UntitledHomework 4: SEZs in China
2. Using China's SEZs as a named example, answer this exam question: 
Explain how political and economic decision making have contributed  to the spread of globalisation into new global regions.                    [6]
3. Investment in transport plays a large role in attracting FDI in China. Read the 'Aerotropolitan Ambitions' article from The Economist about the Zhengzhou Airport Economic Zone (ZAEZ).
4. Read article about how China's growth transforming SE Asia (a global region)
1. Read and take notes from 'FDI and SEZs in China' sheet to consolidate the living graph exercise you did in class..
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Private enterprise For many years all manufacturing in China was state owned and operated. This has gradually been relaxed as the economy has been restructured and now up to 50% of businesses are privately owned. FDI was virtually non existent in the decades preceding 1979. In 1983 the flow of FDI was a mere $1.7bn. By 1991 it was $11.4bn
Open Door Policy and Free Market Economics China first began moving away from a centrally planned economy towards a marketoriented system in 1978. Deng Xiaoping was Mao’s successor and he sought to bring an end to China’s relative economic isolation. He adopted a new policy which Westerners have referred to as the 'Open Door Policy'. This policy has altered China's development strategy from one based on selfsufficiency to one of active participation in the world market. In order to modernize China's industry and boost its economy, it needed to welcome foreign direct investment. China's door (in specially designated areas called Special Economic Zones SEZs) was opened to foreign buinesses that wanted to set up in China to take advantage of cheaper labour costs. While remaining a communist, one party state, they have liberalised their economy and opened up to free market capitalism. Under this policy, China's foreign trade grew exponentially. SEZs were the strategy used to achieve this and Chinese economic policy shifted to encouraging and supporting foreign trade & investment. It is the turning point in China economic fortune that truly started China on the path to becoming 'The World's Factory'.
In 1978, China was ranked 32nd in the world in export volume, but by 1989, it had doubled its world trade and became the 13th largest exporter. The average annual growth rate of GDP for China from 19801990 was 9.5%. The corresponding growth rate for the world as a whole was 3.1%.In 1978 its exports in the world market share was negligible, in 1998 it still had less than 2%, but by 2010, it had a world market share of 10.4% according to the World Trade Organization (WTO), with merchandise export sales of more than $1.5 trillion, the highest in the world.
Special Economic Zones and FDI
Foreign investment was concentrated in one of 4 SEZs (Special Economic Zones) or 14 open Cities in which a relaxation of regulation and government control created a more attractive business environment. The 4 SEZs set up in 1980 were Shenzhen, Zhuhai and Shantou in Guangdong, and Xiamen in Fujian. These SEZs were strategically located near Hong Kong, Macau and Taiwan, but with a favorable tax regime and low wages in order to attract capital and business from these overseas Chinese communities. These are designated zones where TNCs (Trans National Corporations) are offered incentives such as reduced tax rates to set up manufacturing operations. The benefits a company gains by being in a special economic zone may mean it can produce and trade goods at a lower price, aimed at being globally competitive. An example is a Taiwanese TNC, EUPA, which manufactures coffee machines in Xiamen (an Open City) and employs 25,000 workers. Another example is Foxconn which manufactures iPhones for Apple see below.
Shenzhen SEZ Shenzhen was the first SEZ to be established and it showed the most rapid growth, averaging at a very high growth rate of 40% per annum between 1981 and 1993, compared to the average GDP growth of 9.8% for the country as a whole. The city was once merely a fishing village whose population has now swelled from 30,000 to more than 10 million as rural workers migrated to the fastgrowing city in search of opportunity.
Foxconn An Example of a TNC in the Shenzhen SEZ Foxconn Technology Group, is a Taiwanese multinational electronics contract manufacturing company headquartered in New Taipei City, Taiwan. Foxconn is the world's largest contract electronics manufacturer, and the thirdlargest information technology company by revenue. Foxconn is primarily a contract manufacturer; its clients include major American, Canadian, Finnish, and Japanese electronics and information technology companies. Notable customers and products the company manufactures include BlackBerry, iPad, iPhone, iPod, Kindle, Nintendo 3DS, Nokia, PlayStation 3, PlayStation 4, Wii U, and Xbox One. Foxconn opened its first manufacturing plant in mainland China in Shenzhen, in 1988. Today Foxconn's largest factory worldwide is in Shenzhen, where over 200,000 workers are employed at the Longhua Science & Technology Park, a walled campus sometimes referred to as “Foxconn City”.
