Studies on China’s Special Economic Zones 5 9819903408, 9789819903405

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Research Series on the Chinese Dream and China’s Development Path

Yiming Yuan   Editor

Studies on China’s Special Economic Zones 5

Research Series on the Chinese Dream and China’s Development Path Series Editors Yang Li, Chinese Academy of Social Sciences, Beijing, China Peilin Li, Chinese Academy of Social Sciences, Beijing, China

Drawing on a large body of empirical studies done over the last two decades, this Series provides its readers with in-depth analyses of the past and present and forecasts for the future course of China’s development. It contains the latest research results made by members of the Chinese Academy of Social Sciences. This series is an invaluable companion to every researcher who is trying to gain a deeper understanding of the development model, path and experience unique to China. Thanks to the adoption of Socialism with Chinese characteristics, and the implementation of comprehensive reform and opening-up, China has made tremendous achievements in areas such as political reform, economic development, and social construction, and is making great strides towards the realization of the Chinese dream of national rejuvenation. In addition to presenting a detailed account of many of these achievements, the authors also discuss what lessons other countries can learn from China’s experience. Project Director Shouguang Xie, President, Social Sciences Academic Press Academic Advisors Fang Cai, Peiyong Gao, Lin Li, Qiang Li, Huaide Ma, Jiahua Pan, Changhong Pei, Ye Qi, Lei Wang, Ming Wang, Yuyan Zhang, Yongnian Zheng, Hong Zhou

Yiming Yuan Editor

Studies on China’s Special Economic Zones 5

Editor Yiming Yuan China Center for Special Economic Zone Shenzhen University Shenzhen, Guangdong, China

ISSN 2363-6866 ISSN 2363-6874 (electronic) Research Series on the Chinese Dream and China’s Development Path ISBN 978-981-99-0340-5 ISBN 978-981-99-0341-2 (eBook) https://doi.org/10.1007/978-981-99-0341-2 Jointly published with Social Sciences Academic Press The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: Social Sciences Academic Press. © Social Sciences Academic Press 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Series Preface

Since China’s reform and opening began in 1978, the country has come a long way on the path of socialism with Chinese characteristics, under the leadership of the Communist Party of China. Over 30 years of reform, efforts and sustained spectacular economic growth have turned China into the world’s second-largest economy and wrought many profound changes in the Chinese society. These historically significant developments have been garnering increasing attention from scholars, governments, and the general public alike around the world since the 1990s, when the newest wave of China studies began to gather steam. Some of the hottest topics have included the so-called “China miracle,” “Chinese phenomenon,” “Chinese experience,” “Chinese path,” and the “Chinese model.” Homegrown researchers have soon followed suit. Already hugely productive, this vibrant field is putting out a large number of books each year, with Social Sciences Academic Press alone having published hundreds of titles on a wide range of subjects. Because most of these books have been written and published in Chinese, however, readership has been limited outside China—even among many who study China—for whom English is still the lingua franca. This language barrier has been an impediment to efforts by academia, business communities, and policy-makers in other countries to form a thorough understanding of contemporary China, of what is distinct about China’s past and present may mean not only for her future but also for the future of the world. The need to remove such an impediment is both real and urgent, and the Research Series on the Chinese Dream and China’s Development Path is my answer to the call. This series features some of the most notable achievements from the last 20 years by scholars in China in a variety of research topics related to reform and opening. They include both theoretical explorations and empirical studies and cover economy, society, politics, law, culture, and ecology, the six areas in which reform and opening policies have had the deepest impact and farthest-reaching consequences for the country. Authors for the series have also tried to articulate their visions of the “Chinese Dream” and how the country can realize it in these fields and beyond. All of the editors and authors for the Research Series on the Chinese Dream and China’s Development Path are both long-time students of reform and opening and v

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recognized authorities in their respective academic fields. Their credentials and expertise lend credibility to these books, each of which having been subject to a rigorous peer review process for inclusion in the series. As part of the Reform and Development Program under the State Administration of Press, Publication, Radio, Film, and Television of the People’s Republic of China, the series is published by Springer, a Germany-based academic publisher of international repute, and distributed overseas. I am confident that it will help fill a lacuna in studies of China in the era of reform and opening. Shouguang Xie

Founded in: November, 2008 Sponsors: Key Research Base for Humanities and Social Sciences of Ministry of Education, P.R.C China Center for Special Economic Zone Research, Shenzhen University Editor-in-Chief: Yiming Yuan Deputy Editor-in-Chief: Yikun Zhou

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Academic Committee Chairman Zhong Wu, Publicity Department of Shenzhen Municipal Committee

Vice Chairman Yitao Tao, Shenzhen University

Members Ying Kong, Tsinghua University Susheng Wang, Harbin Institute of Technology Jun Wang, Guangdong Academy of Social Sciences Yuanxin sun, Shanghai University of Finance and Economics Qiusheng Tian, South China University of Technology Shenglan Li, Sun Yat-Sen University Zhong Wu, Publicity Department of Shenzhen Municipal Committee Xiaoru Zhang, Shenzhen Academy of Social Sciences Zhong Wu, Publicity Department of Shenzhen Municipal Committee Chaolin Wu, South China Normal University Yong Chen, Shenzhen University Jingtong He, Nankai University Yitao Tao, Shenzhen University Yiming Yuan, Shenzhen University Gang Tan, Shenzhen Institute of Administration

Contents

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From “Early and Pilot Implementation” to “Pilot Demonstration Area”—New Mission of the Special Economic Zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yitao Tao

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Is the Special Economic Zone a Shortcut for Economic Takeoff?—Theoretical Claims and Chinese Evidence . . . . . . . . . . . . . Yiming Yuan and Hongyuan Yuan

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Special Economic Zones in the Russian Far East: A New Paradigm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tugusev Anton

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Focus and Emphasis of the Reform of the China Pilot Free Trade Zone Under Sino-US Trade Friction . . . . . . . . . . . . . . . . . . . . . . Xiaowen Fan

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Functional Evolution of the Guangdong-Hong Kong-Macao Greater Bay Area and Hong Kong’s Role Switching . . . . . . . . . . . . . . Chao Ji and Zhilan Li

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The Historical Evolution and Future Prospects of the Guangdong-Hong Kong-Macao Greater Bay Area . . . . . . . . . . Yikun Zhou

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The Development of Cultural Industries in the Guangdong-Hong Kong-Macao Greater Bay Area Based on the Perspective of Integration . . . . . . . . . . . . . . . . . . . . Yaqin Zhong and Liangbi Chen

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Construction of an Index System for the Evaluation of the Degree of Coordination of the Energy-Economy-Environment System and Empirical Analysis—Based on Data of Shenzhen . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Meng Li and Liang Yang ix

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Research on the Spillover Effect of RMB Exchange Rate Fluctuation on the Exchange Rate of Major Countries Along the “Belt and Road” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Maojia Guo and Fei Li

10 Urban Village Reconstruction in Shenzhen from the Perspective of the Interaction of Population, Land and Industry—Research and Analysis of Qinghu Village, Longhua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Ping Zhang and Xueyan Mo 11 The Selection of a Path and the Focus of Policies for the Innovation and Transformation of Resource-Based Cities in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Chang Liu 12 Research on the Growth Path of Low-Educated Female Migrant Workers in Shenzhen—Based on a Case Study of Six Women . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 Chunhong Sheng

Chapter 1

From “Early and Pilot Implementation” to “Pilot Demonstration Area”—New Mission of the Special Economic Zones Yitao Tao

The 9th plenary meeting of the Commission for Further Reform under the CPC Central Committee held on July 24, 2019 passed the Opinions on Supporting Shenzhen in Building a Pilot Demonstration Area of Socialism with Chinese Characteristics. The Opinions emphasizes: “To support Shenzhen in building a pilot demonstration area of socialism with Chinese characteristics, it is imperative to unswervingly follow the path of socialism with Chinese characteristics, adhere to the reform and opening-up, fulfill the requirements of high-quality development, implement the innovation-driven development strategy, seize the important opportunities in the development of the Guangdong-Hong Kong-Macao Greater Bay Area, and strive to create a model city for a great modern socialist country.” On August 18th, the Opinions of the Central Committee of the Communist Party of China and the State Council on Supporting Shenzhen in Building a Pilot Demonstration Area of Socialism with Chinese Characteristics was officially released, and it put forward the development goals of “building Shenzhen into a model city of a modern socialist country by 2035” and “becoming a global benchmark city with outstanding competitiveness, innovation and influence by the middle of this century”. The proposal of the Opinions is a strategic deployment of the central government to deepen reform, an affirmation of Shenzhen’s status, functions and missions in the 40 years of China’s reform and opening-up, and a deep hope for Shenzhen, a young city known for taking the lead in reform and opening-up. It is a solemn endowment of a new mission for China’s most successful special economic zone in the new era, Tao Yitao, Director of the China Center for Special Economic Zone Research, Shenzhen University, Professor and Doctoral Supervisor; Dean of the Belt and Road Research Institute (Shenzhen) for International Cooperation and Development. Y. Tao (B) China Center for Special Economic Zone Research, Shenzhen University, Shenzhen, China e-mail: [email protected] International Cooperation and Development, Belt and Road Research Institute, Shenzhen, China © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_1

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and it is the start of another era for China’s great practice. This will surely provide more convincing theoretical support and practical models for the institutional change and modernization of Chinese society through the innovative practice of deepening reform, so as to provide the countries adopting an emerging market economy with referential Chinese solutions for developing problems in the process of implementing the Belt and Road Initiative.

1.1 Theory and Practical Significance of the Opinions Forty years ago, Shenzhen was historically chosen when China started its reform and opening-up. Shenzhen also became an experimental field for exploring the transition from a traditional planned economy to a socialist market economy and for finding a path from general poverty to common prosperity. It became a window for China to open up and an oasis of a market economy that had a huge influence and demonstration effect on the institutional change in China. Forty years later, Shenzhen is historically chosen again as China deepens its reform and opening-up, and it assumes the important task of promoting the deepening of China’s reform and opening-up, namely becoming a pilot demonstration area of socialism with Chinese characteristics in terms of taking the lead in building a modern economic system that reflects the requirements of high-quality development, in creating a democratic and legal environment that demonstrates fairness and justice, in shaping and displaying s modern urban civilization where socialist culture is prosperous, in forming a pattern of development of people’s livelihood with approaches of collaboration, participation, common interests and common prosperity, and in building a beautiful Chinese model of a harmonious coexistence between humans and nature. It can be said that this is not only a historical inevitability, but also the path and trajectory of deepening reform and institutional change shown by the internal logic of the Chinese path. With its almost innate character, Shenzhen once again became a pole of policy growth in the historical process of China’s reform and opening-up. 1. The essential connotation of the pilot demonstration area is to take the lead in practical exploration and early institutional innovation, and Shenzhen is the one with this character. Looking back at history, early and pilot implementation is the innate character given to the Shenzhen Special Economic Zone by China at the beginning of reform and opening-up, the policy privilege granted to special economic zones by formal institutional change, and the priority right to reform that requires wisdom and courage given to special economic zones by the unbalanced development strategy. It is also the experimental right that the progressive reform and opening-up endows the special economic zones with risks and costs, and it is the reason for the immortal vitality of the special economic zones. Forty years ago, the Shenzhen Special Economic Zone, relying on the policy privilege of early and pilot implementation, was the first to carry out the great and arduous practice of the socialist market economy in China.

