Foreign Investment Opportunities and Customs Laws in China's Special Economic Zones

Article excerpt

Almost half of all foreign investment in China now has been invested in the economic zones. The industrial production in all economic zones has grown faster than the rest of China. There are many economic development zones in China today. They are named differently and create much confusion for the researcher or investor Their names are many for example, FTZ, SEZ, ETW, OEZ, CEOA, COC, OEZ, T17Z and bonded warehouses. This paper will discuss them in detail, by explaining the logic behind the FTZ concept. The aim of all zones is to provide tax holidays, customs duties exemptions, preferential tax rates, and lower corporate taxes as special incentives to encourage foreign investment. On the other hand the purpose of these zones is to bring new technology, management & marketing know how, the development of a skilled labor force and foreign exchange to China. This study spells out what the FTZ is, their current status, and how profitable it is to invest in them.

Introduction

China is trying to bring about economic development through economic development zones. This paper presents some basic detailed information about Economic Development Zones in China. These zones have many different names with slight differentiation of functions. These differences create confusion sometimes, and one might ask what the major differences are. After much research, this author concludes that there is no one document which can clarify the differences in one standard uniform way. Research shows that there are several different explanations of the many names. Therefore in this article the author will use SEZ, FTZ, ETDZ and COC interchangeably for all economic zones, all of which are explained in this paper. This research will benefit those that are new to the topic the most. Those who are familiar with the concept but not familiar with China will gain some basic information on how to benefit from international operations in the FTZs.

Economic Development Zones. China consists of thirty provinces, and three cities with provincial status, Beijing, Shanghai and Tian in, and five autonomous regions Tibet, Inner Mongolia, Xinjiang, Guangxi, and Ningxia. (Bellur, p. 470),. There are five SEZ's as well as many different types of economic zones. Since their inception in December 1978 new ones are continuously being added. The Act of August of 1980 created fourteen SEZ, and fourteen more were established in China's coastal cities during October 1983 under the new name Coastal Open Cities (COC). Between 1949 and 1979 China operated as a planned economy and state owned enterprises (SOE), during this time they exported the majority of their products. The PRC initiated economic reform under Mr. Deng's opening of the Bamboo curtain in 1980. Since that time two major changes have taken place. The first major change came when the government lessened control of the market, this created some freedom of competition. The second change came between 1980 and 1990 during which time economic reform brought an abundance of connivance and shopping goods into the market.

Economy. The per capita income of China's neighbors Hong Kong and Taiwan ranges between $10,000 and $20,000, while PRC income is $350. In Purchasing Power Parity (PPP) terms (Bellur p.470) the PRC income is about $2000. According to experts the PRC per capita income will increase drastically in the near future, due to economic development. PRC is developing much faster than many other developed nations. In the USA the GNP will grow 57% by the year 2020, while in the UK it will grow at a rate of 60%, and in China growth is predicted to be 567% (see table below).

In 1996 China's GDP grew at an annual rate of about 10% with an inflation rate of about 6%. China's GDP is forecasted to grow between 8 9% for the next fifteen years (Bellur., p. 471).

Economic Development Via SEZs To bring about economic development PRC has been designed to increase their exports to finance these projects. …