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How Internal Politics Influenced 　the Opening-Up Policy in China:

　Lessons from a Case Study of

the Xiamen Special Economic Zone

SHIMONO, Hisako (The University of Kitakyushu)

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Sections

1. Introduction2. Expansion of the SEZ3. Taiwanese Begin to Visit Xiamen4. Direct Cargo Ship Lines to Taiwan5. Statistics and Concluding Comments

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1-1. Introduction:

China’s Economic Reform and the Opening-Up Policy ⇐ Delegation of Power to Local Authorities

　⇒ High Economic Growth　　　　 SEZ 　　　　 Shenzhen in Guangdong ⇒ Yes 　　　　 Xiamen in Fujian ⇒ No

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1-2. Shenzhen and Xiamen

Shenzhen

Large Scale General SEZMore Delegation of Economic

Power

Hong Kong Capital

Xiamen

Small Scale “Export Processing Zone”Less Delegation Following Shenzhen’s

ExperiencesTaiwan Ethnic Chinese in SE Asia

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1-3. Questions

What prevented the Xiamen SEZ from achieving economic prosperity?

How did local cadres react to the economic and political environment surrounding the SEZ?

What kind of political adjustments were taken?

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Where is Xiamen?

Fujian ProvinceFuzhou in north, Xiamen in South

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Fujian Province

Fuzhou in the north,

Xiamen in the south

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1-4. Initial Conditions of Fujian/ Xiamen

Geography: Mountainous Land, Little Plains, A Long Saw-Toothed CoastlineEconomy: Poverty, Less Investment, Poor Infrastructure Light IndustriesPolitics: Frontline to Taiwan Strong Connection to Overseas Chinese/ Taiwanese

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1-5. Turning Point

Change in the CCP’s Taiwan policy (Jan.1979) From “liberalization of Taiwan” to “peaceful unification of the motherland” and “three direct links”

Establish an SEZ in Fujian (Xiamen) for making an appropriate environment for unification

Local cadres in Xiamen/Fujian: not so eager to promote the economic reform and the opening-up policy

…because of political remains of the Cultural Revolution in Fujian

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1-6.The Xiamen SEZ

Hardship in reality: Poor transportation system Strong needs for construction capital ⇒ Borrow foreign assistance and develop 1.1sq km

Local Cadres: Optimistic → Disappointed Fujian Province: Intervene in Xiamen SEZ Equal-size investment in FuzhouCentral Authority: Limited delegation of economic power

11 Located in the Xiamen City

1-7. Tripartite Relationship

　　　　　　　　　　　　　　　　　　 ×　　　　　　　　　　　　　　　　　

　　　　　　　　　　　　　　　　　　

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　　　　　　　　　　　　　　　　　　　　　× 　　　　　　　　　　　　　

The Central Authority

Xiamen City Authority

Fujian Province

Xiamen SEZ

Administrative Committee of the SEZ

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2-1. Opportunity to Expand the SEZ

1984 Deng Xiaoping inspected the Xiamen SEZ Party secretary of Fujian (Xiang Nan) and Xiamen

cadres appeal directly to Deng Different expectations between the two

Results: expansion of the Xiamen SEZ (131 sq km) partial “free port policies” (in the future) ＊ A free access to capital was not accepted opening of Fuzhou

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2-2. Increased Financial Burdens

Lack of capital to build infrastructure in the expanded areas in Xiamen SEZ

More delegation and policy assistance by the central authority, but little financial support

Free port less customs revenue in the future⇒

⇒ Xiamen needs more FDI and more opening in the financial sector to raise funds

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2-3. Deepening Conflicts

A conflict between the province and Xiamen became deeper over policy intervention and jurisdictions

Internal criticism in Xiamen arose: incapability of local cadres, missing opportunities

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3-1. Taiwanese Visits Begin

Investment environment became less attractive in Taiwan.

pressure to the Taiwanese authority to relief the “three no’s” policy

In November 1987, the Taiwanese authority allowed Taiwanese people to visit the mainland to see their relatives

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3-2. Xiamen as a Gate to the Mainland

In former days: coastal areas of Fujian for smuggling and de facto direct exchanges with Taiwanese fishermen

Since 1987: Xiamen as a main gate for Taiwanese to visit the mainland and do business in China. Xiamen cadres started to take actions to attract investors

ex. Taiwanese investment zones, administrative lines and custom warehouses for the SEZ, building infrastructure, Yitai Yintai policy

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3-3. To Attract Taiwan Capital