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It not only transported the most basic concepts and practice of a market economy, such as the law of value, market competition, labor commodities and stock interest, to the whole country, but it also made the slogan of “time is money, efficiency is life” spread nationwide. Forty years later, the proposal of a pilot demonstration area not only affirms the unique function and historical contribution of the Shenzhen Special Economic Zone in the transition of China’s social system, but it also uses the power of institutions to put forward the tasks and requirements for further deepening reform that require more courage and wisdom from Shenzhen. If the mission of setting up special economic zones was mainly the complete transition from a planned economy to a socialist market economy by Shenzhen’s practice of early and pilot implementation 40 years ago, as well as the exploration of the path from general poverty to common prosperity, then 40 years later, Shenzhen is the most typical and successful special economic zone in China, and the broader and far-reaching goal of its practice of early and pilot implementation is to become the pilot demonstration area of socialism with Chinese characteristics. That is to say, Shenzhen needs to play the role of pioneer to provide referential and replicable experience in the course of deepening reforms, in the construction of an innovative country, in the process of expanding new patterns of opening-up, and in promoting the implementation of the Belt and Road Initiative. It can be said that the “early and pilot implementation” and “pilot demonstration area” are logically connected and are successive in terms of missions. There will be no new mission of today’s pilot demonstration area without the successful practice of previous early and pilot implementation, and the completion of the mission of deepening reform of the “pilot demonstration area” is inseparable from the promotion of the inherent character and spirit of the “early and pilot implementation”. For Shenzhen, the difference between the two lies in the functions and missions conferred by the era, that is, the different connotations of reform and opening-up in different historical stages results in inheritance changes in functions and missions, such as from taking the lead in reform and opening-up to taking the lead in deepening reform and from completing social transition to driving the overall development of society. However, the fundamental point is to take the lead in reform. 2. The key to “keeping in mind the strategic intentions of the Party Central Committee to establish special economic zones” is to understand what special economic zones mean to China’s reform and opening-up and the institutional change, and Shenzhen is the earliest and most successful practitioner of the strategic intentions of the Central Committee. As a top-down formal institutional arrangement, the special economic zone is the important mode of practice for China’s progressive reform under the concept of “crossing the river by feeling the stones”, while “early and pilot implementation”, “pilot demonstration” and “enterprising and pioneering spirit” are also the important connotation and quality of this mode of practice. If unbalanced development is a development method facing constraints, then progressive reform is a development step facing constraints. As two aspects that support and promote each other in the same reform process, they jointly ensure the natural occurrence of inductive

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institutional change led by mandatory institutional change in the course of China’s reform and opening-up and ensure the steady progress of the transition process from local to overall. They ensure the effective combination of reforms within the system and promotion outside the system and ensure the marketization of the economy and gradual occurrence and realization of all-round reforms. They also ensure the mutual coordination of reform, development and stability. As a result, they prove the practical value and practical significance of the Chinese path through the reforms in line with China’s national conditions. The Party Central Committee’s strategic intentions in establishing a special economic zone show that the special economic zone in China is by no means a temporary economic phenomenon, nor is it simply the product of special policies. It is also not a stop-gap measure. As a product of special policies, it fulfills the mission of exploring and demonstrating the transition of Chinese society from a planned economy to a market economy; as an institutional arrangement, it is the best choice of path that achieves social transition with minimal cost in a large country with an unbalanced development; as an important practical mode of progressive reform, it reduces the risk of China’s reform and opening-up and improves the performance of institutional change. As an important part of the Chinese path, the special economic zone continuously releases the “agglomeration effect” and the “diffusion effect” that are sufficient for changing and forming a new map of China’s economy by establishing a policy-based pole of growth (Special Economic Zones, Pilot Free Trade Zones and the Greater Bay Area) in an orderly manner, which has become a “shortcut” with institutional performance for the modernization of Chinese society. As the most successful special economic zone in China with a pilot free trade zone and located in the Guangdong-Hong Kong-Macao Greater Bay Area, Shenzhen has successfully implemented and effectively explained the Party Central Committee’s strategic intentions to establish a special economic zone from “early and pilot implementation” to “pilot demonstration area”. The Party Central Committee’s strategic intentions to establish a special economic zone also tells us that a special economic zone is by no means just a city. It is an explorer of the path of China’s changes in its social institutions, a pioneer in the building of a socialist market economy, and an indispensable component of the Chinese path. The successful practice of special economic zones has proved that there is more than one path or mode for the development of human society, and China provides a path that is different from the Western model. This path increases the confidence of the Chinese people in advantages of institutions, thereby gaining the Chinese people’s universal support and recognition of reform and opening-up. Therefore, the formation of a special economic zone is far greater than the formation of a city, and the growth of a special economic zone is much higher than the growth of a city. The development of a special economic zone is far more important than the development of a city, and the influence of a special economic zone also goes far beyond the influence of a city. Only when we put our understanding and research into special economic zones in the historical process of China’s reform and opening-up, can we explain and become familiar with the unique role and mission of special economic zones, find the evolutionary path of China’s institutional change, discover

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the theoretical mechanism of the Chinese path, and find the driving force behind the occurrence of the “Chinese Miracle”. Only when we put our understanding and research on special economic zones in the historical process of China’s reform and opening-up, can we truly understand why the special economic zone provides a reproducible development path for the institutional change of Chinese society in a path-dependent manner, and truly know the Party Central Committee’s strategic intentions in establishing special economic zones. 3. “Strive to create a model city for a great modern socialist country” means to adhere to the reform and opening-up, seize the important opportunities in the development of the Guangdong-Hong Kong-Macao Greater Bay Area, fulfill the requirements of high-quality development, and implement the innovation-driven development strategy. Therefore, Shenzhen, which has abundant material wealth and an acculmulation of institutional capital over the past 40 years of reform and opening-up, is the inevitable bearer of this mission. Shenzhen, as the earliest city to practice a socialist market economy, has accumulated not only material wealth during the 40-year reform and opening-up, but also spiritual wealth during the 40-year reform and innovation. Also, it has good social regulations and a legal environment accumulated during the process of learning from international practices. These accumulations will undoubtedly become the unique material and institutional capital for completing the new historical mission. Certainly, in order to complete the new historical mission in the new era, a special economic zone undoubtedly needs to possess and maintain certain unique qualities that constitute the characteristics of the city, such as the courage to take the lead in reforms, the wisdom to make breakthroughs in reforms, and the art of carrying out reforms. Besides, the most important thing is to have the fearless spirit and sense of responsibility to undertake the risks of reform. For Shenzhen today, the above-mentioned character is the capital for creating miracles! Today, as one of the three poles of the Guangdong-Hong Kong-Macao Greater Bay Area and the most radiating and influential city in the construction of an international center of scientific and technological innovation, Shenzhen is not only the growth pole for China’s social and economic development, but also a model city for all-round reform and development under the framework of socialism with Chinese characteristics. The release of the Opinions once again proves that, “early and pilot implementation”, as the operating path of progressive reforms and institutional change in Chinese society, has accelerated the realization of top-down mandatory institutional change and promoted a voluntary attempt and practice of institutional innovation in pilot demonstration areas. That is, marked by the unified deployment of the central government, the inductive institutional changes led by formal institutional changes occurred naturally. At the same time, “early and pilot implementation” also guarantees the steady advancement of institutional change and social transition from local to overall, forming a high-performance mode of institutional change that combines formal institutional change and inductive institutional change.

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1.2 Significance and Value of “Five Positioning” and High-Quality Development The Opinions consists of seven chapters including nineteen opinions. Apart from the preface and overall requirements, the other five chapters, including 16 opinions, describe five strategic positionings. These five positionings include highquality development highland, legal city demonstration, a model of urban civilization, a happiness benchmark for people’s livelihood, and a pioneer of sustainable development. Specifically, for high-quality development, it takes innovation-driven development as the foundation, building a modern industrial system as the basis, comprehensively deepening reform and opening-up as the driving force, and boosting the development of the Guangdong-Hong Kong-Macao Greater Bay Area as an important goal, so as to take the lead in building a modern economy that embodies the requirements of high-quality development, and become a leading player in highquality development. For the legal city demonstration, it takes the comprehensive improvement in democracy and rule of law as the foundation, optimizing government management and services as the guarantee, and promoting the modernization of social governance as the goal, so as to take the lead in creating a democratic and legal environment with fairness and justice, and become an example of lawbased governance. For the model of urban civilization, it takes the comprehensive promotion of urban spiritual civilization as a guarantee, the development of more competitive cultural industries and tourism as an important path, so as to take the lead in shaping a modern urban civilization that shows the prosperity of a socialist culture, and become a model of urban civilization. For the happiness benchmark of people’s livelihood, it takes educational fairness as the benchmark, the universal benefit of medical care as the measure, and the improvement of the social security system as the institutional guarantee, so as to take the lead in forming a development pattern of people’s livelihood with approaches of collaboration, participation, common interests and common prosperity, and become a good example of people’s livelihood and happiness. For the pioneer of sustainable development, it takes the improvement of the system of ecological civilization as the premise, and the green development of cities as the goal, so as to take the lead in creating a beautiful Chinese model of harmonious coexistence between humans and nature, and become a pioneer in sustainable development. The preface of the Opinions clearly pointed out that Shenzhen, as the important window for China’s reform and opening-up, has achieved remarkable results in various undertakings and has become a charming, dynamic, energetic and innovative international city, since the CPC made major strategic deployments for the establishment of special economic zones. At present, socialism with Chinese characteristics has entered a new era. China supports Shenzhen in holding high the banner of opening-up in the new era and building a pilot demonstration area of socialism with Chinese characteristics, which is conducive to promoting reform and opening-up from a higher starting point, a higher level and with higher goals, and forming a new

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pattern of deepening reforms and expanding opening-up in an all-round way. It helps better implement the Guangdong-Hong Kong-Macao Greater Bay Area strategy and enrich a new practice in the development of “One Country, Two Systems”. It is conducive to taking the lead in exploring a new path to comprehensively building a modern socialist country and providing strong support for realizing the Chinese Dream of national rejuvenation. The guiding ideology of the Opinions emphasized: We must follow the Xi Jingping Thought on Socialism with Chinese Characteristics for a New Era and implement the guiding principles of the 19th CPC National Congress in 2017 and the second and third plenary sessions of the 19th CPC Central Committee in 2018. The country must uphold and strengthen the overall leadership of the Communist Party of China, uphold the Five-sphere Integrated Plan and the Four-pronged Comprehensive Strategy. The country must adhere to the new development philosophy, take supply-side structural reform as our main task, and further reform and opening-up on all fronts. The country must adhere to the people-centered development philosophy, practice the requirements of high-quality development, deeply implement the innovation-driven development strategy, and seize important opportunities in the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, so as to move forward in the direction of building a pilot demonstration area of socialism with Chinese characteristics and strive to create a model city for a great modern socialist country. In the author’s opinion, the five strategic goals established by the Party Central Committee for Shenzhen have their own focus, and they complement each other and are integrated. On the other hand, as a new philosophy or view of development, high-quality development is particularly important among the five strategic goals. As a complete and all-round view of development, high-quality development is not a concept of pure economics, nor is it a pure growth of economic indicators, but a development philosophy involving many aspects such as the economy, politics, society and values. Fundamentally speaking, a law-based society, social civilization, people’s livelihood and sustainable development are not things after economic growth, but the original contents of social development. High-quality development is a new statement put forward for the first time by the 19th National Congress of the Communist Party of China in 2017, indicating that China’s economy has shifted from rapid growth to high-quality development. The government work report of the State Council in 2018 pointed out: “We will heed the requirement that development must be high-quality; coordinate efforts to pursue the Five-sphere Integrated Plan and the Four-pronged Comprehensive Strategy; continue to regard supply-side structural reform as our main task; coordinate all work to maintain stable growth, promote reform, make structural adjustments, improve living standards, and guard against risk.” From the Party Central Committee’s determination of the connotation of high-quality development, the following conclusions can also be drawn: high-quality development is not only an all-round development philosophy involving economics, politics, culture, society and even values, but also a comprehensive process of civilization, development, progress and prosperity of the society as a whole. It means eliminating the problems including poverty, personal bondage,

