiring  include the of goods by and  firing  of the right to attract foreign investments to  5 5  Just Faaland, "Preface," in Oborne, pp. 9-10.  52  Source:  Michael Oborne, China's Special Economic Zones (Paris: Organization for Economic Co-operation and Development, 1986), p. 185.  53 C. T H E  SHENZHEN  SPECIAL ECONOMIC  ZONE  Over one-fifth of all foreign investments in China are made in the SEZs, of which 80 of foreign  to 90  per cent comes from  investment  capital that  far, the most significant and north  of  the  New  Shenzhen  has  an  Shenzhen  accounted  Hong  Kong  pointed  out  advantage Fujian about  90  80  were  that  locations  5 9  By  Kong  the  square  per  of  attracted  the  SEZs  (the  Kong  Before named  is, by  SEZ  At  57  (and  to  were  Province  the  end  in the  carefully  Guangdong  SEZs)  of  four  Shenzhen.  border,  C.  SEZs. K.  chosen  in Shenzhen.  60  5 8  Leung to  take  Taiwan  (the  accounted  for  and  Macau) investments  1981,  By  mid  1987,  still the dominant SEZ, capturing more investment capital than the  combined total of the other three zones.  County  kilometers.  cent of investments  Macau  Hong  Kong-Guangdong  per cent of the US$3 billion committed  Shenzhen was  village  captured, the Shenzhen  Hong  particularly  and  1984,  on  327.5  investors  of Hong  SEZ).  of  for over  the  been  In terms of the amount  56  the most important of the five SEZs. Situated just  Territories area  has  Hong K o n g .  Shenzhen Lo  Wu,  became with  (xian). It only had  a  a  6 1  SEZ  in  1979,  population of about  about  it was  small  20,000 situated  twenty-six small factories  industrial output of less than US$10,000 and  a  almost no  with  agricultural in Bao  a total  An  annual  infrastructure to support  Business Profile Series: The PRC, p. 33. Y e n - T a k Ng and David K. Y. Chu, "The Geographical Endowment of China's Special Economic Zones," in Modernization in China: The Case of the Shenzhen Special Economic Zone (Hong Kong: Oxford University Press, 1985), p. 54. Zhang Rongfeng, Zhongyang Jingji Tequzhi Yanjiu (Taibei: Zhonghua Jingji Yanjiuyuan, 1982), p. 35. Leung, p. 9. D a v i d Aikman, Pacific Rim: Area of Change, Area of Opportunity (Toronto: Little. Brown and Company, 1986), p. 90. For the investment figures, see Business China, 28 March 1988, pp. 44-45. 5  e  57  5 8  5 9  6 0  6 1  54 industrial  development.  After  62  Guangdong  Province  was officially  granted the  powers to establish SEZs in 1979, the Shenzhen area was elevated to the rank of  a  municipality  government. institutional  This  63  (shi),  making  promotion  framework  was  of the SEZs  it directly motivated  reponsible by  to  the need  by eliminating  the  provincial  to simplify the  the prefectural  government  from the bureaucratic hierarchy. " 6  The mayor of Shenzhen is the head of the SEZ administrative hierarchy at the municipal level. Under him are various agencies such as the Shenzhen SEZ  Development Company, which is responsible for a wide range of activities  such as real estate and infrastructure development, and introducing and attracting investments into the zone; and the Shenzhen SEZ Construction Company, which is responsible for the planning and development of capital construction within the zone. the  65  The Guangdong  Guangdong  provincial  Provincial People's Government, which is represented by  Provincial  authority  Administrative  in matters  concerning  Commission Shenzhen.  of SEZs, is the highest 66  This  office  is directly  linked to the Office of SEZ Affairs, which is a special administrative branch of the  State  Council  in Beijing.  67  The SEZ Office  in Beijing  is responsible for  keeping the Chinese leaders informed of major events occuring in the SEZs as well as ensuring that the needs and interests of the SEZs priority.  receive special top  6 8  N g and Chu, p. 43., and Oborne, p. 118, 120. Oborne, p. 118. " K a m m , p. 28. T h e Hong Kong, pp. 8-9., and Oborne, pp. 98-99. Oborne, pp. 98-99., and K. Y. Wong and David K. Y. Chu, "The Investment 6 2 6 3  6 5 6 6  Environment,"  in Modernization  in  China:  The  Case  of  the  Shenzhen  Economic Zone (Hong Kong: Oxford University Press, 1985), pp. 176-177. Oborne, p. 98. Oborne, pp. 98-99. 6 7 6 8  Special  55 Before Shenzhen could begin to attract foreign investments was  necessary  facilities from the  to construct its entire the foundation up. It was  Chinese  government  infrastructure.  By  69  telecommunications many  infrastructure  spent  1985,  links  of the coastal  Shenzhen  with  cities  Hong  along  other  basic  supporting  estimated that between  1979  and  on  Shenzhen's  about  Rmb7.7  could  Kong  China's  and  boast  and  billion road,  rail,  Guangzhou,  southern  tunnel, costing Rmb90 million, opened in September Hong Kong  coast, as  and  expensive,  finance  this  the task foreign  effort.  investors Since to  1981,  well  as A  7 0  in  plan  Shenzhen.  More recently, Singapore's  into a co-operative agreement with  and  1988.  Shenzhen's  infrastructure  also  asked  Hong  prominently 72  helping  have  been Kong  Sum  China's  a  with major  new  the  Cheong  was  an  road  groups  development Piling  had  airport  71  so massive  to participate  business  finance  air and  sea links  and Shenzhen, while plans to build  of building  1985,  1987, cutting 3 kilometres off  just outside the Shenzhen city centre were announced in early  Because  sea,  and  highway linking Shenzhen to Guangzhou, Hong Kong, and Macau.  the distance between  as a SEZ, it  and  have of  help  figured  parts  agreed  of  to enter  Nanhui Oil Development and Service  Corporation to build one of China's largest container ports, which would include a 35.5 line.  kilometre 73  railwaj'  Interestingly,  a  line  Taiwan  are also negotiating with China's  largest  to link  consortium  Shenzhen  deep-water  the port  port  with  and  the  Wharf  Canton  Holdings  and  Shenzhen  of Hong  authorities to take part in building at  Yantian. * 7  Another  example  of  K e m p , p. 107. ~~ Oborne, p. 120. "Updating the Zones," Business China, 29 Februarj' 1988, p. 56. Ho and Huenemann, pp. 68-69. "New Port for Shenzhen," China Trade Report, January 1987, p. 5. "Taiwanese Funding Port in Shenzhen," Sing Tao International, 26 1988, p. 1.  Kong  southern foreign  69  7  0  7 1  7 2  7 3  7 4  August  Figure 3. Proposed Planning Districts of the Shenzhen  SEZ  Source: Anthony G. O. Yeh, "Physical Planning," in Modernization in China: The Case of- the Shenzhen Special Economic Zone, eds. K. Y. Wong and D. K. Y. Chu (Hong Kong: Oxford University Press, 1985), p. 114.  57 participation to build  Shenzhen's infrastructure was the 30-year (US$1.2  billion)  co-operative joint venture between Hong Kong's Hopewell China Development and the  Guangdong  Provincial  Highway  Construction  Company  to build  a 265  kilometre "super-highway" to connect Hong Kong and Shenzhen with Canton and Zhuhai.  75  Shenzhen accomodate development  a  was  wide  created  range  purposes,  to be  a  of investment  the zone  comprehensive activities.  has been  SEZ  Thus,  divided  which  could  for planning and  into  various  relatively  self-contained sectors which would each specialize in a particular type of activity such as industry, agriculture, commerce,  tourism or real estate.  76  Up to  1981,  Shenzhen had not only been agriculturallj' self-sufficient, but it had also been an exporter of grain.  77  Nevertheless, at that time, Shenzhen's full potential as a  producer of other agricultural export items such as vegetables, livestock and fish was  not fully  realized  because  of the over-production  of grains  under-utilization of arable land, of which Shenzhen had an abundance.  and the  78  Today, as the result of the active promotion of agricultural investments, agriculture  in Shenzhen  has grown  to become  one of the most  contributing factors to Shenzhen's success. Shenzhen  today  important  has centres in five  administrative areas (Nantou, Shangbu, Luohu, Shatoujiao, and Bao An) producing  Elizabeth Cheng, "Super-highway Gamble," China Trade Report April 1987, p. 5. Hong Kong billionaire, L i Kashing is also involved in this project. Anthony G. 0. Yeh, "Physical Planning," in Modernization in China: The Case 7 5  76  of the Shenzhen  Special  Economic  Zone,  ed. K. Y. Wong  and David  K. Y. Chu  (Hong Kong: Oxford University Press, 1985), p. 115. Tianxiang Zheng, Qingquan Wei and David K. Y. Chu, "Agricultural Land-Use Patterns and Export Potential," in Modernization in China: The Case of the 77  Shenzhen  Special  Economic  Zone,  eds. K. Y.  Wong  Kong: Oxford University Press, 1985), p. 103. Zheng et al, pp. 106-107. 7 8  and David  K. Y. Chu (Hong  58 and exporting a wide range of agricultural products such as fish, livestock, fruits and  vegetables.  was  about HK$500  output.  In September million, a  1987, 11.1  the total  value  of agricultural  per cent increase  over  products  the previous  year's  80  In a  79  1988, the population of Shenzhen  half million, which was  set for the year  had  reached  1990.  the projected target of  As  8 1  the zone continues to  grow, this figure is expected to rise to one million by the year  2000.  8 2  Wages  in Shenzhen tend to be much higher than in other parts of China, but then, so is the cost of l i v i n g . two  83  In 1983, Shenzhen had an average annual income about  and a half times that of the national average.  The  8 4  today is light industry.  predominant form of  economic activity  in Shenzhen  by the Shenzhen  authorities, about 40 per cent of the workforce in the zone will  be employed in the industrial sector by the year 2000.  Shenzhen  has  also  demonstrated to foreign  According to predictions  85  8  6  investors  that  it can be  a  China's Foreign Trade 3 (1988): 42. ibid. The Hong Kong, p. 3., and "Updating the Zones," Business China, 29 February 1988, p. 56. For the development programme of the Guangdong SEZs to the year 2000, see Oborne, p. 182. The Hong Kong, p. 3. David Bonavia, Hong Kong 1997: The Final Settlement (Hong Kong: South China Morning Post Ltd., 1985), p. 88. David K. Y. Chu, "The Politico-economic Background to the Development of the Special Economic Zones," in Modernization in China: The Case of the Shenzhen Special Economic Zone (Hong Kong: Oxford University Press, 1985), p. 30. Victor F. S. Sit, "Industries in Shenzhen: An Attempt at Open-door Industrialization," in China's Special Economic Zones: Policies, Problems and Prospects, eds. Y. C. Jao and C. K. Leung (Hong Kong: Oxford University Press, 1986), p. 235. K w a n - y i u W o n g and D a v i d K . Y. Chu, "Trends and Strategies of Industrial Development," in Modernization in China: The Case of the Shenzhen Special Economic Zone, eds. K . Y. W o n g and D a v i d K . Y. Chu (Hong K o n g : Oxford University Press, 1985), p. 57. 7  3  8  0  8  1  8 2  8 3  8 4  8 5  8 6  59 profitable  place  enterprises Chinese  to  invest. By  April  in Shenzhen, half of which  partners,  were  making  enterprises provided  Company, 99  enterprises earned  20  sustained Rmb6.39  success rate of about 83 identical  to  the  84  Nevertheless, and  modernization qualified  there  the  effort. One  people  to  fill  being  the  run  the  as to  Shenzhen million  1,000  foreign-funded  joint  ventures  information  Investment  that  government  it will  Because Shenzhen  of  to  control the  success  Daily,  of the key  rate  for  28 December  many  problems zones  88  This works out  foreign-owned  1984.  which  are  most acute  positions in  and  the  other  foreign trade related for the j o b .  91  increase 50  tremendous  K.  119  (US$32.37 million) in profits,  in losses in 1987.  special  about  on  Administrative  to a  to  enterprises in  8 9  must  be  resolved  before  lead  China's  successfully  problems is the critical shortage  the  foreign  trading  the  number  of its foreign trade  per  cent  China's  pressure  SEZs  of  by  the  enterprises so  foreign trade  by  to  expand  its foreign trade  regularly  recruit  foreign-language  positions, even though they  of  enterprises. This  problem is especially serious in Guangdong Province because it is expected central  with  cent for foreign investors, a figure that is almost  are  other  of  According  87  Rmbll9.9  cent  the China  Shenzhen cited by  Shenzhen  per  per  by  million  most  were  profits.  foreign-funded  while  1988,  1990.  90  capabilities,  graduates  for  are inexperienced or unqualified  T. L i , a Taiwanese Minister in 1979,  noted  that one  of the  Sing Tao International, 25 April 1988, p. 1. ibid. China. Daily, 28 December 1984, as cited by Suzanne Pepper, "China's Special Economic Zones: The Current Rescue Bid for a Faltering Experiment," Bulletin of Concerned Asian Scholars 20 (1988): 7. Although these figures indicate that about 16 per cent of the foreign firms in Shenzhen are not making monej , I have not been able to find any published figures on foreign firms or joint ventures that have gone bankrupt in Shenzhen. " S k i l l e d Manpower Needed." China Trade Report, June 1988, p. 6. ibid. 8  7  8 8  8  9  7  90  9  1  60 biggest obstacles to modernization in China personnel and skilled  workers  to absorb  was the lack of technically  the new technologj  operate the sophisticated technology from abroad.  92  7  trained  and to efficiently  L i estimated that China onty  has about half of the approximately 800,000 trained technicians that it needs for its modernization program.  Another must be noted from  Hong  problem  93  is that despite Shenzhen's present relative  that the majority of its foreign investment  Kong.  Because of this  overdependence on Hong  capital Kong  success, still  it  comes  capital, the  future success of Shenzhen is precariously tied with that of Hong Kong's. Until Shenzhen  can attract  a  larger  international community, Hong Kong  share  of its investment  capital  from the  will ironically continue to be the source of  its success, as well as its Achilles' heel. Other  problems concerning the SEZs,  and Shenzhen i n particular, will be discussed i n chapter four. The next chapter will examine Hong Kong's current economic relationship with China by focusing on Hong Kong's economic relationship with Shenzhen. This will be followed by a brief discussion on the cultural factors, and Hong Kong's role as a special zone in China after 1997.  9 2  K.  T\ TX, "Mainland China's Economic Modernization: A n Evaluation Based on  Taiwan's Development Studies and International 9 3  ibid.  Experience," Issues and Studies: A Affairs, no. 7 (July, 1979), p. 20.  Journal  of  China  Shenzhen: Basic E c o n o m i c Statistics  (Unit  =  Rmb  9  4  1979-86  9  5  million)  Year  1979  1980  1981  1982  Capital construction Gross industrial output Gross agricultural output Total volume of retail trade  50 60.6  125 88.4  270 242.8  633 362.1  886 1584 n. a. n. a. 720.4 1814.5 2674,2 3507.0  114.7  110.8  130.0  140.6  152.1  188  n. a.  128.5  206.6  355.9  567.9 1284.9 2159.8 2777.8  2650  11.2 1.3  17.4 4.3  1983  1984  168.4  1985  1986  Foreign trade (US$million)  Export Import  9.3 n. a.  16 7.9  62.3 724.1  304.3 807  563.4 742.9  670 n. a.  143.9  210.5  193.4  360  Realized foreign investment (including foreign loans)  (US$million)  15.3  32.6  112.8  73.9  "The investment figures cited in this table are much more conservative than many other sources. For example, David Aikman (p. 90) noted that foreign investment commitments in Shenzhen amounted to US$3 billion in 1984, but he did not specif}' how much of this amount was actually utilized. Much of the discrepancies over foreign investments in the SEZs arise from the difference between what has been commited and what has actually been invested. The investment figures cited in this table are slightly higher than those published by the Shenzhen authorities for 1979-1984. See Shenzhen, p. 599. Sources: Michael Oborne, China's Special Economic Zones (Paris: Organization for Economic Co-operation and Development, 1986), p. 185., and China Trade Report, March 1987, p. 6. (Compiled by Thomas Chan). 9  9 5  III. HONG K O N G AND  As  mentioned  important to China The  earlier,  mainly  Hong  Hong  Kong  fact  about  the  interests should  took  the  expand  to  scope  property  development  changed  to  and  "special  of  they  the  economic  when  the  SEZs  largest  then,  was,  not  were  suggest  tourism  Consequently, SEZ  post-Mao  created  to  the  Shekou and  since there was  Hong  Kong  utilize resources  were  to  the  name  reflect  created by  surprisingly,  China  situated  Kong  Zone  of the  this  business that it  to  zone  should  capitalists  perspective.  1979,  Shenzhen, the  to  Hong  Kong.  investors.  About  investors,  who  in joint  ventures  and  committed  in  investors  in  Shenzhen  80  of  the  per  cent  account  Shenzhen."  in China  The  to set up  export-oriented assembly  3  opportunities  also  2  an extremely logical  It is therefore not surprising that the most enthusiastic response investment  be  already a great deal of interest in China to co-operate with  factories along the China-Hong Kong border.  new  include  broader in  next  interesting  government  Industrial  was  other services.  Hong  Guangdong  Special  that  zone"  after  selection of the Shenzhen's location next to Hong Kong was one  reforms  latest modernization effort. However, an  is that  initiative  the  the  intended to actively tap into and  for China's SEZs  before  as a supplier of foreign exchange and  creation of the SEZs was  from  Kong  SHENZHEN  investors  for about  90  Furthermore,  accounted  for 80  H o and H u e n e m a n n , p. 49. Cheng, pp. 64-66. " " C h i n a ' s Foreign G a i n s , " Asian  came  per  between  per  mainly  from  in  Shenzhen  cent  of the  1979  and  cent of China's  are  Hong  Kong  Hong  Kong  investment 1985,  to the  capital  Hong  Kong  equity joint ventures,  2  3  Business, 62  March  1986,  p.  8.,  and  Zhang, p.  35.  63  which were concentrated mainly in the Pearl River Delta region.  The  enormous economic presence  5  of Hong Kong investors and investment  capital in the Shenzhen SEZ and the Pearl River Delta Region is a very curious phenomenon, especially with the year horizon.  