Challenges to the sustainability of ‘development zones’: A case study of Guangzhou Development District, China

doi:10.1016/j.cities.2005.05.008

Cities, Vol. 22, No. 4, p. 303–316, 2005 Ó 2005 Elsevier Ltd. All rights reserved. Printed in Great Britain 0264-2751/$ - see front matter

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Challenges to the sustainability of ‘development zones’: A case study of Guangzhou Development District, China Siu-Wai Wong, Bo-sin Tang

*

Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PeopleÕs Republic of China Available online 12 July 2005

Rapid economic globalization presents major challenges to the sustainable development of ‘development zones’ in many countries. Development zones in China evolved from the concept of Export Processing Zones (EPZs) in the western world. After ChinaÕs accession to the World Trade Organisation, however, they have lost their special preferential status to the overseas investors in terms of promotion of industrialization and inward investment. With the changing global and national circumstances, spatial, economic and social transformations are taking place in these development zones. Given the vast number of development zones in China, the successful integration of these development zones into the regional and urban contexts will have great implications on the economic and social development of China. Based upon a case study of Guangzhou Development District (GDD) which is one of the earliest development zones of China, this paper examines the evolution of development zones in the mainland with particular reference to the development problems associated with their urbanisation in recent years. Although this paper primarily focuses on GDD, the findings and discussion will provide insights for other development zones of China in reviewing their development strategies as most of them are sharing similar development problems. Ó 2005 Elsevier Ltd. All rights reserved. Keywords: Development zone, EPZ, FDI, urban development, urbanisation

Introduction

socio-economic problems of the region and of achieving regional cooperation, self-sufficiency and sustainable development. Similarly, Granados (2003) suggests that with the influence of economic globalization on EPZ, a substantial change in the way they operate is required in order to cope with changing circumstances. This paper reviews the evolution of development zones by highlighting the interaction between their development and urbanisation and examining the restructuring of their role following globalization. As China has established a vast number of development zones and has accelerated its integration into the world economy since its accession to the WTO in 2001, it provides us with an excellent case study. Drawing on the experience of one of the earliest state-level

Development zones in various countries play an important role in promoting an export-oriented economy. Attracting foreign direct investment (FDI), they have made great contributions to worldwide economic development over the past several decades. However, their continual contributions to regional development are questionable as a result of the gradual integration of countries into the global economy. In a study on Export Processing Zones (EPZs) in Southern Africa, Jauch (2002) argues that EPZs hold little prospect of solving the *

Corresponding author. Tel.: +852-2766-5816; fax: +852-27645131; e-mail: [email protected].

303

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

(Guangzhou Development District, GDD), this paper examines its urban development and identifies key problems associated with its urbanisation. The concept of development zone was first adopted by the Chinese government in the early 1980s for the promotion of the open door policy (He, 1995). Development zones have thus played an important role in attracting FDI and promoting exports over two decades. However, the explosive boom of development zones, especially since the early 1990s, has resulted in many problems that have overshadowed their contributions to national economic development. Zhang (1995) reports that, since the approval of the State Council of the designation of Economic Development Zones (EDZs) (jingji kaifaqu) in the early 1980s, over 1400 were established in various provinces and cities, although only about one-fifth of the land area (some 800 km2) was actually developed. Other estimates cited by Yeh and Wu (1996) record 2700 Economic and Technological Development Zones (ETDZs) in 1992, occupying over 15,000 km2, which exceeded the total built-up area of existing cities. Previous scholarly studies refer to this phenomenon as Ôzone feverÕ and attribute it to weak governance and institutional capacity, abuse of the policy and administrative systems, and real estate speculation in a transitional socialist economy (see e.g., Huang and Yang, 1996; Cartier, 2001; Yeh and Wu, 1996). This created many urban land use problems for Chinese cities, including a loss of arable land, uncoordinated urban sprawl, leapfrog development and environmental pollution (Ng, 2003; Han and Wu, 2004). Zhang (2000) argues that the establishment of new development zones reflected government planned sprawl (see also Deng and Huang, 2004) and estimates that over 6% (or 6.8 million hectares) of ChinaÕs cultivated land were converted to non- farm uses between 1986 and 1995. Many of these designated zones were located away from city centres but the local governments lacked the financial capacity to complete the projects. In addition, reduction in central fiscal grants, decentralization of power and delegation of financial responsibilities forced the local authorities to actively sell land for funding resources. Some local government officials even took advantage of their position to secure kickbacks from the land deals. Notwithstanding the above criticisms, the overall performance of state-level development zones was considered by the central government a relatively successful venture. 2004 marked the celebration of the 20th anniversary of the development zone policy in China, and it is understood that the GDD authority was invited to Beijing to reflect on its experience and lead the discussions on the future strategy of development zones. The problems and challenges faced by the GDD are expected to resonate with those of the other development zones in China. 304

