Transcript Aaron Brooks -- China`s Growth and Special Economic Zones

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…
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Just Imagine…
And you see this….
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China’s Economic Growth and
Special Economic Zones:
A good thing?
Aaron D. Brooks
NS 3041
12 Mar 08
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
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Special Economic Zones (SEZs)
• Transition to “Socialist Market Economy
with Chinese Characteristics”
“It doesn’t matter whether the cat is black or white,
as long as it catches mice.”
-- Deng Xiaoping (1904-1997)
• Goal: Encourage private ownership,
foreign investment, tech transfer, while
maintaining measure of control
– “Window” to “Asian Tigers’” development
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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%)
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Where is this Shenzhen Place?
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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%)
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State Investment in Shenzhen SEZ
QuickTime™ and a
decompressor
are needed to see this picture.
“If you build it, [they] will come.”
-- Field of Dreams
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Shenzhen SEZ FDI
QuickTime™ and a
decompressor
are needed to see this picture.
“Show me the money!”
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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
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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
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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
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Conclusion
Questions?
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