Zou Erkang, secretary-general of the Shenzhen Special Economic Zone, answers questions posed by correspondent Zhang Zeyu about the zone's origin, development and policies.

Question: When did you begin to set up the special economic zone?

Answer: We had been seriously considering the special economic zone for some time before we established it in 1980. Its establishment coincided with the nation's efforts to shift the emphasis of its work to the modernization drive, in line with a decision made at the end of 1978 by the Third Plenary Session of the 11th Party Central Committee. We cannot modernize our country behind closed doors. Instead, we should develop economic cooperation and technical exchanges with other countries and regions. That is no small job, however, because China, the home of one-quarter of mankind, is so large (more than 9.6 million square kilometres) and its natural conditions vary so vastly. Guangdong and Fujian Provinces were the first to open to foreign investment for a couple of reasons. First, their ideal locations and favourable natural conditions have enabled both provinces to further their already time-honoured ties with the rest of the world. Second, the two provinces are the homeland of many Chinese living overseas who want to contribute to making China prosperous and strong. Guangdong's Shenzhen and Zhuhai have yet another advantage: Their close proximity to Hongkong and Macao has brought about extensive economic co-operation and technological exchanges between them. All these factors have prompted the central authorities to designate Shenzhen, Zhuhai and Shantou and Fujian's Xiamen as special economic zones. These zones follow economic policies which are more flexible and preferential to foreign investors than those followed elsewhere in China. Setting up special economic zones represents a pioneering effort to better implement the open policy.

Zou Erkang.

Q: Did you have any particular consideration when you chose Shenzhen, Zhuhai, Shantou and Xiamen as special economic zones?

A: We chose these sites for special economic zones chiefly because of their favourable geographic conditions. Convenient transportation is essential to attracting foreign investment. Shenzhen, for instance, is linked with Hongkong by the Luohu Bridge and the Wenjin ferry, and its long coastline offers many ideal sites for building the harbours and wharves needed to develop marine shipping. One more plus is that Hongkong, after two decades of rapid economic growth, is a convenient source of the advanced science, technology and management expertise China needs in its modernization drive.

The establishment of special economic zones did have impact on the resumption of the exercise of China's sovereignty over Hongkong. Some Hongkong residents were worried that capitalists' property would be confiscated, and that their living standards would go down after 1997. The establishment of the special economic zone has been a stabilizing factor in easing those worries.

In the last few years, Shenzhen has been actively attracting foreign investment and providing overseas investors with favourable conditions. In the meantime, various economic laws have been enacted or tightened up. "Good faith" is the watchword in carrying out contracts signed with investors from Hongkong and foreign countries. The laws are strictly followed, so that foreign enterprises' lawful rights and interests are protected.

The rapid progress in the special economic zone has brought in its wake steady improvement in living standards. Some Shenzhen residents are already enjoying a life as good as, or even better than, people in Hongkong's New Territories. By 1990 Shenzhen will catch up with or near Hongkong's 1983 per-capita production, total industrial output value, revenue and labour productivity. All this will help dispel the anxieties of the Hongkong people.

Q: Some foreigners asserted that the Shenzhen Special Economic Zone is a capitalist area. What's your comment about that?

A: The view is incorrect. The special economic zones are different from most of China because they are financed mainly by foreign investment. Within the zones foreign investors may open their own enterprises or co-operate with Chinese companies. Their legal rights and interests are protected. With the influx of foreign capital, more joint ventures and wholly owned foreign enterprises will spring up, which will result in a multiple economic setup, with joint ventures and foreign-owned enterprises playing the predominant roles. This is what makes the special economic zones different from other parts of China. But it is wrong to say these zones are capitalist. The special economic zones are exactly the same as the rest of the nation in politics, culture and other aspects of the superstructure. To be more exact, Shenzhen is socialist China's special economic zone practising a more open policy.

Cassette tape-recorders being assembled in a joint venture factory using local and Hongkong investment.

Q: What will the foreign-owned enterprises in the special economic zone be like? How do you handle disputes between labour and capital in these enterprises?

