SPECIAL ECONOMIC ZONE (SEZ)

Chinese (Wade-Giles) Ching-chi T'e-ch, or (Pinyin) Jingji Tequ, in late 20th-century China, any of several localities in which foreign and domestic trade and investment are conducted without the authorization of the Chinese central government in Peking. Special economic zones are intended to function as zones of rapid economic growth by using tax and business incentives to attract foreign investment and technology. The first four special economic zones were created in 1979 in southeastern coastal China, and consisted of the small cities of Shen-chen, Chu-hai, and Swatow in Kwangtung province and Amoy in Fukien province. In these areas, local governments are allowed to offer tax incentives to foreign investors and to develop their own infrastructure without the approval of the central government. Business enterprises make most of their own investment, production, and marketing decisions, and foreign ownership of such ventures was legalized. Though they began as little more than small towns, the new SEZs soon attracted foreign investment and became boomtowns, with rapidly expanding light and consumer-goods industries and growing populations. Encouraged by the zones' success, the Chinese government in 1984 opened 14 larger and older cities along the coast to foreign trade and investment. These open cities offered foreign investors much the same incentives as in the special economic zones, but their corporate income taxes were higher. In 1988 Hainan Island was made a separate province and a special economic zone, and in 1990 the city of Shanghai became a special economic zone with policies even more flexible than those already in force in the original four SEZs. In 1992 the Chinese government decided to adopt some of the same policies in 23 major cities in inland China, including many provincial capitals, in hopes of encouraging foreign investment in them.