Understanding Chinas Development Zones
China’s first development zones were established in the 1970s and few can deny the significance these economic areas have had in building the global powerhouse China is today. The origin of development zones in China can be traced back to 1978, when the country’s leaders were searching for a path to wealth and development to lift the country from economic and social disparity.
Development zones are not a Chinese creation, but China in particular has found tremendous success with this economic tool. Historically, the liberal business environment in these areas allowed foreign businesses to operate more comfortably in the Chinese business environment, sheltered from the bureaucracy and red tape that often characterizes the rest of the country. Development zones are successful in China primarily because of the central Chinese government’s strong support and the relative autonomy of zone managers.
The first development zones, hand-selected along the country’s southern coast in Shenzhen, Zhuhai, Shantou and Xiamen, acted as doorways through for the government to attract foreign direct investment and test whether the formerly centrally-planned economy could transition to a more liberal and capitalist model. These zones focused on aiding in manufacture for export to bolster the local economy without posing too significant a threat to state-owned enterprises.
The original drivers of the success of development zones are perhaps less relevant today than they were 30 years ago. Foreign investment in China pours into all regions of the country, not just development zones. As well, the 2008 Tax Reform took a hit at the tax incentives offered in development zones. Finally, foreign companies are increasingly interested in domestic sales, not solely focused on the exporting for which development zones were originally designed.