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Just Imagine…

Just Imagine…. You visit Hong Kong as a tourist in 2003, cross over to Shenzhen to get a glimpse of China, expecting to see this…. Just Imagine…. And you see this…. China’s Economic Growth and Special Economic Zones: A good thing?. Aaron D. Brooks NS 3041. 12 Mar 08.

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Just Imagine…

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  1. Just Imagine… You visit Hong Kong as a tourist in 2003, cross over to Shenzhen to get a glimpse of China, expecting to see this…

  2. Just Imagine… And you see this….

  3. China’s Economic Growth and Special Economic Zones: A good thing? Aaron D. Brooks NS 3041 12 Mar 08

  4. China’s Economic Reforms • China’s economic reforms began in 1970s • Cause: Failures of Cultural Revolution • Weakened CCP, inefficient SOEs, lagging economy • Method: Gradual approach to reforms • Result: • Ten-fold increase in China’s GDP since 1978 • Second-largest economy in world (PPP basis) • Case study: • Special Economic Zones

  5. Special Economic Zones (SEZs) • Transition to “Socialist Market Economy with Chinese Characteristics” • Goal: Encourage private ownership, foreign investment, tech transfer, while maintaining measure of control • “Window” to “Asian Tigers’” development • “It doesn’t matter whether the cat is black or white, • as long as it catches mice.” • -- Deng Xiaoping (1904-1997)

  6. Special Economic Zones (SEZs) • Established 4 SEZs in 1979 • Trade comparative advantages • China shifted authority from central gov’t to zones • Expanded to 14 Open Coastal Cities (1984) • “Development from scratch” • Industry moved to areas of new development to take advantage of cheap labor • Unconstrained growth with new infrastructure • Geographically “insulated” + aids reunifications • Impact? Shift of… …China’s GDP to the coast (57%) …China’s FDI to the coast (86.4%)

  7. Where is this Shenzhen Place?

  8. Shenzhen SEZ • Land area: 126.4 square miles (largest SEZ) • From: Fishing city of 300,000 (1979) • GDP share <1% • 80% households in fishing/agriculture • To: Metropolis of 7,000,000 (2007) • 30% annual employment growth (1980-93) • Shifted development inward for comparative advantage (land/labor costs)… “ripple effect” • By 1994, more FDI than target for 2000 ($5.35B) • B/t 1980-95, real growth 35.5% (China 10%)

  9. State Investment in Shenzhen SEZ • “If you build it, [they] will come.” • -- Field of Dreams

  10. Shenzhen SEZ FDI “Show me the money!”

  11. Challenges in the SEZs • Rising wages • Population movement control (hukou) • Increased labor/societal divisions • Greater number of transitory/temporary workers • Cracking “iron rice bowl” safety net • Negative for workers in SOEs • Newcomers vs. original hukou residents • Labor mistreatment • Forced overtime • Minimum wage rates ignored • Unpaid wages • Health and safety problems • Land acquisition

  12. Challenges for China Proper • Massive movement to economically successful SEZs (licit and illicit) • With affluence comes demands for greater rights • Economic freedom  political freedom? • Socio-economic disparities (Gini Coefficient) • Increased from 0.30 (1981) to 0.40 (2005) • Divisions between employees and migrant workers

  13. Conclusion • SEZs right policy, right locations, at right time • Attracted large amounts of FDI • Input comparative advantage • Foreign access to previously-closed domestic market • Attractive government incentives • Incorporated market-oriented reforms • Tough to ignore successes, even for most hardline Communists • Transition SEZs from manufacturing to tech • Common capitalist challenges to address

  14. Conclusion Questions?

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