Shenzhen
Dramatic Changes
By Liang Xiang  ·  2018-06-22  ·   Source: | NO.8, FEBRUARY 24, 1986

Shenzhen, China's first and largest special economic zone, began experimental operation in 1980. As an open window toforeign investment, the zone's development has always received the attention of foreign businessmen and world economists. "Beijing Review" has frequently reported on the zone's development in the past. This article by Liang Xiang, secretary of the Shenzhen municipal committee of the Chinese Communist Party, gives a brief account of the zone's evolution in the pastfiveyears and may help to widen the readers'perspective on China's economic zones. 

The Shenzhen Special Economic Zone, one of China's "testing grounds" for opening windows to the world economy, was established in August 1980 with the approval of the Standing Committee of the National People's Congress. In the initial stage after its establishment, because of the influence of the models of foreign "export products processing zone" and "free trade zone," Shenzhen's economic links with enterprises in the hinterland were neglected. The special zone's system also followed the economic pattern of the hinterland. Acting upon a directive of the Party Central Committee after 1981, the local authorities have conducted reforms of the special zone's economic structure and have adopted special policies, thus speeding up the development of the special zone.

Achievements and Problems

With regard to the operation of special economic zones in socialist China, there is no precedent to go by. We have begun by laying the groundwork in Shenzhen over the past five years or so.

-Investment environment. Originally a desolate, small border town in China's Guangdong Province, Shenzhen's infrastructure facilities, especially its energy, telecommunications and transportation industries, were very backward. So in the past few years, the local authorities have concentrated their human, financial and material resources on the construction of the Luohu and Shangbu urban districts covering an area of 36 square kilometres; building and expanding more than 80 urban roads of 100 kilometres; and setting up the Shekou, Shangbu and Bagualing industrial districts that have begun to take shape. In addition, the construction of four other industrial districts is in full swing. A batch of cultural, tourist and commercial service facilities, municipal projects and workers' dorms have also been put up. At the same time, energy supply, transportation and telecommunication services have improved. One of these improvements was the 700,000-kw Shajao thermal power plant built with the aid of foreign capital, its first 350,000-kw generating unit will begin operation next year. Among other projects are a helicopter airport; the construction of four harbours; a water and land transportation network; and a 11,000-channel programme-controlled telephone exchange system recently put into service, making it possible to directly dial Hongkong and a dozen cities in China's hinterland.

Through several years of hard work, Shenzhen has begun to create a favourable investment environment to attract foreign capital.

Capital construction conducted over the past few years has involved a cumulative investment of about 6 billion yuan and projects that have been completed cover an area of about 8.08 million square metres of floor space. The sources of funds were as follows:

Foreign capital accounts for about 20 percent;

Funds raised by Shenzhen itself make up 27 percent;

Investment in Shenzhen enterprises made by central ministries and the nation's provinces and cities constitutes 12 percent;

Bank loans represent 30 percent;

State investment comprises about 3 percent; and others (including nuclear power stations) take up about 8 percent.

In addition, Shenzhen authorities have enacted about a dozen economic laws and regulations and a number of others have been submitted to the higher authorities for examination and approval.

-Importing foreign funds and advanced technology. Business people from 17 countries and regions have come to Shenzhen to check into the possibilities of investing in enterprises. By October 1985, more than 4,300 agreements on construction projects had been signed with foreign businessmen, involving a total investment of US$3.1 billion, US$840 million of which had been put to use, accounting for one-seventh of the nation's gross direct foreign investment. The city imported more than 30,000 pieces of equipment, about 40 percent of which were comparatively advanced. These included plastic-spraying machines, electronic component automatic inserting machines, hollow glass production line, plastic-woven bag production line, precision mould processing equipment, microcomputer production equipment, large injection plastic equipment, hard plastic processing equipment and satellite television ground receiving equipment. These technology and equipment are up to advanced international levels and some of them have filled in China's gaps in these fields.

