Wall, David2023-01-082023-01-087315095441037-4299http://hdl.handle.net/1885/282613Few policy changes can be more radical than the introduction of market forces into a centrally planned economic system. This, however, was the intention behind the establishment of special economic zones in China. It is difficult to devise practical management systems and administrative and regulatory frameworks needed to ensure that policies are operationally effective and that objectives are efficiently achieved. This paper addresses the question of whether or not the management system established for the special economic zones policy is appropriate. Worldwide, types of 'economic zones' range from whole territories such as Hong Kong, through industrial estates which are physically separated from the rest of the economy, to individual warehouses or factories, or even parts of factories. Zones differ in their form of management structure and in the specific nature of the regulations that determine which companies can operate, what activities they can carry out and how they must conduct their operations to qualify for zone status. The common denominator of most zones is a focus on the encouragement of export-oriented activities. Although their physical fom1s vary. they are usually referred to collectively as export processing zones. The regulatory framework of China's special economic zones is modelled on frameworks developed for export processing zones in other countries but it also includes other objectives that are often in conflict with the export aims. This paper compares special economic zones with export processing zones and shows that the regulatory framework in China is not functioning efficiently or effectively. China's special economic zone regulations, which seek to emulate a market environment, are dominated by state control mechanisms. Resources are allocated by contacts rather than by productivity. Finns are encouraged to put effort and resources into developing contacts and seeking favours rather than improving efficiency. Regulations determining ·special' access to domestic raw materials, capital goods, labour and markets, are largely redundant, leaving zone firms on the same footing as any other (state) firms. Profitable firms can be constrained and loss-making inefficient firms can be sustained under the planning control mechanisms. The bureaucracy and control associated with access to zone incentives have discouraged many foreign investors. The main beneficiaries of the zones policy seem to be state enterprises which can manipulate state controls. Sweeping and effective enterprise reforms, and political commitment to the private sector and to a market system is crucial to the successful development of economic zones in China. Otherwise the substantial and physically impressive development in the special economic zones will remain costly and result in a net loss to the Chinese economy.application/pdf© 1991 Economics Division, Research School of Pacific Studies, Australian National UniversityEconomics ChinaEconomic PolicySpecial Economic Zone1991