Development zones: characteristics and challenges The origin of development zones can be traced back to the early 17th century, when free ports emerged in some European cities such as Venice, Marseilles, and Hamburg (He, 1995). However, systematic studies on their development did not develop until the 1970s when the concept of EPZs were adopted by various countries as a policy to achieve greater economic openness. The United Nations Industrial Development Organisations (1980) defines EPZs as administratively or geographically delimited areas enjoying special status and allowing free import of production equipment and material. Johansson and Nilsson (1997) define them as geographically or juridically bounded areas in which free trade of all goods produced within the zone is permitted. Ge (1999, p. 1) presents a more specific definition for EPZ as ‘‘a designated area within the territory of a country where economic activities are promoted by a set of policy instruments that are not generally applicable to the rest of the country’’. Jauch (2002) notes that a common characteristic is the provision of special incentives (e.g., tax holidays, duty-free export and import, exemption of labour laws and so on) to attract foreign investment for export production. With the widespread adoption of EPZs over four decades, many countries have developed their own models. According to the types of activities, the zones have been given various names, ranging from free trade zones, free investment zones, free economic zones, free enterprise zones, economic and technology development zones and industrial estates, to industrial or science parks (Ge, 1999). However, no matter how they are titled, they share similar goals such as promoting exports, creating employment opportunities, transforming technology and fostering less developed regions. Moreover, most of them are characterised as delimited areas offering incentives for attracting investors, and they are usually geographically or administratively discontinuous from cities. Thus, a more general term Ôdevelopment zoneÕ is considered more appropriate to describe these various types of zones. Their evolution is also closely linked to the increasing acceptance of neo-liberal economic policies that encourage globalization. It is suggested (He, 1995) that the emergence of development zones meets the demand for the rapid growth in international investment, while Granados (2003) suggests that development zones are of particular importance when countries began pursuing strategies based on export-promotion instead of import-substitution. Jauch (2002, p. 101) is more explicit in this regard—‘‘the World Bank regards the introduction of EPZs as a signal of a countryÕs departure from import substitution towards an export-oriented economy. In other words, EPZs are seen as a first step

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

in the process of liberalizing trade and integrating national economies into the global economy’’. To attract more international trade and investment, development zones are seeking to meet the needs and preference of foreign investors. Contemporary FDI studies conclude that global investments usually seek to first, achieve economy of scale via access to more customers and markets, second, to exploit other countriesÕ resources (e.g., labour and raw materials), third, to diversify macroeconomic and operational risks, and last, to crossover customers between markets (Ohmae, 1990; Bartlett, 1998; Cheng and Kwan, 1999). Regarding investorsÕ location decisions, conventional theories suggest that the costs of input materials, availability of labour, distance to market and agglomerations of economies are the key factors influencing investorsÕ location choices (Isard, 1956; Lo¨sch, 1959). Contemporary studies extend these to conclude that investorsÕ location selections are also significantly affected by a series of factors including governmental policies, transportation modes, the availability of pubic utilities, municipal services and quality of the living environment (Wu, 1999; Cheng and Kwan, 1999). To cater for investors, most development zones are located in port cities which can provide good access and comprehensive infrastructure, and many of them—especially those in developing countries— tend to attract investors on the basis of cheap labour and raw materials. With a rapid growth of development zones globally, two key issues have emerged about their prospects: (a) can they continue to play a leading role in regional economic development within the changing context of the macro socio-economic environment and (b) do they need to make adjustments to cope with these changes? In his study on EPZs in Southern Africa, Jauch (2002) conclusions are pessimistic, arguing that the provision of considerable benefits to foreign investors in EPZs greatly limits new investment to national and local economies, and hence fails to address the socio-economic, labour and regional problems of a country. Granados (2003) takes a wider view and argues that commitments to WTO and regional integration will necessitate regulatory reforms that reduce and curtail export subsidies and preferential policies within the EPZs. These arguments indicate that when globalization and the elimination of trade barriers become irreversible trends, such enclaves will gradually lose their competitive investment advantages, which implies that the previous approach of making development zones an isolated city system and designating their sole function as a magnet of attracting FDI will be inadequate. A restructuring of the development and management strategy for EPZs is thus essential. Zheng (1999) argues that many development zones have performed well in achieving their original purposes, but their significance will be reduced

when the regional developmental imbalance has been narrowed in the developing countries; she also suggests that they should be integrated into the development of nearby cities in order to achieve sustainable development. Similarly, Li (2001) suggests that many development zones are equipped with the potential to develop into comprehensive urban centres, because rapid industrialization has generated significant levels of growth in population and commercial services in these areas. Their arguments are underpinned by the dramatic growth of the worldÕs urban population, from less than 10% at the beginning of the 20th century to 30% by 1950 (Lo and Yeung, 2001). Driven by the forces of globalization, it increased to 2.8 billion by 2002, representing almost half of the worldÕs population (Population Reference Bureau, 2004). When urbanization is a global trend, it is not surprising that development zones, especially those located on the fringe of urban areas, will be overwhelmed by this continual urban expansion. Rapid urbanization now mainly occurs in developing countries and is usually regarded as an indicator of advancement. Studies show that the rapid urbanization over the past century resulted from and contributed to industrialization (Glynn, 1975; Furuseth and Pierce, 1982). However, these western models of urbanization do not adequately explain the situation in developing counties, where the rate of natural increase is the essential force for growth (Population Reference Bureau, 2004). McGee (1989) suggested that urbanization in many developing countries is achieved through the urbanisation of the countryside, which does not result in the substantial movement of agricultural population from rural areas to cities. This pattern is actually urban sprawl, a term widely used to describe scattered urban expansions. Development zones are usually delimited areas, which are geographically or administratively discontinuous from cities. They are usually regarded as Ôgrowth polesÕ and expected to play a leading role in promoting urbanization. Under such circumstances, development into a new urban area or integration into the urban development of the neighbouring cities may be an alternative, enabling development zones—especially those in developing countries—to continue to maximize their contribution to regional development.