FDI and SEZs in China
FDI exposes Chinese workers and firms to international managerial and technological standards and knowhow. In this way FDI is a globalising force. In addition to this, China's growth has accelerated globalisation in another way. In recent years, China has increased outflows of FDI around the world, to other Asian countries and across Africa.The fact that Asia is the main recipient of Chinese ODI makes sense given the region’s geographical proximity and close trade links with China. China is now one of the world’s leading sources of FDI, its outflows in 2015 ranking second globally only to the US. 2014 China’s outbound foreign direct investment (ODI) exceeds inbound foreign direct investment (FDI) for the first time. Much of this growth is concentrated in Asia illustrating the spread of globaloisation in to new global regions (Asia experiencing only shallow forms of globalisation pre 1980).
From FDI to ODI (Outward Direct Investment)
http://www.economist.com/news/china/21646245­chinas­frenzied­building­airports­includes­ work­city­sized­projects­aerotropolitan­ambitions?frsc=dg%7Cc&fsrc=scn/tw_app_ipad
China’s frenzied building of airports includes work on city­sized projects Mar 14th 2015 
POLITICIANS in London who have been debating for years over whether to approve the  building of a third runway at Heathrow Airport might find a visit to Zhengzhou—an inland  provincial capital little known outside China—an eye­opening experience. Some 20,000  workers are labouring around the clock to build a second terminal and runway for the city’s  airport. They are due to begin test operations by December, just three years after ground was  broken. By 2030, officials expect, the two terminals and, by then, five runways will handle 70m  passengers yearly—about the same as Heathrow now—and 5m tonnes of cargo, more than  three times as much as Heathrow last year.
But the ambitions of Zhengzhou airport (pictured) are far bigger than these numbers suggest. It  aspires to be the centre of an “aerotropolis”, a city nearly seven times the size of Manhattan  with the airport not a noisy intrusion on its edge but built into its very heart. Its perimeter will  encompass logistics facilities, R&D centres, exhibition halls and factories that will link central  China to the rest of the global economy. It will include homes and amenities for 2.6m people by  2025, about half as many as live in Zhengzhou’s main urban area today. Heathrow struggles to  expand because of Londoners’ qualms, but China’s urban planners are not bothered by  grumbling big building projects rarely involve much consulting of the public.
The idea of airport­centred cities is not a Chinese one. John Kasarda of the University of North  Carolina helped to promote it in a book he co­wrote, “Aerotropolis: The Way We’ll Live Next”,  which was published in 2011. He is an adviser to Zhengzhou Airport Economic Zone (ZAEZ),  as the aerotropolis is called. China, however, is well­placed to turn Mr Kasarda’s etymological  mishmash into reality. The Chinese see airports as “competitive assets”, he says, not  “nuisances and environmental threats”—although many cities, inspired by another American­ invented term, insist they want to turn themselves into green “eco­cities”. New urban centres  are being built on greenfield sites across the country. Some are being developed in such  disregard of demand that they are becoming eerily empty “ghost towns”. But they are giving  planners ample opportunity to build airports alongside new cities, instead of as afterthoughts.
Construction of airports is proceeding at a blistering pace. The government’s plan for 2011­15  called for 82 new airports to be built during this period. In the event, more than 100 have  sprung up. Officials are fond of what they call “airport economics”, by which they mean the use  of airport­building to boost local economies.
Only in a handful of cases do overseers of these projects explicitly say that they want to build  aerotropolises. One example is in the southern outskirts of Beijing, centred on a village called  Nangezhuang, where a groundbreaking ceremony was held on December 26th. Little activity is  visible: a few pieces of construction equipment sat idle one recent afternoon at the edge of a  sorghum field as herders walked their sheep along a nearby dirt road. But by 2019 the area is  due to be turned into one of the world’s largest airports, at a cost of 80 billion yuan ($13 billion).  As much as 80 billion yuan more will reportedly be spent turning the surrounding area into an  economic and industrial hub.
Zhengzhou has a long history as a trading and transport hub, well­connected to China’s  largest population centres. It also has an abundant supply of labour (it is the capital of Henan  province, one of China’s most populous, with more than 100m people). The ZAEZ allows duty­ free import and re­export of goods and components. Mr Zhang says this has attracted more  than a dozen makers of mobile phones, including Foxconn, a Taiwanese­owned firm best  known for producing Apple iPhones. The Foxconn factory employs 200,000 people year­ round, and 300,000 at times of peak production. Three­quarters of the iPhones made globally  in the past three years came from ZAEZ, Mr Zhang says. Such small, high value­added,  products benefit greatly from ready access to airports.
