RECENT INDUSTRIAL DEVELOPMENT IN CHINA

When the People’s Republic of China (PRC) was declared in 1949, the country had virtually no agriculture or industry. Most of the lands and wealth were in the hands of a minority, and the standard of life was very poor.

1949 - 1976; Communes and Communism.
·       State control, overseen by Mao Zedong (Chairman Mao) in a gerontocracy (ruled by an older ruler)
·       Government dictates factory location, employment, production. Responsible for demand, wages, market and pricing.·       No individual decision makers or entrepreneurs.
·       Worked on ‘Five Year Plans’, like Stalin in Russia. The first 5 year plan concentrated on developing labour intensive heavy industry and discouraged the production of consumer goods. China’s huge coal reserves became the basis for an iron and steel industry from which ships, textile machinery, tractors and locomotives could be produced.
·       In 1958, Mao launched the ‘Great Leap Forward’, in an attempt to mobilise China’s people and resources. In order to meet their production targets, factory and agricultural workers were organised in to communes.
·       Mao’s later attempts to create a classless society in the Cultural Revolution of 1966-76 virtually destroyed all of the good work done to the country’s economy.

1979-present. The Responsibility System.
·       In 1979, under Deng Xiaoping, the government gradually began to replace the commune system with the responsibility system.
·       This system incorporated capitalist ideas, and tuned Chinese peasants in to tenant farmers. It was later applied to industry, with the result that total production and quality improved.
·       Encouragement was given to individual entrepreneurs to set up their own firms, especially in consumer goods.
·       State owned companies, once their production targets had been met, were allowed to sell surplus stock and share the profits between workers.
·       Competition between firms was encouraged, and an ‘open door’ policy enabled foreign investment in to China, e.g. Pepsi Cola in Shenzhen, and Volkswagen in Shanghai.

The Current Situation
·       Since 1979, five special economic zones (SEZs) and 14 open cities have been created.
·       These offer tax concessions and lower labour and land costs to overseas firms - especially those involved in high tech or quaternary industries. It is not coincidental that the five SEZs are in the south east of the country, near to Hong Kong, which handles over 40% of Chinese trade.
·       The open cities, although more widespread, all have coastal locations. These coastal areas have received most internal investment as well as having ‘imported’ capital, technology and entrepreneurial skills from surrounding countries.
·       The result has been the emergence and dominance of three regional economic centres;
(1)  South China; which includes three of the SEZs, and has strong links with Hong Kong.
(2)  Taiwan Straits; centred in the province of Fuijan, with unofficial links to Taiwan.
(3)  Liaoning Province; with its strong links with Japan and South Korea, and their many multinationals.
·       Chinese economic achievements in the las 15 years have been stunning. Economic growth has averaged nearly 9% p.a. for more than a decade; trade is doubling every 5 years (albeit from a small base) and inflation has been at a manageable 6%.
·       However, economic development has concentrated along the coast, with little concern for the environment. Most employees still receive low wages.

Shenzhen; a Special Economic Zone.
·       Shenzhen is the most dramatic example of China’s open door policy; an area more Westernised than anywhere else in the country.
·       In 1980, when the SEZ was established, Shenzhen was a rural community of 30 000, supplying farm produce to Hong Kong.
·       Since then, it has become a major industrial centre, with an estimated 3 million population. Workers flocked there from all over China, drawn by the liberal lifestyle and wages five times the national average.
·       Shenzhen’s rapid growth is due to the proximity of Hong Kong, just across the border to the south.
·       Hong Kong is short of land and labour, so Shenzhen offers an ideal expansion site for the industries. Rents are cheaper, as are the labour costs - only half the level in Hong Kong - though productivity and quality tend to be lower too.
·       Most firms use Shenzhen for assembling processed materials or components, producing items like clothing, hardware, food and drink and a wide range of electrical goods.
·       So far, Shenzhen has failed to attract much high tech industry or research and development from abroad.
·       Two thirds of Shenzhen industrial output comes from foreign owned enterprises or joint venture schemes.
·       The vast majority of investments come from Hong Kong, which has also funded many projects to develop housing, hotels and tourist facilities in the zone.
·       Each week, 100 000 Hong Kong citizens cross the border to buy cheap goods and for entertainment; some are even buying flats in Shenzhen.
·       However, Shenzhen’s growth has outstripped the provision of basic services. Land, water, and electricity are all in short supply.
·       Shenzhen plans to spend £5 billion on its infrastructure up to the turn of the century; already a new power station has been built, and Shenzhen’s own airport at Hwang Tian was opened in 1991.