A: Wholly owned foreign enterprises belong to the capitalist economy, and the relationship between the managers and the workers is the same as that between employers and employees. However, because they are situated in socialist China and should therefore abide by Chinese laws and decrees, they are also state-capitalist in nature.

Most joint ventures and wholly owned foreign enterprises in Shenzhen are doing a fairly good job in handling their labour-capital relations so that both investors and the workers benefit from the partnership. Disputes are avoidable so long as both sides consciously observe China's laws and regulations. If an investor violates the state laws or does something humiliating to the workers, the people's government and trade unions will intervene. The problem now is whether workers in wholly owned foreign enterprises are their own masters. As a class, the working people are the masters of the state. But in those enterprises, the workers pay a price for being hired labourers. That means they allow the investors to exploit part of their surplus labour. They make these sacrifices for the sake of the long-term interests of the working class and the country.

Q: Now that the number of open cities has increased, will it adversely affect Shenzhen's chances for success?

A: The 14 open port cities have provided foreign investors with more choices, and the resultant scattering of foreign funds will have some influence on the special economic zones. Of course, we would prefer concentrated investment here. However, our zone is open to the entire world, and so far only a very small portion of the huge sum of available foreign capital has been invested in Shenzhen. So we are not worried that those port cities will affect our future. In fact, many countries have asked us to accept their loans, and some want us to issue bonds. This shows that capitalist countries need to find more outlet for their funds and technology, and a few special economic zones can hardly attract enough foreign funds to help boost China's modernization drive. That is why more cities have to be opened to attract foreign funds and technology. The increase in the number of open cities will not harm the special economic zones. On the contrary, they have generated more opportunities for competition and mutual emulation, which will help improve the investinent climate and raise our efficiency.

Q: With advanced science, technology and management expertise flowing in from Hongkong and overseas, moribund capitalist ideas will also find their way into the special economic zone. How will you tackle this problem?

The Shekou Industrial District under construction.

A: Shenzhen will be influenced by capitalist society as it imports advanced scientific knowledge, technical know-how and management expertise from Hongkong and foreign countries. This is not surprising; it is to be expected. We should import advanced science and technology and management expertise because they are needed in our modernization programme. But at the same time, we should resolutely reject the decadent and moribund ideology and culture inherent in capitalism, reflected in such undesirable lifestyles as gambling and prostitution.

During the zone's four-year history, we have never for a moment slackened our efforts to foster an ideological awareness against capitalist decadence among our Party members, government officials and citizens. As a result, economic construction is making rapid headway, while the social mores are improving steadily. There is ample reason to say that Shenzhen will never go capitalist as some have worried. On the contrary, with the passage of time, the advantages of the socialist system over capitalism will become ever clearer.

Q: The slogan "time means money, and efficiency is life" is now in vogue in Shenzhen's Shekou Industrial District. How do you interpret this slogan?

A: There used to be a lot of controversy over this slogan. But today, a basic consensus has been reached. The concept "money" was often wrongly, or one-sidedly, interpreted due to the "Leftist" influence. Some people equated "money" with capitalism. They turned a blind eye to the value of commodities and never cared to improve economic results. In fact, money is only a converted form of property, which, in turn, is created through labour. When we talk about making money in a socialist country, we mean creating material wealth for the state. The higher the labour productivity becomes, the more property is created, so the Marxist point of view goes. There is nothing wrong with the Shekou slogan, because it only reminds people to be time-conscious, improve their efficiency and create more material wealth for the state. In the past, however, efficiency was neglected, and much time was wasted on buck-passing and delays. That gravely slowed the growth of the forces of production. In that sense, the Shekou slogan is a repudiation of our recent past.

Q: What progress has Shenzhen made since it was established as a special economic zone four years ago?

A: The establishment of the special economic zone has transformed what used to be an isolated, poor town into a thriving business centre.

