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UPDATED: February 28, 2012 Web Exclusive
Spillover Effects
Recalling the achievements of SEZs 20 years after Deng Xiaoping's historic south China tour
By Liu Zhixin


SEZ MIRACLE: Citizens have a leisure time at a plaza with Deng Xiaoping's portrait hanging over it in the city of Shenzhen in south China's Guangdong Province on October 14, 2008. Shenzhen and other special economic zones nationwide have created economic miracles during the past 30 years contributed to the speeches of Deng's south China tour (XINHUA) 

This year marks the 20th anniversary of former Chinese leader Deng Xiaoping's south China tour. In the spring of 1992, the then 88-year-old Deng, chief architect of China's reform and opening-up policy, visited Wuchang, Shenzhen, Zhuhai and Shanghai and made a series of speeches. He said "Socialists may also establish a market economy, so long as it is beneficial to the development of socialist productivity, enforcement of comprehensive national might and improvement of people's living standards."

Deng was the first in China to propose building Shenzhen into a Special Economic Zone (SEZ) in the late 1970s. The Shenzhen SEZ was approved in 1980 by the State Council. In 1984, Deng inspected the area again and said, "The development of Shenzhen and its experience prove that our policy setting up the special economic zones was correct." Shenzhen and other special economic zones have created economic miracles during the past 30 years.

Evolving into a modern city, Shenzhen's per-capita income leads the country today. Its total output value is 1.1 trillion yuan ($174.6 billion), and local fiscal revenue exceeds 100 billion yuan ($15.87 billion). Shenzhen's development mode has advanced from high-speed growth to high-quality performance.

Deng hoped Guangdong Province to catch up to the Asian "four dragons" in 20 years, during his south China tour. The hope has come true step by step. Its GDP exceeded Singapore in 1998, Hong Kong in 2003, Taiwan in 2007, and the Republic of Korea in 2005. In 2011, Guangdong's GDP hit 5.3 trillion yuan ($823.7 billion), entering the realm of countries with medium- and high-level income.

China has changed from a half-closed country to an open society, from an agricultural society to an industrial society, from a highly concentrated planned economy to a robust market economy, oiling the gears of industrialization, information, urbanization, and internationalization.

"China was in the phase of addressing food and clothes just in 20 years ago, but now China has become the second largest economy in the world, which is contributed to the speeches of Deng's south China tour," Long Pingping, director of the third editing and research section of the Party Literature Research Center of the CPC Central Committee, told Xinhua.

SEZs are coastal regions, designated by the Chinese Government itself in the 1980s, that have different economic policies different from and more liberal than that of the rest of the country. Their primary mission was to increase foreign direct investment and they have done exceptionally well by this criterion. Today they are regarded as the symbol of the country's successful economic reform.

SEZs have the following features:

Legislative autonomy

The Shenzhen SEZ was set up under the Articles of Special Economic Zones in Guangdong Province. It granted SEZs more legislative power: SEZs can make their own laws based on the need of local economic development so far as they don't contradict the Constitution and national laws. This unusual liberalization in legislative power has provided a solid legal foundation for the Shenzhen SEZ "experiment" for the past 3 decades. As of 2007, Shenzhen SEZ has made 296 regulations, a third of them without precedent in national laws, according to the Yangcheng Evening News.

Tariff exemptions

In the earliest years of Shenzhen SEZ, most exported and imported items were exempt from custom duties. The exemption applied to imported machinery, components, raw materials, and transportation equipment used for production purposes.

Tax exemptions

Incentive was also offered to foreign investors in Shenzhen SEZ in the form of favorable tax policies. The corporate income tax levied on foreign investing firms was set at a flat rate of 15 percent, significantly lower than the 30 percent specified in the Chinese Joint Venture Law of 1979. For firms engaged in agriculture, industry, or transportation, the corporate income tax was waived for the first two years beginning from the first profiting year, and assessed at only one-half the standard rate from the third to fifth year, if the firms operate in SEZ for a period of 10 years or longer. Projects with high technology content were treated even more favorably, according to a book titled Special Economic Zones and the Economic Transition in China.

The SEZs maintained a wide range of subcontracts with domestic enterprises. By the end of 1995, Shenzhen SEZ had reportedly poured a cumulative amount of over 15 billion yuan ($1.87 billion) worth of investments in some 1,400 projects, according to the Shenzhen Government. The technologies embodied in these projects were generally more advanced than in purely domestic projects.

Thousands of professionals and business managers attended seminars, commodity shows, trade fairs and business-related training programs held in SEZs every year. Many returned home with fresh ideas and stimulating thoughts.

Many universities, research organizations and enterprises headquartered in domestic regions set up research institutes and laboratories in SEZs and, after testing them in these facilities, transferred foreign technologies to domestic users.

Pass the river while groping for stones

China's basic economic situation was that it possesses abundant labor and scarce capital. This fact determined that China's industrialization should begin with labor-intensive industry rather than capital -intensive industry. In China's case, abundant labor meant a comparative advantage in labor-intensive industry. The Chinese economy has since achieved historic success.

However, it is worthy of note at a time when China is, like all previous developing economies have, losing its labor advantage. Constantly rising wages and major labor shortage in recent years indicate that the Lewisian turning point is around the corner.

Upon reviewing the reform history of China since 1978, one may have the impression that China's reform is a process of regaining rationality and common sense.

Reformers rightly named their development strategic "Reform and Opening-up," of which SEZs are a symbolic reform effort.

The author is a student at the Peking University Law School

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