This  interesting  economic  1997 looming relationship  so uncomfortably  raises  some  close on the  very  fundamental  questions about the relationship between Hong Kong and the Shenzhen SEZ, and Hong Kong exploring  and China. The next two sections will analyze these relationships by  the following questions: (1) why  Shenzhen, (2) what  investment  areas  do Hong  are they  Kong  interested  businessmen  invest in  in and why, and (3)  are Hong Kong investors providing the technologies, modern managerial skills and foreign  exchange  These  questions  environment investment  earning will  capabilities  be  that  answered  mainly  of Hong Kong with Shenzhen incentives offered  China  had hoped by  for in the SEZs?  comparing  the  investment  and by looking at some of the main  by Shenzhen. Cultural  factors will  also be explored  briefly.  A.  T H E ECONOMIC  Undoubtedly, and  FACTORS  Shenzhen's most conspicuous advantage  the key to its success is its size  advantages  and location  next  over the other SEZs, to Hong  Kong. These  have enabled Shenzhen to take in more foreign investment funds than  the combined total of all of the other SEZs, despite the fact that the package of investment  incentives offered  by the other SEZs  is almost  identical.  "Jewel," p. 8., and Business Asia, 22 June 1987, p. 193. For the foreign investment figures and the special incentives SEZs, see Business China, 28 March 1988, pp. 44-45.  6  For Hong  5  6  of each  of the  64 Kong  investors, Shenzhen's greatest  that  it offers to the  Foremost For  of these  foreign  generally  wide  to  however,  be  less  and  advantage  of investment  attractions is the  investors,  proven  range  pull  is the  incentives  that  lure of lower operating  the  investment  accomodating  to  than  accessibility  the  SEZs  offer.  costs in Shenzhen.  environment  them  easy  in  for  Shenzhen  their  has  Hong  Kong  were generally  more  counterpart.  Oborne  noted  interested  in lowering  European  counterparts,  access  the  Kong  to  that  firms  who  investors costs  Chinese found  market.  that the  on  a  their  American, Japanese  more interested in eventually A  7  in China  than  were generally  such investment criteria as cheap labour  Kong  their production  domestic  industrial  Hong  1982  research  scale from  availability  0  of labour  (6.8), tax concessions (6.2), and  to  survey  of  the  SEZs  10,  geographic proximity  gaining  32  (6.9), cheap land  and  Hong  satisfied (6.8)  (4.9).  8  and  Because  of these different investment motives, Hong Kong investors also generally tend to enjoy immediate benefits, in the form of higher profits, for investing in Shenzhen, while  other  foreign investors generally  investments. Although and  does  not  have  80  per  much  cent  money  do  not  expect immediate  of China's population to  spend  on  in  China, and  eventually pay  often  7  8  9  costs, with the  are  problem  foreign investors  must  147-148.  produced  consumer  often willing to invest  face  access.  in China  central government to protect its domestic industries from  Oborne, p. 90. Oborne, table 25, p. 91. Shirk, p. 58. Also see Wang, pp.  countryside  hope that their investments will  off in the long-run in the form of market  Another the  incur high  lives in the  domestically  goods, let alone expensive foreign goods, foreign firms  profits for their  9  is the being  desire  by  overwhelmed  65 by foreign competition. but  would  have  government  Such an event would not only be economically  serious  in a  political  double-bind  consequences  as  situation in that  well.  This  it wants  it must  also deal with  in preserving  and  than  supplying  China which have  a vested interest  in China  against  Building, which represents  nearly  economic imported  it has  restricted also  growth, when them,  the  China  produced  machine-building  is being  often  resorted  challenged to  01  to the  heavy  industrial  succeeded in pushing  China  now  had  a  goods  monopoly  that the machine-building  its bureaucratic  clout  Protectionist pressures  sector  in China.  for increases  restrictions on foreign goods and equipment.  Although  of its own  by more sophisticated and modern foreign  using  to protect its interests.  most  industry  equipment to Chinese factories. However, now  government  have  lobby groups within  is the Ministrj' of Machine  industry's monopoly firms,  domestic industries. At the same time,  of all the industrial enterprises in China. In the days of self-sufficiency  extensive  rather  foreign  equipment, but not  of the largest proponents of protectionist pressures  competition  one-third  the central  the pre-reform economic situation.  One foreign  its own  puts  to encourage  investments, and it also needs modern foreign machinery and at the cost of possibly damaging  disastrous,  Light  in customs  with  the central  are, by  no means,  industrial duties  and  enterprises marketing  1 1  promotes a polic} of import-substitution, and 7  allows  some foreign firms a limited access to the Chinese market, it is also mindful of the  dangers  previously  10  1 1  of  too  exempted  Shirk, p. 65. Shirk, pp. 66-67.  much customs  foreign duties  penetration on  imported  of  its markets.  production  As  materials  a  result,  must  be  66 paid  if the finished  market  instead  intended up  of  products are subsequently the  international  market.  marketed This  1 2  to the domestic legislation  to attract export-oriented businesses to Shenzhen  was  primarily  in order to help build  China's exports, while at the same time, prevent China's domestic  from  being overwhelmed  the investment (especialfy 1987  by  strong foreign  environment  those  Chinese  competition. In  an  industries  attempt  to make  in Shenzhen even more attractive to foreign investors  possessing desired  technologies), the  Shenzhen  administrators in  have allowed companies that have been experiencing difficulties in making a  profit limited  access to the domestic m a r k e t .  selective - basis,  and  only  if the  quality, technology etc. " In an 1  exchange imposed  from a  China  strict  (and  clamp-down  foreign attempt  especially on  goods  investors have renminbi  some  in  spending  Mak,  exchange  pointed  access to the  profits earned  to Blaser and foreign  Pepper  therefrom  China  out,  meet  certain  criteria  the and  SEZs),  the  re-emphasized  as  central the  government  development of  1 5  incorrectly,  Chinese  that  market, that  even  though  introduced regulations in 1985  foreign  "...they cannot convert  [in China] into foreign currency."  remittances for foreign  such  a  to reverse the large out-flow of foreign  export-oriented industries in the SEZs in 1985.  Suzanne  However, this is only done on  13  which  enterprises in China  16  According  would  which  facilitate  are entitled  Fred Blaser and Constance Y. F. Mak, Business and Tax Laws of the People's Republic of China (Don Mills: Commerce Clearing House Canadian Ltd., 1987), p. 64., and Provisional Regulations of the State Council of the People's Republic of China on Reduction and Exemption of Enterprise Income Tax and Consolidated Industrial and Commercial Tax for Special Economic Zones and the Fourteen Coastal Cities, art. 8, Shenzhen Jingji Tequ Nianjian, 1985 (Hong Kong: Shenzhen Jingji Tequ Nianjian Weiyuanhui, 1985), p. 271. L i Tiejun and Zheng Lianming, "China's Import-Substitution Policy," China's Foreign Trade 3 (1988): 11. "ibid., and Country Report: China, North Korea, no. 4, 1987, p. 20. Pepper, pp. 16-19. Pepper, p. 13. 1 2  1 3  1  1 E  1 6  67 to  sell their products and  at  attracting  produces needed  foreign  quality  services to the PRC.  firms  products  in China...."  to  China  which  that  are  employ  fact  was  aimed particularly  "...advanced  internationally  Therefore, despite the  1 7  This law  competitive  that  China's  policy is designed to increase its foreign exchange earnings and exchange outflow, it is not impossible to earn China. The  and  technology  or  and  urgently  foreign  currencj'  reduce its foreign  remit, foreign  exchange  from  main problems facing foreign investors are creating or finding a niche  in the Chinese economy and  then convincing the Chinese  authorities to give them  some access to it.  The foreign not  to  limitations of access to the Chinese  investments affect  in the. SEZs  and  the  Hong  investors  and  thus, interested  export-oriented, and of  assembly and this  problem  Kong  be  solved  tended  to frustrate  China. This problem, however, has as  much  in Shenzhen  production base. The must  markets has  because  mainly  as  complex political and  if the  SEZs  and  they a  are  mainly  low-cost  process  economic  China  are  tended  to  dimensions succeed  in  attracting advanced modern technology for its modernization effort.  In  order  to  understand  Shenzhen, it is necessary of  Hong Kong. Hong  trading post into one the  massive  civil war. 1 7  why  to understand  Kong's remarkable  Hong  Kong  the historical  investors and  have  economic development  transformation from  a struggling British  of the world's largest industrial centres was  migration  of human  and  capital  resources  Since then, the steady influx of (legal and  dominated  from  largely due to  China  during the  illegal) immigrants  1  8  from  Blaser, p. 89.  Although legal immigration from China provides Hong Kong with a steady stream of workers, illegal immigration is a serious and persistent problem because the numbers of illegal immigrants that enter Hong Kong are often so overwhelming that they impose an unmanageable burden on housing, education, 1 8  68 China  has tended  take advantage  to keep  wages  low and enabled  Hong  Kong  industrialists to  of the cheap and abundant supply of labour in the colony.  19  In  a sense, then, it can be said that Hong Kong was built on cheap labour.  Although  Hong Kong has emerged as one of the world's largest financial  centres in the 1970s, the manufacturing of its economy, accounting for about all that  employment, and over Hong  Kong  85  is losing  sector has continued to be the backbone  one-quarter of its GDP,  per cent of its total exports.  about 0 2  one-third of  Despite the fact  its competitive edge in its traditional  manufacturing  sector (ie. textiles, plastics and electronics) to its Southeast Asian competitors like Taiwan, Thailand, the Philippines and South still  strong  demand  and  for labour  manufacturing nine  vigorous. This  per  and • the  was  rising  2 1  recently  wages  and  its manufacturing demonstrated salaries  cent  average  increase  Kong's manufacturing  in dollar  terms  from  by  sector is the strong  of workers  sector in Hong Kong. In 1987, manufacturing  Although rising wages may  of Hong  fact  Korea,  in the  wages experienced a  the  previous  year.  2 2  be interpreted as an indicator of the vitality of Hong  sector, it is also one of the main reasons for the erosion  Kong's comparative  advantage  (ie. cheap  labour) in the manufacturing  sector.  Aside cost  of real  from  the high  estate and land  and  rising  labour costs in Hong  use fees is another  serious  Kong, the high  problem  Hong  Kong  (cont'd) transportation and other social services in Hong Kong. Lewis, p. 4., and Jon Woronoff, Asia's "Miracle" Economies (New York: M. E. Sharpe, Inc., 1986), pp. 150-151. The Hong Kong and Shanghai Banking Corporation. Business Profile Series: Hong Kong, 6th ed. (Hong Kong: The Hong Kong and Shanghai Banking Corporation, 1986), p. 9. "Hong Kong Industries," pp. 274-275. "Employment, Wages and Prices," Country Report: Hong Kong, Macau, no. 4 (1987), p." 13. 18  19  2  0  2 1  2 2  69 manufacturers  have  to deal  with.  Because  that is naturally suited for industrial and square miles, or about 10 expensive  commodity.  amount  of land  in Hong  residential purposes is only  to L.  C.  Chau, between  1959  and  Kong  about  per cent of the total area, land is a scarce and  According  23  the  40  very  1970,  the  average purchase price per square foot of industrial land in Hong Kong went from  HK$9.70 to HK$102.90, while  went  up  from  HK$2,723  per  the  square  average purchase meter  to  up  price of a small flat  HK$10,450  from  1976  to  1981. • 2  Faced  with  these  high  and  rising  land  surprising that when Shenzhen offered the Kong  manufacturers decided  those  businesses  and  opportunity  to relocate there. The  (mainly  factories)  in  Hong  labour  costs, it was  to cut costs, manj' Hong  SEZs  Kong  appealed that  particularly to  were  competitive edge because of rising operating costs. Such businesses new  lease on  about  one-third  businesses According to  life simply  from  to  by  one-half  Hong  Kong  from  Hong  technology  foreign  tended  Kong  re-export back to Hong Kong. high  Not  25  to  to John Scherer, approximately  Shenzhen  exchange  from  these  earnings  losing  27  are  to obtain  be 70  the  China  of  be  the relocated  labour-intensive  and  industries.  2 6  processing  operations  for  does not receive a great deal of  of investments, it. The  most  costs can  per cent of the industries relocated  assembly  Although  forms  surprisingly,  their  could obtain a  moving to Shenzhen, where production cheaper.  not  other  they  do  provide  benefits that  China  these  with  forms  of  W. A~. Reynolds, Factors Which Hinder or Help Productivity Improvement: Hong Kong Report (Tokyo: Asian Productivity Organization, 1980), p. 36. L. C. Chau, "Imports of Consumer Goods from China and the Economic Growth of Hong Kong," in China and Hong Kong: The Economic Nexus, ed. A. J. Youngson (Hong Kong: Oxford University Press, 1983), p. 217. Geddes, p. 147. ibid. Scherer, p. 259. 2 3  2 U  25  2 6  2 7  70 investments  offer  China  are  modern  compensation trade investments, as important  and  Kong  in  low  and  skills,  finished  products  from  medium technologies, which are just  useful as high technologies.  According Hong  and  management  to Lynette 1988  was  Kemp, the HK$365,  as  average monthly opposed  to  wage for a worker in  HK$124  for  his  Shenzhen  counterpart, while the average net rent for prime office space in Hong Kong HK$25 per use  square meter, as compared with  fee schedule  also published  in 1987,  enterprises were determined on  HK$9 in Shenzhen.  pointed  Another land  28  out that land use  the basis of the type, duration and  fees of  that it employs.  introduced  investment environment in the  entitled  in October  industrial  export,  or  SEZ  Land use health  exempted  determined  would  new  land-use  reductions  and  foreign-sourced  Special provisions SEZs  primarily in production technology,  to  even  for  more  3 0  fees for agricultural, educational, scientific, technological, medical  altogether. of a  the  that were engaged  advanced,  rates.  purposes  introduction  to improve  operations  possessing  preferential land use  and  1986  SEZ  needs of the  operation, as well as the type of technology  29  was  are  These  3 1  broad be  fees  assessed  range  on  special  a  case-by-case basis  measures  of advanced  were  Rmb.20  exemptions  to  for land  1.6  intended  foreign technologies  beneficial to its modernization of  and  per  square  development, and  Kemp, p. 70. Blaser pp. 35, 67. According to the standard investments have the most favourable rates. ibid. B l a s e r , p. 67., and Yeh, pp. 1 1 8 - 1 1 9 .  efforts. In  could to  be  totally  encourage  the  which  China  1988,  Shenzhen's  metre/year,  with  "extra high-tech"  had  possible ventures,  2 8  2 9  3 0  31  land use  fee schedule,  industrial  71  were the lowest figures published Hong  Kong, and  the  Kong businessmen and Kemp  noted  production  in the  (probably  operating  "for  Hong  in business short-term.  the  Kong  companies,  They  have an  much  Kong  businessmen  and  may  correspond explain  more, in less than  not  exceed  why  to  the they  Shenzhen Hong  an  Kong  could  be  Kong, realized  that from  15  short are  years  years  perspective,  lowered  once  35  stability.  This pattern of  36  of  3  3 5  3 6  Hong  Kong  of investors in  The  costs  aside. In  risks  the  important criterion for  production  all the  were  in duration, while  cycle  meet an  is, political  Business Asia, 28 March 1988, p. 44. Kemp, p. 76. "77ie Economist, 12 November 1983, p. 91. Kemp, p. 78. Oborne, pp. 90-91. 2  3 3  to  Lynette  3  have  immediate alone  made  short, from been  weighed, investing in Shenzhen offers more "pluses" than "minuses".  3  tend  years. *  largest group  attractive investment centre, political risks businessman's  five  or less.  business  the  Hong  that  due  all of their  investing benefits  also be  usuallj' expect to recover  fact that it does not fully  of  3 3  generally  short product  in  profit cycle  Shenzhen despite the outside  differences  and  largest group of investors are committed for 10 to  net  businessmen  Hong  of investment contracts in Shenzhen in 1987  for small-scale investments which do  seems  marginal  to  relocating there.  other investors may  extremely  world) and  capital, and  Kemp noted that the majority  investment  there, many  investment in China attractive."  attitudes. Hong  shortest in the  original investment  costs  investors found it difficult to not consider  differences between Hong Kong and  differences  think  Because of Shenzhen's proximity  3 2  powerful lure of lower  costs frequently make an  The to  that  to date.  a  carefully  72 Another rate  and  Kong  inducement  other  has  a  concessionary  tax-related benefits which are corporate  tax  rates or tax  and  for investing in Shenzhen  offers a  rate  of  18.5  rate  For  enterprises that export 70  per  cent  tax  rate is even lower at  per  cent.  the of  preferential tax the  higher variety  of  repatriated now  10  outside  tax  rates  other  taxes  profits.  