Upgrading China’s Competitiveness: From Special Economic Zones to Science and Technology Clusters Dr. Filip De Beule Em. Prof. Dr. Daniel Van Den Bulcke Institute of Development Policy and Management University of Antwerp i Preface While the establishment of economic zones at the beginning of China’s open door policy were careful attempts to open China’s door to the outside world and abandon its isolationist policy, the Chinese leadership today is undoubtedly very proud of these achievements. Twenty five years after the first four Special Economic Zones (SEZ) and twenty years after the development and construction of state- level economic and technological development zones, the China National Philatelic Corporation, which belongs to the Chinese Ministry of Posts and Telecommunications, issued a special stamp in 2004 to commemorate the establishment of the Economic and Technological Development Zones (ETDZ). An accompanying leaflet stated “This stamp was issued in commemoration of the glorious achievements of the state-level economic and technological zones in the past 20 years, highlighting the role and position of the construction of the development zones in China’s economic construction. Deng Xiaoping’s inscription is the main element in the design of the stamp, and abstract symbols are used to reflect the radiating and driving role of the development zones as windows and models.” This report attempts to describe and evaluate the policy of China to use economic zones as vanguards of development. It is based on desk research with a focus on the studies of clusters and a field trip to China in April 2004 with visits to a number of zones in Shanghai, Chengdu, Chongqing, Beijing and Dalian and interviews with managers of the zones and some Belgian companies located in the zones. Although occasional reference is made to Belgian enterprises located in zones, the main focus is on the role of clusters and zones as instruments for development. This study tries to bring together the use and expansion of economic and technological zones in China with the recent advances in the economic literature about clusters. Although the many forms and confusing terminology in this domain does make such a combination difficult, it is the conviction of the authors that China is gradually moving away from geographic separate zones and parks where ii companies enjoy tax and other benefits to a more proactive cluster policy where the linkages with other firms in the zone are stimulated. For foreign investors this might mean that they have to reconsider the role of their subsidiaries in China in order not to endanger their relationship with the local and central authorities, which in China still plays a more important role than in other transition economies. The authors thank the China Europe Management Centre for the fellowship which allowed them to study this interesting subject and are grateful both to the Belgian managers working in such zones and the Chinese managers of the development zones who granted their highly appreciated cooperation for this project. Filip De Beule Daniel Van Den Bulcke iii Table of contents 1. Introduction................................................................................1 2. Glocalization: The Paradox of Economic Space .......................6 3. Cluster around me! ..................................................................15 4. China Opens Doors..................................................................24 4.1 Overview of China’s FDI Policy.....................................24 4.1.1 The turbulent 1980s: From Special Economic Zones to Economic and Technological Development Zones .................24 4.1.2 The booming 1990s: From Pudong New District to High-Tech Parks ......................................................................30 4.1.3 The beginning of the new century: Towards Science and Technology Clusters?........................................................34 4.2 Regional distribution and impact ....................................38 4.3 Conclusions.....................................................................44 5. A Survey of Selected Development Zones ..............................55 5.1 Pearl River Delta.............................................................55 5.1.1 Guangzhou Development District ..............................58 5.1.2 Shenzhen High-Tech Park ..........................................63 5.2 Yangtze River Delta........................................................64 5.2.1 Shanghai Municipality................................................65 5.2.2 Jiangsu Province .........................................................83 5.3 Inland China....................................................................92 5.3.1 Hubei Province ...........................................................92 5.3.2 Chongqing Municipality.............................................95 5.3.3 Sichuan Province ......................................................100 5.3.4 Shaanxi Province ......................................................103 5.4 Bohai Rim .....................................................................108 5.4.1 Beijing Municipality.................................................108 5.4.2 Tianjin Municipality .................................................112 5.4.3 Liaoning Province.....................................................114 5.4.4 Shandong Province ...................................................118 5.5 Development zones and clusters: conclusion................122 6. Concluding Comments ..........................................................124 iv List of Tables Table 2-1 Cluster mapping studies in selected European countries. ..8 Table 2-2 Explanatory variables influencing the location of value added activities by MNCs in the 1970s and 1990s...........................11 Table 3-1 Various inter-firm productive systems.............................16 Table 3-2 Various agglomeration types............................................21 Table 4-1 FDI inflows in major regions in China, per cent, 1994- 2003..................................................................................................42 Table 4-2 Chinese SEZs and EPZs elsewhere: comparisons on selected aspects in the middle of the 1980s......................................45 Table 4-3 Overview of ETDZ in China, coastal and inland regions 47 Table 4-4 Overview of HTIDZ in China, coastal and inland region 49 Table 4-5 Overview of EPZs and FTZs in China, coastal and inland regions ..............................................................................................51 Table 4-6 Comparison of tax policies of four major types of development zones ...........................................................................53 List of Figures Figure 4-1 FDI Inflows in China (million USD)..............................37 Figure 4-2 FDI inflows in major regions in China, per cent, 1994- 2003..................................................................................................41 Figure 5-1 Gross Regional Product, 2003, USD billion...................56 Figure 5-2 Foreign Regional Trade, 2003, USD billion...................58 Figure 5-3 Development zones in Guangdong province ..................59 Figure 5-4 Main Cities of the Yangtze River Delta..........................65 Figure 5-5 Most important development zones in Shanghai............67 Figure 5-6 Investment projects in Zhangjiang High-Tech Park .......69 Figure 5-7 Overview of firms located in Zhangjiang High Tech Park ..........................................................................................................71 Figure 5-8 Semiconductor Industry in Shanghai..............................75 Figure 5-9 Most important development zones in Jiangsu province 84 v List of Boxes Box 1 Vitalo Packaging GZFTZ Ltd................................................60 Box 2 Glaverbel Vertec Shenzhen....................................................63 Box 3 Bekaert Shanghai Ergang.......................................................77 Box 4 Ensysta Piping Systems Engineering (Shanghai) Co., Ltd. ...81 Box 5 Atlas Copco Wuxi..................................................................88 Box 6 Xi’an Thiebaut Pharmaceutical Corporation .......................106 Box 7 Xi’an Flanders Innovation Services Centre .........................107 List of Appendixes Appendix 1 List of interviewed persons in various development zones, April 2004............................................................................130 Appendix 2 List of documents about selected zones......................138 vi 1. Introduction In 1949, the Chinese communist government adopted Lenin’s view that the export of capital is a central mechanism of imperialism and that the international firm is a double parasite by exploiting both the working class of their own country as well as the labourers of less developed countries. The Cold War and Stalin’s theory of two parallel (capitalist and socialist) markets reinforced internal integration among socialist countries, that is, between Russia and China for mutual economic development. This theory argued that socialist countries should not interact with the capitalist world. In 1951, two years after its founding, the People’s Republic of China emphasized participation in the Soviet dominated socialist bloc in order to develop technological know-how. The Korean War and the ensuing US trade embargo on China further entrenched China’s ‘international’ activity within the socialist