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close this bookEmerging World Cities in Pacific Asia (UNU, 1996, 528 pages)
close this folderPart 2. Changing Asia-Pacific world cities
close this folderGlobalization and the urban system in China
View the document(introductory text...)
View the documentIntroduction
View the documentEconomic reform and globalization in China
View the documentThe globalization of china's economy
View the documentForeign investment
View the documentUrbanization and urban system development in China
View the documentThe effects of globalization on the urban system in China
View the documentProblems of urban development under the open policy
View the documentPolicy implications and future trends in urban development
View the documentNotes
View the documentAcknowledgements
View the documentReferences

Economic reform and globalization in China

The 1978 economic reforms opened China's economy to foreign investment and market processes, reintroduced the private individual economy (geti jingji), with individuals owning their means of production and earning their living through their own labour, and the commodity economy (shangpin jingji). A series of reforms followed the adoption of the economic reform policy. Since 1978, the economic reforms that have affected urban system development in China are mainly rural reform, the open policy, and urban reform.

Rural reform

The early reforms mainly affected the rural areas, where communes were replaced by a production contract, the household responsibility system. Rural land was distributed to households according to household size, and each household bore the sole responsibility of fulfilling a predetermined production quota. After meeting the production quota, households were free to produce whatever they liked and could sell their products in the free market. Households could also contract to run agricultural production units such as duck farms, fish ponds, or orchards. This system has replaced the original commune system where farmers worked together and were paid according to the number of their work points. This reform has aroused the enthusiasm of farmers by the new system of "more pay for more work." Rural production has increased tremendously since the introduction of rural reform. There has been an increase in the number of "specialized households" that make use of special production skills. Households that preferred to engage in non-agricultural activities were allowed to sub-lease their plots to other people. The surplus labour freed from agriculture as a result of the increase in the productivity of farmers has stimulated the development of small enterprises in the rural areas, giving rise to rural urbanization.

The open policy

Foreign investment was considered conducive to economic development in China. The 1978 economic reform has led to the utilization of more foreign investment and the development of SEZs and special districts for attracting foreign investment.

To attract and manage foreign investment effectively, four SEZs Shenzhen, Zhuhai, Xiamen, and Shantou - were established in 1979. The SEZs represented a major attempt to attract foreign capital, enterprises, and technology in strictly demarcated zones, where experiments with new economic policies in dealing with foreign investments could be conducted (Jao and Leung, 1986). The SEZs had the initial objective of producing goods for export to earn foreign exchange. They also acted as social and economic laboratories where foreign technologies and managerial skills might be observed. They offered a range of inducements to foreign investors, including tax holidays, early remittance of profits, and good infrastructure.

Despite some criticisms, the SEZs were considered to be successful and could be used as a model for other cities in economic development. In 1984, 14 other coastal cities were opened up for investment (Yeung and Hu, 1992). These are Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhangjiang, and Beihai (fig. 7.1). These "open cities" were to offer similar concessions to foreign investments as the SEZs, although they are not provided with the same level of central government funding for infrastructure development.

Apart from designating SEZs and coastal open cities to attract foreign investment, other regions were designated as special zones for foreign investment. In 1988, three "open economic regions" were designated- the Yangtze River (Changjiang) Delta Economic Region (around Shanghai), the Pearl River (Zhujiang) Delta Economic Region (around Guangzhou), and the Minnan Delta Economic Region (around Xiamen) (fig. 7.1). They are attempts to spread the benefits of an open policy from the SEZs to other parts of the country.

The designation of SEZs, cities, and regions along the coast for foreign investment is understandable because they are more accessible than interior cities and regions to foreign investments. The open coastal cities and the SEZs were also previous ports in which foreigners had lived and traded with China.

After the adoption of the open policy, some US$27 billion of foreign capital was utilized in the period 1979-1985 (Phillips and Yeh, 1990). Of this, 72 per cent was in the form of external loans, whereas 27.8 per cent was direct investment. Hong Kong provided most of the foreign direct investment, followed by Japan and the United States. Because of the policy of designating SEZs, coastal open cities, and open economic regions along the coast, foreign investment is unevenly distributed spatially. It is highly concentrated in the coastal provinces, particularly in large cities such as Beijing, Shanghai, and Guangzhou and the SEZs of Shenzhen and Xiamen (Phillips and Yeh, 1990).

Urban reform

Urban reform was officially launched by the Third Plenary Session of the Twelve Central Committee of the Chinese Communist Party in October 1984, which adopted a policy to reform the economic structure. It tried to introduce the successful rural economic reform to the urban sector by giving more incentives to individual efforts. It consisted of expanding the autonomy of enterprises, giving material incentives to workers, loosening planning and price controls, replacing state investment with credit finance for industrial development, encouraging small-scale private enterprise, and allowing market forces to determine the distribution of goods and services. Enterprises were allowed to retain and allocate investment, plan production, hire and dismiss employees, and determine bonuses and prices. These reforms were mainly aimed at enterprises but, because most enterprises are located in the urban areas, they were referred to broadly as urban reform.

Fig. 7.1 China's Special Economic Zones, coastal open cities, and open economic regions, 1980s (Source: Phillips and Yeh, 1990)

Prior to the official announcement of the 1984 urban reform, Shashi was designated as the first city to carry out pilot economic structural reforms in July 1981. Since 1981, 74 cities (such as Chongqing, Wuhan, Shenyang, Dalian, Nanjing) have been approved as pilot cities for economic reforms; 20 of them experimented with institutional reform, 27 with banking reform, 14 with housing system reform, and 13 with market-oriented production reform (STB, 1990).