The  of the  offered only in the  that  SEZs.  and  SEZS  such  local  not  a  15  also be  SEZs enjoy, they  the  and  does  concessions  SEZs, may  20  as  tax  to  40  offer. per  not  per  and  tax  offer  cent tax  any  corporate  holidays. the  eligible  are  They  not  are  cent) and  surtaxes  and  Technological  all of the  income  a  entitled  must  still  Zones  pay tax  procedures.  especialty regular Economic  This  for  Hong  basis.  The  Zones  in  a on  preferential terms which were originally  3 9  special  Kong  to  (ETDZs)  Another lure attracting investors to the zone are the simplified entry exit  of  to all  subject  withholding  Development  joint  for many  still  3 7  corporate  Although foreign enterprises and  3 8  (between  Economic  also offer many, but  cent,  or more of their products,  treatment that the  preferential treatment income  per  variety of generous  lower  available in Hong Kong. Hong  holidays, while Shenzhen has  tax  ventures in China, but  not  is the  consideration  investors, to  Provisional Guangdong  Entry Province,  was  commute and  Exit  adopted  designed to  and  to from  Regulations in  1981,  make  it  Shenzhen for  have  and easy,  on  a  the  Special  made  multiple  Kemp, table 19^ pi 70! The corporate tax rate in Shenzhen is even more attractive than those offered in other Asian centres such as Singapore (40 per cent), South Korea (30 per cent), and Taiwan (25 per cent). However, the tax holidays offered Singapore (5-10 years), South Korea (5 years), and Taiwan (5 years) are comparable or better than Shenzhen's (3-5 years). ^Business Asia, 28 March 1988, p. 44. S. H. Cheung, "The Not-so-open cities," China Trade Report, December 1985, pp. 1, 4. ETDZs are located in the 14 coastal cities that are open to foreign investment. They were created to import advanced technology and develop new technologies and high quality consumer goods through joint venture research and investments. See Business Profile Series: The PRC, p. 34. 3 7  3  3 9  73 entry-exit travel  visas  available  frequently  to Hong  to Shenzhen  Kong  (and  Macau) investors  to perform  their  duties.  the movement of people in and the  duty-free  other  importation  materials  export. *  deemed  These  1  two  Regulations  40  out of the zone were  who  have  to  facilitating  also extended to include  of machinery, equipment, raw  materials,  vehicles  and  necessary  of  intended  for  for the  regulations,  which  production  appeal  largely  goods to  the  Hong  Kong  investors, were intended to take advantage of Shenzhen's close proximity to Hong Kong,  and  have  greatly  facilitated  the transfer  of Hong  Kong-based  factories to  Shenzhen.  Since be  surprising  Shenzhen  is economically  that Shenzhen  should, in many  writers have even commented of  Hong  Kong. *  Graham  2  and  that Shenzhen  Johnson  [Shenzhen] special zone is how Hong Kong  was  best  noted  Hong  Kong,  43  The  illustrated  by  it should not  waj^s, resemble Hong is already  that  Kong.  "the interesting  feature  shift  from  real  of the  towns on the  close economic bond between the  Some  like an industrial suburb  much it resembles some of the new  side of the border."  Shenzhen  dominated by  Hong  estate  to  Kong light  industrial investments in Shenzhen, which corresponded with the rise and fall of the real estate boom in Hong  Shenzhen  was  Kong.  created just  as the demand  for land  in Hong Kong  was  X i a n g Ming, "Shenzhen Tequ Geiyu Touzizhe Gengduo Youhui," Jingji Daobao, no. 38-39 (1983), p. 34., and Provisional Rules of the Special Economic Zones in Guangdong Province Governing the Entry and Exit of Personnel, 1981, art. 3, sec. 2. in Shenzhen Jingji Tequ Nianjian, 1985 (Hong Kong: Shenzhen Jingji Tequ Nianjian Weiyuanhui, 1985), p. 211. Moser, p. 151. R. Y. W. Kwok, "Structure and Policies in Industrial Planning in the Shenzhen Special Economic Zone," in China's Special Economic Zones: Policies. Problems and Prospects, ed. Y. C. Jao and C. K. Leung (Hong Kong: Oxford University Press, 1986), p. 61. Johnson, p. 9. 4 0  4 1  4 2  4 3  74 beginning to peak, so Shenzhen provided an attractive alternative outlet for Hong Kong  real  (which  estate investments. Because  Shenzhen  unfulfilled  had  demand  holiday resorts.""  in abundance  for recreational  of the shortage  of land  for development),  space  there  and facilities,  Consequently, the main investment  in Hong  was  as well  areas in Shenzhen in 1981  the total investments, while light industrial investments per  cent. *  The  5  large  real  estate  and  high but  as weekend and  were tourism and real estate development, accounting for about  16  a  Kong  68 per cent of  accounted  tourism-related  for only  about  investments  in  Shenzhen during the early  1980s were due largely to the spill-over effect of the  boom  in Hong  mutual  market  in property  satisfaction  assistance  Kong's  need  They  were  for land,  in property development. Interestingly, many  not purchase build  of Hong  Kong.  property solely  housing  Shenzhen. "  The  for  their  for their relatives  own in  also  and  the result  Shenzhen's  Hong  Kong  use, but also purchased  China  who  wanted  to  of the  need for  investors did property to relocate  to  6  predominance  of real  estate and tourism investments  years of the SEZs also influenced the views of some PRC SEZs should be developed. For example, Tang Huai  in the early  scholars over how the  argued that the SEZs should  not compete with Hong Kong in those sectors that Hong Kong is strongest (the light  industrial  comparative focus  on  manufacturing  advantage those  industries)  because  Hong  Kong  in these areas. Instead, he proposed  activities  such  as  tourism,  commerce,  already  has a  that the SEZs should agriculture,  animal  husbandrj' and those industries which do not put them in direct competition with  """Industries," p. 233. " "Trends," p. 57. " Oborne, p. 140. 5  s  75  Hong Kong."  However, the  7  end  of the real estate boom  in Hong Kong forced  Shenzhen to refocus on more productive (export-oriented industrial) activities rather than  non-productive  1985,  there  concentrate was 40  was on  (tourism and also pressure  more  precipitated  property development) activities. Furthermore, in  by  from  productive a number  the  Central government  (ie. export-oriented) of problems in the  activities. Chinese  per cent drop in foreign exchange reserves, a sharp  of trade, a inflation  7 per cent drop in grain output, and  rate  (which  was  3  times  the  1984  for the  a  The  SEZs  to  reorientation  economy, such  as  a  worsening in the balance  9 per cent increase in the  rate),"  which  8  created  a  sharp  demand for foreign exchange earnings.  The  policy  reorientation  brought  the  development of the light industries, which was the SEZs when they neglected Chinese  were created."  sectors in China leaders  as  the  economic development. main  types  in the  weakest The  50  of economic  9  to utilize  the  of  the  originally  Mao links  years, were in the  SEZs  accorded  Light industry and  activities  are  regarded  economy,  agriculture goods and  region's comparative  and  by  and  to  the  top priority in  light  the  thus,  post-1978  the  key  to  China, where the industries  electronics),  advantages  back  agriculture, which were  location of the SEZs in southern  textiles, processing of semi-manufactured attempt  focus  5 1  to ensure  was  (such partfy  as an  the successful  development of these two sectors.  Tang, pp. 2-3. " Stanley Rosen, "China in 1986: A Year of Consolidation," Asian Survey, (1987), pp. 35, 46. " Nicholas H. Ludlow and James B. Stepanek, "China's Five and Ten Plans: 1981-1990," The China Business Review, (March-April 1980), p. 6. P a i r a u l t , pp. 131-132. Kemp, p. 57. 4 7  8  9  50  5  1  no. 1 Year  76 An compared  interesting pattern emerges when real estate investment with  industrial  investment  statistics.  estate development contracts accounted in  Shenzhen!  Forty-three tourism  First,  a  small  statistics are  number  of real  for a large portion of the capital invested  and real  estate contracts,  which  made  little over five per cent of all signed agreements in 1981, accounted  up  for almost  HK$2 billion, or 70 per cent of the total pledged investments in the zone. the  same  time,  537  manufacturing  agreements,  agreements accounted for only HK$450  or  million, or about  66.1  per  a  cent  52  At  of all  17 per cent of the total  invested capital.  5 3  This investments  phenomenon were often  can  be  explained  negotiated in phased  by  the  fact  packages over  that  real  a number  estate  of years,  so that the amount of capital committed was actually the total amount of capital investment spread out over a number of years. * Industrial investments however, 5  require a large capital outlay which could not be spread out over a number of years.  Furthermore,  period  of return  and  while  real  higher  estate  profits,  development  industrial  projects  investments  provide generally  longer period of time in order to recoup the original investment.  Another  a  shorter  require  a  5 5  important factor which influenced the types of investments made  in Shenzhen during the early years was the fact that Shenzhen did not have a very  developed  infrastructure.  As  a result,  Shenzhen's infrastructure  had to be  built from the foundation up. Furthermore, the Chinese government at the central T . WT C. Lo^ "Foreign Investment in the Special Economic Zones: A Management Perspective," in China's Special Economic Zones: Policies, Problems and Prospects, eds. Y. C. Jao and C. K. Leung (Hong Kong: Oxford University Press, 1986), p. 186. ibid. "Oborne, p. 140. "Trends," p. 57. 5 2  5 3  5  5 5  77 and local levels lacked sufficient funds to develop Shenzhen result, a substantial amount of assistance was especially many  from  of  Hong  Hong  Beijing-controlled  Kong.  Kong's  The framework attracted  fact  may  typical  shape  As  58  a  and  Hong 5 6 5  5 9  was  adequate  (HK$439  only  involved in natural  Kong  that  companies  infrastructure  Wong, Shenzhen's the  development  assembly  million).  scale  of land  and  the high  limit  Y.  to  and  legal  of industrial  of  industrial  tended  in the HK$840  to be  thousand  conditions were well suited for  operations  land-use costs  the types of industries  period  (HK$18 million); housing (HK$47  These  59  initial  weak infrastructure  in Shenzhen  operations  found  in Hong  in Hong  Kong  in Hong Kong  Kong.  have  The  tended to  to predominantly small  light industries, as opposed to heavy industries, which generally  amounts  operations  of  also  land  for production  and  capital.  import their  raw  dependent  60  Because  materials  upon  inputs. Furthermore, the close  Kong's transport facilities  and  advanced  most  processing  or semi-finished  Shenzhen's  goods  and into  infrastructure or supply  proximity  infrastructure  H o and Huenemann, pp. 67-69. China's Economic, p. 478. "Trends," pp. 57-58. "Trends," p. 58. Figures cited are 1981 averages. C h e n g , p. 65.  7  5 8  60  an  to commercial development  Shenzhen, they are not very system  heavily  sought out Hong  lacked  industrial  and  and medium-sized  assembly  result,  processing  tourism  large  it  investments during  type  and  require  Shenzhen  industrial  range, as compared million); and  already  have also limited the amount and types of industrial investments  to medium  shortage  activities, Kong  a  7  that  large  development.  the  5  in Hong  As  sought to help develop Shenzhen,  China was  to the zone. According to K.  discouraged  small  financial  companies  help develop Shenzhen.  Because  56  on their own.  has  of Shenzhen made  to  it easier  78 for  Hong  Kong-based  manufacturers  to be relatively  independent  of Shenzhen's  infrastructure for the supply of raw materials.  According to Karl legal  Herbst, uncertainties  regulator}' framework,  contained in the Shenzhen  as  well  as  and ambiguities in the Shenzhen  the many  Provisional Technology  burdensome  requirements  Regulations, can be blamed for  Shenzhen's comparative  failure in attracting the advanced  it had hoped to obtain.  61  Western technology that  He listed some of the most important concerns foreign  investors have with the technology transfer regulations as the  ...very long list of documents, data and equipment that must be provided when transferring know-how. The supplier is responsible for training the Chinese part}' and must ensure that the recipient masters the entire technology. He must also guarantee the legal effectiveness and the anticipated technical results of the introduced technology. Finally, the technology must be capable of producing products suitable for the international market: if losses are caused by the influence of the supplier on sales the supplier is liable for those losses. Furthermore, in cases where the supplier has transferred the same technology to other persons, he must submit a duplicate of the original contract to the Chinese party. The Shenzhen Provisional Technology Regulations also provide that technology transfer agreements, except for the use of technology as investment capital, should generally not exceed five years, although extensions are possible. If the foreign party to a joint venture uses technology as investment capital the ratio of its technology capital is not to exceed 20 per cent of the registered capital of the joint venture. 62  Many long-term  foreign  firms have  also  tended  commitment  of capital  and  human  to avoid investments resources, or  obligations for the licensing of technology with the PRC because financially  risky  to enter  into  long-term  business  relations  requiring  "running  a  royalty"  they consider it with  a  socialist  h e r b s t , p. 130. Herbst, p. 130. See also, the Provisional Rules of the Shenzhen Special Economic Zone on the Import of Technology, 1984, in Shenzhen Jingji Tequ Nianjian, 1985 (Hong Kong: Shenzhen Jingji Tequ Nianjian Weiyuanhui, 1985), art. 9, 10, 11, 12, 19 and^ 23, pp. 254-258. 6  6 2  79 country.  David  63  Aikman  attributed  investments in Shenzhen comes from Japanese  investors  possessing  the  majority  of  Hong Kong, while American, European  and  advanced  reason  why  technologies  the  and  vast  know-how  are  more  reluctant to invest, to the fact that foreign companies were often concerned about any  ultimate  foreign  loss  investors  transfer  their  against  them  technology various  of  possessing  to  the  technology  tend  PRC. *  to  be  China's difficulties  agencies  in  the  the  to  military potential) are West  over  the  types  someday  export of  large body of laws and  example, even  though  are  brief and  legally-minded business provide how more  in  Western China  China too  has  fact  to how  may  settled.  and  more  created  investors.  is the  be  if they  it to compete  in acquiring control  Western  restrictions  by  that  be  could  regulations that have been  detailed  the  laws  new  Western  there  are  laws will be  Nevertheless, amplify  and  laws  and  satisfy  the  legal  differences  very  few,  or  no  interpreted and  the  firms.  situation can  futher  define  For  regulations, they  standards, to  Exacerbating  66  that  67  many  published  foreign enterprises, there  in dealing with China for foreign  vague, by  a guideline as  disputes  use  words,  65  is still a great deal of uncertainty  too  other that  technology  the Chinese government relating to foreign trade and  often  afraid  in the  future. Adding  may  In  6  China  (especially with  Despite  high  advantage  technology to China, that  transferred to C h i n a .  by  competitive  the of  more doing  precedents  to  implemented, or only  the  improve conditions  as of  investment.  "Technology Transfer Via Licensing: The March-April, 1980, p. 56. "Aikman, pp. 65-66, 90. W a n g , pp. 102-104. W a n g , pp. 120-121. Wang, pp. 94-9.5. 6 3  6  65  66  6 7  Options," The  China  Business  Review,  80 Because advanced  most  Hong  technology,  transfer  regulations.  transfer  by  Hong  investments  they  Kong  involved  attempt  for  in  mutually  investors  for the purpose  be  found  to  as  do  in a  1982  that  only  China  not possess  threatened  technologies, while  industrial investments China,  advantageous  product  The  to  generally  main  the  joint  7  of industrial  research and appeal  China  hoped  that  70  of the  "intermediate" and  obsolete  government  (of Hong  industries. He  access  to China's  Hong  Kong  would  be  In  the demand  has  vigorously  with  Hong  Kong  Kong  activities in  industrial  other countries like  Min Jianshu, a professor at a Hong Hong  Kong  Kong  opportunities for Hong  and  Kong's  also pointed out that if Hong Kong is able to gain  markets less  68  in the electronics  increased economic co-operation between  more  marketplace.  respectively.  development, particularly  would spur development and open up more  manufacturing  technology  cent  for industrial co-operation are the rising  in the electronics industry.  university  per  in industry  expansion  the most  of technology  and to satisfy  Chinese  ventures  the  survey  production costs in Hong Kong and the strong challenge from Japan  by  36 and 59 per cent of the investments  proposed  69  not  it was  "advanced"  technology  Shenzhen) and  investors  investors  to encourage more  advanced  industry.  tend  However,  technologies made up an  Kong  through  dependent  increased (and  economic . co-operation  vulnerable) on  the  that  international  7 1  Oborne, pp.92-93. See also, Joseph Chai, "Industrial Co-operation between China and Hong Kong," in China and Hong Kong: The Economic Nexus, ed. A. J. Youngson (Hong Kong: Oxford University Press, 1983), table 3.17, p. 133. Shen Yuanzhang, "Shengang Liangdi Jingji Guanxide Huigu yu Zhanwang," Jingji Kexue 2 (1986): 58., Peng Jewen, "Xianggang yu Neidi ke Hezuo Fazhan Dianzi Gongye," Jingji Daobao, no. 38-39 (1983), pp. 62-63., Xie Yingzhen, "Zhongguo Neidi yu Xianggangde Dianzi Gongye Guanxi Miqie," Jingji Daobao, no. 38-39 (1983), pp. 67-68., and Chen Jiwen and Huang Yi, "Xianggang Dianzi Gongye yu Neidi Hezuode Qianjing," Gangao Jingji, no. 3-4 (1984), pp. 57-62. X i e , p. 67. Min Jianshu, "Jiaqiang Xianggang yu Neidide Jingji Hezuo," Xianggang Jingji Nianjian, 1984, sec. 1, p. 38. 