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Special Economic Zones

From the 1980s, special economic zones (SEZ) played an instrumental role in the integration of China to the global economy and in its economic development. Their setting aimed at attracting foreign investments and technology (many through the setting of joint ventures), provide employment, utilize Chinese and imported resources, and support capital formation. The bulk of the output was to be exported to foreign markets, underlining that SEZ were part of an export oriented strategy that has characterized many Asian economies since World War II. The following incentives were offered to foreign investors:

·    Labor. The ability to use the Chinese vast pool of low cost labor was a powerful incentive to locate in SEZs. Foreign firms have also the right to hire and fire labor, which was different from the then prevailing Chinese lifetime system of public or collective firms.

·    Land use. SEZs were physically developed as planned entities with infrastructures and access to a container port complex (airports played a more significant role later) so that parts and raw material could easily be brought in for processing and shipped to foreign markets. A degree of protection of private property was also significant, since until 2004 there was no constitutional protection of private property in China outside SEZs.

·    Tax incentives. SEZs offered reduced corporate income tax rate, including income tax exemptions for foreign nationals working in SEZs. No custom duties were levied on imported materials and parts as long as they were for re-exports.

Ten years later, by 2005, there were 210 national development zones and 1,346 provincial development zones. 

Source Article explaining the role of China's Special Economic Zones in transforming the Chinese economy through investment and industrial development.
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