Development zones in the Chinese context China evolved its own model of development zones based on international experience at the end of the 1970s. The term should include Special Economic Zones as well as all areas designated for foreign investment. However, as their development pattern and management mode are different, the term Special Economic Zones has been used to distinguish them from those designated as ETDZs, Hi-tech Development Zones (HIDZs), Free Trade Zones 305

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

and Export Processing Zones (EPZs). Therefore, in this paper, the term Ôdevelopment zoneÕ is used to refer to areas delimited for foreign investment other than Special Economic Zones. To better understand these terms, there is a need to understand the evolution of ChinaÕs development zone policies. Special economic development zones With the introduction of the open-door policy at the end of the 1970s, the Chinese government approved the creation of four Special Economic Zones (Shenzhen, Zhuhai, Shantou and Xiamen SEZs) in which special policies were granted to test the applicability of the market-oriented mechanism to ChinaÕs economic and social development. Within these four zones, favourable treatment in terms of tax concessions, access to credit and raw materials was offered to attract foreign investment in exportprocessing production. Laws and regulations in relation to foreign investment were formulated to protect foreign investorsÕ assets, due profit, legitimate rights and other interests (Wu, 1999). He (1995) and Park (1997) argue that SEZs began with the concept of EPZs and were first called Ôspecial export zonesÕ, and renamed Special Economic Zones in 1980 to overcome the limitations of the EPZs and avoid direct competition with EPZs in Taiwan and Korea. ETDZs The four SEZs developed rapidly and achieved remarkable economic outputs at the beginning of the 1980s. Summarizing the sound experience of SEZs, the Chinese government decided to set up ETDZs to extend its open door policy to more cities in China (see Table 1). ETDZs were allowed to adopt similar preferential policies, such as national tax reductions, tax holidays and local tax reductions for foreign investment (Zhang, 1999). However, in terms of development scale, ETDZs are less than SEZs, insofar as the latter were planned as independent cities whilst ETDZs were planned as economic zones only. ETDZs were designed and built by the municipalities concerned after they were ratified by the State Council. The administrative power of an ETDZ was derived from that of the relevant municipal government, thus (unlike SEZs) they have a lim-

Table 1

ited degree of autonomy in policy making and administration. Moreover, they still need strong back-up from their parent cities in the provision of infrastructural facilities and tertiary services. Other types of development zones At the end of the 1980s, in response to the rapid global development of hi-tech industries, the Chinese government started to set up HIDZs in which excellent infrastructural facilities were provided to support the development of technological industries. HIDZs were first set up in Beijing in 1988 and then extended to other cities such as Shanghai, Nanjing and Wuhan (CIIC, 2003). In recent years, more and more HIDZs have been merged with ETDZs. In order to further improve the investment environment of both, the Chinese government approved the creation of free trade zones and export processing zones within ETDZs and HIDZs to provide all-purpose facilities and services for investors in the field of trading, bonded storage, material logistics as well as processing and manufacturing. As a result, development zones in China have become multi-functional. From 1984 to 1988, ETDZs were established in 14 eastern coastal cities. The second and third batches of ETDZs were developed in 35 cities from 1992 to 2002. All these 49 ETDZs were national-level development zones, directly ratified by the State Council of China. In addition to the above 49 ETDZs, the State Council ratified Suzhou Industrial Park, Hainan Yangpu ETDZ, Shanghai Jinqiao EPZ, Ningbo ETDZ and Xiamen Haicang Investment Zone to enjoy the same preferential policies with national ETDZS. Thus, the total number of state-level ETDZs in China increased to 54 in 2003 (CIIC, 2003). Some local governments also attempted to set up development zones, which are usually classified as provincial or city-level. With superior geographical locations and excellent infrastructure, development zones have developed great competitive advantages over other areas in attracting investment. Over the past two decades, they have become areas with the largest foreign investment and the highest economic growth in China (Chinainvest, 2003). They played a very successful role in opening-up, attracting foreign capital, enlarging exports as well as bringing in science

The growth of state-level ETDZs in China

Time established

Name of city

1984–1988

Dalian, Qinhuangdao, Tianjin, Yantai, Qingdo, Lianyungang, Nantong, Minhang, Hongqiao, Caohejing, Ningbo, Fuchou, Guangzhou and Zhanjiang Yingkou, Changchun, Shengyeng, Harbin, Weihai, Hunshan, Hangzhou, Xiaoshan, Wenzhou, Rongqiao, Dongshan, Guangzhou Nansha, Huizhou Dayawan, Wuhu, Wuhan, Chongqing, Beijing and Urumchi Hefei, Zhengzhou, Xian, Changsha, Chengdu, Kunming, Gunyang, Nanchang, Shihezi, Xining, Huhhot, Nanning, Taiyuan, Nanjing, Yinchuan, Lanzhou and Lasa

1992–1993 2000–2002

Source: CIIC (2003).