6 8  6 9  7 0  7 1  81 Even though Hong Kong investors generally cannot offer Shenzhen much advanced  technology,  skills and and  they  techniques, and  can  contribute advanced  marketing  stabilized technology, which  and  management  is more easily transferred  assimilated than complex, advanced technology. Hong Kong has  that the  most advanced  success.  What  is necessary  management and Therefore, Shenzhen  the is  technology for  is not economic  the maximization most  not  a  important  necessary success,  of the  available  contribution  that  its technology,  but  demonstrated  ingredient for economic  however,  is the  technologies and Hong  its investment  Kong  efficient resources.  can  capital,  make  marketing  to and  management expertise and business savvy.  Jon developing  Woronoff pointed country  technology. He  was  argued  out  not  that the  necessarily  most  the  appropriate technologj' for a  most  that the gradual upgrading  sophisticated  or  advanced  of existing technologies, rather  than taking a big technological leap forward, would not only greatly simplify the learning and to  assimilation of new  modernization.  Simpty  72  technologies, but was  grafting  advanced  a more rational  technologies  onto  a  approach backward  economy that is not adequately prepared to make the "high-technology" transition was  an extremely  haphazardous and  the recipient society had take  advantage  of  such  uncertain approach  a technically trained and technologies,  the  educated  transfer  technologies would be futile and only create confusion.  Lucian pointed  72  out  Pye,  that key  W o r n o f f , p. 267. Woronoff, p. 272.  7 3  in his article, Politburo  and  "On  Chinese  to modernization. Unless  of  workforce the  that could  most  advanced  7 3  Pragmatism  in the  1980s,"  Central Committee members, influenced by  82 Toffler's The  Alvin earlier the  Third  Wave,  believed  technological revolutions, it can  current  skip  technological revolution through  technologies. "  while  China  over them the  and  may  for China's needs, especially in generating  the  influences.  best  the  case  untrained  assimilation had  of  West  and  its  be  to  the  top in  most advanced  more appropriate  more  desire  were  of the  even  had  difficulty  technology investment  can  be  activities  why  (even  most  workforce  new  and  are  the  great the  employment,  and  Pye  also  to its desire to adopt keep  in  a  advanced  factory not  may  attracted  industrial  out  undesirable  out  have  there.  This  activities  in  that  a  the  may  also  Shenzhen  because  do  at  on  the  be  part  not  the  a  workers  ability  speed  bearing  is  Woronoff  many The  76  with  that  countryside,  dictates  workforce  associated  pointed  also  the  technologies)  the  only  of  which type of  of the  necessarily  technologies.  noted  that  although  owners  an  high  foreign-owned  and  of  environment.  Hong Kong found Shenzhen to be technology  deal  difficulties  Huenemann  technology  that  Chu  a  recruited from  transferred, but  of  less  and  was  functioning  involve the most advanced  Wong  with  realized. Ho  absorb  where  unskilled, manj' of 7  part  to  Shenzhen,  and  large  Shenzhen  of  technolog}  mentioned  reason  the  on  7 5  In generally  from  out  move to the  attributed China's desire for the most advanced technologies only  missed  acquisition of the  Although less advanced technologies  7  practical  that  predominantly  of  marginal  industries in  attractive place to relocate, the large-scale, Hong Kong-based industries that  "Lucian Pye, "On Chinese Pragmatism in the 1980s," China. Quarterly, no. 106 (June 1986), p. 227. "On Chinese," p. 228. H o and Huenemann, p. 69. See also, Kemp, p. 61., and Herbst. pp. 130-131. 7  7 5  7 6  83 are  still  profitable in Hong Kong  The  reason for this may  be  are more hesitant to relocate to Shenzhen.  that the well established  and  predominantly  7 7  foreign  firms do not have as great an incentive to relocate as the more marginal firms. Therefore, because  of the different needs and  investors, Shenzhen's investment  environment  motives of Hong Kong and tended  Western  to appeal more to the Hong  Kong investors.  According investments  (especially  significant  form  industrial  investments  small-scale activity  Shenzhen  to the  of  processing  industrial in  light industry  in Hong Kong.  Jingji  79  and  activity  Shenzhen are  should  all  investments.  80  the end  On  the  operations)  zone.  not  The  7 8  come  the property boom had  of 1983, type  of  1985,  light were  industrial the  dominance  as  a  far, the most common  light industrial investments rapidly took over Shenzhen so that by  Nianjian,  assembly in the  also, by  After  Tequ  most  of light  surprise  because  type of industrial  subsided in Hong Kong,  as the main form  of investment in  they accounted for about three-quarters of investors  and  investments  found  within  Shenzhen, Kemp noted that  ...almost 80 per cent are from Hong Kong for whom the SEZs are particularly suited [for their needs]. Such investors are anyway already engaged in light industries oriented for export. that depend on cheap and relative!}' unskilled labour for cost competitiveness. 81  Beijing's  entry  into  the  Convention  for  the  Protection  of  Industrial  "The Investment," p. 194. "Gongye Tongji," Shenzhen Jingji Tequ Nianjian, 1985 (Hong Kong: Shenzhen Jingji Tequ Nianjian Weiyuanhui, 1985), pp. 587, 589. G e d d e s , pp. 18-19, 53. According to Geddes, more than 45,000 businesses, or 99 per cent of the businesses in Hong Kong in 1982 employed an average of 20 employees each. "Trends," p. 57. By 1984, this figure was about 80 per cent. See "Industries," p. 235. ibid. 7 7  7  B  79  8  0  8  1  84 Property,  and  82  the creation of the  1984  Patent Law  were steps in the right  direction towards ensuring the protection of foreign industrial property rights (such as  inventions and  technology  firms  technologies). to  invest  in  This  83  China.  move For  has  made  example,  it easier  in  1987,  for  Philips  high  of  the  Netherlands entered into a joint venture with the Shenzhen Advanced Science and Technology  firm  to  manufacture  and  market  (domesticallj  7  and  abroad)  attract  foreign  state-of-the-art laser optical systems. " 8  However, investments has  not  root  (other than  adequately  especially Nations  the  those Centre  of  from  on  Hong  addressed  possessing  China's  the  problems  Kong) and most  modern  in  trying  advanced  important  technologies. A  to  technologies is that it  demand 1987  of foreign report  by  that  both  Transnational Corporations pointed out  investors,  the  United  China  and  foreign investors have different expectations about foreign investments in China. It noted  that  modern  what  technology  China and  expects  from  management  foreign  skills,  and  investments revenue  (foreign  foreign investors expect to maximize their profits mainly by the  Chinese  market, obtaining  offshore manufacturing bases.  Although and  some  access  China to  access to the Chinese  has  scarce  83  8 4  8 5  8 6  finally,  foreign  capital,  exchange)-while  gaining a foothold in to establish low-cost  8 5  supplied  investors with low-cost manufacturing  resources, such  as  markets is still extremely  foreign investment problem 8 2  scarce resources and  are  coal  and  petroleum,  8 6  bases  gaining  difficult. Thus, the crux of the  are the inherent limitations of the SEZ  concept. As  "Technology," p. 56. ' M o s e r , pp. 319-328. "Laser Technology to be 'Transferred," China Trade Report, July 1987, p. 4. "Some Positive Proposals," China Trade Report, (September 1987), pp. 8-10. S e e Ho and Huenemann, pp. 154, 156, 159, 168-170.  a  85 result, many  multi-national corporations the  fact  that  have not been interested in investing in  China,  despite  investments  receive  special treatment. Consequent!y, the  to the SEZs are those typicaby is, low It  form  main  advanced  not  types of investments  attracted  found in EPZs in other developing countries: that  surprising that  Kong, where  may  technology  to medium technology, labour-intensive, light industrial, and  is therefore  Hong  involving  the  main  these types of economic  investors activities  in the  are  also  export-oriented. zones the  are  from  predominant  of economic activity.  B. "THE C A N T O N E S E CONNECTION"  Any between  study  Hong  which  Kong  and  seeks  a  China  greater  cannot  understanding  ignore the  relationship. In the case of the Shenzhen SEZ, investors,  and  over  90  per  Kong, this consideration objective, motives  cent  of the  and  can  are not tangible, and  be  easily  expressed  also  play  an  role  80  capital  of their  per cent of the  comes  from  in  dollar  terms,  Hong  Hong  cultural  a result, the intent  economic considerations,  in influencing  ties  economic factors, which are  often difficult to quantify. As  important  economic  dimensions  where about  investment  of this section is just to show that, aside from factors  cultural  is especialty relevant. Unlike  measurable,  of the  Kong  cultural  investments  in  China.  Despite pointed  the  fact  that  Hong  Kong  is a  British  colony, A.  J. Youngson  out that the close identification of manj' Hong Kong residents with China  has many economic and  non-economic implications in that  ...many people [in H o n g Kong] w i s h Chinese, and they sympathize w i t h  to be useful to C h i n a . They Chinese national aspirations.  are For  86 this reason, many who are not Communists but who have special skills that are needed in China go there to work for a few years, as technical experts or teachers, or, while remaining in Hong Kong, go out of their way to help and to promote Chinese interests. 8 7  Moreover,  manjr  overseas  Chinese  also  maintain  close  business  ties with their home province. Their informal commercial local Chinese  businessmen  in Guangdong to conduct  to deal with their Western counterparts.  N.  T.  relationship facilitated  Wang  many by  noted  overseas  that  their linguistic  personal network of friends and  this  "insider"  China  even  perhaps  advantage though  even  more  relations with China China. Wang  argued  also  they  often  have  do  not  important  them  agree  than  with  "the  local  Chinese economic  asset  8 7  Youngson, p.  identification  greatly  Chinese  business  groups,  Wang also noted  8 9  the  politics  of the  business  aspect  of  aid element  for  China  and which  donations. In 1983,  affiliation is  motives  [of overseas  with  manifested  it was  business  to, and  that  China in  90  for wanting  to help  relations  8 9  90  9  1  with  1  powerful overseas  represents a various  forms  significant such  as  estimated that there were more than  IT  Ezra F. Vogel, Canton Under Communism: Programs and Politics in Provincial Capital, 1949-1968 (Cambridge: Harvard University Press, 1969), 20-21. Wang, p. 61. W a n g , p. 62. ibid. 8 8  But  Chinese  Chinese 9  CCP.  overseas  translated into economic terms, this complex and  cultural  remittances and  friendly  is due  China] can be more important than the business element."  When  having  to engage in business relations with  with  the  and  China  are their complex non-business that  enabled the  foreign trade without  relatives in China.  enables  network has  relaxed  with  ties, association  and  commercial  88  the  Chinese  and  a pp.  87 1500  schools and  Guangdong  and  universities  Fujian  that  Provinces.  were  built  Because  92  by  overseas  approximately  Chinese  20  per  money in  cent of the  population of Guangzhou have relatives in Hong Kong, Macau, or overseas, it is easy  to understand  of loyalty  and  why  many overseas Chinese  identification  with  their  home  have maintained  villages.  It was  some other regions of Guangdong province, this figure was cent.  Chinese  recognition  to  their  government Chinese,  has  of  made  which  of  the  efforts by  and  had  areas  Investment  present  as high as 34.7  their  vast  attempts  to  importance  their  per  repair  home  1979,  of  the  overseas  potential,  the  Chinese  the  overseas  relations Cultural  with  Revolution. In  authorities once again actively appealed  Chinese  by  urging  them  to  example  of  ties  unique  and  province.  economic  95  the  That  influence  help  China's  formation of the  Chinese  modernization  the  Chinese  of Hong  Guangdong  Kong  now Trust  Hong Kong businessmen  government's  relationship  that  efforts  Hong  Kong  government business  the  to the patriotic  agricultural projects, which were  The  9  close  to the  illustrated by  economic  dramatical^ during the  for development. "  is an  of the  with  contributions  Corporation, which includes prominent  members,  in early  and  investing in [light] industrial and  advantage have  past and  several  soured  overseas  priority  board  the  homeland,  earlj' 1980s the Chinese  high  reported that in  93  In  zeal  a strong sense  to  as take  residents  attached great  interests  the fact that after the Shekou Special Industrial Zone was  can  be  created  China accepted Hong Kong's suggestion that the size and scope of  China Official Yearbook, 1983/84 (Hong Kong: Dragon Pearl Publications Limited, 1983), p. 459. Guangzhou, p. 85. 9 H Terry Cannon, "Foreign Investment and Trade; Origins of the Modernization Polic}'," in The Chinese Economic Reforms, ed. Stephen Feuchtwang and Athar Hussain (London: Croom Helm, 1983), p. 311. Cannon, p. 317. 9  2  9  3  9 5  88  the  zone  be  enlarged  and  that the  economic zone" to reflect this new  an  The  location  attempt  to take  overseas  Chinese  provinces.  97  of the  China's  took  region, into  and  the  advantage  spearheaded  region.  Provinces and  full  the  was  98  The  connections, and  from  the  "special  ties  Kong,  and  has  also  many ex-patriate  have  traditionally  and  was  in these been the  two base  Cantonese in Hong  familial ties with  modern  this  business practices  in Guangdong  and  Fujian  contact between  extensive  foreign  Hong Kong, which also has  China trade  extensive  non-trade links.  advantages  Guangdong, it was  familial  SEZs  already  to  Fujian Provinces  desire to facilitate  Province  changed  were created, the  locate the  a special relationship with  the  and  Delta has  SEZs  be  6  Hong  of investment  decision to by  zone  cultural, linguistic  flow  Guangdong  international trade and  On  of their the  9  ethnic and  Pearl River  also motivated  West.  scope.  especially  for the Cantonese culture, when the Kong  of the  in Guangdong  of the  businessmen,  Because  broader  SEZs  advantage  name  noted by  of the The  special  Economist  relationship  between  Hong  Kong  and  magazine that  the cultural and linguistic links between Guangdong and the predominant^ Cantonese Hong Kong Chinese make the difficult task of conducting business between China and the West easier. Unlike the big trading corporations [in the other parts of China], they [the municipal and local level Chinese officials and managers] may not know even how to contact an IBM or an ICI, let alone do business with it; but they do know how to call their cousin in Hong Kong, who does. 9 9  H o and Huenemann, p. 49. See also, Cheng, p. 65. Wolfgang Klenner and Kurt 'Wiesgart, The Chinese Reform in the Domestic Economy and in Foreign Transaction Books, 1985), p. 101. "Jewel," p. 8. The Economist, 11-17 M a y 1985, p. 17. 9 6  9 7  9 8  9  9  Economy: Structure and Trade (New Brunswick:  89 Ho  and  Huenemann  Fujian  Provinces  reduce  the  added  with  Hong  transactions  transferring  technology  important  in  situating  "...anxious  to tap  know-how, and  N.  that Kong  arid  skills  the  its [ie. Hong  Wang  similarities  investing  China."  in  these  that  in As  1 0 0  two  China a  Guangdong and  and  result,  provinces  thus the  and helps  cost  of  this  factor  was  because  China  was  its entrepreneurship, its market  technical skills."  the  of  communication  Kong] capital,  and  noted  of  to  SEZs  linguistic  "...facilitates  [sic] costs  its managerial  T.  the  Chinese  1 0  1  language  often  poses  a  difficult  barrier to foreigners, especially in the negotiation process because many  technical  terms  different  often do  not  shades of meaning. that  it must  be  Hong  Kong  many  have  10 2  Chinese  equivalents, is full  Complicating the difficulty  interpreted  within  businessmen  its cultural  understand  the  often also experienced, or familiar with Chinese more confident, and  with  of subtleties  and  the language is the fact  context. language  10 3  Therefore, because  and  culture,  business practices, they  in a more advantageous position to do  and  are  are often  business with  China  than their foreign counterparts.  Because physical  of cultural  proximity  and  linguistic  similarities, blood  of Guangdong to Hong Kong, the  ties,  and  the close  (Cantonese) Chinese  in the  delta region have maintained  close contacts with Hong Kong despite differences in  political  influence  environments.  The  illustrated in the lifestyle and  1 0  1 0 2  1 0  3  this  close  attitudes of the people  Ho and Huenemann, p. 51. ibid. Wang, pp. 114-115. ibid.  1  of  contact  is  perhaps  best  in the delta, which closely  90  resembles  those  in Hong  Kong.  Guangdong Province is also due pick up  radio  and  *  10  A  great deal of Hong  to the fact that Guangdong residents are able to  television broadcasts from  Hong Kong.  noticed that even the business attitudes and in  Shenzhen, who  other  SEZs.  are predominantly In  1 0 6  investment  activities  dimensions,  and  they  be  must  conclusion to in  tend  to  KONG  Before later, the  focus  important  AS  the  treaty  A  SPECIAL  Communist  ports were  the  part and  on  studies the  legal  ethnic  of the  and  larger  main  of  than  in the  and  Kong  economic  cultural picture  factors, in Hong  China.  