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1980s China: The Open-Door Policy

Turning to foreign investment, the second component of the open-door policy, we observe that the Chinese government make an almost 180 degree turn from regarding it as a form of capitalist exploitation to important engine for economic development. First, in 1982 the well known Shenzhen economic zone bordering Hong Kong began to be opened. Infrastructure was build. Foreign investors could set up factories there to take advantage of the inexpensive and skilled labor and pay them at market determined wage rates different from those prevailing in other parts of China. They also received special tax breaks. In less than one decade Shenzhen developed from a piece of farmland to a modern city. Because of the difference in economic opportunities, Chinese citizens could enter Shenzhen only with special permission. Soon other economic zones and special areas were opened for the convenience of foreign investors. Direct foreign investment can take three forms, jointly financed enterprises, cooperative ventures and entirely foreign-owned enterprises, the first and third being of approximately equal in amount in 1998, and the second being about half in amount. Foreign investment increased from an annual rate of less than one billion US dollars in 1978 to nearly 30 billion in 1998.

Source Article by Gregory C Chow on economic reform in China, 2004.
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