306

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang Table 2

Foreign investment inflow in China, 1983–1996

Year

Contracted foreign investment (US$ billion)

Utilized foreign investment (US$ billion)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

1.73 2.65 5.93 2.83 3.71 5.30 5.60 6.60 11.98 58.12 111.44 82.68 91.28 73.28

0.64 1.26 1.66 1.87 2.31 3.19 3.39 3.49 4.37 11.01 27.52 33.77 37.52 41.73

Source: State Statistical Bureau (1997).

and technology. This is evident in the rapid growth in ChinaÕs utilization of foreign capital since the 1980s (see Table 2). Increasing foreign investments demand more local resources and labour. Thus, effective forward and backward linkages between exporting plants and the domestic economy have been created. Apart from economic achievement, development zones in China have also served as Ôwindows and basesÕ in which opportunities are created for the interaction of western and Chinese culture. Through these, foreign investors can understand more about the social and economic traditions of China, while its people have more opportunities to understand western technology, management and expertise. However, with the rapid economic growth in these areas, a lot of problems associated with land use planning and community management have emerged. Moreover, as a result of the accession to the WTO, development zones created for granting preferential treatment to foreign investors will gradually lose their competitive advantages over other areas in China (Kang, 1994). Under the changing circumstances, many local governments have started to think about what the impacts of these changes will be on development zones and what strategy can help in the sustainable development of these areas. Zheng (1999) and Wang (2001) suggest that those zones with low effectiveness in attracting investment should be eliminated, and only those with high quality infrastructure and management can continue to survive in the increasingly competitive environment. They also suggest that those strong development zones should seek to transform their existing role of serving as pure industrial/economic zones to multifaceted urban areas. In fact, such a transformation has been evident in some development zones such as Guangzhou, Pudong (Shanghai) and Tianjin over the past decade. The municipal governments concerned have attempted to integrate these development zones with old urban areas by planning and

administrative interventions. Consequently, the urbanisation of these areas has received great attention in China.

Case study: Guangzhou development zone (GDD) GDD is selected as a case study because it is one of the earliest Chinese development zones and consists of several forms illustrative of the issues highlighted in the previous sections. Given that the problems of GDD are not uncommon in other development zones in China, the conceptual and analytical framework developed in this study can provide reference for other zones in reviewing their development strategies. Historical evolution of GDD GDD is located in the east of Guangzhou City which is the capital city of Guangdong Province as well as the important political, economic and cultural centre in South China. It consists of four development zones, namely, Guangzhou Economics and Technological Development District (GETDD), Guangzhou Hi-tech Industrial Development Zone (GHIDZ), Guangzhou Free Trade Zone (GFTZ) and Guangzhou Export Processing Zone (GEPZ). Before 2002, these were dispersed in different locations and each of them served as an individual entity for different purposes and functions in attracting foreign investment. The majority of the area between these four zones was occupied by arable land and villages. To maximize GDDÕs contributions to the metropolitan development of Guangzhou City, the Guangzhou Municipal Government proposed to strengthen GDDÕs role as a driving force to promote industrialization and urbanization of GuangzhouÕs eastern area. In 2002, these four zones came into joint operation, and in 2003, the Guangzhou Municipal Government extended GDDÕs administrative boundary to cover the rural areas among the four zones. Consequently, GDD has been developed into a new urban area with a total planning area of 215.5 km2 and a population of over 120,000 (GDD Administrative Committee, 2004). The development of GDD over the past two decades can be divided into three stages (see Figures 1–3). The 1980s The first stage was the initial period in which the GETDD was designated as one of the first 14 statelevel development zones for the experiment and promotion of the open door policy. Like other development zones, it was located in a remote rural area. The Guangzhou Municipal Government made land available for investors through investing in land levelling and the public utilities related to water supply, power supply, communications, roads, warehouses and livelihood services. During this stage, GDD 307

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

Figure 1 Location map of Guangzhou City.

Figure 2 Location of Guangzhou and its main administrative districts. Source: Adapted from Xu and Yeh (2003).

was developed as a relatively closed system aiming to attract FDI only, and had rare interactions with the urban area of Guangzhou City, although it was under the administration of the Guangzhou Municipal Government. He (1995) explains that there are economic and political reasons for such a development pattern, as locating development zones in old urban areas is not cost-effective as renewing or upgrading 308

urban infrastructure to meet the needs of foreign investors would require huge investments. For political reasons, the government of China adopted a very cautious attitude towards opening-up and still held strong resistance to capitalist ideology in the early 1980s. Therefore, the Chinese government tried to locate development zones in rural areas in order to keep some distance between its people and foreign

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

Figure 3 Location of GDD and its main administrative districts. Source: GDD Economic Development Bureau (2003).

investors. In other words, the government hoped to borrow advanced technology and management practice from western countries but refused to accept western ideology at that time. As time has passed, the Chinese government has gradually recognized it is unwise to do this as there is a strong coherence between western technological development and the ideological bases. The 1990s The second stage was a growing period in the 1990s. During this stage, the GHIDZ and the GFTZ came

into operation and the investment environment of GDD continuously improved. However, the development of GDD needed to face increasing competition as the consequence of the rapid growth in development zones in other Chinese cities. The figures of the Ministry of Land Resources reveal that there have been 3,837 development zones in China, among which only 6% are approved by the State Council and the rest are approved by provincial governments or those below the provincial level (Deng and Huang, 2004). The rapid increase of development zones enhanced competition for foreign investors by offering more policy incentives and better 309