China  focal  Chinese  of Hong  ADMINISTRATIVE REGION  takeover  the  activities of the  although  often overlook or underestimate an  David Phillips also  10 5  are more advanced  section,  Kong's relationship with the Shenzhen SEZ,  C. H O N G  commercial  Cantonese,  this  Shenzhen  considered as  Kong's influence in  in  1949,  points and  OF  Canton,  commercial  CHINA  and  centres for  foreign trade in China. However, after the abolition of the treaty ports in Hong  Kong  became  region. In many played of  an  the  main  centre  for  ways, Hong Kong became a  important part in providing China  remittances, donations,  trade links, and  foreign  trade  commercial  interests  special zone for China  the U N  the  with foreign exchange (in the form  surpluses, and  a window to the West. Although  China and  in  1949,  in that it  recently,  investment  earnings),  Hong Kong functions in many  ways as a modern sector for China, Hong Kong, like the treaty ports, apart from  then  remains  only belongs to China nominally. Nevertheless, even during  trade embargo on  trade with China  in the early  1950s, and  ""Jewel," pp. 8-9. ibid. D a v i d Phillips, China's Modernization: Prospects and Problems (London: The Institute for the Sr.udy of Conflict, 1984), p. 23.  periods of  1 0  1 0 5  1 0 6  for  the  West  91 turmoil in China Hong  Kong  such as the Great  continued  to serve  Leap  China  Forward  as a  and the Cultural Revolution,  special  zone  linking  it with the  outside world.  With 1972,  the normalization  following  Nixon's  outward-oriented. of China's  visit  Accompanying  economic  lucrative banking  of relations between  presence  to  China,  China  and activities  in Hong  as a source  This  10 7  interaction between  this meant that Hong Kong was no longer foreign trade, or simply  became  and the West in increasing!}'  more  this shift in political orientation was the increase  and real estate industries.  of a period of increased  China  China  Kong,  particularly  also marked and Hong  regarded  in  the  the beginning  Kong. For China,  as just an entrepot  of foreign exchange. Christopher  for its  Howe noted  that what China wants from Hong Kong  ...is not simply foreign exchange, but organic links with economic dynamism of a kind that China conspicuously lacks. [Howe further pointed out that] the parallels between Hong Kong and Shanghai, while not exact, are very illuminating. 10 8  What Howe meant was that Hong Kong today, as a modern city and a dynamic economic  entity, is much  However, this treaty and  is where  port, remained  like  what  Shanghai  the similarities  apart  from  was during  end. While  the treaty port era.  Shanghai,  the rest of the Chinese  when  economy  it was a  and society,  did not make a significant material impact on the Chinese economy,  Chinese intend transform  to use Hong Kong as a dynamic catalyst  and modernize the Chinese e c o n o m y .  to stimulate  1 09  the  and help  110  B o n a v i a , p. 9. H o w e , p. 531. This was the main thesis of man}' studies on the treaty ports by Rhoads Murphey. °The renewed emphasis of the Chinese economic development strategy under the post-Mao era on the industrial urban centres, where the treaty ports were 1 0 /  1 0 8  10 9  1 1  92 The  announcement of the Open Door Policy  for Hong Kong because it meant that it would an  intermediary and participant  modern  business, marketing  that it would  Kong, which and  turn  and management  China  skills  lacks  the necessary  and business connections,  its own domestic economy, it was only  to its traditional  has historically  now play a more active role as  in China. Because  which Hong Kong possesses, to upgrade natural  had enormous implications  intermediary for assistance. Hong  been the traditional meeting  place between  China  the West, and has a large body of people experienced and familiar  Chinese  business practices, as well  as extensive international  with  connections, was  particularly suited for the job. Furthermore, it is also the world's third  largest  financial centre and container port, as well as a major player in the Southeast Asian and the Pacific Rim economies. In return, Hong Kong also benefited from the Open Door Policy because China, which  it signaled a new era of political stability  from  sparked increased investment activities in Hong Kong. In a very  real sense, China's new economic  policies were a significant contributing factor for  the dramatic growth of Hong Kong's financial sector.  1 11  Under the post-Mao regime, Hong Kong was viewed in a different and more positive perspective as an economic growth  model whose success and phenomenal  should be emulated by all of China's cities. Hong Kong was a source of  pride not because  it was capitalist, but because  it was Chinese. It was seen as  the most successful Chinese metropolis of them all and an example of what the Chinese people could achieve through hard work and d e t e r m i n a t i o n . 1 10 11 1 1 12  112  A 1979  (cont'd) once located, will be discussed in chapter 4. Jao, pp. 13, 24-27. Audrey Donnithorne, "Hong Kong as an Economic Model for the Great Cities  of China," in China  and  Hong  Kong:  The  Economic  Nexus,  ed. A. J . Youngson  (Hong Kong: Oxford University Press, 1983), pp. 282-283. See also, Zhuang Weiming, "Xianggang Moshi Dai Woguo Shiban Jingji Tequede Jejian Zuoyong." Gangao Jingji, no. 3-4. (1984), pp. 62-65.  93 economic publication for senior Chinese cadres proclaimed that China could learn some useful economic lessons from Hong Kong such as producing goods to meet the  needs of the market, speed, flexibility, quality control and economic efficiency  in p r o d u c t i o n .  113  The new phase  in Hong  particular). The which  era of openness in China also marked the beginning of a Kong's  relationship  with  China  (and the  SEZs were to serve as special modern  Shenzhen  SEZ  new in  sectors of the economy  would set the pace for the modernization of the rest of the economy.  However, according economic  objectives  to Gregor Benton, the SEZs in mind  because  they  were  are  not created  part  of  a  solely  larger  plan  with to  reincorporate Hong Kong with China in that they were to ...act as buffers to absorb the shock of collision between two different political, social and economic systems, and between two ways of thinking. Through them Beijing hopes to integrate Hong Kong and Macau gradually into China, without any open confrontation with the British... and to prepare Hong Kong, Macau and Overseas Chinese psychologically for reintegration with the mainland by allowing them to enter and leave these zones freely, so that they become used to mainland officials and lose their fear of them. Politically, economically and psychologically, the SEZs are part of Beijing's preparations for the recovery of Hong Kong: through them Beijing hopes to incorporate the colony painlessly into China, by a simple widening of the boundary when the time is r i g h t . 1 1 4  This view of the political implications of the SEZs was  also shared by  many other scholars. David Bonavia referred to the SEZs as a "...'dummy run' for the handling of Hong Kong after 1 9 9 7 . " designed  to  give  pseudo-capitalist 1 1 3 1 1 1 1 5  the  social  Chinese unit,  while  government retaining  1 1 5  In other words, the SEZs were practice  control  in  dealing  of its essential  Exerpts from M a Hong's article reprinted in Cheng, pp. 58-60. "Benton, p. 40. Bonavia, pp. 91-92.  with  "...a  levers of  94 administration and letting market forces play a much bigger role than they are permitted  to in other  demonstration  parts  of the country."  Therefore,  1 16  SEZs  (yige shehui,  of the "one society, two systems"  solution that China had proposed for Hong Kong after 1997,  are a  liangge  zhidu)  i n which socialism  would co-exist with capitalism.  The  debate  over  whether  the SEZs  were  created  solely  for economic  purposes, or both economic and political purposes with the intention of eventually reasserting sovereignty  over Hong Kong usually depends upon the interpretation  of China's intentions for the SEZs before the Hong Kong issue became polarized by  Margaret  Kong's  Thatcher  future  in 1982.  began, there  Before  the Sino-British discussions  was practically  no mention  reclaim Hong Kong in any of its discussions of the no  mention  i n the SEZ regulations  SEZs.  1 17  C. K. Leung pointed  the purpose of the SEZs was mainly  after the subject of sovereignty  of China's  Hong  desire to  There was also  of any intentions to use the SEZs to  reintegrate Hong Kong back into China. 1982,  over  over Hong  out that, before  economic in orientation. It was only Kong  after 1997 became  a major  concern i n Hong Kong that Shenzhen's policies were further developed to include the political objective of r e i n t e g r a t i o n .  118  There was even the distant hope in Hong Kong that if nobody raised the 1997.  subject China might have been content  to maintain  the status quo beyond  Paradoxically, however, it was the Hong Kong business  community  that  ibid. The only mention that I could find of China's being interested in reclaiming Hong Kong before the negotiations began was Sun Ru's article, "The Conception and Prospects of the Special Economic Zones in Guangdong," Chinese Economic Studies (Fall 1980), pp. 68-78., as cited by Prybyla, p. 371. Leung, p. 10. 1 16  1 17  1 18  95 lobbied the British government to get China to clarify its position over the future of the  colony.  1 1 9  So  the  question  is, did Thatcher  provoke  China's hand over the issue of Hong Kong's future by  and  thus, force  insisting on  the legality  of the unequal treaties which created Hong Kong, which China adamantly refuses to recognize, and  therefore force China to adopt a hard-line stand  of sovereigntj' over Hong Kong, or was  on  China's decision to resume control over  Hong Kong already made up long before its position on Hong Kong was with the Joint Sino-British Accord  on  September 26,  note that China's policy towards Hong Kong has status  quo  rather  1967,  during  the  than  to  instigate  the issue  uncertainty  Cultural Revolution, when  finalized  1984? It is interesting to  always been to maintain and  change. For  leftist-inspired  the  example, in  riots in Hong  Kong  offered China the perfect excuse to move in to "restore order," China did not so. Again, in 1974-75, China turned  down Portugal's offer to return Macau to  China, seemingly for fear of jeopardizing investor confidence in Hong Kong.  Regardless  do  1 2  0  of whether or not the SEZs were created with the intention  of eventually recovering sovereignty over Hong Kong, the goal of closely linking the Shenzhen economy with the Hong Kong economy  1 2 1  was  consistent with the  general thrust of the post-Mao emphasis on coastal-led economic development. rationale for the coastal approach was most  developed  that because the coastal regions have the with  the  outside world), they are better equipped to successfully absorb foreign capital  and  advanced  infrastructure and  The  technologies  industrial  than the other  base  (as  regions in China.  well as  links  After the Joint Accord,  China announced that Hong Kong would become a Special Administrative Region See "The International," S e e Benton, pp. 34-41., and Anthony Dicks, "Treaty. of the Status of Hong Kong," See Bonavia, p. 92. 1 1 9  1 2 0  1 2 1  p. 458. Bonavia, p. 9., "The International," pp. 456-468., Grant, Usange or Sufferance? Some Legal Aspects China Quarterly 95 (1983): 428.  96 (SAR)  of China  [coastal]  areas  investment economic opening  after July by  providing  funds, technology integration  them  with  information  transfer, marketing  of Hong  Kong  of a representative office  Promotion  and  consultant  with  Shenzhen  in Hong  Kong  the most serious problem  of the Open Door Policy Hong  investors  Kong  has been  of The  in Asia,  Therefore,  foreign  but is also investors  developments in Hong  an  base  be  12 3  paying  a  the success  of Hong  Kong with  of operations  for foreign  one of the most active  will  by the  Council for the  threatening to undermine  important  The  1 2 2  facilitated  China  and the SEZs is the reunification  is not only  services,  networks and t r a i n i n g . "  of International Trade, which will supersive the process.  Perhaps  China.  1 1997, and that it would continue "...to help these  great  investors deal  in China.  of  attention  Kong, Shenzhen, China, and the reassimilation  1 2 4  to  process in  the years leading up to 1997 (as well as after  1997) in order to see how  well  capitalism  The  may  dampen  functions within  a  socialist  system.  approaching  deadline  investor confidence in Hong Kong and seriously cripple China's  attract foreign investments  from  ability to  Hong Kong or elsewhere. Besides resulting in an  outflow of capital and entrepreneurial talent, "1997 nerves" may  also discourage  long-term investments from being made in Hong Kong.  Interestingly, the sovereignty issue several  of Hong  Kong's  has not dampened  entrepreneurial giants.  Kong's richest entrepreneur, recently  purchased  Although  the Expo  86  the optimism  L i Ka-shing, site  2  Hong  in Vancouver,  Country Report: Hong Kong and Macau, no. 2, 1988, p. 7. ibid. According to Business Asia, 22 June 1987, p. 193., between 1979 Hong Kong and Macau investors invested US$10.6 billion, or 63.8 all direct foreign investments in China. The United States was US$2.2 billion, or 13.1 per cent, and Japan, with US$9.8 billion, cent was third. 1  of  2  12 3  12 4  and 1985, per cent of second with or 9.8 per  97 he  is still actively acquiring land in Hong Kong for development. It was  in August industrial  1988,  that L i and  site, at  HK$470  commercial project  estates  in Hong  HK$4.4  billion  at  a  Gordon Wu's  million,  cost  build  a  plan  of H K $ 9  Kong's h i s t o r y . to  and  In  1 2 5  seventh  Hopewell Holdings had to  develop  billion-the April  terminal  of at  purchased  it into residential  largest property  1988, Hong  reported  Hutchison Kong's  and  development Whampao bid  container  port,  massive project that would cost an  estimated HK$6.8 billion upon completion.  Nevertheless,  sovereignty  extremely and  the  the  timing  unfortunate SEZs.  On  demonstrate to the can  of  the  because the  world  it threatens  other  hand,  that two  issue  emerge  to jeopardize  it offers  very  to  China  the a  in  Open  unique  different political  and  an  1982  6  was  Door  Policy  opportunity  economic  1 2  a  to  systems  indeed function within a single county.  The China's  desire  stability  in  Kong, as after  a  1997.  judicial 1997.  "one to  Kong.  SAR,  would be  It would  structure,  1 2 7  The  As  SAR, enjoy  systems" policy for Hong Kong is a reflection of  investor  Under  also be  currency,  1988,  Hong a  high  police  would  degree  the  able  in order  Kong  confidence, "one  economic  country,  two  prosperity systems"  allowed to retain its capitalist system  first draft of the  early in  would  maintain  Hong  public a  country, two  of  to retain its free port force,  Basic  Law  and  be  a  local  autonomy  for  50  for the Hong Kong SAR from  administrative and  be  political  policy, Hong for 50  years  status, its legal  bureaucracy  to solicit opinions  and  Hong  Kong  region  directly  years was and  in China  responsible  and after  made abroad. which to  the  "A Man of Action Again," Far Eastern Economic Review, 4 August 1988, p. 52. ibid. See the first draft of the Basic Law of the Hong Kong SAR, reprinted in whole in "Draft Basic Law of HKSAR, PRC," in Beijing Review, 9 May 1988, ch. I, art. 2, art. 3, ch. II, art. 15, pp. 23-24. 1 2 5  1 2 6  1 2 7  98 Central People's Government.  The  Hong  (Shenzhen and China. will  be  like  and  government  SAR  will  also  Kong  include  the  will  fenced  and  be  relatively autonomous status of the  much  finances  8  Zhuhai) to Hong  The  1 2 9  Kong  1 2  that  of the  control over maintains  SEZs  its own  in that  revenues  overall political  two  SAR  would  for its own over  it to  agreements From to  participate such  a purely  continue  as  in  the  its own  General  separate  Agreement  use,  the  it was  international on  Tariffs  and  rest of  after  1997,  independent  while  the In  1 3 0  a  Central order  to  also necessary to  trade  relations  Trade  semi-independent economic entity so  and  (GATT).  economic perspective, it is in China's interest to allow  to exist as  SEZs  the  have  region.  ensure that Hong Kong continues to prosper after 1997, allow  off from  Hong Kong SAR  the  control  neighbouring  that  1 3  1  Hong Kong it does  not  have to share its export quotas with it.  Perhaps just as important as its own  economic affairs and  of the Kong  individual, and residents  arrest. the  Of  1 3 2  Central  principle  1 2 9  1 3 0  1 3 1  1 3 2  1 3 3  ""Draft," Benton, "Draft," "Draft," "Draft," "Draft,"  right to  investors  government  Hong Kong to maintain control of  relations are the regulations pertaining to' the rights  and  particular concern  executive  consultation  1 2  and  the  allowing  in  officials  or local election.  to  China of 13 3  the  own  private  their the will  property,  property  from  people of Hong appoint  Hong  Kong  which  the SAR  protects  unlawful Kong  Chief  is the  Executive  through  a  However, even more disturbing is the  ch. II, art. 11, p. 24. p. 41., and Bonavia, pp. 91-92. ch. V, art. 104, p.'33. ch. V, art. 117 to 120, pp. 34. ch. I, art. 6, ch. I l l , pp. 23, 26, ch. IV, sec. 1, art. 43, p. 27.  27.  Hong  seizure  or  fact that and process  the of  fact that  99 the  central government retains the  the  power  to  amend  undermine the "high  the  law,  1  power to interpret the 3  "  and,  in  effect,  degree of autonomy" of the  Basic  the  Law  as  power  to  well  as  severely  SAR.  \ However, the high for  interference by  economic stakes and  the Central government may  SAR's autonomy. Despite the still  a  fragile  economy  vigor and  built  investors. Without investor  upon  economic burden and  force  ally  and  economy  to  collapsed,  million people who as  well.  