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all kinds of discrimination and oppression, and lack of the rights of a general rule of law and social security, so as to improve people’s ability to live according to their own wishes. At the same time, it also means that while emphasizing that market mechanisms and globalization improve people’s living standards, it also points out that the government and society should take responsibility for people’s survival, health care and education. People, as the main body of development, need to play a proactive role in all-round social interactions and changes. As the Nobel Prize winner Amartya·Sen said: Looking at development from the perspective of freedom, the reason why we value wealth is that wealth increases our freedom. Economic growth cannot be taken for granted as a goal, and development must pay more attention to making our lives freer. The reason why freedom is important is that freedom may increase people’s abilities and the ability to influence the world, which is extremely important for the development process. Therefore, it constitutes an important part of high-quality development to allow everyone to share the fruits of reform and opening-up. Therefore, the author has several points. First, it is not a simple issue of economic development to take the lead in building a modern economic system that reflects the requirements of high-quality development, but a matter of deepening reform and building a legal society. Without a legal environment that guarantees the property rights as well as free and equal exchanges of rights, there can be no basic institutional guarantee for building a modern system that reflects the requirements of high-quality development. Second, to build a modern system that reflects the requirements of high-quality development, institutional innovation that can ensure the realization of high-quality development should be achieved first. The institution is embedded in the institutional environment. Without the institutional arrangement that guarantees highquality development, it is impossible to have a modernized system that reflects the requirements of high-quality development. Third, the innovation-driven development strategy is the key to setting up a modernized system that reflects the requirements of high-quality development. High-tech industries and strategic emerging industries are the core impetus for the setting up of this system, and the establishment of an international scientific and technological innovation center with global radiation is the ultimate goal of this system. This ultimate goal is consistent with the regional development layout of Shenzhen, a city that started from reform and innovation in the planning of the Guangdong-Hong Kong-Macao Greater Bay Area. Shenzhen is the first to build a modern economic system that reflects the requirements of high-quality development. It must also focus on the following deepening reforms and institutional innovations: 1. Complete the updating of the concept and the self-targeted revolution and promotion of the government with confidence, courage and wisdom, so as to ensure that Shenzhen can truly continue to lead the country in the process of deepening reform as a pilot area. As required in the Opinions: accelerate to form a new pattern of deepening reform and opening-up in an all-round way; support Shenzhen to first carry out comprehensive reform experiments of regional stateowned assets and state-owned enterprises; speed up the building of a new open

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economic system that is in line with international standards; support Shenzhen in deepening the reform of the management of the foreign exchange; promote more international organizations and institutions to settle in Shenzhen; support Shenzhen in accelerating the construction of a global ocean center city, in setting up ocean universities and national deep-sea scientific research centers in accordance with procedures, and in exploring the establishment of the International Ocean Development Bank and other new and deep reform missions. Each reform is a breakthrough, and each reform is no less difficult than 40 years ago. Each reform has the same milestone significance as 40 years ago. 2. Ensure the free flow of all elements with more open institutional arrangements, especially the free flow of high-tech talents without institutional obstacles. As written in the Opinions: “Shenzhen is supported in implementing a more open and convenient system of foreign talent introduction and entry-exit management, and international talents who have obtained permanent residence qualifications are allowed to establish technology-based enterprises and serve as legal representatives of scientific research institutions in Shenzhen. The free flow of human resources without institutional barriers is an institutional prerequisite for optimizing the allocation of resources, regional integration and achieving high-quality development.” 3. Create an environment for the growth of businesses for a modern economic system that reflects the requirements of high-quality development with a more international perspective. For example, as proposed in the Opinions, we should take the wisdom and courage of a pilot demonstration area to pilot a reform on market access and system and mechanism of supervision, and set up a more flexible, prudential and inclusive system of supervision; to study and improve the Growth Enterprise Market issuance and listing, refinancing, and mergers and acquisitions, and create conditions to promote the reform of the registration system; to carry out early and pilot implementation in advancing the internationalization of the RMB and exploring innovative cross-border financial supervision and so on. 4. Make full use of the Hong Kong factors; learn from the advantages of Hong Kong’s mature market economy; give full play to Hong Kong’s position as the world’s third largest financial center; connect with Hong Kong’s research capability and strength of established institutions of higher learning and scientific research platforms that have enjoyed a certain reputation in the world; accelerate the construction of a modern economic system that reflects the requirements of high-quality development in deepening the cooperation between Shenzhen and Hong Kong, so as to realize the common development and share prosperity and wealth in the two places. If the main function of the special economic zones 40 years ago was to take the lead in realizing, demonstrating and completing the construction of a socialist market economic system in a system of a planned economy, and to promote the universal establishment of a system of a socialist market economy across the country, then today, as China deepens reform and opening-up and people anticipate more

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profound institutional changes in Chinese society, the “early and pilot implementation” will inevitably be given a deeper and broader era connotation and far-reaching reform missions by the needs of development. For instance, explore and practice the environment of the social system, the methods for the establishment of operating regulations and a legal system that adapt to the socialist market economic system; explore and practice the path to deepening the reform of the administrative system and mechanism, to building a social security system that is universally shared by all people, and to building a social innovation mechanism that reflects incentives and efficiency; explore and practice the path to transform economic growth, achieve sustainable development and complete supply-side reforms; explore and practice the new measures on building a prosperous society in all respects, accelerating the construction of an innovative country, accelerating the improvement of the system of a socialist market economy, promoting a new pattern of full opening-up, and realizing modernization in an all-round way, etc. This is also the basic connotation of a modern socialist country. In the building of the pilot demonstration area of socialism with Chinese characteristics, Shenzhen will not only reflect the overall level of social and economic development, but it will also reflect the fairness of the sharing of people’s social welfare; not only reflecting the overall civilization of the society, but also reflecting the philosophy of high-quality development within the banner of “early and pilot implementation”.

1.3 “Pilot Demonstration” and Self-targeted Revolution of Governments The Opinions set out the three-stage development goals, which are inspiring and operational, for Shenzhen to become a pilot demonstration area of socialism with Chinese characteristics. First, by 2025, Shenzhen will rank among the top cities in the world in terms of economic strength and development quality, and its R&D investment intensity and ability for industrial innovation will be world-class. Its cultural soft power will be greatly improved, and the level of public services and the quality of the ecological environment will reach the international advanced level. Eventually, Shenzhen will become a modern, international and innovative city. Second, by 2035, Shenzhen will be a model city in terms of its high-quality development, and its comprehensive economic competitiveness will lead the world. Eventually, Shenzhen will become a city of innovation, entrepreneurship and creativity with a global influence, and become a model city for China’s construction of a modern socialist country. Third, by the middle of this century, Shenzhen will stand taller among the world’s advanced cities and become a global benchmark city with outstanding competitiveness, innovation and influence. Fundamentally speaking, the “pilot demonstration area” is a more profound conceptual revolution. It is even more challenging than the conceptual updating at the beginning of the reform and opening-up 40 years ago. It means that reforms

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must break the pattern of vested interests in order to truly deepen, and opening-up must abandon the narrow protectionist way of thinking in order to truly expand. It also means that the perfection of the system of a market economy must be advocated and realized at the same time as the prosperity of political civilization, institutional civilization and society. Although any economic development will face the constraints of resources, it is not the resources themselves that are more serious than the constraints from resources, but the constraints from ideas and concepts. This is because only people can use capital and technology to create wealth. Therefore, not all problems in economic development can be solved naturally by developing the economy alone. Ideas cannot directly change society, but ideas can change people, and people can change society. There must be an enlightened government before there is a civilized society with an institution, and there must be a reformed government before a reformed society. Therefore, the government itself must first complete the transformation and improvement of the ideological concept of a new mission in the new era, from “early and pilot implementation” to “pilot demonstration area”. Chinese society is undergoing a topdown mandatory institutional change, while the characteristics of this institutional change determine that not only a strong government is required, but also a government capable of learning. The government’s cognitive ability and the improvement of it, the government’s concept and the opening of it, and the government’s behavior and the civilization of it are not only related to people’s welfare, but also determine the policy formulation and choice of social development. Shenzhen’s 40 years of successful development proves this point, and the practice of pilot demonstration in the future will also prove this point. We know that opening our door to the outside world is not only about introducing advanced technology, capital and equipment, but also about introducing concepts, ideas and rules. Learning, accepting and identifying human civilization is a rational choice for society to move toward civilization and prosperity. The government should not only be an advocate of this kind of learning, but also a firm practitioner. The government that is capable of learning is not only the welfare of society, but also the prerequisite and symbol of social progress. In the process of pilot demonstration, the solution to many issues relies on the motivation, judgment and decisionmaking power generated by the government’s continuous self-targeted revolution. For instance, how to establish constitutional government rules and market rule of law in economic development and economic transition; how to examine and judge information asymmetry and market failure; how to evaluate and set up key institutional arrangements and social order in the market economy; how to determine the role and function of the state and government in economic development and social transition with the deepening of reform; how to restrain large-scale opportunism and rent-seeking behavior during the transition period; how to avoid the inertia that hinders the deepening of reform caused by path dependence in institutional changes; how to solve the problem of unbalanced and inadequate development; and how to achieve green and shared development. Therefore, both the pilot demonstration and the further deepening of reform require governments to become truly service-oriented governments, especially from a pure service-oriented government to an authorized

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government that fully reflects the large market and small government. The government must take the supply of public goods and public services including institutions, social justice and the end of poverty, and the prevention of polarization when the wealth grows as its true responsibilities. The government is not a participant in the market economy, but a maker of social regulations. For any society, there is more significance and social performance in the government’s protection and maintenance of private property rights and the order of competition than simple management. Certainly, what Chinese society is carrying out is a top-down mandatory institutional change, and its method of implementation is the progressive reform unlike the upheaval in Central and Eastern Europe. The government, especially the central government, is not only the direct advocate and initiator of social reform, but also the implementer of it. This kind of social reform has the following characteristics. First, power can ensure the smooth implementation of the reform. Second, the development goals can be efficiently achieved with the power of the whole country. Third, progressive reform takes economic reform as the breakthrough point, and people can quickly benefit from the reform and opening-up and then support the reform. Fourth, progressive reform leaves room for the old system to exist for a certain period, and can avoid the excessive risks of reforms and fundamental social turbulence, and make the reform gradually gain acceptance, which ensures the continuous advancement of reform. The process of China’s reform and opening-up is essentially a process of using the power of government to deprive the government of its power. Therefore, the self-targeted revolution of governments, especially the local governments, is the fundamental guarantee for continuous reform and wider opening-up. The successful practice of the top-down mandatory institutional changes in Chinese society led by the government proves that a government in constant self-targeted revolution is the rational mind and power guarantee for the continuation and deepening of social institutional changes. Within the framework of such institutional changes, only the government has the ability and power to simultaneously solve development problems and social problems that arise in development, because most of those problems cannot be solved by “invisible hands”. If Shenzhen fulfills its mission as a pilot demonstration area, it should continue to maintain the following qualities: 1. Continue to maintain the spirit and character of daring to make breakthroughs. This is a more profound reform that is no less difficult than 40 years ago. If the reform 40 years ago was a common struggle for the survival of the nation “with no other ways to go but to reform”, then what we are facing today are ourselves enjoying the achievements of the reform and opening-up, that is the self-targeted revolution; the “early and pilot implementation” 40 years ago was in areas where both the planned economy and the market economy were weak, while the “pilot demonstration” 40 years later is in the areas with the most developed market economy. There is no burden on an area without any experience, while the revolution after prosperity will be a difficult thing. When there is no way to go but to reform, people will desperately reform, because there may