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

infrastructures (Wu, 1999). To enhance the capability to bring in investors, the Guangzhou Municipal Government invested 51.6 billion yuan in infrastructural facilities during 1996 to 2000 (GDD Planning, Science and Technology Bureau, 2003). The highstandard infrastructural facilities couped with a set of comprehensive preferential policies enabled GDD to achieve rapid economic growth. According to the GDD Statistical Bureau (2002), about 800 enterprises from more than 50 countries and regions have set up their companies in GDD. The actual utilisation of foreign capital increased from 0.3 billion in 1991 to 50 billion in 2001. The cumulative contractual and actual utilization of foreign capital in the district reached over US $92 billon and US $42 billon, respectively, by 2002. These great economic indices achieved by GDD have made it rank among the top of all the development zones in China. The development of GDD at this stage was also influenced by the urban development policy at the national level. China experienced a very low level of urbanisation before 1980. This was reflected by the statistics complied by Ebanks and Cheng (1990) from the data provided by the United State and the State Population of Census Office in which the degree of urbanization ranged from about 12% in 1950 to only 20% in 1980. With the deeper economic reform, the Chinese government started to revise its urban development policies to encourage urbanization from the late 1980s. In 1984, the Ministry of Civil Affairs eased the interpretation of the definitions of cities and towns. According to the new definitions, those areas where county-level governments were located could be granted ÔtownÕ status; villages (xiang) with a population of 2000 or more could abolish the establishment of xiang and be transformed into ÔtownsÕ (Liu et al., 2003). Thereafter, the State Council further relaxed the criteria for the establishment of cities and town in 1986 and 1993. Moreover, the Chinese government introduced the Ôresponsibility systemÕ in which farmers were allowed to sell their surplus products in the free markets after fulfilling the contracted quotas set by the central government. This policy increased rural productivity, which generated surplus labour flowing in cities (Dong, 1989). All these measures have effectively accelerated the pace of urbanization in China. Since the middle 1990s, four urban clusters have gradually developed in eastern China, namely, Liaodong Peninsula (Shengyan–Dalian), Beijing– Tianjin–Tangshan, Yangtze River Delta (Naijin– Shang-hai and Hangzhou) and Pearl River Delta (Yeh and Xu, 1996). Within these regions, the number of small cities has declined as many of them near large cities transformed into urban districts (Liu et al., 2003). With the rapid urbanisation in the Pearl River Delta region, the urban development of Guangzhou City also expanded substantially. The distance between GDD and the old urban area of Guangzhou City was shortened in the mid 1990s 310

with its own expansion and the encroachment of urban development into Tianhe District. Current development The third stage began in 2002 when four development zones within GDD came into joint operation. Several factors at the national and municipal level have already significantly influenced the development of GDD during this current stage. The first is ChinaÕs accession to the WTO in 2001, which marked a new phase of ChinaÕs opening-up to the world. It presents challenges as well as opportunities to development zones. On the one hand, foreign investment and trade are expected to increase as a result of the Chinese governmentÕs commitments to more business sectors and reduced tariffs. Development zones have comparative advantage over other areas in taking over these opportunities with their high-standard infrastructural facilities and rich experience in managing FDI. On the other hand, the existing preferential polices implemented within development zones may be gradually forfeited as they may not be compatible with the requirements of the WTO. To conform with the principle of national treatment, the Chinese government has to gradually remove preferential tax breaks and other privileges for foreign investment, to equalize the treatments for foreign investors and nationals (Hsiung, 2003). Such an adjustment is considered necessary, not only to dovetail with the WTO rules but also sustain the development of Chinese enterprises, by providing a fairer competitive environment in which the Chinese enterprises can be in a better position to compete with foreign companies. Moreover, to conform with the principles of free trade and fair competition, the Chinese government has committed to opening more provinces and cities for foreign investors. Under such circumstances, development zones which relied very much on granting preferential policies to attract foreign investors will gradually lose their competitive advantages because they will be on an equal footing with other areas. As a result of these changes in the macro environment, GDD has been exposed to a more competitive global environment in which the need is to compete not only with other investment locations in China but also with other countries. The second factor was the change in national policy towards development zones. Their rapid growth exposed a series of problems in the 1990s. Many local governments hoped to increase fiscal revenue through their creation, but their establishment at the local level does not follow good planning practice and is sometimes a result of some local officialsÕ personal ideas (Tang, 2000). Some local governments acquired a large amount of agricultural land from peasants and then invested heavily in providing public services

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

and infrastructural facilities such as site formation, road connection, and gas and electricity provision. In order to attract investment, they tended to offer unreasonably preferential policies for investors to compete with other well-developed zones. Consequently, many such zones suffer from great fiscal losses even though they can bring in investors. Moreover, the large amount of agricultural land converted has caused severe environmental problems. Even worse is that a large portion of this land remains vacant or has been developed into residential use and commercial uses that are different from the stated purposes. As a result, land within these zones has become a vehicle for speculation (Deng and Huang, 2004). In view of these problems, the Chinese government decided to stop approving any new development zones in 2003 and started to urge local governments to clean up those inefficient development zones. Moreover, local governments are required to reconvert the land concerned into agriculture use after clearing up. Under such circumstances, many development zones at the local level will be forced to cease operation and only those state-level development zones can continue to survive. In addition to the deeper reform urban development policy that encouraged urbanisation at the end of 1990s, it was hoped that development zones would play a role in leading regional development rather than simply attracting FDI and serving as a pioneer in open door policy. With the influence of the development and urban development policies at the national level, the Guangzhou Municipal Government expanded its administrative boundary in 2003 and has adopted a new spatial development strategy that is called ‘‘exploration in the south, optimisation in the north, extension in the east and coordination in the west’’. Under this strategy, the south will be developed into a growth pole led by knowledge and information based projects; the north will be optimised as a reserved ecological area; the east (where GDD is located) will be developed as a new urban centre. Government has been seeking to integrate GDD into the urban development of Guangzhou Municipality, and as a result, the urban development of GDD at this stage is characterised by ‘‘the urbanisation of economic zones’’ which is driven by the development policies at the national and municipal levels.