The  implications possibility  the  confidence  collapse  would be  of  the  faced  Hong  special zones  such  a  scenario  foreign  and  domestic  could  quite  possibly  Kong, China  effort. Moreover, if the with  the  not  having  to feed  an  Hong  Kong  additional  5.5  demoralized, but hostile to the regime  Kong  and  has  leaders. However, whether or not Kong's future remains to be  of both  a political liability instead of a powerful economic  would probably not only  for the of  vitality of the Hong Kong economy, it is  assist its modernization China  possible political consequences  deter it from tampering with the  confidence in Hong  inherit an  the  econonry Open  escaped  would  Door  have  serious  Policy. Undoubtedly,  the  this will serve as  also  attention  of  the  the  Chinese  a insurance policj' for Hong  seen.  Audrey Donnithorne warned that the differences between the economies of Hong  Kong  and  China  lay not  in the  use  of different economic techniques, but  rather in differences in their fundamental philosophy and in  Hong  Kong,  authority  in  problems  that  1 3  1 3 5  the  China.  rule  of  is paramount,  next  chapter  and  the  economic  ""Draft," ch. IX, art. 169, Donnithorne, pp. 308-309.  170.  p.  the  1 3 5  SEZs  The  law  39.  will  as deal  reforms  outlook. In other words,  opposed with have  to  absolute  some  introduced  of  the into  state new China.  100 How  these problems are handled will have enormous implications for the economic  reforms, the SEZs, and modernization in China.  IV. THE POLITICS OF REFORM  Since announced  the  introduction  in the  Third  Central Committee, and  of wide-sweeping  Plenum  in December  of the  Chinese  1978, and  a bold new  path  towards economic  reforms,  Communist.  which  Party's  were  Eleventh  the subsequent creation of the SEZs,  the opening of 14 coastal cities to foreign  upon  economic  investment, China has  development and  embarked  modernization. It was  felt that these measures, under the leadership of Deng Xiaoping, were necessary to  help stimulate economic growth, which had essentially stagnated in China, and  to help China achieve the goals of the Four Modernizations. However, in bringing about  these  opened the  changes,  a Pandora's Box  it seems  of new  correctness of these new  which the  new  Some  of the most  threaten  the future  SEZs  are: (1) Do  turning  away  foreign  coastal  from  Deng  and  his supporters  problems, political controversy, and  have  also  debate over  measures.  important  questions  of the economic  the economic  socialism  enclaves  that  and  (SEZs)  and  problems  that  reforms, the Open  reforms and  the SEZs  have  Door  mean  arisen,  Policy, and  that China is  embracing capitalism?, (2) Does the return of also  signify  the  re-emergence  of  regionalism,  urbanism, and isolated and alienated spheres of foreign influence in China, as the treaty and  ports once were?, (3) How corruption,  which  have  material incentives and new relevant  to the SEZs  been  will on  China deal with the  increase  since  SEZs  because they  economic  (and Shenzhen development  the  introduction  of  opportunities to "get rich"? This problem is especially are the most  conspicuous centres of foreign  influences and change. Lastly, this chapter will briefly the  problems such as crime  in particular) until  strategy  has  raised 101  198G.  more  assess the performance of  It seems  problems  and  that the questions  post-Mao than it  102 has  produced  explore  answers  these  new  and  solutions.  problems  in  The  order  economic reforms, the SEZs, and  to  purpose  of  provide  this  some  modernization may  chapter  insight  is just  on  where  experiment  socialist blend  economy.  2  seemingly  property,  and  forces.  In  claimed  that  as  by  China They  see  the  article,  selected  post-Mao  elements  bureaucratic "On  features  economic  such  as  planning  Chinese  Deng's pragmatic  the  abandonment  Stephen  N.  S.  Analysis  of  Cheung,  Property  failed  in  lip-service  to  undermining  The  China the  Will  and  in  the  and  that  superiority  of politics China  Institutionalized  of  while their  the  Go  Chinese in  with its  attempt  to  with  private  and  market  1980s," by  as  Lucian  such  Pye  statements  it catches mice," realty and  ideology in China.  Capitalist?:  Change,  system,  an  ownership  politics, typified  supremacy  as  decentralization  Pragmatism  in his book  Rights  argued  that  leaders practice,  An  Economic communism  continue they  3  are  to  pay  actually  it."  Chinese leaders argue  Zedong Thought and Instead,  of the  capitalism  reforms  state  with  ideology and  of  "the colour of the cat [is not important] so long as  signifies  had  combine  incompatible central  his  to  the  be headed in China.  Western observers have often described the post-Mao economic reforms an  to  they  characteristics."  deny that they are subverting these ideologies for capitalism.  argue They  that they are upholding Marxism-Leninism-Mao  that also  they  contend  are that  building  they  are  "socialism  simply  economy," or a preliminarj' state of capitalism, which was For example, see Pepper, p. ~ "On Chinese," p. 207. "Stephen N. S. Cheung, Will China Go Capitalist?: An Property Rights and Institutionalized Change (London: The Affairs', 1982), pp. 50-51.  with  building by-passed  a  Chinese  "commodity by  Mao,  as  2  3  Economic Institute  Analysis of of Economic  103 a  necessary  communism. Gotha  transitional  Program,  to  achieving  socialism,  and  ultimately,  Muqiao pointed out that according to Marx's Critique  Xue  5  stage  socialism was  regarded as an  of  the  elementary stage of communism,  and that in this stage (socialism), some traditions or remnants of the old society (capitalism) must still be economic  retained.  6  Thus, the Chinese  leaders can justify  the  reforms by arguing that China cannot leap-frog Marx's stages of social  development.  China must build a commodity economy first, as proposed by  Marx,  before it can be ready for socialism, and ultimately, communism.  However, Kueh and Howe believed that a mixed of  which  other  was  part  outward-looking, market-oriented and  still  locked in the old system,  irreconciliable. Ultimately, either economic elimination of one economic  reforms  presumption  rationalize control.  9  was  7  institutionally  would  be  totally  reformed, the  contradictory  incompatible with  also argued socialism  that the nature of the  because  is a superior form  they  challenge the  of organization.  that the CCP's strategy of labelling China's economic  modernization" and Young  was  defend their also  and  or political considerations will force the  Bill Brugger  that state ownership  Young argued "socialist  of them.  economy, one part part  authority  and  the need for the Party to maintain  the  CCP's  socialism are merely rhetoric and  smoke-screen  the  Party  reforms as  an  that  by  Graham  simply  contended  attempt  8  claims of the  leaders to  superiority  of  tactics, when he wrote, " i t often  appears that people are urged to maintain values which are inconsistent with the b  6  "On Xue  Chinese," pp. 210-211. Muqiao, Current  Economic  Problems  in  China,  ed.  and  trans,  by  K.  K.  Fung (Boulder: Westview Press, Inc., 1982), p. 119. Kueh and Howe, p. 830. Bill Brugger, "Democracy and Organisation in Chinese Industrj'-New Directions?" in China: Dilemmas of Modernization, ed. Graham Young (London: Croom Helm, 1985), p. 71. Graham Y'oung, China: Dilemmas of Modernization, ed. Graham Young (London: Croom Helm, 1985), p. 10. 7 8  9  104 way  recent [reform] policies encourage them to behave."  The and  Chinese leaders also pointed  out  that capitalism only plays a  complementary role in China's economy. Even Chen Yun,  of the Central Committee for Discipline Inspection, and critics,  saw  the  role  of  supplemental, temporary use  the  measure.  of capitalist elements such  make  central planning  ensuring  that  Muqiao  further  more  competition pointed  market  market  flexible  does  out  Robert  1 1  as  that  not the  by  is based on  "capitalist" conceded  the  subject  of the  influence (the E T D Z s that  although  planned  Hsu  econonvy  in China  spontaneous  principle  these  as  at and  of competition  as  and  a  intended  the  same  anarchic. within  Xue  1 2  a  and  to  time,  socialist  within a capitalist economy because  competition."  SEZs  only  also interpreted the controlled  consistent, while  become  Secretary  of Deng's most vocal  public ownership of [the] means of production  the state plan. It is not free  On  a  mechanisms  and  economy is not the same as competition competition  in  one  the First  small  "our  guided  13  other  in the  14  special  zones  specially  open  designated  spheres  coastal cities), Deng  are  a  form  of  of  Xiaoping  "miniaturized  capitalism," that  ...its relative magnitude will be small and it can't affect our system of socialist public ownership of the means of production. Absorbing foreign capital and technology and even allowing foreigners to construct plants in China can only play a complementary role to our effort to develop the socialist productive forces. " 1  °ibid. As noted in Aikman, p. 84. Robert Hsu, "Conceptions of the Market in Post-Mao China: An Interpretive Essay," Modern China, no. 4 (October 1985), p. 447. Xue, p. 129. "Deng Xiaoping, Selected Works of Deng Xiaoping: 1975-1982, trans. The Bureau for the Compilation and Translation of Works of Marx, Engels, Lenin and Stalin Under the Central Committee of the Communist Vaxty of China 1  1 1  1 2  1 3  1  105 Xu  Dixin  but  are  further a  form  controlled and not  turning  out  of  out  state  that  capitalist  classes. The  state  the right to use  the  because  and  it.  1  New the  foreign  concessions  was  no  retains  of  ownership  not  his profit."  capitalist in nature  foreign  private  Manifesto,  enterprises (and  ownership is the  all land  the of  basis  in China  are  still  SEZs) are  land,  which,  for exploitation and  only  leases  6  state  state  [socialist] government and  rest as  the  really  Moreover, China  1 5  is  not  Engels' Communist  and  to pay  are  because  capitalism  capitalism  Economic Policy in Russia, in which a  production, and the  SEZs  state.  there  China's arguments on on  the  capitalism  administered by  according to Marx and  pointed  the 1 7  are  derived  developed  argued  that  the  dangerous to developing socialism, but  because state capitalism, in the  Lenin's  the "a  period  contract  writings of  the  between  undertakes to organize or improve  government a share of the Lenin  during  concession was  a capitalist who  from  product obtained, keeping  granting  of foreign  concessions  would onty help realize socialism  form of foreign concessions  ...strengthens large-scale production as against petty production, advanced production as against backward production. It also obtains a large quantity of the products of large-scale industry (its share of output) and strengthens state-regulated economic relations as against the anarchy of petty-bourgeois relations. 1 8  "(cont'd) (Beijing: Foreign Languages Press, 1984), p. 382. Xu Dixin, "Salient Feature: State Capitalism," Beijing Review 27 (January 1984): 29. Stephen Morgan, "Ideology on the Block," Far Eastern Economic Review, 14 July 1988, p. 22. V. I. Lenin, "Recorded Speeches: 2. Concessions and the Development of Capitalism," (25 April 1921), in Collected Works (Moscow: Progress Press, 1965), vol. 32, p. 368., as quoted in Thomas Chan, E. K. Y. Chen, and Steve Chin, "China's Special Economic Zones: Ideology, Policy and Practice," in China's Special Economic Zones: Policies, Problems and Prospects, ed. Y. C. Jao and C. K. Leung (Hong Kong: Oxford University Press, 1986), p. 93. V. I. Lenin, "The Tax in Kind (The Significance of the New Policy and its Conditions)," (21 April 1921), in Collected Works (Moscow: Progress Press, 1965), vol. 32, p. 334., as quoted in Chan et al., p. 94. 1  1 5  1 6  1 7  1 8  106 Deng's argument that because of the small to  the rest of the economy  also  be  interpreted  they  to mean  cannot  that  size of the SEZs in relation  affect the rest of the economy, could  the SEZs  will  also  fail  to modernize the  Chinese economy. As mentioned earlier, this was one of the main arguments that Rhoads  Murphey  China. Does  used  this also  to explain  the failure  of the treaty  mean  the impact  of the SEZs  that  ports will  because of their size? Other parallels between the treaty ports also be used  to question the wisdom  example, the foreignness, major  arguments  failed  to establish  of the SEZ strategy  isolation, and outward-orientation  proposed  by Rhoads Murphey  any meaningful  linkages  to explain  with  to transform  also be limited  and the SEZs can  to modernization. For of the SEZs  also fit  wiry the treaty  the Chinese  economy.  questions and comparisons are inevitably made between the treaty ports  ports These  and the  coastal-led development strategy, in which the SEZs and the open cities, man}' of which  were  former  treaty  ports, are to play  of the SEZs and the development strategy be  somewhat  as  the fear  premature, given of corruption  contamination," re-emergence  alienation  based upon these questions would still  their contemporary  from from  of regionalism  a pivotal role. Although judgement  foreign China's  have  been  nature, related  influences, socialist  raised  "spiritual  goals,  and  concerns such and  exploitation,  will  be  ideological and the  discussed  in this  chapter.  On that are  the controversial subject  of exploitation, the Chinese have maintained  there can be no exploitation because foreign conducted  partners  to  on the basis use  their  of equality  comparative  trade and investment relations  and mutual  advantages.  19  benefit  thus  It was  only  Wang, p! 124., and Shu-yun Ma, "Recent Changes Theory," China Quarterly, no. 106 (1986), p. 292-293. 19  in China's  enabling  both  after  China  Pure  Trade  107 overcame  its ideological  aversion  to  international  trade  and  investment  as  an  exploitative relationship based upon unequal exchange that it could embark upon a  more  liberal,  Concerns  of  outward-oriented  exploitation  policy  re-emerged  towards  in  China  foreign trade because  the  and  investment.  economic  reforms  resulted in a number of contract responsibility systems in the countryside where peasants obtained  the right to tend  their  "own"  plots of land. The  land is controversial because the ownership of land was cause  of  exploitation,  landlessness  and  rural  poverty  subject of  attributed to be the root in  China  before  1949.  Therefore, the abolition of private ownership of land also removed the basis for rural exploitation in China. As China  was  in China  mentioned earlier in the discussion over  turning capitalist, China  maintains  that there can  be  exploitation  because the state owns all land. What is transferred is on\y  to use the land for a specific period of time.  2  exploitation  in China. only  Because  system  were  for one  "robber  mentality" and  to  contracts under three  exploited the  reinvest in it. In order to prevent  years, land  the  many  not eliminated all  early contract responsibility peasants  for short-term  often developed  profits  such "anti-social", practices and  peasants to invest in the land, the Chinese government lengthened contracts to  10  to  15  years.  21  In  the right  0  However, the abolition of the ownership of land has  the  no  whether  order  to prevent  the  and  did  a not  to encourage the term  of  exploitation  of  labour, restrictions were also placed on the number of people that could be hired by  agricultural  and  non-agricultural individual  restrictive measures are still no  2  "Ideology," p. 22. ibid. H.ershkovitz, p. 444. 1  2 2  22  Nevertheless,  these  guarantee against the possibility of exploitation  because the opportunity for personal 20  operations.  gain and  profit are powerful  incentives to  108 stretch  the  designed  to  recognizes and  economic  growth,  and  no  stagnation.  economic  which are  employers. Aside  from  growth  disputes  a  safeguard  are  resolved  department  that  the  or  foreign  in  various  despite  against by  the  job  etc.,  the  23  labour  the  "iron  Chinese  material  contract  of labour  court. "  and the  their  not  apparent  spirit of the  rice  bowl"  leaders  is to  incentives  and  receive  read  the  too  problems  regulated  same  pay  much  and  of  the  employment, intended  to  relations. Labour  are  also  provisions  to  same work  as  perform  the  even  though  their foreign  2 5  into  China's  contradictions.  economic  The  Chinese  reforms, leaders  theoretical superiority of socialism.  economic reforms (decentralization and  economic responsibilities) appears to run  union and  is also  wage  through  local labour management  Moreover, there  2  have always maintained their confidence in the Although  an  descriptions, conditions  have more managerial experience.  to  government  of some exploitation  employees or a  consultation, arbitration by  also  safeguards  same time, to guard against exploitation.  exploitation  people's  is important  all of  various Chinese  challenge for the  concluded between the  employee  counterparts  counterparts may  It  the  breeds  ensure that Chinese employees in staff positions who their  of  possibility  which  through  stipulating the  benefits, rights of the as  The  creation  SEZs or with foreign firms, labour relations are  labour contracts  serve  evidence  exploitation,  responsibility schemes, while at the  In the  is  trade-off between  and  economic  encourage  reforms. The  exploitation  there is a  economic  to  of the  discourage  that  mentality, try  spirit  liberalization  directly counter to policies that the  of PRC  Regulations on Special Economic Zones in Guangdong Province, in Shenzhen Jingji Tequ Nianjian, 1985 (Hong Kong: Shenzhen Jingji Tequ Nianjian Weiyuanhui, 1985), ch. 4, art. 21. p. 205., and Blaser and Mak, pp. 48-49. "Blaser and Mak, p. 50. Blaser and Mak. p. 49. 