In the last few years, we have been building up the infrastructure of our economy in a systematic way. We have built or widened 55 city streets, with a total length of 80 kilometres, which have formed an extensive transportation network. Meanwhile, we have constructed many factory buildings, houses, stores, restaurants, posh hotels and summer resorts. By the end of June 1984, Shenzhen had invested 2.516 billion yuan in capital construction, and completed new structures with a total floor space of 4.23 million square metres.

With large-scale urban development in high gear, we have been importing foreign capital and advanced technology. By the end of June, Shenzhen had signed 3,018 contracts with overseas companies. Of the US$1.8 billion invested, more than US$500 million has already been put to use. Much of the imported equipment (30,000 pieces or sets) is quite sophisticated. Imported items include printing presses from West Germany, phototypesetting equipment from Japan and fodder processors from the United States. We are now using advanced technology in the manufacture of plastic sheets, microcomputers and software. And our construction equipment and interior decoration techniques are rather advanced.

The Luohu border crossing.

All this has resulted in an all-round economic takeoff. Shenzhen's 1983 gross industrial output value was 12 times what it was in 1978. Despite a redaction in farming acreage, agriculture registered a 19 per cent rise in output. Total revenue has multiplied 11 times, and foreign exchange income has tripled. In its four-year history as a special zone, Shenzhen's economic growth outstripped its gains over the previous three decades: Specifically, total output value of industry rose by 66 per cent; investment in capital construction jumped 20-fold; revenue multiplied 2.2 times; local foreign exchange revenue increased 57 per cent; and the total sales of commodities went up 39 per cent.

The standard of living has vastly improved. Some 80,000 people have been employed in the last four years. With full employment ensured, the local people are earning higher wages today. In 1983 the average wage for a state-owned enterprise worker was 2.7 times the 1978 figure. Peasant incomes averaged 840 yuan per person and more than 20 per cent of the peasant families are making 10,000 yuan a year. Today, the local people are living in peace and contentment, and a good social order is maintained in the border area.

Q: What measures have you taken to improve the investment climate and entice foreign investment?

A: Foreign capital constitutes the main financial source for construction of the Shenzhen Special Economic Zone. Shenzhen's economy, therefore, is marked by an "openness" unseen elsewhere in China. Attracting enough foreign investment is the key to the zone's success. In order to attract large amounts of foreign capital and to set up more technology- and knowledge-intensive enterprises, we have, while actively building the infrastructure and improving the investment climate, adopted policies that are more open and preferential than those followed in other parts of the country.

To make Shenzhen more accessible to industrialists and entrepreneurs from Hongkong, Macao and overseas who come to visit, investigate, spend holidays or seek business deals, we have simplified the procedures for granting them entrance permits. A special gate has been opened at the Luohu customs station for cars travelling between Hongkong and Shenzhen, and the closing time for the gate has been made later. Three more customs gates will be added to the original three. After a "special economic zone administrative system" is introduced, the red tape for entry and exit will be further cut. These are the kinds of things I'm talking about when I say we are being more open.

By being more preferential, I mean that the conditions provided for those who invest in Shenzhen will be better than what they can get in other parts of the country, Hongkong included. For example, the rate of business income tax is 15 per cent here, as compared to 18.5 per cent in Hongkong. Projects with an investment of more than US$5 million or those which make use of advanced technology and take a long time to recoup the investment will enjoy tax reductions or even exemptions. Exports produced in Shenzhen are exempted from export taxes. After the "special economic zone administrative system" is formed, no customs duties will be levied on imported production equipment and daily necessities, with the exception of cigarettes, liquors and a few other commodities. Shenzhen also offers low prices for leasing land. In 1981, industrial rents in Hongkong averaged US$57 per square metre but only US$5-15 in Shenzhen. Last year, when land prices were dropping in Hongkong, Shenzhen cut its rental rates by half. A contract system for wages has been introduced. Workers in the city proper are hired through public exams. Each worker in the special economic zone earns about 40 per cent of what an average Hongkong worker earns, but faces much lower expenses. And Shenzhen workers have an efficiency rate about 70 per cent of the level in Hongkong.