The central authority: to win over Taiwanese investors to the communist side

Delegation of economic power to Xiamen Making provisions to protect Taiwan investmentFujian: Attempts to lure Taiwanese capital into the

province Create two domestic centers

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3-4. Xiamen Missed Opportunity to Take Off

Without “three direct links,” high production/ distribution costs. Shortage of facilities and infrastructure Many small- and medium-sized Taiwanese-funded

enterprises Fail to attract Formosa Plastics Group Insufficient support from the central/provincial

authorities ⇒ ineffective utilization of Taiwanese capital

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4-1.Rising Expectations for Direct Cross-Strait Links

Improvement of the cross-strait political situation in the early 1990s ⇒ expectations for “three direct links” rose

Private companies expressed interests in Xiamen as a gate for Taiwanese to the mainland

Local governments promoted construction of infrastructure/ making laws

＊ Xiamen faced to a fierce competition to draw FDI

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4-2. A Crisis over the Strait

1995-1996 the cross-strait tensions escalated Again, Fujian as a frontline against Taiwan

The CCP government: - menace the Taiwanese authority with military power- improve the investment environment for Taiwanese

compatriotsLocal governments: ask for a peaceful environment for the

regional economic development

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4-3. After the Crisis

Xiamen mayor was seriously concerned about difficulties to lure FDI in the near future… because of the competition for FDI and the WTO factor

Last resort for Xiamen’s economy: Taiwan capital, realization of the “three direct links”

The Central authority’s political (not military) pressure to the Taiwanese authority

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4-4. Establishment of Cross-Strait Direct Cargo Shipping Lines

The restoration of Hong Kong to the PRC (July1997) 　⇒　 pressure to the Taiwanese side …through informal consultative meetings…Finally, direct cargo shipping lines between Xiamen and

Kaohsiung began in April 1997 ⇒ It aroused expectations of stimulating the local economies

*regional economies were too small in scale, cautious attitude of the Taiwan authority, the cross-strait political tensions increased again

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5-1. From Statistics:FDI Inflow into Xiamen

Source ： Judy Howell (2000), "The Political Economy of Xiamen Special Economic Zone," in Y.M.Yeung and David K.Y.Chu eds., Fujian: A Coastal Province in Transition and Transformation, The Chinese University Press.

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5-2. From Statistics:FDI Inflow into Xiamen (USD100mil.)

Contracted amount

Actually utilized amount

Source ： Judy Howell (2000).

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5-3.From Statistics:Taiwan-Funded Investment in Xiamen

Source ： Xiamen shi difangzhi bianji weiyuanhui bian (2004), Xiamen shi zhi: diwuce (The Annals of Xiamen City: No.5), Fangzhi chubanshe,

Fujian Jingji Nianjian Bianji Weiyuanhui, Almanac of Fujian’s Economy, Fujian Jingji Nianjian Chubanshe( The Year of 1988 and1989.

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5-4.From Statistics:Taiwan-Funded Investment in Xiamen

(US$10 thousand)

Contracted amount

Actually utilized amount

Source ： Xiamen shi difangzhi bianji weiyuanhui bian (2004), Xiamen shi zhi: diwuce (The Annals of Xiamen City: No.5), Fangzhi chubanshe,

Fujian Jingji Nianjian Bianji Weiyuanhui, Almanac of Fujian’s Economy, Fujian Jingji Nianjian Chubanshe( The Year of 1988 and1989.

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5-5.From Statistics:Number of Taiwanese Investment on

the Mainland (Contract basis)

Source: Lin Zhanghua (1995

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5-6.From Statistics:Taiwanese Investment on the Mainland

(Contract basis : US$ 100 mil.)

Source: Lin Zhanghua (1995), “Lun Taiwan de Daowai Touzi: Jianlun Zhongguo Dalu Xiyin Taizi Wenti,” (Arguments Regarding Taiwan’s Out-of Island Investment: Including Arguments on the Issue that the Mainland Attracts Taiwanese Capital), Xiamen Daxue Xuebao, Zhesheban (The Bulletin of the Xiamen University: Philosophy and Social Sciences), No.2.

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5-7. Concluding Comments Initial conditions of Xiamen made the construction of the

SEZ difficult The Taiwan factor as the largest obstacle Different views and interests among the central authority,

the province, and Xiamen Passive attitude of the Xiamen cadres This case study suggests: Internal politics operated in the process of economic

development Internal fragmentation of China

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Thank you very much

for your kind attention!

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