2 3  2  2 5  109 has  adhered  bureaucratic  to  for  the  first  three  decades  control), the Chinese leaders  argue  of  its existence  that  (centralized  their version  of socialism,  and not Mao's ultra-leftist interpretation, represents the correct path for socialism in  China. Gale Johnson  institutions, which required view  for a  of Mao  pointed  a negative  socialist  and  Mao's version  had  also  effect upon  economy,  his associates."  out that  but  the economy  represented  By  2 6  the Chinese economic policies and  the  "...were in no  particularly idiosyncratic  blaming China's economic  of socialism, the Chinese leaders  way  are able  problems  on  to salvage socialism in  China, but at the cost of Mao's reputation.  The  transferring of blame  because Marx run. an  To  attribute the blame  admission  threaten  to  and  of  the  may  restructuring  development,  economy  were 27  of socialism a  socialist  the  of  legitimacy  achieving of  socialism,  the  CCP.  (socialism) has  of the economy, the shift and  ultimate  also  economy  the  development  necessary  objective  of  elements  which  Thus,  from  be  would  be  socialist  in  the  of the post-Mao  would  also  although  the  extensive  a  Economic  to intensive  commodity-based  process  changes  possible  should  not changed.  socialist economy more efficient and productive and eventually not  was  for China's economic problems to socialism  all considered The  instead  about how  be different, the goal  economic  development.  in detail  impossibility  undermine  interpretations reform  did not write  to Mao,  of  socialist  is to make the  develop communism,  capitalism.  Gale E h J o h n s o n , Progress of Economic Reforms in the People's Republic of China (Washington: American Enterprise Institute for Public Policj' Research, 1982), p. 4. John P. Hardt, "Highlights," China's Economy Looks Toward the Year 2000: The Four Modernizations, Joint Economic Committee, Congress of the United States (Washington: United States Government Printing Office, 1986), p. vii. 2 6  2 7  110 Consequently, state  planning and  planning,  market  mechanisms  still  guidance. Therefore, the  supplemented  by  market  China's turning capitalist. As  operate within  current  mechanisms,  Robert Hsu  mix  cannot  the boundaries of  of central truly  be  bureaucratic  interpreted  as  pointed out,  the Chinese conception of the market is necessarily a narrow one, not to be equated with its Western counterpart. It is true that the role of ideology is relatively subdued [but not supplanted] in China's post-Mao economic theorizing, but socialist ideals, more flexibly interpreted, still constitute the yardstick by which the long-term efficacy of the market mechanism is to be measured. 2 8  The  Chinese  leaders  extremely  sensitive  socialism.  The  liberalism"  in  that  China  are  still  to anything that  campaigns 1987, has  in full  against  following  not  for  the CCP  the  foresaken  based  instead of building the new 1949,  c o a s t ) Mao  undeveloped  treaty  port  student  after  psyche.  Rhoads  2 9  per  1949  because  Murphey  H s u , pp. 444-445. Leung, p. 2.  in  a  and  are  threat to "bourgeois  demonstrations,  are  stark  reminders  for  and  is  capitalism  not  totalty  changes.  was  the  influencial  it had  noted  challenge or  it promised  hope and  the teachings of Marxism-Leninism.  which also  of power  and  cent, of China's  hinterland,  a  reins  1983,  socialism  on  as  pollution"  Chinese society from  experience was  strategy  2 8  70  pose  optimism However,  the existing economic framework  industries  decided to take economic development  29  the  over  of the  came to power in 1949,  the future of China  (before  may  "spiritual  comfortable with all of the post-Mao  When  control  basis  were  back of the  to the countryside or CCP's  support.  The  development  made a profound impression on  the Chinese  "the  treaty-port  the  along its  Chinese  that  in shaping  situated  experience  continues to  Ill  plague  the Chinese  Donnithorne noted  mind  long  after  it has passed  into  history."  Audrey  30  that the basis of the CCP's deep-rooted unease with  urban  centres also lay in its agrarian origins and Marxist ideology, which states that "...the developed  metropolis plays an imperialistic role and practices exploitation  by exporting capital to its satellite regions from which it draws labour and raw materials."  31  Consequently,  the  treaty  port  legacy  was  used  by  Mao  as  a  counter-example for economic development. According to John Gurley, Mao's brand of socialist ideologj' was the very  antithesis of capitalism in that Mao rejected  the capitalist principle of building on the best (ie. the coastal regions). Instead, Mao  chose to build  on "the worst"  by rejecting the experts  in favour  of the  decision-making  of "the masses;" building new industries in the rural areas rather  than  advantage  taking  of  the  domestically, instead of importing cities as centers willing  developed them  at a lower  for industry and culture.  to sacrifice  the comparative  urban  32  sector;  producing  cost; and discouraging the  Therefore, the C C P  advantages  goods  leaders were  of the coastal urban  centres,  which were the best sites to begin rapid economic growth and industrialization, in order  to correct economic  imbalances  and  disperse  industrial  activity  to the  interior. The opportunity cost for doing so was high, however, the Chinese were willing  to forego  political objectives.  3  0  China  Meets,  immediate  economic  benefits  in order  to pursue  long-term  33  p. 83.  Donnithorne, p. 282. John G. Gurley, China's Economy Review Press, 1976), p. 9. "The Treaty," pp. 68-69. 3 1 3 2  3 3  and  the Maoist. Strategy  (New York: Monthty  112 Mao's approach Kai-shek's, which economy  led  importance  emphasized  by  of  to economic  experts  the  the development  and  education  physics, biology and  development contrasted sharply with  technicians. s}'stem  to  China.  Mao,  34  produce on  the  the  other  or  foreign-educated  approach  to  economic  3  present  by  characterized  the  ETDZs) inevitably particularly  sciences  the  the  (such  foundations  was  and  necessary  was  Instead, through  deeply  he  the  to  as  for the  help  and  develop  suspicious of the  believed  that  unleashing  of  the  best  the  active participation, selfless struggle and  the  coastal-oriented  creation  of  because  foreign  concessions  CCP  in an  many and  awkward  all that the CCP  ports  result  the  of foreign  with  and  ended  a  the  development  enclaves  treaty  latent  unity of  sites  spheres  of capitalistic  had  position fought  imperial  opened  because  in 1949  SEZs  to foreign  and  the  and  investment  influence. The they,  to expel from  domination  humiliating  (the  strategy  ports. This comparison is.  of the  China. However, the founding of the PRC era in China,  economic foreign  political  ports, symbolize were  urban  invites comparisons  applicable  were former  port  stressed  5  China's  puts  experts  intellectuals.  initiative of the masses through  Chiang  natural  provide  manufacturing  civil engineering, mining, metallurgy  hand, despised  development  the  would  technicians and  city-bred  purpose.  and  industrialized  Consequently,  teach  mathematics) which  applied sciences (such as mechanical medicine)  to  of an  Chiang  the  treaty  China. The  treaty  the  like  SEZs  forced  marked the end  chapter of foreign  opening  of  of the treaty  imperialism  and  exploitation in its long history.  Chiang Kai-shek, China's Publishers, 1947), pp. 171, G u r l e y , pp. 6-8, 284, 3 4  35  Destiny: Chinese 172, 180.  Economic  Theory  :  (New  York:  Roy  113 Murphey paradoxical  and  modernization, regarded of the  also noted  as  contradictor}'  but  the  CCP  that the  was  CCP  because  anti-urban,  model for the  development strategy  while  new  development strategy  it  sought the  achieve  undeveloped  China. Murphey  and  to  under Mao  echoed Kueh  summed and  was  technological  countryside up  the  was  incongruity  Howe's observation  that  ultimately, China will have to chose between political or economic objectives when he  wrote that  such an ideologically structured contradiction [China's economic development strategy] may have its political value but must sooner or later be resolved in favor of the city, as technological and industrial growth proceed. Even the new cities, or those whose major growth has come since 1949, must breed the kind of revisionism, economism, or bureaucratism that Mao execrates. The Maoist vision of a true socialist society is inspiring, but one of its principal goals, industrialization, can be won only at the cost of seeing urbanism triumph, with the risk that urbanism's anti-Maoist tendencies maj' persist. 3 6  Therefore, SEZs the  was  a  PRC's  the  the  development  economic  international co-operation investment. The could  only  develop  CCP's  strengthen  socialist  advocated by order  to  Lenin  help  socialist system "The  Treaty,"  the  the  strategy  decades. The  which  new  coastal regions,  creation of the had  strategy  but  also  guided  not  the  only  need for  so that China could benefit from international trade rationale for the economic  the and  This  socialist  Open  argument,  will be  Door  increase as  strategy  was  self-reliance,  mentioned  earlier,  and  that it and  help  was  first  providing concessions to foreign capital in  system.  Moreover,  investment relations would  because they pp. 70-71.  new  development,  in his discussion on  develop  development  for three  potential of the  construction.  China's foreign trade  3 6  to coastal-led development and  radical departure from  economic  recognizes  return  conducted  not  it was be  determined  contradictory  that to its  in accordance with the principles  114 of equality and  mutual benefit.  3 7  Deng's relnterpretation onfy redefined treaty  of China's economic development strategy  its relation with its own  ports), which  have  always been  of their historical development, but Hong  Kong  in particular. Despite  "overseas Chinese" compatriots power, and, in  China  as  from  economic  development  Murphey  pointed  regionalism  in China  exclusively rejected.  out  urban Susan  3 8  opportunities  before and  noted  stimulated  areas and  the  inland provinces. SEZs  ports, which were established  The  political  and  present development strategy  the  re-emergence  income  the  treaty  the  to  new  is the  ports  foreign  for  among  even the foreign  threat  a  and an  foreign  imperialism coastal-led  the  promoted  trade  as  China?  modernization,  Rhoads rise  an  almost  which  and  Chinese  of  Mao  investment cities the  and  coastal  fear among some of the  concessions like  the  treaty  tt 0  for pursuing  disparities, and  by  prior cleavages between  become  costs  capitalists,  urban, in  blamed  competition  There was  economic  suspect because  of foreign of  not  former  is regarded  regionalism  under unequal treaties.  the  of  of  approach  might  Kong  return  were  conflicts and 39  and  admininstered  ports  because  economic  regional  the  Hong  the  return  that  revived  that  tainted  remaining bastions  treaty  1949  and  cadres  the  the  provinces,  Chinese  fact that  However, does  coastal-led  Shirk  have  the  mean  that  as  especially the  also its relation with foreign  of the  Macau). also  regarded  settlement, it is also  such, is also one  (aside  urban centres (and  has  the  economic reforms  and  of intensifying regional disparities, class  polarization. Because  of  the  Jin Qi, "China Expands Flexible Policies," Beijing Review May 1984, p. 4. "The Treaty," p. 67. Shirk, pp. 60-61. * °Xu Xuehan, Mao Rongfang, and Wu Jian, "Guanyu Jingji Tequ Jianshe Zhong de Jige Wenti," Renmin ribao, 13 September 1982, p.5. 3 7  3 8  3 9  115 vested up  interest of the inland provinces  these  concerns  reforms and  the  to  the  in the pre-1978 strategy, they often play  central government  by  arguing  that  the  economic  Open Door Policy have resulted in the infiltration of dangerous  bourgeois foreign culture arid influences which threaten to destroy  Chinese culture,  undermine socialism, and  1  return China to the pre-Liberation days."  Because the economic reforms and incentives,  opportunities  for  personal  influences into China, there has  the  gain  SEZs have re-introduced  and  also been an  profit,  and  other  upsurge of crime and  material capitalistic  corruption in  China. Because the SEZs are centres where much of the foreign influences enter China,  where  market  introduced, they are  forces  operate,  also seen as  and  where  many  new  policies  a source for many of China's new  are  problems.  Unfortunatelj' for the special zones, many of them were also former treaty ports, which were also centres of crime and a  nationwide  anti-crime  campaign  corruption. Orville Schell noted that despite  that  192,000 cases of economic crime was involved 1985  Party  members.  Hainan  officials  as  Island an  42  launched  reported  Schell also cited  smuggling  inevitable  was  and  by-product  black of  by  the  in January  April highly  more  publicized billion dollar scandal  liberalized  involving economy  increasingly becomes subject to market forces rather than central c o n t r o l .  In  the  countryside,  system, which promotes the has  the  introduction  the  production  led to increased "anti-social" behaviour, competition  and  new  top that  43  responsibility  policy to "permit some peasants to get rich  Shirk, pp. 62-63. Orville Schell, To Get Rich Is. Glorious: American Library, 1986), pp. 39-42. Schell, p. 50. 4  of  over  1983-of which 71,000  marketeering a  1982,  first,"  levels of conflict  1  4 2  4 3  China  in  the  80s  (New  York:  New  116 between  households,  and  Jealous peasants and expropriation  among  households,  local officials  of resources,  the  collective  and  the  "...a  blackmail, extortion, and  squeeze  in order  economic  autonomous  within  ownership and  In  with  the  to force them.  9 5  attributed the root of these problems to the incompatibility of having  relatively  principles]  9  often engage in illegal activities such as  prosperous peasants into sharing some of their new-found wealth Hershkovitz  state. *  a  what  small-scale  is supposed  central planning."  veiled  reforms  reference  and  the  to  private  sector  be  economy  an  [based  on  capitalistic  dominated  by  public  96  to  Open  criticisms Door  reaffirmed the correctness of the new  and  Policy  the  have  new  problems  introduced,  Deng  that  the  Xiaoping  strategy when he stated that  there are those who saj' we should not open our windows because open windows let in flies and other insects. They want the windows to stay closed, so we all expire from lack of air. But we say, "open the windows, breathe the fresh air, and at the same time fight the flies and i n s e c t s . " 97  However, despite  Deng's commitment to the  knee-jerk  reactions  motivated  by  a  to  the  "flies  and  reforms,  insects" which  desire to silence his critics  and  he  has  may  partly by  also made some have  an  been  partly  attempt to deal  with some of these problems. For example, his "anti-spiritual pollution" campaign in  late  1983  was  in reaction to "ideological contamination"  because "spiritual pollution," or "ideological contamination"  was  in China.  However,  not clearly defined,  David Zweig, "Prosperity and Conflict in Post-Mao Rural China," China Quarterly, no. 105 (1986), p. 1. Zweig, p. 6. For a similar response to the re-emergence of the urban individual economy (labelled "tails of capitalism" in the Mao era) see Hershkovitz, pp. 429, 446, 447. Hershkovitz, p. 429. A i k m a n , p. 73. 9 9  9 5  9 6 9 7  117  the campaign quickly got out of control and had to be terminated. *  Aside  from  the  political  and  ideological  reforms, it is also important to ask a few SEZ  and  4 9  the  economic  earlier, Deng expressed his concerns  concept, which he pointed out was  as such, could f a i l .  of  questions about the feasibility of the  strategy of modernization. As mentioned  about the SEZ  implications  8  still in the experimental stage,  In terms of realizing the goals that the SEZs were  created to achieve, they could only be  regarded  as a qualified success. This is  because the vast majority of investments in the SEZs do  not involve advanced  technology, but tend to be labour-intensive, low-technology, export-oriented assembly and  processing operations. This investment  source of much of the investment  trend was  largely a reflection of the  capital in the zones (ie. mainly  from  Hong  Kong). But, although these forms of investments do not deliver a great deal of high  technology  to  China,  they  do  provide  it with  modern  managerial  and  marketing skills, low to medium technology and foreign exchange earnings.  Suzanne Pepper attributed the blame for the disappointing results of the SEZs  to  inherent  the  failure  limitations  Consequently, for them. As  of the of  the PRC a  the had  Chinese EPZs,  administrators to realistically  which  overblown  the  SEZs  were  assess  modelled  the  after.  5 0  expectations of what the SEZs could do  result, the main forms of investments in the SEZs are very  similar to the main forms of investments in the EPZs.  The  Chinese administrators wanted to attract advanced foreign technology  An Zhiguo, "Ideological Contamination 1984, p. 4. . "Deng," pp. 6-7. Pepper, p. 5. 4 8  4 9  5 0  Clarified," Beijing  Review,  13  February  118 to the zones but were largely unsuccessful because the SEZs were still essentially EPZs in nature. The  investment  SEZs  the  the  for export on difficulty  exchange  international  was  also  use  foreign  and  incentives encourage investors to produce  due  to  the  capital  market, not fact  and  that  in the  the  Chinese  market. Part of  China  wanted  to  technology  to help  earn  it develop  foreign  its export  potential. However, because it is very difficult for foreign investors to gain access to  the  Chinese  market, they  are  generally discouraged from  In  short, because of the inherent limitations of the SEZ  not the best vehicle to attract foreign capital and  Another involved  serious  in building  the  problem SEZs  with  the  entirely  from  investing in China.  