With the introduction of foreign funds and technology, a number of foreign-owned enterprises, Chinese-foreign joint ventures and co-operative enterprises have been set up in the special economic zone. More than 85 percent of these businesses have turned out profits, and more than 400 varieties of their products have entered the international market.

The Shenzhen authorities have also carried out economic cooperation with the other departments and enterprises in the hinterland in order to solve the zone's shortage of funds, talent and resources. The city currently has established links with 969 enterprises throughout China, including 338 enterprises operating under 25 ministries of the State Council, 395 enterprises under 27 of the nation's provinces, municipalities and autonomous regions and 236 enterprises under other areas and cities. These enterprises have generally brought in good economic results, earning a total of around 500 million yuan in 1984.

- Comprehensive economic growth. Compared with 1979, the zone's industrial enterprises have increased in number from 224 to the current 750; the number of workers and staff members has increased from more than 8,700 people to more than 60,000 people; and total industrial output value rose from 60 million yuan to 1.8 billion yuan in 1984 - 30 times greater than that of 1979. Total industrial output value in 1985 was estimated at 2.4 billion yuan, an increase of 33 percent over 1984.

 

A commercial district (XUE CHAO)

The structure of industry in Shenzhen has undergone remarkable changes in the last several years. Formerly, the zone mainly processed materials from outside sources, but now it produces most of its own products, totalling more than 800 varieties. The zone is now operating industries in electronics, machinery, pharmaceutics, petrochemicals, building materials, food processing and textiles. They are gradually developing from labour-intensive industries into ones that are based on state-of-the-art technology. Of the industrial projects completed in 1984, 11 percent belonged to these technology-intensive industries and the figure further increased in 1985. At the same time, the zone also began to orient the sales of its products abroad. The total sales of industrial goods in 1984 amounted to 1.1 billion yuan, 33 percent of which was exported. If import substitution was included, then the amount of goods sold abroad accounted for 48 percent. In the first nine months of 1985, the zone sold 1.3 billion yuan worth of industrial goods, 43 percent of which was sold abroad, and the figure was 57 percent if import substitution was included.

Shenzhen's agriculture is developing in the direction of commercial, specialized and technological farming. In order to keep up with the pace, a large production centre has been established for agriculture. Currently, the city's annual animal and fresh produce includes 10 million chickens; 300,000 hogs; 20,000 tons of milk; 20,000 tons of fresh-water fish; and 180,000 tons of vegetables.

Shenzhen also has recorded fairly large advances in commerce, foreign trade, communications, finance, tourism, catering service, culture, public health and education. In 1984 the city's GNP amounted to 2.3 billion yuan, averaging 3,700 yuan per capita; per-capita national income exceeded US$1,000 in the same year. Compared with 1980, its GNP for 1985 was estimated to reach 2.9 billion yuan, a 7.4 times rise; its commodity retail sales reached 2.3 billion yuan, 11 times higher; its revenue hit 800 million yuan, 14 times greater; the city's foreign exchange earnings ran to US$660 million. From January to October last year, the city had signed with foreign businesses 879 contracts valued at US$800 million, US$240 million of which had been put to use, increasing 9.3 percent, 69.9 percent and 80.7 percent respectively over the same period of 1984. So there is no doubt that a sustained, stable and all-round economic growth has taken hold of the special zone.

-Improved living standards. In 1984, the farmers' annual income in Shenzhen averaged 1,700 yuan, and 80 percent of those farmers had built new houses. The monthly wages of factory and company employees also increased, their monthly wages now averaging 200 yuan - higher than most of those earned by workers in other parts of China, but lower than those in Hongkong. Wage hikes, however, were lower than that of labour productivity.

  

A workshop at the Overseas Chinese Electronic Factory, a Joint venture run with Hongkong Investors (XUE CHAO)

With better living standards and material well-being, the local people have also begun to enjoy a richer cultural life. A halt has been put to the exodus to Hongkong, which occurred before the establishment of the special zone, and now more than 1,000 people have returned to settle down in Shenzhen.

Despite the achievements mentioned above, there exist many problems in the special zone.