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be a way to survive; when there will not be any loss without reforming, but there will be in reforming, people may choose not to reform rationally. 2. Continue to maintain the fearless spirit, the sense of mission and the sense of national responsibility and courage. In the top-down mandatory institutional change, the local governments, as a “secondary action group”, should play an active role in promoting reforms. From the perspective of the historical process of China’s social institutional changes and the formation of a Chinese path, special economic zones should be evaluated most highly. For today’s China, the special economic zone is no longer the product of a mere special policy and is not a stop-gap measure. It is the logical starting point for the changes in China’s social institutions and the Chinese path. It itself constitutes an important connotation of the Chinese path. It can even be said that without the establishment of special economic zones, there would be no practice of China’s reform and opening-up; without the “early and pilot implementation” of special economic zones, there would be no selection of a path for China’s social institutional changes; without special economic zones, there would be no exploration of the Chinese path; without the demonstration and guidance of special economic zones, there would be no development and accumulation of building a prosperous society in all respects; without the expansion and innovation of special economic zones, there would be no solid institutions and material power to realize the Chinese Dream. The unique status and function of the Shenzhen Special Economic Zone in the 40-year history of China’s reform and opening-up are the strength and harvest of a fearless spirit, the sense of mission and the sense of national responsibility and courage. In the process of deepening the reform in the pilot demonstration area, this kind of character, spirit and sense of mission is still the power to create miracles. 3. Continue to maintain innovative wisdom and courage, provide operable and reproducible target institutional innovation models for comprehensively deepening reform, so as to progressively solve reform problems and move from a special economic zone to a real pilot institutional special zone. Judging from the political background at the beginning of China’s social reform and opening-up, special economic zones are undoubtedly the only way for Chinese society to realize the transition from a traditional planned economy to a socialist market economy and thus initiate social transition in an all-round way. From the perspective of the exploration of a path towards modernization, special economic zones are undoubtedly the only way to completely get rid of the conflict between ideals and reality and thus embark on the path of socialism with Chinese characteristics aimed at achieving common prosperity. When reviewing, summarizing and thinking about the great course of China’s 40 years of reform and openingup, the study on China’s special economic zones cannot simply talk about, nor should it get stuck in or confine itself to the study of special economic zones. Instead, special economic zones should be studied in the framework of China’s social institutional changes, in the process of forming, developing and improving China’s system of a socialist market economy, in the practice of exploring the

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Chinese path and in the new era from the perspective of the history of China’s reform and opening-up. As the product and path selection of China’s social institutional changes, the mission of the special economic zones continues to go forward. Many institutional innovations will appear in the special economic zones, and many successful practices and experiences to be practiced will continue to be replicated throughout the country. More importantly, many explorations and practices will change from policies to institutional arrangements and from institutional arrangements to laws and regulations, thereby turning “early and pilot implementation” into “pilot demonstration” as an institutional force for building a modern country. A powerful country and a developed market are what we need, but a society under the rule of law is the prerequisite for obtaining them. A prosperous country and the well-being of the people’s livelihood are what we expect, but the government’s vision is the political and institutional guarantee to achieve them. We should evaluate the irreplaceable status, function and unique historical mission of China’s special economic zones from the perspective of historical evolution; explain the internal connection between special economic zones and the selection of a path for China’s social institutional change from the context of institutional transition; demonstrate the particularity of the Chinese path and the universality contained in this particularity from the internal logic of institutional changes in a transitional society, so as to provide other transitional countries with an alternative solution to developing problems for reference. Let history prove history, and let history tell the future. It can be said that Shenzhen has taken on another role of great institutional innovation in the pilot demonstration area of socialism with Chinese characteristics in the historical process of exploring the Chinese path.

References Amartya·Sen, Development as Freedom, China Renmin University Press, 2002. Opinions of the Central Committee of the Communist Party of China and the State Council on Supporting Shenzhen in Building a Pilot Demonstration Area of Socialism with Chinese Characteristics, Xinhuanet, August 18, 2019. Tao Yitao, On the Essence and Connotation of the Chinese Path from the Special Economic Zones, Social Science Front, 2018(6). Tao Yitao, Special Economic Zones and the Internal Logic of China’s Social Institutional Change and Evolution, Social Sciences in Shenzhen, 2018(1). Tao Yitao, The Special Economic Zones and the Selection of a Path for China’s Institutional Change, Journal of Macao Polytechnic Institute (Social Sciences), 2018(3), full reprinted in Xinhua Digest. Tao Yitao, Shenzhen: From “Early and Pilot Implementation” to “Pilot Demonstration Area”, Shenzhen Special Zone Daily, szlilun.com, August 6, 2019. The 9th Meeting of the Commission for Further Reform under the CPC Central Committee Was Presided Over by President Xi Jinping, www.gov.cn, July 24, 2019.

Chapter 2

Is the Special Economic Zone a Shortcut for Economic Takeoff?—Theoretical Claims and Chinese Evidence Yiming Yuan and Hongyuan Yuan

2.1 Historical Starting Point of the Special Economic Zones In the past few centuries, many countries have been exploring the development path for economic takeoff. In modern economic development, it has become an important practice strategy for most countries and regions in the world to set up special economic zones. Special economic zones have been set up or are being set up in Asia, Europe, Africa and Latin America with different political institutions, cultural differences, and different levels of economic development. Special economic zones have been widespread during the process of economic development in the world. There are about 4300 special economic zones around the world today, and about three quarters of the countries have at least one special economic zone.1 The earliest 1

The British website of The Economist published an article titled “Not So Special” on April 3, 2017: When the first modern free trade zone was established at Shannon Airport in 1959, almost no one outside Ireland paid any attention to it. Nowadays, “special economic zones” that combine the advantages of tax and tariff incentives, simplified customs procedures and fewer regulatory constraints seem to be admired by everyone. Three-quarters of the countries in the world have at least one special economic zone. There are currently about 4,300 special economic zones around the world, and the number is still rising. Burma and Qatar have recently built special economic zones, and an Indian officer called the special economic zone in India “revolutionary”. Japanese Prime Minister Shinzo Abe listed the construction of strategic special economic zones in his reform agenda. Mr. Yuan Yiming, Deputy Director of the China Center for Special Economic Zone Research, Shenzhen University, Professor and Doctoral Supervisor; Dean of the Shenzhen Hanlun Green Development Research Institute. Ms. Yuan Hongyuan, Doctoral Candidate of the China Center for Special Economic Zone Research, Shenzhen University. Y. Yuan (B) · H. Yuan China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_2

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special economic zone in the world was set up in France in 1228 in the form of a free trade zone. In 1547, 300 years later, Italy set up the world’s first free trade port in Genoa. In the sixteenth and seventeenth centuries, the increase in the number of free trade ports and free trade zones sped up. In the eighteenth and nineteenth centuries, special economic zones were set up in many regions of the world. This indicated rapid development in geographic space and fast evolution in types: from free trade zones and free ports to export processing zones, science and technology parks, comprehensive special economic zones, etc. During the period of World War II, there were 75 free-port-style special economic zones built in 26 countries and regions around the world. The early special economic zone was a special economic region with a free trade zone as the main form, and its main purpose was the international expansion of capitalism (including the market expansion of commodity exports and the investment expansion of capital exports, as well as the accompanying institutional and cultural expansion). “The free trade zone has long been a tool of aggressive commercial power in history.” The logical reason for the early establishment of special economic regions in developed capitalist countries was aggressive institutional and economic output, while the fundamental reason why most developing countries established special economic zones was to introduce capital to solve the scarcity of investment factors. For example, since India established its first export processing zone in 1965, the special economic zone has become an important strategy for India’s development. In the five years from 2006 to 2010, 576 special economic zones were newly established, attracting $28 billion of foreign capital and $6 billion of direct investment. Similarly, in the Philippines, a total of $3.85 billion of investment was introduced through special economic zones, creating 60,000 jobs. In 1995, Vietnam started to set up special economic zones to drive the economic takeoff. Vietnam set up a number of special economic zones one after another, and the amount of investment introduced was huge. In Poland, 14 special economic zones had attracted $6.4 billion of foreign capital before 2005. Internationally, the special economic zone emphasizes materiality (the primary task is to solve the shortage of capital elements) and locality (single function and stimulating the development of local areas within the special economic zone). The logic of its establishment and development is to obtain development impetus from the comparative advantages of free commodity trade and free combination of production elements by avoiding international trade and investment barriers. Therefore, the existence of these specific economic areas is based on the attraction effect of special preferential policies. In theory, this attraction effect reflects a substitution effect of the free flow of elements and commodities on investment and trade barriers. After the globalization with trade and investment liberalization is deepened, the attraction effect will be reduced sharply, and the special economic zone will lose its development advantage. Eventually, the existence of special economic zones will become unreasonable. China’s special economic zones are the product of the transition of Chinese society from a system of a planned economy to that of a socialist market economy. Therefore, China’s special economic zones have been institutionalized since their birth and

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have the overall mission of radiating and driving the whole country forward. They have the characteristics and attributes that are different from other special economic zones around the world, and they have produced international influence with their outstanding development performance. Why have special economic zones existed for such a long time in the past hundreds of years and have been continuously developing in number, type, and mode? This paper believes that in theory, most developing countries have been in a “poverty trap” for a long time. This low-level economic equilibrium is essentially due to institution locking and development path locking, while special economic zones can be an effective measure for breaking institutional locking. On the other hand, China, even though it has undergone a 40-year development with a high speed, still needs prompt and efficient institutional reform because it is still in the process of leaping over the middle-income stage. Special economic zones can still provide path enlightenment for the practice of sustainable economic and social development.

2.2 Why Special Economic Zones Can Play a Role in National Takeoff: Different Logic and Propositions There are three international propositions as to why the special economic zones can play a role in national takeoff: The unbalanced development theory: Litwack and Qian (1998) proposed a theory of unbalanced development of special economic zones in transitional economies. The theory believes that it is an optimal decision to adopt key investment or financial incentives in the special zone and promote the “convergence effect” of the “non-special economic zone” within the special zone. This can intensively utilize resources and effectively avoid the “Low Level Equilibrium Trap”. Similarly, Maurice et al. proposed that China should adopt a development strategy of opening-up and industrialization through “geographical agglomeration”. The special economic zone achieved the “polarization strategy” in terms of geographic distribution through opening-up and introducing foreign capital. Then, other areas could be impacted after the “growth pole” was formed in the special economic zone. The economic experimentation theory: Paul (1994) pointed out that the special economic zone was an experimental field isolated from the rest of China. China has set up several special zones to experiment with the idea of a socialist market economy. Gros (2005) believed that the special zone was more like a semi-industrialization experimental field. Enterprises in the experimental field enjoy a unique free market environment and are subject to minimal government intervention. Jude (1993) held that the experimental nature of China’s special economic zones embodied Deng Xiaoping’s development thought of “crossing the river by feeling the stones”, which guaranteed the safety of economic development. Gang (2009) thought that when the reform was promoted nationwide, once the problem of institution incoordination arose, it would cause widespread chaos and huge costs. Therefore, the significance

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of the “pilot area” was to save the overall “information cost” with smaller local uncoordinated costs under the situation of incomplete information after some policies of reform were tried out on a local scope first. The international grand circulation theory. According to the theory of “international grand circulation”, many economists believe that special economic zones should develop the exportation of labor-intensive products. Meisner considered that China’s policy of opening-up to foreign investment promoted overall economic development, including foreign trade. The establishment of special economic zones was the beginning of this opening-up policy. Regarding the proliferation value of special economic zones, Paul (1994) believed that the enlightenment value of China’s special economic zones to other underdeveloped regions was mainly reflected in three aspects. First, an open market economy was more efficient in terms of wealth creation and economic growth. Second, a freer environment for trading involving foreign investors also benefited the society by providing job opportunities. Third, the implementers of new economic measures must be able to plan and supervise carefully. Gros (2005) held that the state and leaders played an important role in establishing and developing special economic zones. “The country must create the necessary conditions for the special economic zones, and even provide financial input in the initial stage.” Therefore, he pointed out that the first lesson that China provided to Africa and other countries in the third world was that if a country wanted to develop, it must have a strong state power institution and be supported by subordinate officials who were committed to social reform. However, Graham believed that special economic zones were only a suboptimal choice. For economies where it was more difficult to implement reforms, the strategy of setting up export processing zones or special economic zones was a “useful weapon in development”. He thought that the most important reason for China’s great success in attracting foreign investment was the successful practice of the early special economic zones. But this reason cannot explain China’s development after the 1990s. The strategy of special economic zones should be historically viewed, and other countries may not achieve the same success in implementing this strategy. Litwack and Qian (1998) proposed a theory of unbalanced development of special economic zones in transitional economies. It is believed in this theory that it is an optimal decision to adopt key investment or financial incentives in the special zone and promote the “convergence effect” of the “non-special economic zone” on the special zone. This can intensively utilize resources and effectively avoid the “Low Level Equilibrium Trap”. This kind of unbalanced development was first realized in coastal special economic zones and open cities, and then formed a positive “spillover effect” to the central and western regions. Eventually, this unbalance changed into balance. In this way, the special economic zones can become a catalyst for the economic transition of the whole country by reducing institutional costs and political constraints. The author revealed the prerequisites for the existence and development of special economic zones and believed that the process from unbalanced development to a balanced one was the process of gradual realization of transition, thus providing practical experience.