concept, the  SEZs  are  technology into China.  SEZs  was  scratch.  the  tremendous  costs  The  Chinese  government's  willingness to accept the high capital construction costs may  be due  to its desire  to situate the SEZs in overseas Chinese districts which already has much contact and  experience with foreign influences and  population centres and Another be  reason may  from  the country's economic and  China's  main  political power bases."  have been the expectation that foreign  investors would  5 1  also  involved in developing the infrastructure of the zones. However, according to  various statistics published on for  "...are far removed from  the  first  investments.  5  six  years  the Shenzhen SEZ,  dwarfed  its  foreign  5 2  its capital construction costs exports  and  realized  foreign  3  Pepper, p. 4. Refer to the table on the basic economic statistics for Shenzhen in this study for the figures in the following discussion. The foreign investment figures published by the China Trade Report are extremelty low when compared to other estimates of foreign investments in Shenzhen. For example, David Aikman, (p. 90.) noted that about $3 billion in investments was pledged in Shenzhen by 1984. The discrepancies between the two figures arise from the fact, that for various reasons, not all investment contracts are utilized by the SEZ authorities. 5  5 2  5 3  119 Despite the  basic  only  a  the fact that the  SEZs were to be  economic statitistics published small  proportion  of  its gross  on  export-oriented,  Shenzhen, between  industrial  and  volume of exports in the by  may  also be due  between  1980  produced and  what was  goods. Exacerbating  1983,  1986,  output  was  also suggests that  to the fact that much of the goods produced  zone through joint ventures or co-operative  of jointly  and  to  actual^- sold within the zone. Shenzhen's small  the foreign investors. Therefore,  share  1979  agricultural  actually exported. Shenzhen's enormous volume of retail trade a large share of its output was  according  capital  arrangements were marketed  exported by the  construction  Shenzhen was  situation was costs  exceeded  industrial output (industrial goods are the main export items), and  only its  the  fact that  the  value  of  thus, a major  part of the zone's ability to earn foreign exchange to help offset the investment costs.  Another  telling  statistic  was  that  realized  foreign  investments  accounted for a very, small share of the cost of building the SEZ and  1986.  Since  1979,  between  the  capital exceeded  central government. The construction  costs  investments  7  1979  Shenzhen's level of realized foreign (including Hong Kong)  investments never exceeded its capital construction costs, which had by  onlj  over  was eight  gap the  to be  between realized foreign investments greatest  times.  The  in  1982,  when  same figures for  construction 1983  and  borne and costs 1984  were not much better. " 5  According  to the  basic economic statistics for Shenzhen, imports greatly  " See also, Chen Wenhong, "Where do Shenzhen's Problem Lie?" Guangjiaojing, no. 2 (1985), pp. 48-55., As cited by Pepper, p. 11. The China Trade Report, March 1987, p. 6, statistical figures used in this study was also compiled by Chen Wenhong (Thomas Chan). 5  120 exceeded exports, and  thus, its main means of paying  also  40  noted  that only  per  cent  of Shenzhen's imports  while the rest was  re-sold or trans-shipped  duty-free  have  privileges  foreign goods to other central of  turned  imported  cash-flow  it into  parts of China.  government in 1985  to  the  remained  an  entrepot  and  Wenhong  in the  inland. Shenzhen's reduced smuggling  excessive  inland  imports,  provinces,  and  center  for  by  unauthorized  excessive  zone  duties  Remedial measures were taken  5 5  to deal with  foreign goods  for them. Chen  the  re-sale  consumerism  and  problems in Shenzhen. In order to reverse the large outflows of foreign  exchange, the central government also cut Shenzhen's allocation of state funds by about 40  per  loans, and or  cent,  and  56  tightened the control over  their repayment on  delaying  of  spending  in  cancelled  due  investment  the  1977-78  to  the  SEZ  operations.  projects and period,  150  clamp-down  on  57  Reminiscent  purchases projects credit.  58  foreign investment,  as a "window" between China SEZ  officials  limitations  after  of the  1985  do  SEZs. For  and have  that have  The  political  the  SEZs  Chinese  outbursts  of  delayed  or  were  government  advanced technologies, and  a  more  realistic  to serve  appreciation of the  inherent  given to export-oriented, labour-intensive, small  for  the  failure  craftsmanship  standards,  foreign exchange."  of  the  SEZs  59  strategy  ''Chen, pp. 48-55., as quoted by Pepper, p. 11. Asian Wall Street Journal, 2-3 August 1985, as cited by Pepper, p. 16. Pepper, p. 16. China Trade Report, October 1985, pp. 1, 4. South China. Morning Post, 20 May 1986., as cited in Pepper, p. 19. 5  6  5 7  58  5  9  also  of Shenzhen's deputy. mayors stated  the ability to generate  consequences  huge  export-oriented economy based  "...high efficiency...management and  [and] innovative products, and  and  the outside world. However, it seems that the  example, one  that official preference will still be operations  to import  the  The  of credit  of the cancellation  after  in  reaffirmed Shenzhen's original goals to establish an on industry and  the extension  have  121 already been discussed earlier i n this study. Suzanne Pepper  placed the blame  for the SEZs' problems squarely on Deng's shoulders when she wrote, Deng Xiaoping's mistake was, first, to have set up the zones without full}' understanding their limited capabilities. That error was then compounded by allowing the SEZs to be trumped up into the vanguard not only of his new open-door policy, but of the entire urban economic reform experiment. It was an unfortunate choice, given the generic weaknesses of export processing zones, and those in China proved no exception in this regard. The effects of those weaknesses were then augmented by the extra role Shenzhen i n particular was made to play as vanguard and model. 6 0  Bo  Tao, a Chinese economist, argued  that the SEZs have very little to  offer the big multinational corporations whose advanced most. He advocated China's  technology China  that China should, instead, encourage  most advanced  northern industrial  heartland  direct access to the domestic Chinese market  foreign investors into  and give foreign  and natural resources.  16  as discussed earlier, many obstacles stand i n the way of this ever for example,  needs  investors However, happening:  the possibilitj' of foreign investors dominating the less competitive  domestic Chinese markets  and the fear that huge sums of foreign exchange may  move out of the country. Moreover, there are already disagreements from within the Party itself over how far some of the post-Mao changes should go.  However, the opening of 14 coastal cities, and a new SEZ (the Hainan SEZ)  to foreign investment has reaffirmed the coastal development  strategy and  the SEZ concept. The opening of the 14 cities is also a more rational  approach  to attracting foreign investments because it does not involve the burdensome and cost!}' task of building an entire industrial site and infrastructure where one did 6 0  6 1  Pepper, p. 19. As cited in Robert  Review,  9  May  September-October  Delfs,  1985, pp.  1985, p. 4.  "Changing 70-1. See  the Pattern," also  The  Far China  Eastern Business  Economic Review,  122 not  exist before.  Chinese population. the  hope that  The  trade-off  Despite  is less  the present  the merging of Shenzhen  with Macau in 1999  will instill new  For example, see Pepper, p. 21.  control  difficulties with  over  foreign  influences  on  the  surrounding the SEZs, there is  Hong  Kong  in 1997,  and  Zhuhai  vigor and meaning back into the SEZs.  6 2  CONCLUSION  The The  history of special zones in China  Canton  foreign  system  trade with  ports in 1842, the treaty in  was  the  ports lasted the  was  for almost  Chinese  economy.  self-contained,  outward-oriented  because  and  centres  were  the}'  not  were  of crime  created  remained  regarded  symbols  and  of  specificall}'  was  by  They  failed  to  foreign  as  enclave  attractive  foreign  models  imperialistic the  CCP  came  served  China, providing it with foreign exchange, investment  remained  largely closed to foreigners and  It  wasn't  until  the  post-Mao  zone  era  Hong  in other developing countries and experiences Kong,  factors,  the  Hong  in China. Because lower  Kong  production  investors  are  that  were  of the costs, the  the  special  also  1949,  the  Macau continued special  economy  zones for  ties with the because  China  where  foreigners  SEZs were modelled  after the  proximity of the investment  scope  Shenzhen  incentives  economic  of the  efforts to attract foreign capital and 123  zones,  also the product of earlier  dominant  However, despite the more comprehensive the EPZs. and  were  foreign influences.  could invest, began to appear in China again. The EPZs  in  earnings and  to transform the Chinese  the  development  and  to power  as  port era  Moreover,  domination  and  treaty  also failed  meaningful  for economic  to  outside world, they  the treaty  any  economies.  and  of the  handle  outside of its control, small, isolated, relatively  corruption. After  remnants  one.  Britain. Although  develop  Hong Kong  as  to  replaced by  treaty ports were abolished in China. Although exist  eventful  a century in China, they were not successful  and  ports  zone  defeated in the Opium • War  linkages with China  treaty  special  Europeans. However, this system  after China  transforming  first  has been a long and  force  SEZs, as  SEZ  and in  special to  cultural  Shenzhen.  compared  with  technologies to China, foreign  124 investors The  main  Chinese large not very  still  tend  reason  for this  them  mainly  is because  multi-national  corporations  been attracted to the  special  zones,  transformation  that  not  the  advanced  treaty ports about  of China, they provide  technological  not  be  gain  technologies  and the  Hong  and  economic  SEZs  establishing  should  more dispersed  throughout China. Foreign  reasons  why  economically the  China  the was  and  concentrated  treaty  the  largelj  7  links on  failed  presence  many  in  ways,  China  to be the  coast  to  transform  desire  the  SEZs  to  rest  but  the  argued  China  concentrate  is partly  a  of  the  should  be  access to  early days of  that one  of  technologically  enable  to  foreign  China  to  investors  benefit  may  more  greatly  from  facilitate  Western  meaningful links with and  the Chinese coast.  the  foreign  continuation  of  economic its earlier  zones which would  technological  contact,  the and  facilitate control over them. Moreover, although opening the country and  markets  as  successful in  investors today desire greater  desires to quarantine foreign influences to specially designated help  Macau,  they remained small, foreign, outward-oriented  China's  largely to  and  SEZs. Firstly,  the  relatively self-contained communities that were isolated on  In  generally  for the  with  because they were unable to develop any  Chinese economy. Instead,  that  technological  are  West. Rhoads Murphey  ports  the  and  the Chinese markets as the early European traders did during between  to  SEZs  have  Kong  some useful lessons  econom}', they  contact  access  SEZs have generally not been  shown that if the  diffusion  to  bases.  technologies.  brought  treaty port experience has  facilitating  difficult  SEZs. Consequently, the  fact  had  cheap industrial production  of this limited nature of the  possessing  successful in attracting advanced  the  as  it is still  markets. It is largely because  Despite  the  to regard  such  a  the  diffusion solution  and is  a  125 double-edged sword for China because doing so would also introduce into  the  country.  devastating  Opening  China's  for its domestic industries and  exchange. Furthermore, providing domestic markets may control  markets  the  investments.  vast  array  of  Nevertheless,  foreign  if the  guarantee  available  for economic  resources  be  necessarj' for the  used  industrial  demands. Perhaps two  influences  current  success. and  SEZs and  for  the  compatibility  of  greatest  Furthermore, the China-things and  and  or  Deng Xiaoping  is  to  foreign succeed,  access to its domestic markets.  What  the  market  Maoists.  Even  efficiently.  more responsive  lessons  that  most  Moreover, and  China  flexible  can  draw  included, is the  increase  it  the  is  also  to market from  Hong  control are  as  technologies.  controversial  mechanisms  more  are  is essential, however, is that  within  SEZs also signify a return to urbanism and  rejected by  been blamed on  strategy  less government regulation and  leaders,  capitalist  be  access to China's  accompanj'  the economic reforms have also created  Chinese  may  Chinese government to  also  development  important for successful economic growth as advanced  issues  greater  which  managed  Kong is that political stability and  The  investors  shown that the most advanced technologies  sector to be  of the  problems  result in massive outflows of foreign  also make it more difficult for the  Secondly, Hong Kong has a  foreign  foreign investors with  China must offer foreign investors greater  not  to  new  disturbing to in crime and  some very of  which  a  socialist  volatile is  the  state.  foreign enclaves in the  Chinese  leaders,  corruption, which  has  the economic reforms. Aside from the complex political, ideological  social problems of the economic reforms, the economic feasibility of the  as the spearhead of the modernization drive has  been seriously questioned.  SEZs  126 It was tool to lead low-cost  proposed  China's  industrial  in this study that the SEZ strategy was  modernization  bases,  which  corporations possessing advanced  effort because of their inherent limitations as  generally do  not appeal  transnational  major reason which contributed to  of the SEZs' activities and the reaffirmation of the SEZs' goals  as essentially the same in nature and scope however, is the fact excessive  to large  technologies. Also, the tremendous costs involved  in building and running the SEZs was another the clamp-down  not the best  that  although  spending, it also makes  this  as those of the EPZs. Paradoxically,  clamp-down  maj' help  to cut back on  it more difficult for the SEZs  to attract the  foreign capital and advanced technologies necessary for modernization.  However,  how  the  Chinese  leaders  deal  with  the  complex  political,  ideological, social and economic issues associated with their economic reforms ultimately questions  determine and  China, they pursue the  the fate  problems  the SEZs  and  economic  have  raised for  and a desire to  more rational economic policies. It is perhaps  this new  attitude, and not  will  modernization in China.  prove  to be  policy  reforms  all the new  in China  which  represent an important  Modernizations. Despite  shift  SEZs,  also  that  of the Four  will  the necessary  ingredient  to bring  about  BIBLIOGRAPHY  English Language Books and Articles  Aikman, David. Pacific  Rim:  Area  of Change,  Area  of Opportunity.  Toronto: Little,  Brown and Company, 1986.  Benton, Gregor. 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Kong  Electronics  y% ^4Si'^r  Economies  and  Could  v  "Xianggang  Kong  Yu  Neidi  Ke  ^iL^'^^Economic  Gongye  Yu  Develop  the  Jingji  and Macau) no. 3-4  (1984),  Interior)  'tfcit-fo^L  Hezuo Fazhan  ^ £ ^ ^ j | L ^ ^ ^ J ! f t  Co-operatively  Dianzi  Gangao  [Chinese]  - § ft i f e j  Peng, Jieweh. e[_^, " j ^ -^"Xianggang  i3E.p5  the  of Hong  PP. 5 7 - 6 2 . § ^  |=  jfrJ5}  (The Prospects of Co-operation Between the Hong  Industry  (The  Yi.  Electronics  Dianzi  Gongye."  (Hong Kong and the Interior Industry)  Jingji  Reporter) no. 38-39 (1983), pp. 62-63.  Daobao,  141 Yuanzhan.j^  Shen,  j±f  "Shengang  Zhanwang."^ Relationship  $  i&yfc^^  Between  Prospect) Jingji  Tang,  Liangdi  Between  Shenzhen  Jingji  Huai./'|f 'pp~ "Guanyu  Bianjing  and Hong Kong  Jingji  of Development  Jingji,^i^i£.5fc(The  of the Border  Economic  Research) 2 (1986):  Tequ  Fazhan  Special  Yu  in Retrospect and 56-59.  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(The Relationship Intimate)  (1983), pp. Yu,  Guanyuan. ^ (Discussing  Jingji  More  SpeciaI  Preferential Treatment)  Neidi  Between  Y u Xianggangde Dianzi  Jingji  Daobao, £<<^_ ^ ^ ^ l ^ j j ^ E c o n o m i c  AZ>^3&  "Tantan Dui Shenzhen  the Recognition  Yanjiu,  (1983), pp. 2 8 - 3 4 . $ $  M  $\  Reporter)  Tequ  Problems  ^i^Jo^'fiS(Economic #  no.  38-39  ^ i f - . l ^ t - i ? 3  Jingji  of of Some  Special Economic Zone) Jingji X$  Gongye Guanxi  the Chinese and Hong Kong's Electronics  "V-68.tlp5te4t5t©f about  S h e n z h e n  Reporter) no. 38-39 (1983), p. 34.  Xie, Yingzhen.=^j"_^.^|^."Zhongguo  is  Even  ( T h e  E  Jige  WentiifcRenshi."  of the Shenzhen Research) no. 2 ft  f t t ) ^ 7JI  142 Zhuang, W e i m i n g ^ Q L Jejian  Zuoyong." £  "Xianggang Moshi Dui Woguo fe£  ^  ^  j g  Shiban  $  Jingji Tequde £tf  ft  (Drawing on the Experience of Using the Hong Kong [Economic] Model for China's Special Economic Zones) Gangao  Jingji,j^^L^x^5j\~(The  of Hong Kong and Macao) ho. 3-4 (1984), pp. 62-65.  Chinese Language Periodicals  Qiaowubao  Renminribao  (Newspaper of Overseas Chinese Affairs) 'j^-  (The People's Daily) A .  ffij  Q ^ f [ ^ _  Economies  

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