Development problems of GDD The development of GDD is significantly led and influenced by the development policies at the national and municipal levels. While the global and national environments are changing under the influence of the economic globalization, the urban development of GDD is speeding up. In this context, GDD has been facing a wide range of development issues associated with economic efficiency, social

equity, and environmental sustainability. The key problems are analysed as follows. Urban facilities and services The current provision of urban facilities and services within GDD is inadequate for its development into a comprehensively balanced urban community. With a total investment of 105.78 billon yuan in infrastructure construction over the past two decades, 68.08 km of roads, 632 km of drainage, a power supply system with a capacity of 860,000 W per day, a water supply system with a capacity of 158,000 m3 per day, and a telephone exchange system with a capacity of 120,000 lines have been built in GDD (GDD Planning, Science and Technology Bureau, 2003). However, given that this development has been planned on the basis of an economic-zone development pattern, this infrastructure has focused on industrial rather than domestic use. As shown in Table 3, the total area of industrial buildings reached 2,490,600 m2 in 2002 whilst the total area of domestic building was only 80,300 m2. This implied that the average living space in GDD was 0.7 m2 per person. As a result, many people working in GDD need to seek accommodation in the nearby Tianhe District and the older urban area of Guangzhou City. Such situations have generated traffic jams and imposed great pressures on the old urban areas where the development has extended beyond its carrying capacity. Some recreational facilities such as a club house for foreign investors have been developed within GDD. However, cultural and recreational facilities such as community halls, sports centres and libraries for the usual residents are still absent. Residents of GDD need to rely on those services provided in the old urban area of Guangzhou City. Such situations do not support the promotion and development of the cultural, entertainment and sporting scenes within the district. Structure of the economy GDD has experienced rapid economic development over the past decade through the successful utilization of FDI. However, its further growth may be subject to the constraints imposed by its existing Table 3 Building construction in GDD Year

Building construction (m2) Industrial use

1986–1990 1991–1995 1996–2000 2001 2002 Total

Domestic use

Others

538,200 542,200 837,600 93,600 479,000

159,800 286,400 205,300 117,600 34,200

120,100 116,600 284,300 12,200 12,800

2,490,600

803,300

546,000

Source: GDD Statistical Bureau (2002).

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Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

economic structure, which has a strong bias towards secondary industry. As shown in Table 4, although the percentage of secondary industry in GDP decreased over the past three years, it still accounted for about 80% of GDP whilst the tertiary sector accounted only for about 20% in 2002. This imbalance between the secondary and tertiary sectors has impacted the development of GDD in the following ways. First, investors and residents in GDD have to depend on the services (e.g., housing, retail outlets, banking and other urban services) provided in the old urban area of Guangzhou city. Second, insufficient provision of services in the areas of banking, trading, insurance and professional services has undermined investorsÕ desires to invest in GDD. Third, the underdeveloped tertiary sector has put GDD in a weaker position to take up the opportunities generated by ChinaÕs accession to the WTO which focus on enhancing the market entry of foreign investors into the banking, trading and insurance sectors. Structure of industry The industrial development of GDD is driven by six core industries as shown in Table 5. These six core industries accounted for around 80% of the total industrial output of GDD. Among these core industries, many of them are labour-intensive manufacturing industries. They have provided a lot of employment opportunities for local people, especially for those with little education. However, such a labour-intensive industrial development pattern will be inadequate for GDD to compete with other investment destinations in China, due to the increasing labour cost in the PRD region. Effectiveness of infrastructural investment The cumulative investment in GDDÕs infrastructure facilities over the period from 1984 to 2002 was 105.78 billion yuan. The majority of these expenditures were borne by the government. As shown in Table 6, the expenditures on infrastructure projects accounted for around 40% of the total public expenditure and around 25% of the total tax revenue on average, over the period from 1997 to 2002. The government has played a role as a direct provider rather Table 4 GDP

Shares of secondary and tertiary industries in GDDÕs

Industries

Secondary industry (%)

Tertiary industry (%)

Total (%)

1997 1998 1999 2000 2001 2002

87.2 77.5 75.8 81.3 84.7 79.1

12.8 22.5 24.2 18.7 15.3 20.9

100 100 100 100 100 100

Source: GDD Statistical Bureau (2001).