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Stiglitz, based on the economic facts of transitional countries, concluded that organization and social capital were also important for economic transition in addition to physical capital, human capital and knowledge capital. This kind of capital includes various forms of social capital and organizational capital as well as various institutions and relations for the formation of values, the adjustment of transactions and the settlement of disputes. Therefore, the institutions can be improved through the formation of capital and values, the adjustment of transactions and the settlement of disputes, so as to ensure the healthy development of the market economy in a standardized competitive environment. Acemoglu et al. (2005) studied the rise of Europe from 1500 to 1850. They found that Atlantic trade promoted the development of Europe under the influence of indirect or more direct institutions. Changes in the Atlantic trading system such as political institutions and property rights brought huge commercial profits under the prerequisites of having the basis of transportation to the Atlantic and an initial institution. Whether it is the capital introduction, government financial investment, firm government will, or the establishment of a spatial growth pole, etc., it can only be regarded as the logic of the phenomenon of the existence of special economic zones, not the theoretical reason for the strategic path of special economic zones. In the author’s opinion, most developing countries have been in a “poverty trap” for a long time, and the failure to take off economically is because they have not solved poverty caused by the vicious circle of low-level consumption and investment. Therefore, it is seriously lacking in persuasiveness to explain the growth the dilemma only from the perspective of consumption and investment. From the perspective of institutional economics, the reason for the long-term stagnation of growth is that institution locking prevents external investment shocks or consumption shocks from breaking this vicious circle. That is to say, the institution, not other factors, causes a country’s economy to be locked in a certain low-efficiency status, and it is not possible to break up the development balance in a status of poverty for a long time. Obviously, special economic zones are a tool to breaking up the development balance of poverty, which is achieved through institutional reform. This is the key to explaining the economic takeoff of developing countries in the path of special economic zones.

2.3 China’s Paradigm of Special Economic Zones: Institutional, Experimental and Evolutionary China’s special economic zone is an experimental field of institution from a system of a planned economy to that of a market economy. Its fundamental uniqueness lies in its leading advantage over the implementation of the system of a market economy on the mainland during the development process, and its existence is based on the fact that institution transformation can produce the institutional substitution effect,

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which is the fundamental reason for the development of special economic zones, such as Shenzhen in China. The institutional conditions of China’s special economic zones. Forty years ago, insufficient capital, market constraints and backward economic systems were the three obstacles to economic takeoff in China. The traditional system of a planned economy greatly hindered the solving of capital and market problems, and became an institutional obstacle to overcoming these problems. Therefore, China needs to break the barriers of the traditional system of a planned economy first. The special economic zones have solved the two problems of insufficient capital elements and an effective economic system at the same time by means of the openingup strategy. The basic logic of the opening development paradigm of China’s special economic zones for economic takeoff is: First, an important prerequisite for economic takeoff: institutional condition The famous Kuznets defined a country’s economic growth as the long-term improvement of the ability to produce economic products and the adjustment of institutions and ideology. The definition of Kuznets has three meanings, including the growth of the gross national product, the formation of technology as the source of economic growth, and the availability of institutions (including political and legal institutions, economic systems, economic structure, etc.) and ideological conditions. The connotation of China’s takeoff was incomplete, and the fundamental content lies in institutional reform and economic growth. The success of the special economic zones is the best example. The practice of China’s special economic zones stems from the profound and accurate judgment that China’s fundamental problem is an institutional problem, and China’s progress is blocked by unreasonable rules and regulations on the system and institution. The unreasonable rules and regulations mentioned here refer to the system of a planned economy. The change in the institution not only means the reform of the unreasonable part under the system of a planned economy, but also the establishment of a new economic system, namely, the market system. At the beginning of the establishment of special economic zones, Shenzhen and other special economic zones were opened to the outside world and became the “window” for opening-up against the background of the universal system of a planned economy. The internal and external exchanges of information precede the flow of material. There were two kinds of information here. One was that the information about reform flowed overseas, first to Hong Kong and Macao. The outward-flowing information regarding reform gave overseas capital, especially Chinese capital, a room for imagination. After watching, absorbing, processing and risk assessment, income expectations were gradually formed, which became a great pushing force for capital to enter the special economic zones. There is also important information flowing from overseas (especially Hong Kong and Macao) to the special economic zones, and this is market knowledge, market philosophy, wealth level and wealth allocation. “The function of the special economic zones is that they are the first to obtain the relatively complete institutional information in the process of opening-up.” Fresh institutional information (totally different

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from the original) and effectiveness (Hong Kong and Macao are so prosperous) made this information gradually become the key driver for development. The high-intensity entry of overseas information into economic systems created the “Kuznets Curve” for the economic takeoff of the special economic zones. Concepts and knowledge are not institutions, and they are at most necessary conditions for an institution. Market system information from overseas has evolved into “rules of the game” with market nature through reforms. Obviously, the process of the establishment of the special economic zone market system is an “internalization process” of overseas market system information, knowledge and theory, namely the reform process. This process is the process of the establishment of the “stimulus– response mechanism” proposed by neoclassical development economists. Under the drive of interests and cost constraints, people make a choice to obtain maximum benefits through establishing a stimulus–response mechanism for individuals as decisionmakers, and then the guiding role of the mechanism of market price in the allocation of resources is gradually formed. The reform of China’s special economic zones occurs in the conflicts and contradictions between market system information and knowledge and the original planned system. The fundamental reason for the reform is that the old institutions and rules are highly incompatible with the new ones. The special economic zone becomes the “pioneer” of China’s new economic system by internalizing market system information into a new economic system by top-down forces. Second, the basic condition for opening-up and creating market systems: market enterprises The essential reason for the wealth efficiency of the market system is the competitive nature of the market system, so competition is the fundamental reason for economic development. Free enterprise is the main element of competition, and this has two implications. One is that enterprises must be autonomous, and the number of them must be sufficient. The nature of the enterprise (state-owned or private) is an important difference between plan and planned economy. A large proportion of planned enterprises will be crowded out of the competition mechanism and lack wealth efficiency. Another situation is that when the number of enterprises is insufficient due to monopoly or serious shortage of factor endowment, the efficiency of the market system will be greatly reduced and economic development will also be at a low level. This is why the economic development of some countries is still at a low level despite their market system. The open development paradigm of the special economic zones has solved the problems of market enterprises. For example, during the first year of the establishment of the Shenzhen Special Economic Zone, the number of foreign investment agreements in business increased by 91%, and the amount of agreement investment increased by 218%. The amount of foreign investment actually used increased by 242%. The number of enterprises rose significantly from 517 to 16,136. In addition, among all 16,136 enterprises, only 71 are large-scale enterprises, and 99% of the enterprises are small and medium-sized, which is evident in their competitiveness.

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Enterprises of different natures began to appear in large numbers, becoming a real group of market competitors, so the competition mechanism had been established. For a special economic zone with institutional experimentation as an important mission, the nature and the number of the enterprises are the key factors determining their success or failure, and they are also an important test scale of whether the economic system experiment achieves results. The changes in market entities brought about by opening-up indicate that special economic zones have become the pioneers in the modernization of China’s economic system. Unlike other special economic zones around the world, China’s special economic zones show their characteristics of dynamic evolution. This dynamic evolution can be expressed as: the dynamic evolution process of China’s special economic zones in the time dimension is from the orientation of institutional experimentation to the orientation of regional development and then to that of a development problem, and in the setting of expected functions, it undergoes overarching—strategic regional—specific local changes. In the essential connotation, it is from institutional experimentation to comprehensive practice and then to the exploration of a path. However, in general, the historical practice of China’s special economic zones is to find answers around the target system, development path and institutional evolution modes. The evolution of China’s special economic zones lies in the following: (1) from institution-type special economic zones to path-type special economic zones. The phenomenon of China’s special economic zones is composed of special economic zones, development and opening new zones and free trade zones in different periods. According to the logical basis, functions and connotations of the establishment, China’s special economic zones have undergone rapid evolution, and three generations of special economic zones have emerged: The first-generation special economic zones are represented by Shenzhen. In the 1980s, four special economic zones were established at the same time, and namely Shenzhen, Zhuhai, Shantou and Xiamen, and they shared common spatial characteristics, that is, almost every special economic zone had clear targets of cooperation: Shenzhen is next to Hong Kong, and Zhuhai is adjacent to Macao. Xiamen and Taiwan are on opposite sides of the straits. Only the geological target of Shantou is broad and obscure, and Shantou’s cooperation targets are overseas areas with a large number of Chaozhou-Shantou immigrants. It is not difficult to see that the geographical location of first-generation special economic zones is strictly selective, which is an important and critical condition for the smooth development of the first-generation special economic zones and for creating a historical miracle. Besides, this also shows the wisdom of the decisionmakers. The consistency of the spatial and regional selection is an important feature of the first-generation special economic zones, rather than an essential feature. After the chief architect of reform and opening-up and decision-makers with similar or identical ideas are fully aware of the problems and contradictions in Chinese society, especially after they grasp the root causes of the problems and contradictions, the reform of the old system and the establishment of a new economic system become the grand strategic choices for China’s development. How to carry out institutional

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reform, that is, what path of institutional reform to take, is the next key technical issue of reform. The calm decision-makers follow Chinese culture and choose the reform path of experimentation—promotion—innovation. This is a safe path known as the “progressive reform”. The first-generation special economic zones are a specific strategic arrangement on this path. “To handle special cases with special methods, handle new things with new methods, take a firm stand and use new methods” in the special economic zones are the requirements and general thought of the country’s top leadership for the development of the special economic zones. Hereinto, “special” and “new” are vivid expressions of institutional exploration. Obviously, the primary task and mission of the first-generation special economic zones are institutional experimentation and exploration of system and mechanism, rather than the development of the local area. Shenzhen, Zhuhai, Shantou and Xiamen are the four samples for this large-scale experiment of China’s institution. Today, special economic zones have developed into various forms, including free trade zones, free trade ports, pilot demonstration areas, etc., all of which are trials to provide experience and demonstration for the reform of the country. Therefore, the primary task is to pursue high-level general institutional mechanisms and development methods with universal applicability or reference significance based on its own development, which aims at bringing out the higher value of the special economic zones in national development in the new era. (2) Overarching—strategic regional—specific local changes. In terms of the setting of expected functions, it undergoes overarching—strategic regional—specific local changes. Another important feature of the first-generation special economic zones is “overarching”. “Overarching” here means that the establishment and development of the first-generation special economic zones serve the setting up of China’s economic system, namely an overall, spatial importance. In addition, the content of experimentation is not limited to a single field, and has comprehensiveness and complexity. That “the special economic zone is China’s special economic zone” is not an act of a certain province, but an act of the central government.2 Obviously, the initiative determines the overarching feature of the first-generation special economic zones. The second-generation special economic zones are represented by the Pudong New Area for Development and Opening-up, including the Tianjin Binhai New Area for Development and Opening-up. They are similar in features but different from the first-generation special economic zones in terms of logical basis, basic functions and space selection strategies. The second-generation special economic zones established after the 1990s have a different background in the development stage. The biggest difference is that the orientation between the planned economy and the market economy has become a consensus. More importantly, the first-generation special economic zones started 2

Gu Mu once said: “The establishment of special economic zones is a major event initiated by Comrade Deng Xiaoping, decided by the Party Central Committee, legislated by the Standing Committee of the National People’s Congress, and organized and implemented by the State Council.”.

