Pioneering Economic reform in China's Special Economic Zones

Capital & Class, Autumn 2001 by Lau, Raymond W K

Pioneering Economic Reform in China's Special Economic Zones Aldershot, Brookfield USA, Singapore & Sydney: Ashgate, 1999. pp. 167 ISBN 1-84014-81 1-X L35.00

In 1979-80 China established several Special Economic Zones (SEZ), which were in certain ways similar to export processing zones. The sEZs' main objective was not to provide employment, but to act as 'windows' to the outside world, such as to effect a transfer of technology and know-how through attracting export processing foreign direct investment (FDI). The most superficially successful SEZ is Shenzhen, Hong Kong's (HK) northern neighbour.

A lot has been written on the sEZs in general and Shenzhen in particular, so what new insight does the book, and the author's PhD dissertation on which it is based, offer to justify a booklength study of the latter? Not happy with previous analyses based upon `Traditional investment theory', the `book is an effort to fill in the gaps in the literature' (P.3). `The major theme is that spatial placement and unique planning activities' (on which, however the rest of the book says nothing) `are more important.. than is acknowledged. Spatial placement here refers to active state initiatives in site selection, with an additional political dimension beyond the concept of location in traditional economic theories' (p.io).

The concept of `spatial placement' is operationalized as 'proximity', which has four aspects: geographical or physical, economic, political and cultural. 'I argue that the significant growth of foreign investment in Shenzhen has been a positive function of Shenzhen's proximity to Hong Kong' (P-39). As is common knowledge, over the '8os and '90s, HK relocated its low-tech, labour-intensive industries across the border lock, stock and barrel, such that in the early '9os, 96% of Shenzhen's textiles and dyeing, 95% of garment joint-ventures were financed by HK investors. The driving forces behind this (geographical proximity facilitating management, control and logistics, etc.) have, of course, been well-- analysed previously by means of 'traditional' theories. So what new insight does 'proximity' (other than its geographical aspect) offer?

`Economic proximity' is none other than `the high level of complementarity in factor endowments' (p.40). `Cultural proximity' is simply `cultural affinity' (P.45), a hardly insightful point long pointed out in previous studies. One pathetic tendency in postmodernist writing is the employment of pretentious expressions and terminology to say what can be said much more appropriately in simple language, and in doing so often uses the same term/expression to refer to objects belonging to entirely different conceptual levels. With 'proximity' used simultaneously in the physical sense, the sense of factor endowment complementarity (one wonders why it is complementarity instead of similarity that proximity means in this case), and that of cultural affinity, it would appear that the author not only manages to sound fashionable, but is also able to cover up the lack of new insight.

The gist of the concept of `spatial placement', namely `political proximity', is discussed in a grand total of two paragraphs: `In the SinoBritish Joint Declaration of 1985, China promised to maintain Hong Kong's capitalist system.. for at least fifty years after 1997 under the principle of "One Country, Two Systems" [OCTS]. Beijing hoped to use economic interaction to facilitate political reunification, and the creation of the sEZS was part of Beijing's efforts to encourage commercial relations with Hong Kong. Hong Kong, on the other hand, regarded economic ties with the mainland as a means of cushioning its return to Chinese sovereignty.. This political dimension [I would suggest that replacing the humdrum 'dimension' with something like 'distance' would be more congruent with the author's terminology] helps explain why no comparable Taiwan investment has come to the Xiamen SEZ during the same period, despite a physical, economic and cultural proximity... "one Country, Two Systems"... remains unacceptable to Taiwan' (PP-39-40).

It is true that Taiwan's government restricts investment across the Taiwan Strait, and that the OCTs blueprint has eventually served to increase HK investors' confidence over China's resumption of sovereignty over HK. But terminological fad in this case degenerates into sheer non-sense. The SEZS were established in 1979-80, whereas ex-paramount leader Deng Xiaoping first raised the OCTS idea in relation to HK in September 1982, i.e. the idea, contrary to the author, played no part at all in `state initiatives in site selection'. Further, were HK investors who, working on pay-back periods of two to three years, relocated production to Shenzhen in the '8os, doing so in order to cushion the return to Chinese sovereignty in 1997? I, for one, doubt it.

Besides 'proximity', the book assesses four other propositions, namely, that the growth Of FDI in Shenzhen i) is a positive function of favourable local policy development, 2) is weakly related to labour cost differentials between Shenzhen and other Chinese sites and to domestic market potential, 3) has failed to bring about meaningful economic transfer, and 4) has brought no substantial net exports and engendered little domestic linkages such as domestic sourcing of inputs. Most of these are well-worn themes. Proposition two seems rather odd. Firstly, why it is necessary to analyse that domestic market potential plays little role in attracting export processing FDI is a mystery. Likewise, why the need to compare labour costs in Shenzhen and other Chinese sites? Is it not that growth of FDI in Shenzhen is, inter alia, a function of labour cost differentials between the home country of FDI and Shenzhen, while the choice of Shenzhen over other Chinese sites with similar labour costs is a function of other factors?