To begin with, the products turned out by Shenzhen enterprises are not competitive enough on the international market, resulting in a foreign exchange imbalance within the industries themselves (although foreign exchange is balanced and in surplus when the city is considered as a whole).

To date, enterprise management has failed to keep pace with the rapidly developing economic zone. Poor and confusing management and operation of some enterprises has resulted in low financial returns. Because everything has moved at breakneck speed in the zone, economic legislation and regulations have not been fully enacted and there exist many legal loopholes. Therefore, economic crime is on the rise.

Reform is not conducted in a co-ordinate way. The overall economic control system has not been completely established and the management system is not suited to the needs of the development of an outward-oriented economy.

There are still many weak links in the development of socialist culture and ethics. Malpractice is not uncommon among cadres who abuse their power to seek personal gain.

Yet another dilemma facing the economic zone is an unequivocal lack of talent. The professional level of cadres, workers and staff members remains to be improved.

Functions of the special zone

Coastal belts urged to open up. As one of China's testing grounds for opening to the world, the Shenzhen Special Economic Zone, set up earlier than the other three, has acquired some experience.

During his inspection tour of the zone in January 1984, Deng Xiaoping said, "The development of Shenzhen and its experience prove that our policy for setting up the special economic zones is correct." Soon afterwards, the Central Committee of the Communist Party of China decided to open 14 more coastal cities and Hainan Island, and later to open the Zhujiang (Pearl) and Changjiang (Yangtze) River Deltas and the Xiamen-Zhangzhou-Quanzhou delta areas in southern Fujian as the open economic coastal areas. This network of open coastal cities from Dalian in the north to Beihai in the south has begun to take shape. Through these special zones and coastal cities, we have imported advanced technology and scientific management expertise, which eventually will promote economic and technological development in the hinterland.

-Providing experience for reform In the hinterland. Since the beginning of 1981, Shenzhen has reformed its planning and capital construction management systems, its commercial, financial, price and wage systems as well as cadre and personnel system. It is believed that the experience gained from these reforms will serve as good examples for the hinterland. These experiences include the replacement of investment with bank loans in the zone's infrastructural construction; a public bidding system adopted for capital construction projects; a contract system introduced for the employment of workers, and cadres employed through public ads or election for a term of office.

About 30,000 cadres and technicians from central, provincial and municipal units stationed in Shenzhen, and those from units in the hinterland that have links with Shenzhen, have been able to grow professionally and then take back their experiences to apply them in their own work units.

The special zone has also offered about 150 courses dealing with the import of foreign investment and technology, international finance, Hongkong and Macao laws, foreign trade and enterprise management. More than 6,000 part-time students from the various ministries of the State Council, the provinces and municipalities are envolled in these classes.

-The Zone's Impact on Hongkong and Taiwan. The development of the Shenzhen Special Economic Zone has enabled the Hongkong compatriots to see the future of Hongkong after the resumption of China's sovereignty over the region in 1997. The Hongkong people said that since capitalist enterprises are allowed to exist in Shenzhen, they have no need to worry about the future of Hongkong. Taiwan compatriots also follow Shenzhen's development with interest. Through the window of the Shenzhen Special Economic Zone, Taiwan people have observed China's policy of opening to the world. After her visit to the special zone, a Taiwanese correspondent said with emotion, "How eagerly I want to see an early reunification of Taiwan with the mainland." She said the existence and development of the economic zone had given her "confidence in the reunification of the motherland."

During his visit to Shenzhen, Hongkong Governor Edward Youde said the zone was very important both to China and to Hongkong while Hongkong's prosperity played a significant role in promoting the development of the one, which, in turn, was of special importance to Hongkong.

