TNAG-1051-FCO40-1301-China-s-economic-relationship-with-Hong-Kong-1982 — Page 104

Y

CONFIDENTIAL

Shenzhen Progress Report

This paper seeks to assess the current state of development of the Special Economic Zone (SEZ) at Shenzhen, Guangdong Province. Additional

background will be found in "Notes on Hong Kong's. Economic Links with China" (3 February 1981) and "Current Hong Kong-China Economic Developments : monthly notes" (beginning February 1980), both prepared by this office.

Background

2.

In accordance with general guidelines first proposed as early as

1977, Guangdong and Fujian Provinces have been actively promoted as special

regions for the production of goods for export and areas within which direct foreign investment has been vigorously encouraged. As part of this process, in March 1979 the former county of Baoan, subordinate to Huiyang prefecture

in Guangdong, was redesignated Shenzhen municipality and placed directly under

the provincial authority. At the same time, a Special Economic Zone was

established within the southernmost part of Shenzhen municipality bordering Hong Kong (see map at Annex A). During the same period, Zhuhai (north of Macau) and Shantou (east of Shenzhen) in Guangdong, and Xiamen in Fujian were

also given SEZ status.

3.

Akin to "export processing zones" (for example in Singapore and Taiwan) the SEZ was designed to attract foreign investment into export-

oriented industry in southern China. In August 1980 "Regulations on the Special Economic Zones in Guangdong Province" gave some of the ground-rules concerning terms and conditions for enterprises operating in the Zones. Although the regulations were set out in very general terms, some items were specific such as company tax set at 15%. Investors in the SEZs were given a considerable degree of freedom in the management of their enterprises and the employment of foreign techniques and administrators. The import of machinery and other equipment was allowed duty-free. Enterprises established within two years of the promulgation of the regulations, those with a foreign investment exceeding US$5 million, and those using more advanced technology were eligible for preferertial treatment - although the precise terms were not specified.

MKKQ91/1

VRD IN REGISTRY Mb. 51

18 AUG 1983

CONFIDENTIAL

Forms