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to export experience and play the role of supplier of the market system after more than 10 years of institutional experimentation and exploration. Although the basic framework of the economic system was just beginning to be established, and the exploration of the market system is still very necessary, institutional experimentation is obviously not the primary mission of the second-generation special economic zones. Regional development plays a vital role in the functions and tasks of the second-generation special economic zones. The essential meaning of the secondgeneration special economic zones is that the pivotal national strategic growth poles are cultivated through development, and then regional development is driven forward by means of the diffusing effect of growth poles, so as to form a new structure of spatial development. It is easy to see that the basis of setting up second-generation special economic zones is to establish the strategic growth regions nationwide, and the logic of the selection of geographic location remains the same. The same logic of establishment and consistent basis for geographical area selection cause an evolution from institutional function to development function between the second-generation special economic zones and the first-generation ones. The third-generation special economic zones, represented by Kashgar, were established after the year of 2000, including special economic areas such as Kashgar and Zhoushan, and the two-type development pilot zones of Wuhan and ChangshaZhuzhou-Xiangtan established earlier, as well as the Chengdu-Chongqing integrated urban and rural development pilot zone. Compared with the first two generations, the selection of the position and location of the third-generation special economic zones is diversified. There is no longer a strict and consistent basis of selection. Whether it is the Kashgar Special Economic Zone in the westernmost part of China and the Zhoushan Special Economic Zone in eastern China, or Wuhan, ChengduChongqing and Changsha, the characteristics of their position and location are very different. Compared with the first-generation special economic zones such as Shenzhen, they obviously no longer have a clear directionality of the cooperation partner. The problem orientation is the consistent reason for the establishment of the thirdgeneration special economic zones, such as Chengdu-Chongqing with the theme of the coordinated development of urban and rural areas, the Wuhan pilot zone and the Changsha-Zhuzhu-Xiangtan pilot zone with the theme of coordinated development of resources and environment, and the Kashgar special economic area in Xinjiang with the theme of the coordinated development of the economy, society, culture and politics. The reason for the establishment and development of the third-generation special economic zones is to solve the specific issues, such as resource and environmental issues, rural, agricultural and peasant issues. The fundamental task is to find the solutions to specific issues, including the solution to specific problems with overall importance and the solution to specific problems with regional local significance. It is not difficult to see that pertinence and specificity are the consistent characteristics of the third-generation special economic zones. The Kashgar Special Economic Zone is a typical representative of pertinence and specificity. Through special institutional arrangements, it is necessary to promote the economic takeoff and development

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of Kashgar that has a specific culture and a specific geographical location, so as to drive the economic development of Xinjiang forward and achieve long-term stability. The above analysis concludes that although the phenomenon of special economic zones has only a 40-year history in China, there has been an obvious process of development and evolution in stages. In terms of spatial region selection, it has moved from an orientation of institutional experimentation to that of regional development and then to that of a development problem. In the setting of expected functions, it undergoes overarching—strategic regional—specific local changes. In the essential connotation, it is from institutional experimentation to comprehensive practice and then to path exploration. The phenomenon of China’s special economic zones has undergone a dynamic evolutionary process. The first-generation special economic zones such as Shenzhen and Zhuhai which were established 40 years ago still exist, and they still have the characteristics of the first-generation special economic zones in many fields, that is, they continue to be entrusted with the mission of reform pioneer in terms of institutions and practices. However, the emerging third-generation special economic zones are different from the first two generations. The development strategy of the special economic zones will be inappropriate if the dynamic evolution and the characteristics of the times of the emerging special zones are ignored.

2.4 Breakthrough to Traditional Special Economic Zones: Contributions of Mode and Function China’s special economic zones are different from other special economic zones in terms of establishment, development and existence. They make three contributions to the world’s model of special economic zones including an effective supply of development institutions beyond the introduction of foreign capital, a model of dynamic optimization beyond “static model”, and a supply of endogenous institutions beyond exogenous institutions. The supply of effective development institutions beyond the introduction of foreign capital. Since its establishment, the special economic zone has always been the pioneer and practitioner of China’s reform and opening-up. It has carried out outstanding practices in the three stages of China’s economic takeoff, rapid development and transitional development, and has contributed to the development of China’s institution and productivity. At the same time, it provided a practical basis for China’s establishment of a socialist market economy, and also provided an extremely important realistic case for China’s reform and opening-up as a basic national policy and formation. In the process of China’s rapid development, the historical role played by the special economic zone lies first of all in the practice of the institution and mechanism: the methodology of promoting reform through opening up and creating momentum

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for development through reform. The special economic zone makes full use of reference and learning effects in opening up to create a “late-mover advantage” in institutional building, so as to generate unique institutional productivity in the world. Meanwhile, it forms external forces to reform the internal traditional system during the opening-up, which makes the reform more effective and advancing. Therefore, promoting reform through opening-up is obviously the optimal path for China’s institutional reform. Establish special economic zones as the pacesetter of reform and opening-up. The historical fact is that, Shenzhen, the special economic zone, is regarded as a system experimental zone and a system innovation pole. The system innovation chain driven by system experiment—system diffusion—system reform in Shenzhen and other system innovation highlands has achieved great effect. Today, an open model of the “special economic zone paradigm” has been formed internationally. The important mission of China’s special economic zones in the future will still be the practice of systems and mechanisms for reform and opening-up in the new era. Nowadays, China’s development has a different situation: the economic strength is no longer what it was before; the development path has been stable, and the international development pattern and competitive ecology have been greatly changed; the contradictions faced by social and economic development are also very different; technology, institutions and culture have undergone profound evolution and changes… However, China’s development is also fundamentally similar to that of the past: institutional reform is used as the fundamental driving force for development; the successful practice and promotion of the radiation of pilot experimentation is the basic way; and the deepening of reform and opening-up is the fundamental strategy. The ultimate goal is the win–win development and common development. The mode of dynamic optimization beyond “static mode”. Regarding the time dimension, a dynamic process of evolution has occurred in the development of China’s special economic zones, namely, from an orientation towards institutional experimentation to that towards regional development and then to that towards development problems. In the setting of expected functions, it undergoes overarching—strategic regional—specific local changes. To sum it up, the difference between the special economic zones built and developed in the process of China’s modernization and those in other countries or regions in the world is that the starting point (China’s special economic zones start from the planned system), the basic motivation (China’s special economic zones have the fundamental intention of exploring the economic system and the development path) and the connotation (China’s special economic zones take economic construction as an important content, but the administrative system, cultural reform and social construction are also included) are different. Although the phenomenon of special economic zones has only a 40-year history in China, there has been an obvious process of development and evolution in stages. In terms of the selection of spatial regions, it has moved from an orientation towards institutional experimentation to that towards regional development and then that towards development problems. In the setting of expected functions, it undergoes

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overarching—strategic regional—specific local changes. In the essential connotation, it is from institutional experimentation to comprehensive practice and then to path exploration. The Chinese practice has established a process of a dynamic evolution of the development of special economic zones in the world. Supply of endogenous institutions beyond exogenous institutions. The important content of institutional reform is to build a system of a socialist market economy, acquire, use for reference, and learn from the practices of advanced international systems and the practice path of the system in the initial stage of the establishment of special economic zones when the system created achievements of civilization, and then to experiment and promote the system of a socialist market economy by introducing a number of common market means. Therefore, the key content of institutional reform is the selection and introduction of institutions. Institutional innovation based on introduction and acquiring is the optimization of the path of institutional reform in China’s special economic zones. This is the process of institutional creation based on institutional needs and social and cultural scenarios, and the driving reason lies in the fact that the institutional content is not in widespread universality. Whether it is an advanced market economy country or an emerging developing economy, it is difficult to provide options of existing institutions that adapt to the national conditions and to the needs of institutional reform. It is hard to complete the task of institutional innovation by simply learning, introducing and imitating. Institutional innovation has entered a higher-level stage, and it is more necessary to establish a set of institutional contents that are suitable for one’s own national conditions on the basis of the existing institutions. As a result, the special economic zone has entered a process of independent innovation that must go through institutional reform, that is, a process of exploring the practice of a distinctive economic system. Creating an institutional supply based on development needs can improve the performance of institutional reform. Not all institutional innovation can improve the efficiency of economic development, that is, not all efforts at institutional innovation can produce effective institutional products. Only institutional reform with positive effects is meaningful. Institutional innovation with zero or even negative effects is invalid reform, and such reform wastes social resources and increases the costs. Institutional reform is based on the needs of society and is highly targeted. If only the behavior of “reform” is emphasized without paying attention to the effect of “reform”, it will undoubtedly greatly reduce the effectiveness of institutional reform. The “independent” institutional exploration in China’s special economic zones emphasizes “creativity”. Certainly, independent institutional innovation is not an exclusive production of institutions from scratch, but can learn from the existing effective system and mechanism. Then, a new institution that meets the needs is formed by rebuilding the system according to the reality. There are two functions of the special economic zones in China that are different from those in other countries and regions, which are institutional experimentation and exploration of development path; the methods of institutional reform include “imported” institutional innovation through imitating and borrowing, and “independent” institutional innovation. The development of special economic zones not only shoulders the mission of institutional experimentation, but also looks for the path

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towards a conversion of the mode from growth to development. When the growth mission of the labor-intensive economy is about to be completed, China faces new challenges of finding new growth drivers and smoothly crossing the development stage. The path towards a conversion of the mode from growth to development generated by the effective practice of the special economic zones is of great value to China’s response to the challenges of transition. This value stems from the following shift in connotation from economic growth to development: Explore the coordination between economic development and social progress. Promoting social development first needs to provide institutional guarantees for the realization of the imbalance between social and economic development, which is a necessary process of institutional reform. From China’s process of reform, whether it is the rural institutional reform in the early 1980s or the subsequent reform of the urban economic system, the basic goal is to create efficiency and raise the level of wealth through efficiency. Therefore, such reforms are efficiency-oriented institutional reforms, and the institution is “endogenized” in the process of China’s economic growth. The reform in special economic zones in the new era requires first attention to the process of social development, which is a “fairness-oriented” institutional reform. The new institution is “endogenized” in the process of social development and becomes an important factor in social development. Explore the coordination between the economic growth rate and the quality of development. The basic point is to change the method of resource utilization, improve the efficiency of utilization, change the growth mode and follow the path of scientific development through institutional reform, so as to coordinate the contradiction between the increasing shortage of resources and the rapidly rising demand. Explore the regional coordination that those who get rich first help and drive others to get rich later. The coordination here includes the coordination of development among regions and the coordination of different fields within the region. The essential connotation of the former is to realize development integration through the reorganization of economic factors among regions, which is the development of “benefiting the outside”. The latter takes the coordination of social, economic, cultural and environmental development as the main content. In terms of methods of institutional reform, “imported” institutional innovation through imitating and borrowing has been transformed into “independent institutional innovation”. In the past reforms, the important content of institutional reform was to build an operating mechanism of a market economy, and the main way was to learn from others’ practices, introduce a number of market means and test and promote them. Therefore, the key content of institutional reform was the choice and introduction of the institution. At this stage, neither countries with an advanced market economy nor emerging developing economies have been able to provide existing institutional options that meet national conditions and the needs of institutional reform. It is hard to complete the task of institutional innovation by simply learning, introducing and imitating. Institutional innovation has entered a higherlevel stage, and it is more necessary to establish a set of institutional contents that is suitable for one’s own national conditions on the basis of the existing institution.