Beijing’s aerotropolis also has built­in advantages, not  least strong support from the central government. Mr  Kasarda acknowledges that his concept cannot work  everywhere, especially in many of China’s smaller cities.  But he remains excited by the many suitable candidates in  a country that is willing—and more able than most— to  give it a try. “They can really design not just an airport, but  an aerotropolis from scratch,” he enthuses. It remains to  be seen how enthusiastic residents will be about the jets  roaring over them
Some wonder whether all this is necessary. Wang Tao of the Carnegie­Tsinghua Centre for  Global Policy, a think­tank in Beijing, calls the airport­construction frenzy “misguided”. He  believes many of the cities building big airports do not need them, thanks to a rapid expansion  of the country’s high­speed rail network in recent years (see map). Local officials, Mr Wang  says, are after political prestige and a quick boost to local GDP they are happy to leave their  successors to grapple with the debts. Many new airports operate at a loss. Mr Kasarda,  however, defends the Zhengzhou project. It is misguided, he says, to assess an airport’s value  solely by its operational profitability its role as an economic driver also needs to be taken into  account. “We are putting the aerotropolis theory into practice,” says Zhang Yanming, ZAEZ’s  Communist Party chief.
Most Chinese money flowing in to Cambodia, Laos, and Myanmar is lending on highly concessionary terms to finance construction  projects run by Chinese firms, especially in Laos, said Derek Scissors, Washington­based chief economist at China Beige Book  International, who specializes in studying the country’s foreign investment. Chinese construction and investment since 2005 equal  about 15 percent of Lao GDP, which it couldn’t have financed from other nations, he said. "The power sector is basically Chinese­built, bringing electricity to the majority of the population," while China built several  hydroelectric plants to increase electrification, Scissors said. "There were grand plans for Myanmar, but investment and construction  actually realized is more conventional, in the energy and mining sectors." Garments, Shoes Cambodia, Laos and Myanmar are becoming more incorporated with China’s supply chains, buying intermediate goods from its  factories and selling consumer items such as garments and shoes that are often made by companies owned or funded by China. Its  imports from the three Southeast Asian economies more than doubled in the past five years, IMF data show
The Phnom Penh Special Economic Zone, where a  number of Chinese companies have set up factories. 
https://www.bloomberg.com/news/articles/2016­12­05/china­transforms­frontier­neighbors­with­cash­for­rails­to­power
China Is Transforming Southeast Asia Faster Than Ever by David Roman ‎05‎ ‎December‎ ‎2016‎ ‎
China’s investment is transforming its smaller Southeast Asian neighbors like never before while helping turn Cambodia, Laos and  Myanmar into bigger destinations for its exports. That’s driving some of the world’s fastest economic growth rates and providing Chinese companies with low­cost alternatives as they  seek to move capacity out of the country. It’s also helping Asia’s largest economy and nations in its orbit adapt to what looks more  and more like a new era of waning U.S. commitment to the region from a more inward­looking administration of President­elect  Donald Trump. "China’s definitely looking at these countries in general as an area where it can sell products and get good return for its investments,"  said Edward Lee, an economist with Standard Chartered Plc in Singapore. "China itself is getting more expensive for its companies,  and that’s reinforcing this trend." China is investing in everything from railroads to real estate in Cambodia, Laos and Myanmar ­­ the frontier­market economies of the  Association of Southeast Asian Nations.
China Minsheng Investment Group and LYP Group, headed by Senator Ly Yong Phat, signed a $1.5 billion deal last week to build  a 2,000­hectare city near Cambodia’s capital, Phnom Penh, with a convention center, hotels, golf course, and amusement parks, the  official Xinhua News Agency reported. The spending equals roughly one­tenth of the country’s $15.9 billion gross domestic product. Belt, Road In landlocked Laos, work started last year on the China­Laos railway, which will stretch 414 kilometers (257 miles) from the border  to the capital, Vientiane. The project, part of Chinese President Xi Jinping’s One Belt, One Road initiative, will cost $5.4 billion,  aaccording to Xinhua. Xi met last week with Lao Prime Minister Thongloun Sisoulith in Beijing, where he pledged stronger ties.
Myanmar, which is liberalizing its economy and adopting market reforms after a transition to democracy, is forecast by the  International Monetary Fund to expand 8.1 percent this year, the fastest in the world after Iraq. De­facto leader Aung San Suu Kyi  has been quick to engage China since taking office this year, including visiting Xi in Beijing. China is its largest trading partner,  accounting for about 40 percent of Myanmar’s total last year, and is building a special economic zone, power plant and deep­water  seaport on the west coast. Cambodia’s economy is projected to grow 7 percent this year, while Laos is set for 7.5 percent expansion. Myanmar’s currency, the  kyat, was Asia’s top performer in the first five months of the year, but has weakened about 10 percent against the dollar since June  as the U.S. currency strengthened As Sino­Cambodian relations have flourished, so has trade, with two­way commerce climbing to $4.8 billion last year. That’s more  than double from 2012, the year Cambodia warmed up to Beijing by opposing mention of China’s assertiveness in the South China  Sea during a regional summit in Phnom Penh.
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