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up the SEZS was to acquire industrial and management skills through trading and cooperating with foreign investors. Developments to date suggest that most industrial establishments in the SSEZ are labour intensive rather than technology or skill intensive and are in many cases little more than the outward processing plants of companies based in Hong Kong. Since the relatively simple manufacturing activities currently found in the zone cannot meet the objective of industrial upgrading and technology transfer, the SSEZ authorities are anxious to attract industries involving more sophisticated technology.
17.
The predilection of the SSEZ authorities to favour high technology investment over investment in labour-intensive processes, although it is a strange way to exploit their main competitive advantage, lower labour costs, probably makes long-term sense from the Chinese viewpoint. In the short run, it also enables them to economise on the expenditure they incur on social infrastructure to support the SSEZ's population relative to the output and foreign exchange earnings of the zone. In the longer term, it may well be that a major breakthrough in respect of industrial development in the SSEZ will not occur until the oil exploration activities in the South China Sea bear fruit. There are few signs at present of this happening.
18.
The SSEZ has, therefore, been only moderately successful in attracting foreign trade and investment activities. It is difficult to assess how much the other parts of the country can derive benefits from the presence of foreign capital and technology in the SSEZ. But with respect to its role of being an access point for
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CONFIDENTIAL # 3
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