-Foreigners' comments. From 1980 to October 1985, government and party delegations from more than 50 countries and about 8,000 experts, scholars and correspondents in 1,200 groups visited the special zone, 30 groups of whom were composed of state leaders at or above the level of vice-premiers and deputy speakers. US Vice-President George Bush, during a visit last fall, said the economic zone had proven that it was expanding and growing stronger, and is expected to have greater development and that the United States would further invest in the area. Norwegian Prime Minister Kave Willoch said that the special economic zone was like a catalyst that would stimulate China's economic development. First Vice-Chairman of the Soviet Council of Ministers Ivan Ark- hipov said that after his visit in Shenzhen, he realized the concept of the special zone was very good for China. Romanian Ambassador to China Florea Dumitrescu said the policy of opening to the world was of significance not only to the special zone, but also was one of far-reaching significance to China, to Romania and other socialist countries.

Upholding the socialist road

As the special economic zone continues to import foreign capital and makes frequent contact with capitalist countries, decadent bourgeois ideology and lifestyles inevitably will creep in. Under such a special and complex environment, there have been doubts about whether the zone could continue to walk the socialist road. But facts have indicated that the people of Shenzhen have maintained their socialist orientation.

It must be made clear that Shenzhen is a special economic zone, not a special political zone, and therefore practises all of China's laws and statutes. The zone's political power is placed in the hands of the Chinese people. Foreign business people who invest in the special zone and engage in other economic activities must abide by China's laws; they can only carry out their activities within the limits of specified areas to gain their legitimate profits. If foreign business people should violate Chinese laws, they would be subjected to the same investigation and consequences as would a Chinese business person.

Another method that ensures the socialist orientation is that Chinese-foreign joint ventures and foreign-owned enterprises that have been set up in the zone supplement China's socialist economy. The economic zone is a special area under the overall control of the socialist economy. With regard to foreign business people who come to invest in the special economic zone, Shenzhen follows the principle of equality and mutual benefit to protect their legimate rights and interests. At the same time, the zone makes use of foreign funds, advanced technology and scientific management methods to develop socialist productive forces. In the process of development, even when some negative tendencies arise, Shenzhen authorities are fully capable of promptly correcting them, and ensuring that the economic zone develops along the socialist road.

 

The Bamboo Garden Hotel (XUE CHAO)

 

A classroom building of the Yucal Middle School (ZHAI WANXING)

In an effort to simultaneously develop its socialist culture and economic construction, the economic zone promotes education on communist ideals and discipline among the cadres and the masses. Shenzhen authorities are in the process of constructing cultural and educational facilities; one-third of the city's annual revenue is spent on expanding the socialist ideological and cultural position. Two-thirds of Shenzhen's factory and office workers study part time to improve their cultural and technological backgrounds. On the whole, social conduct and public order in the special economic zone are in good standing.

All economic and other criminal activities are being clamped down. In the past five years, the zone has dealt with more than 170 Party cadres involved in criminal activities, accounting for about 0.2 percent of the total number of Party cadres in the special zone.

* * *

A great future lies ahead for the Shenzhen Special Economic Zone. With fairly sound foundations underneath every field, the special zone will continue to attract even more foreign investment. The in-depth development of the nation's economic reforms and the further implementation of the open policy have given a big boost to construction in Shenzhen.

The development of a commodity economy in the Zhujiang delta area, the exploration and development of the Nanhai (South China Sea) Oilfield, the construction of the Daya Bay Nuclear Power Station and the exploitation of the natural resources at Dapeng Bay port - all go to demonstrate the huge potential of the Chinese special economic zone. The satisfactory solution of the Hongkong issue after the agreement on Hongkong was signed between the Chinese and British governments is conducive to strengthening Shenzhen's economic co-operation with Hongkong and promoting economic prosperity for the two regions. The development of the Shenzhen Special Economic Zone has now entered a new stage.

During China's Seventh Five-Year Plan period (1986-90), Shenzhen authorities have set the following targets: the total industrial output value of the zone will increase at an annual rate of 22 percent, the GNP at 18 percent, and the per-capita GNP at 11 percent. Efforts are being made to gradually turn Shenzhen into a comprehensive special economic zone, one that emphasizes the development of industry and has a rational economic structure based on advanced science and technology and a high level of socialist culture and ethics.

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