%

Chemical industry Electronic and telecommunication manufacturing industry Electrical machinery and equipment industry Food processing industry Nonferrous metal and metallurgical industry Transportation facilities and manufacturing industry Other industries Total

30.82 18.46 12.97 13.10 1.28 3.80 19.57 100.00

Source: GDD Statistical Bureau (2002).

than a facilitator in the provision and delivery of infrastructural services. Such an approach has placed a heavy financial burden on the government. Moreover, it has not encouraged contributions from the private sector to infrastructure construction and delivery. Land use management Under the leasehold tenure system, all land in China is owned by the state. In accordance with the Regulations of GETDD, the grant of land use rights in GDD is implemented by the Administrative Committee on behalf of the Guangzhou Municipal Government. As huge investments have been made in site formation and infrastructural facilities, increasing efficiency of land use through effective management is essential for the sustainable development of GDD. However, land management in GDD is facing some problems. First is the problem of vacant land, a common phenomenon in many development zones in China since the Ôdevelopment zone feverÕ in the 1990s. GDD is no exception even through its situation is less serious. In the 1990s, a lot of agricultural land was converted to industrial use for the rapid expansion of development zones. Consequently, a large portion of the land remained vacant due to oversupply. This has resulted not only in the waste of valuable land resources but also environmental damage. The second problem is concerned with the

Table 6 Infrastructural expenditure, total public expenditure and tax revenue in GDD Year

Year

312

Table 5 Industrial output value of GDD top six industries in 2002

1997 1998 1999 2000 2001 2002

Expenditure on infrastructure Billion (yuan)

% of Public expenditure

% of Tax revenue

7.13 6.93 4.67 9.40 9.32 17.3

46.7 43.9 25.3 41.3 30.4 54.1

31.1 28.3 15.7 24.6 19.6 29.7

Source: Guangzhou Statistical Bureau (2003).

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

efficiency of the existing land use pattern. Over the past two decades, the municipal government and the GDD local government have invested a great deal in making land available for industrial development in order to create an attractive environment for investors. During the site visit to GDD, local officials revealed that land preparation cost (including compensation for land acquisition and site formation cost) in four development zones was about 1000 yuan RMB per square metre. However, in order to attract more investors, land was usually granted to investors (for a term of 50 years) at 500 yuan RMB per square metre only. The government has to depend on the tax income generated by investors to recover the relevant land costs. Therefore, the effectiveness of land resource allocation in GDD has been inextricably linked to the economic performance of the enterprises within the area. Under such situations, economic output of land has been widely adopted for measuring land value by the government, and has been considered a very important factor in the formulation of land policy. As shown in Table 7, the unit output per square metre of land was 827.7 yuan RMB in terms of industrial output value, US $27 in terms of export value and 60.51 yuan RMB in terms of tax income generation in 2002. Based on these figures, the relevant land exploration costs can be recovered after 6 years if tax revenues are maintained at the level of 2002. This ‘‘economic output approach’’ is effective for assessing industrial land value but inadequate for ensuring efficient land resource allocation with the rapid urbanization of GDD. The land use pattern in GDD has become more complex because land use problems are not confined to industrial land as more and more land has been allocated for residential, commercial and community uses. Therefore, a systematic land management mechanism is urgently needed to tackle the possible conflicts among various land uses. Social problems associated with ‘‘Villages within the City’’ Unlike the cases of many developed countries in which urbanization was driven by migration from rural areas to urban areas, the growth of GDD was

Table 7

Land use efficiency indicators in GDD

Criteria

Industrial outputs Export value Tax income

Developed area (km2)

67.72 67.72 67.72

Land use efficiency indicators Total value (billion yuan)

Unit value (yuan)/m2

560.52 18.76 60.51

827.7 27 89.5

Source: Guangzhou Statistical Bureau (2003).

mainly attributed to the expansion of the administrative boundary made by the municipal government. With the expansion of the administrative boundary, the villages previously located in the rural area among four development zones have been included in the administration of GDD. Consequently, a ‘‘villages within the city’’ (Chengzhongcun) phenomenon arose. When villages are included into urban development, many undesirable problems have emerged. First, more and more agricultural land is being acquired for urban development. Compensation for land resumption is always a source of conflicts between villagers and the local government. Second, measures to assist the affected villagers in gaining access to adequate housing, social security, employment and education after they lose the arable land they have relied on for survival have been a major challenge to the urban management and governance of GDD. The household (hukou) registration system adopted by the Chinese government from 1954 divided the Chinese population into urban hukou and agricultural hukou. Under this system, only people of urban hukou can enjoy state welfare benefits such as subsidized housing, medical care and pension. Therefore, in order to ensure that the affected villagers are entitled to the relevant benefits, the first thing the local government needs to address is the transfer of their household status from ÔagriculturalÕ to ÔurbanÕ. After that, the local government needs to assist them in gaining access to employment. However, given that most of the villagers have a low educational level, it is not easy for them to find new jobs in the urban community. Moreover, some of them are not willing to find new jobs in the short term as they have received a large amount of compensation from land resumption. In the long term, however, they fail to equip themselves with the necessary work skills in an urban environment and become a social burden to the governing authority. One more related problem is the management of the land reserved for the use of the affected villagers after land resumption. According to the relevant land administration laws at the national level, any agricultural land resumption programmes have to reserve one tenth of the land resumed for the use of the affected villagers. The purpose of this land reservation policy is to assist the affected peasants in generating incomes after most of their land is resumed. However, the original purpose of this land reservation policy has not met its intended purposes due to the lack of a proper mechanism in governing the subsequent use and management of the land concerned. During the site inspection to GDD, the official revealed that much of the reserved land has been ÔillegallyÕ converted into real estate projects. These valuable land resources are collectively owned by all concerned villagers but usually controlled by village leaders. Consequently, it is questionable how many benefits can really go to the pockets of individual villagers. 313