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Therefore, the independent innovation of institutions must be emphasized. “Independence” here focuses on “creativity”. Certainly, independent institutional innovation is not an exclusive production of institutions from scratch, but it can learn from the existing effective system and mechanism. Then, a new institution that meets the needs is formed by rebuilding the system according to the reality. Inevitably, such institutional reform is naturally more difficult than “introduced” institutional innovation. The innovation and reform of the special economic zone has entered a stage that focuses on three aspects: Advocate effective institutional innovation. Not all efforts at institutional innovation can produce effective institutions. Only institutional reform with positive effects is meaningful. Institutional innovation with zero or even negative effects is invalid reform, and such reform wastes social resources and increases the costs. Invalid system reform is not easy to come about in the inductive reform mechanism, because institutional reform is based on the needs of the society and has a strong pertinence. However, in a government-oriented mandatory institutional reform mechanism, invalid reform easily occurs due to political performance or lack of knowledge and information of the reform implementers. If only the behavior of “reform” is emphasized without paying attention to the effect of “reform”, it will undoubtedly greatly reduce the effectiveness of comprehensive supporting reform. Provide sufficient incentives for reform. The increase in land output after the practice of the “household contract responsibility system” had a stimulating effect on the generally poor farmers. This was the reason why a rural economic reform can be promoted quickly and effectively. After that, the reform of the system of a state-owned economy of “delegating powers and transferring powers to lower levels” allowed operators and employees to share the benefits of the reform, and the incentive effect for urban residents with low wages was also obvious. At the same time, the introduction of foreign capital and the development of private economy greatly raised the average profit of capital owners. Countless rural villagers migrated to the cities, so that they were able not only to share the civilization of the city, but also to obtain labor returns that exceeded their original expectations. In this way, the incentives for reform were naturally sufficient. However, the comprehensive supporting reform is different. Compared with previous reforms, it has a very different institutional reform benefit and benefit-sharing mechanism. Regardless of the institutional innovation that promotes social development, or the institutional design that transforms the economic growth mode, promotes the coordination of social, economic and environmental development, and narrows the gap in social development, the reform process is of a public welfare nature. Meanwhile, the process of institutional innovation is full of risks. In addition, the reform process involves the adjustment of the existing structure of interest, resulting in higher reform costs. When the government is the subject of reform, local governments create specific institutional content within the central reform framework. They are the creators and implementers of the institution. The above-mentioned reform benefits and costs have an insufficient effect of incentive on local governments as institutional innovators. Therefore, in order to initiate and continuously advance the comprehensive supporting reform, the central government needs to give local governments the right to innovate institutions. It should motivate

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local officials by establishing a mechanism for the evaluation of the effectiveness of reform, a reform risk exemption mechanism and a reward mechanism for effective reforms. The existence of a continuous incentive mechanism is a prerequisite for the comprehensive supporting reform to be promoted as planned. Explore the institutional contents that can be promoted. The Tianjin Binhai Pilot Area and Shanghai Pudong Pilot Area have embodied comprehensive reform into urban development strategies and measures, such as the reform of financial enterprises, financial businesses, financial markets and financial opening in the Tianjin Binhai New Area, as well as the reform of investment system and of the system of administrative control. The Shanghai Pudong New Area has identified the key tasks of the comprehensive reform as the transformation of the mode of economic operations and the corresponding specific actions, such as the establishment of a “national intellectual property pilot park”, the development of intellectual property rights pledge businesses and setting up of mediation and arbitration tribunals for intellectual property disputes, etc. Pudong mainly focuses on the following points in its development: the transition from basic development and functional development to the overall improvement of urban functions in terms of urban development and construction; the transition from policy innovation to institutional innovation in terms of the momentum of development; the transition from the development of key residential areas to the overall development of urban areas in terms of development layout; and the transition from promoting the development of social undertakings to changing the dual structure and social structure, and striving to build a harmonious society in terms of social development. From the above point of view, the development of the two pilot areas is concentrated on local development and functional enhancement, and the focus is on the construction of their own cities. China has given the pilot area the historical mission of “taking the establishment of a comprehensive supporting reform pilot area as an opportunity, exploring new regional development models, and providing experience and demonstrations for the development and reform of the whole country”, thus, the primary task of the pilot area is a higherlevel general economic system with universal applicability or reference significance on the basis of its own development, or the exploration and practice of social and economic development models, in order to complete the basic mission of creating experience for the national comprehensive supporting reform. Only in this way, can the comprehensive supporting reform and early and pilot implementation in the pilot area be of national significance. Special economic zone is a key strategy for China, and it is also a path to economic takeoff and sustained growth. For other countries in the world, the enlightening value of special economic zones is far greater than the significance of imitating and copying due to the objective existence of cultural differences, factor endowment differences and institutional differences. The performance of the development of the special economic zones in China is derived from compliance with China’s reality, and the special economic zone model established based on the actual needs of development has been proved to be an effective model. This is the logic of the continuous development of China’s special economic zones. According to this, in the new era of development, China’s special economic zones have entered a new period of rapid

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evolution and development, because special economic zones still have a long way to go facing the new problems in China’s development.

References Chao Paul. China’s New Economic Zones: A Model for Development [M]. London: E.J. Blair Co., 1994. Daron Acemoglu, Simon Johnson, James Robinson, 2005. “The rise of europe: Atlantic trade, institutional change, and economic growth”, The American Economic Review, Vol.95, No.3. Fan Gang, Studies on China’s Special Economic Zones, Economic Press China, January 2009. Fan Gang, The Unique Value and Role of China’s Special Economic Zones: From the Perspective of System Transition and Economic Development, Studies on China’s Special Economic Zones, 2011(1). Howell Jude. China Opens Its Doors: The Politics of Economic Transition [M]. Hertfordshire: Wheatsheaf Publishsing Co.1993.25. Jean Germain Gros. Chinese Econmic Succsess and Lessons for Africa: Possibilities and Limits [J], Nkrumaist Review, 2005(2) John M. Litwack, Yingyi Qian, 1998. “Balanced or Unbalanced Development: Special Economic Zone as Catalysts for Transition”, Journal of Comparative Economics, Mar. vol.26, No.1. Kuznets, Modern Economic Growth: Discovery and Reflection, published in the second series of Modern Foreign Economics Papers, The Commercial Press, 1981. Lin Lini, Overview of the World’s Special Economic Zones, Haitian Publishing House, October 1991. Luo Haiping, Construction and Development of the World’s Special Economic Zones, Annual Report on the Development of China’s Special Economic Zones (2012), Social Sciences Academic Press (China), April 2013. Shi Chunmiao, Record of the Shenzhen Special Economic Zone in the Early Period of Reform and Opening-up to Ask for More Rights from the Party Central Committee, Hong Guang Jiao, 2010(9). Su Dongbin, Three Historic Contributions of China’s Special Economic Zones, Studies on China’s Special Economic Zones, 2009(1). Sun Yuanxin, From Free Trade Zone to Comprehensive Reform Pilot Area: The Gradient Advancement of the Construction of China’s Open Economic Pilot Area, Journal of Shenzhen University (Humanities and Social Sciences), 2016(6). Tan Chongtai, Development Economics, Shanghai People’s Publishing House, August 1996. [U.S.] Walter H. Diamond, Dorothy B. Diamond, The World’s Duty-Free Trade Zone, New York Press, 1982. Yuan Yiming, The Industrial Development Path of China’s Special Economic Zones, Journal of Shenzhen University, 2010(4). Yuan Yiming, The Transformation Path of Economic Growth under Resource Constraints—Taking the Shenzhen Special Economic Zone as an Example, Economic Perspectives, 2014(10). Yuan Yiming, The Dynamic Evolution and Practical Mission of China’s Special Economic Zones, Studies on China’s Special Economic Zone, 2015(1). Yuan Yiming, Three Institutional Contributions of the Establishment and Development of Special Economic Zones in China, Journal of Shenzhen University, 2018(4), reprinted in Xinhua Wenzhai, 2018(21).

Chapter 3

Special Economic Zones in the Russian Far East: A New Paradigm Tugusev Anton

3.1 Introduction As the global practice shows, establishing special economic zones while at the same time attracting foreign investment tend to assist the national economy. The rational use of the special economic zone mechanism helps to develop production, introduce advanced technology, create new employment opportunities, increase labor productivity and improve the comprehensive development of remote areas. In addition, entrepreneurial activities in special economic zones have expanded the national taxable base and can provide a stable source of national budget revenue.1 Therefore, many countries in the world use special economic zones as an administrative tool to strengthen the social and economic development of specific areas. The Russian Federation (hereinafter referred to as Russia) is one of them, and it has established many special economic zones since 2005. Recently, Russia has made significant progress in establishing a special administrative region with preferential systems in its Far East to stimulate investment in the real economy. But as the scholar Makarov mentioned, although Russia has provided such stimulus policies for the region many times, it has not brought about sustainable economic growth.2 The uniqueness of Russia’s experience in developing special economic zones is that the Russian government has recently revised the concept of special economic 1

Zeng Zhihua, Global Experience in Special Economic Zones: Focus on China and Douglas in Africa, World Bank Press, 2015, p. 3. 2 Makarov, Opinions on New International Trade Theory and New Economic Geography, Russia in Global Affairs, 2018(3). Tugusev Anton, Doctoral Candidate, City University of Hong Kong, whose supervisor is Professor Zhu Guobin. T. Anton (B) City University of Hong Kong, Hong Kong, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_3

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zones and begun to use special economic zones as the main tool for promoting economic growth in the Far East, which is an extremely underdeveloped region in Russia. The revision is mainly reflected in the establishment of advanced special economic zones and the Vladivostok Free Port. The establishment of these special economic zones is inspired by the successful implementation of special economic zones in the People’s Republic of China (hereinafter referred to as China), which aims to strengthen economic relations between Russia and Asia–Pacific countries. Importantly, the introduction of new regional development tools is closely related to Russia’s structural reform in 2012. In this structural reform, Russia is envisaged as establishing a new national institution—Ministry for the Development of the Russian Far East and Arctic, as well as several special institutions for promoting human capital growth, export growth and financial development. So far, the advanced special economic zones and the Vladivostok Free Port have undergone years of development and operation. It is necessary to understand whether they have a positive effect on the development of the Russian Far East. Recent academic literature focuses on Russia’s turn to the East (Kuchins’ paper, 2013; Makarov 2015; Fortescue 2016; Korolev 2016; Vakulchuk 2018; Makarov et al. 2018).3 In addition, some scholars have conducted thorough research on the regional development of the Far East (Makarov 2015; Blackschroder 2016; Li and Lukin 2016). Most of these papers are written in Russian by Russian scholars, but few papers have an extensive study of the concept of special economic zones in the Russian Far East. Therefore, the basic purpose of this paper is to introduce the preferential systems currently provided by Russia for investors, and this paper focuses on the current development of the special economic zone policy in the Russian Far East. This paper also aims to fill the gaps in the research on Russian special economic zones and to provide non-Russian scholars with the latest information.

