China’s SEZs were created in 1978 to attract productive foreign investment into the country to create jobs and fight poverty. The benefits for investors is tax-exempt as long as its production is devoted to exports, enough skilled labor and productive land, which is leased to the government, who retains ownership. In addition, the SEZs have independent economic planning budget. Intended to use them as a laboratory to test the benefits of capitalism, after 50 years of a centrally planned economy, which had failed to reduce poverty. The formula started in 4 cities worked and now has been replicated over a 1,500 cities of the coast, inland and borders.

Situation

• Mao died and was succeeded by Deng Xiaoping.
• The country was immersed in social and institutional misery resulting from the Cultural Revolution and other mass political movements of the Mao’s era.
• Economic reforms were recently implemented.

Objectives

• Integrate China to the global economy and carry on its economic development, attracting productive foreign investment into the country, creating jobs and fighting poverty.

Assets

• Labor: The ability to use the Chinese vast pool of low cost labor was a powerful incentive to locate in SEZs.
• Land use: SEZs were physically developed as planned entities with infrastructures and access to a container port complex.
• SEZs offered reduced corporate income tax rate, including income tax exemptions for foreign nationals working in SEZs. Nos custo duties were levied on imported materials and parts as long as they were for re-exports.

• Active political systhem.

Strategy

• Experimental plans and measures were developed and deployed first in small scale (town-city) for then to apply in large scale (national).
• Use this measures as a laboratory to test the benefits of capitalism.

Actions

• 1980: creation of 4 Special Economic Zones (SEZs) near Hong Kong and Macau (link to oversea)
• 1984: after success, 14 coastal port cities were selected to become SEZs.
• 1985: acknowledge importance of specific economic clusters: Yangtze River Delta, the Pearl River Delta, and the Min River delta.
• 1988: expansion to Hainan Province, focused on domestic turism.
• Late 80s: counterbalance for interior development; six Yangtze River ports, 11 border cities, all capital cities of interior province were granted the SEZ status. 

Effect

• Capture national and international attention.
• Created enormous material wealth.
• Leaders in the areas of affluence and provide new scientific technologies and advanced experience within the country.
• Pearl river delta region developement: with 303 billions dollars, the sixth largest economy in the world and within the tenth most extensive export regions.
• China’s rapid economic growth presented several problems and they continued to restrict birth to only one child, limiting women under pain of penalty.