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

Environmental problems Environmental impacts of the development of GDD can be categorized into two aspects. First of all, the urban development of GDD has resulted in substantial conversion of arable land, ponds and forest into infrastructure and building use. Over the past 20 years, the development of four development zones has acquired more than 100 km2 of rural land. The current and the planned development also involves substantial conversion of rural land. For example, the development of the Science City acquired 19 km2 of rural land during 2001 and 2002 (GDD Statistical Bureau, 2002). Another environmental problem is related to the pollution generated by the industrial activities within the area. The core industries of GDD are mainly chemical-material and food-processing related. They have caused air and water pollution to the area. In addition to the increasing cross boundary pollution within the PRD region, pollution levels in GDD are placing a significant stress on present conditions.

Conclusions One key theme that emerges from the above discussions concerns whether it is necessary and appropriate to turn a specially planned industrial use zone into a more typical, fully urbanized part of an urban region. From the experience of GDD, we consider the answer is positive. There are several key external and internal forces that push the GDD to move in such directions. First, globalization of investment has immensely increased the flexibility of the manufacturers in locating their industrial production. Second, ChinaÕs accession into the WTO implies that the privileges of the GDD authority in providing preferential policies and incentives to the external investors will quickly be ÔneutralizedÕ under the principle of national treatment. These two factors enable the investors to have more geographical choices and the GDD has to face an increasing number of competing locations that offer comparable, if not better conditions to the industrial investors. It becomes imperative for the GDD authority to re-assess its competitive advantages and market positioning of the development zone. The third issue relates to the types of industrial investment targeted by the GDD authority. It is obvious that the GDD is no longer interested in simply attracting labour-intensive, low-cost manufacturing operations because it is now keen to move up the technology ladder of industrial production. Contemporary hi-tech, high value-added production requires a totally different working and living environment than a traditional Ôfactory townÕ. Yet, the lack of ancillary urban and community facility provision in the GDD has severely hindered the strategic growth and industrial upgrading of the development zone. More balanced development between secondary and tertiary sectors 314

is more appropriate to draw in high technology industrial investment. As the career prospects of the GDD leaders are linked with the output performance of the development zone, this is thus another reason to re-orientate the development strategy of the GDD. The fourth issue relates to the changes in the metropolitan planning of the entire Guangzhou municipality. Development zones, like the GDD, were initially set up as an enclave to attract foreign investment. It was thus ÔsegregatedÕ in land use planning, administrative and functional aspects from the rest of the municipality. However, after over two decades of open policy implementation, the Guangzhou municipality has strengthened itself to a point which calls for a more strategic and integrated urban planning and management approach in governing the growth trajectory of the entire city. The relative autonomy of the GDD in determining its future development is thus increasingly subject to the metropolitan planning strategy for the city as a whole. Last but not least, the remarkable economic success of the GDD authority has ironically demanded a change in its prevailing management approach. The scale and land coverage of the GDD have increased enormously from the time of its first designation. The GDD authority finds itself dealing with increasingly complex responsibilities that are concerned not only with the attraction of inward investment, but also community building, urban management and public welfare. In other words, the GDD has grown to become an urban community rather than simply a stand-alone industrial zone development at a decentralized location. Against the above background, we consider that development zones have accomplished their historical mission of serving as experimental areas for the implementation of open policy in China. Development zones in China were planned as the Ôgrowth polesÕ and their positive impacts were expected to spread into the adjoining traditional urban contexts. Their economic achievements over the past two decades, coupled with the gradual opening up of the other parts of the cities to external influences, have shown that market-oriented mechanisms have at last established a foothold in China. Therefore, the political consideration for isolating these development zones from the municipality is no longer necessary. Under the national policy of developing city belts, development zones—especially those located in coastal cities—are expected to play a leading role in boosting urbanization. However, given the prevailing institutional structure and establishment, many development zones are not prepared to tackle most of the problems associated with rapid urbanisation. Drawing on the experience of GDD, these problems are related to land resources allocation, environmental deterioration, and provision of social security and welfare. Such problems have increased

Challenges to the sustainability of ‘development zones’: S -W Wong and B -s Tang

the complexities in the future planning and management of these areas. Now, the objectives of planning and management of the development zones are not confined to the attraction of foreign investment. The imperative issues are more related to providing a liveable environment for the community and ensuring the quality of life for all residents within these areas. Tremendous pressures have been imposed on the local governments as well as the development zone authorities to improve their managerial capacity so as to cope with the increasing dynamics and uncertainties generated from the current spatial and social transformation within development zones. The current conditions of the GDD warrant a different urban management strategy, if its performance as a growth centre of Guangzhou is to be sustained.

Acknowledgements The authors are grateful to the reviewers and the Editorial Board for their comments on the original manuscript, and also to the Policy Research Department of the Guangzhou Development District for providing support in this study. The usual disclaimers apply. The Hong Kong Polytechnic University FCLU Cross-Departmental Project Fund (Project No. 1.32.37.87CK) has sponsored part of this study.

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