3.2 Preferential Legal System Provided by Russia for Investors Foreign investment is a reasonable choice for the development of a country’s economy and infrastructure, so any country in the world welcomes foreign investors. Various countries have formulated a series of obvious preferential systems for attracting 3

Korolev, 2016, Russia’s Turn to Asia: Reasons and Strategic Implications, Pacific Affairs, 89(1): 53–73; Makarov, Stepanov and Kashin, 2018, The Transformation of China’s Development Model under the Leadership of President Xi Jinping and Its Impact on Russian Exports, Asian Politics and Policy, 10(4); Mankoff, 2015, Russia’s Asian Fulcrum: Confrontation or Cooperation? Asian Policy, 19: 65–87; Roman Vakuchik, 2018, Russia’s New Asian Tilt: How Important Is the Economy?; Hurgi Blackschroder and Rowe Wilson et al., Russia’s Turn to the East: Domestic Policy Making and Regional Cooperation, Springer Group, 139–157; Kuchins, 2014, Russia and the Commonwealth of Independent States in 2013: Russia’s Turn to Asia, Survey on Asia, 54(1): 129–137; Fortsk, 2016, Russia’s Turn to the East: Research on Policy Making, Post-Soviet Affairs, Routledge Press, 32(5): 423–454.

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investment. The main problem for these countries is how to attract investors. Obviously, investment generally flows to those countries that have the best business conditions and offer foreign investors those no less than or even better than national treatment. In addition, investors usually need more support from the host country. In this case, the host country can establish and does aspire to establishing a special legal system to provide preferential treatment to investors. This kind of preferential system provides investors with more attractive conditions in terms of taxation, customs clearance, law enforcement control, and employment. All these concessions will ultimately promote the expansion of the local manufacturing industry and the rapid development of infrastructure. After the dissolution of the Soviet Union and the development into a new independent country, Russia continued to open up to attract foreign capital and foreign enterprises. Russia’s new market economic order requires the government to carry out structural reform in investment policies. This structural reform means changing the structure of state institutions and introducing a new legal system that promotes economic development. The new legal system includes the special (preferential) legal system. Recently, Russia has made significant progress in establishing a special legal system in certain regions to stimulate investment in the real economy. Investors are now provided with four main preferential systems available throughout Russia and implemented in specific regions: 1. 2. 3. 4.

Advanced special economic zone Vladivostok Free Port Special economic zone Special administrative region.

The above four preferential systems are essentially a special administrative system. “Special administrative system” is a general term, which means that the standard framework for supervision is only available in specific regions and is different from general systems of supervision elsewhere in the country. This special administrative system can only be established through the main legislation at the federal level (regions or municipalities have no right to establish special administrative systems). The four preferential systems in Russia differ in their legal sources, procedures and terms of establishment and termination, infrastructure financing, management institutions, resident enterprise requirements, preferential treatments, and types of existence. A comparative analysis of these systems is shown in Table 3.1. In order to achieve the main goal of this paper, it is necessary to study the above four preferential systems from the perspective of the connection with the concept of special economic zones. Because all four preferential systems have been implemented in the Far East, especially two of them (advanced special economic zones and the Vladivostok Free Port) are specifically designed for the development of the Russian Far East. Therefore, the focus of analysis of these systems is basically on the Far East. It is advantageous to use the retrospective method and start with the analysis of the history of the development of Russian special economic zones.

1. The Ministry for the Development of the Russian Far East and Arctic 2. Supervisory committee 3. Management enterprises

Management institutions

1. The Ministry for the Development of the Russian Far East and Arctic 2. Supervisory committee 3. Management enterprises 4. Public council

Expenses are paid for through non-budget sources of funds for public–private partnership mechanisms, as well as federal budget, regional budget and municipal budget

Expenses are paid for through the federal budget, regional budget and municipal budget of the Russian Federation, as well as non-budget sources of funds

Infrastructure financing

1. The Ministry for the Economic Development of Russia 2. Regional executive institution 3. Supervisory committee 4. Management enterprises

Expenses are paid for through the federal budget, the budget of certain regions of the Russian Federation and the municipal budget. No sources of non-state budget funds were provided

Resolution passed by the Russian government based on a 49-year (but non-renewable) application submitted by the regional executive institution

Resolution passed by the Russian Federal law stipulated the government based on the establishment period of 70 years proposal of the Ministry for the (possibly extended) Development of the Russian Far East and Arctic to set up a period of 70 years (possibly extended)

Special economic zone

Procedures and terms of establishment

Vladivostok free port

Federal Law No. 473-FZ of Federal Law No. 212-FZ of July Federal Law No. 116-FZ of July December 29, 2014 on Advanced 13, 2015 on the Vladivostok Free 22, 2006 on Special Economic Development Zones of the Port Zones of the Russian Federation Russian Federation

Legal source

Advanced development zone

Table 3.1 Preferential legal system for businesses in Russia

(continued)

1. The Ministry for the Economic Development of Russia 2. The Ministry for the Development of the Russian Far East and Arctic (according to Russian island regulations) 3. Management enterprises

Carried out by the resident enterprises of the special administrative regions and the management enterprises to ensure the operationing of infrastructures

Federal law did not provide for a definite time limit (the law does not provide for it)

Federal Law No. 291-FZ of August 3, 2018 on the Special Administrative Region of the Kaliningrad Oblast and Primorye Territory*

Special administrative region

36 T. Anton

Russian or foreign legal entities or individual entrepreneurs (except for unitary enterprises) registered in advanced development zones, excluding organizations that are participants in regional investment projects, or organizations that have branches and representative offices outside of advanced development zones

Possible resident enterprises Russian or foreign legal entities or individual entrepreneurs registered in advanced development zones

Vladivostok free port It can only be terminated in accordance with federal law when it is necessary to protect civil rights, cultural heritage, environment and national security

Advanced development zone

It is terminated in accordance with the resolution passed by the Russian government based on the proposal made by the Ministry for the Development of the Russian Far East and Arctic under the following circumstances: 1. The need to protect civil rights, cultural heritage, environment and national security; 2. No agreement has been reached three years after the establishment of the advanced development zone

Termination reason

Table 3.1 (continued) Special economic zone

Individual entrepreneurs or business organizations registered in special economic zones (the country of registration is not restricted), excluding unitary enterprises

It is terminated according to the resolution passed by the Russian government under the following circumstances: 1. The need to protect civil rights, cultural heritage, environment and national security; 2. No agreement has been reached three years after the establishment of the advanced, or the resident enterprises do not carry out any activity

Special administrative region

(continued)

Any foreign legal entity that meets the legal requirements of Russia’s “International Corporate Law” (see Russia’s “International Corporate Law” for details), excluding credit institutions, payment system operators and payment infrastructure service operators

It is terminated by amending the federal legislation, but the special orders, reasons and circumstances for termination have not yet been determined

3 Special Economic Zones in the Russian Far East: A New Paradigm 37

None -

Regional type None -

Vladivostok free port • Reduce the unified social tax from 30 to 7.6% within 10 years • 0% income tax within five years and 12% for subsequent five years • 0% of land tax within 5 years • Simplified tax audit and land acquisition procedures

Advanced development zone

• Reduce the unified social tax from 30 to 7.6% within 10 years • Income tax from 0 to 5% within five years from the profit-making year, and 10% for subsequent five years • 0% of land tax within 3 years • (According to regional legislation) exempt or reduce property tax and land tax rates • Preferential rent: 40% of the benchmark interest rate • Reduce the tax rate of mineral mining within 10 years (0–80%) • Quick VAT rebate

Preferential treatments

Table 3.1 (continued) Special economic zone

• Industrial special economic zone • Technology implementation special economic zone • Port special economic zone • Special economic zone for tourism and leisure

• Lower income tax rate • Exempt from property tax for up to 10 years • Transportation tax preference • Land tax exemption for 5–10 years* * The preferential amount and tax rate depend on the type of special economic zone

Special administrative region

None -

Preferential tax rate: • Income tax rate (subject to certain conditions) received by international holding companies in the form of dividends is 0% • The income tax rate received by foreigners in the form of dividends from shares of international holding companies (subject to certain conditions) is 5% • The income tax rate on business income through selling shares of Russian and/or foreign organizations is 0% Simplified currency rules: • Foreign currency settlement and other currency transactions (with some exceptions) between international enterprises and resident enterprises can be carried out without restrictions

38 T. Anton

3 Special Economic Zones in the Russian Far East: A New Paradigm

39

3.3 The History of the Development of Special Economic Zones in Russia In Russia, special economic zones were established in the late 1980s (the Soviet era). These areas were originally named free enterprise zones. In the context of changes in ideology and economic system, the government of the former Soviet Union hoped to test these tools to promote economic growth. Unfortunately, the initial attempt to set up a special economic zone was unsuccessful. The new Russian government made a second attempt in 1991. In the early 1990s, several special economic zones were set up as symbols of the new market economy. The process of setting up these special economic zones in Russia shows the following characteristics: • Countries and regions lack a clear understanding of the true goals and objectives of the special economic zones; • There is a lack of a sufficient legal framework to regulate the establishment and operationing of special economic zones; • The area covered by the special economic zonesis large. The proportion of newly built free zones is more than one-third of Russia’s territory; • Distribute large amounts of privileges and rewards to resident enterprises in these regions, and lobby for their interests in the government of the Russian Federation; • Through the establishment of special economic zones, local authorities require autonomy; • In fact, foreign investors have limited opportunities to develop the Russian market through the mechanisms in these regions; • There is a lack of effective incentives for the establishment of enterprises in these regions and the possibility of implementing beneficial projects. By the end of the 1990s, more than 20 different special (free) economic zones had been registered in Russia, but these economic zones were still semi-legal and were not supervised sufficiently. As of the summer of 2005, Russia had 24 special economic zones, covering a small area, but still operating on the basis of changing secondary legislation. Federal Law No. FZ-116 on Special Economic Zones in Russia, which took effect on July 22, 2005, has significantly resolved the above-mentioned problems, especially the lack of supervision. This law has established a unified legal basis for the establishment and operationing of Russian special economic zones, and the text of this law contains the definition and types of special economic zones, the management system within the special economic zones, and some other key issues that need to be supervised. It should be mentioned that the Russian law is the same as the Chinese law. If a certain area is called special economic zone, the special legal system in this area will be activated. The understanding of special economic zones in Russian law is roughly consistent with that in the Chinese official document Regulations on Special

40

T. Anton

Economic Zones in Guangdong Province.4 Special economic zones are regarded as a designated geographic space that takes advantage of special policies and measures to support the implementation of specific economic functions. Although China has a wide variety of special economic zones, the Chinese law does not specify the types of special economic zones.5 On the contrary, the Russian law divides special economic zones into four types, and namely industrial production zones, technological innovation zones, tourism and leisure zones, and port zones. In addition, there are two special economic zones (in Kaliningrad and Magadan) in Russia that are subject to special laws other than the Basic Law No. FZ-116. The legal framework of the above-mentioned special economic zones still exists in Russia and has not been significantly revised in the past 15 years. This stagnation of legislation and other reasons have led to the lack of progress in the development of Russia’s special economic zones. Russia’s special economic zones were and are still subject to much criticism. The Russian Institute of Accountants recently criticized the implementation of special economic zones. The latest report shows that 80% of the products produced in the special economic zones are sold on the Russian domestic market and are not exported. According to the report of the supervisory institutions, only 76 (25.2%) of the 302 resident enterprises (46.1%) registered in Russia’s four major special economic zones are actually engaged in economic activities. During the operation period of Russia’s special economic zones, 166 agreements reached with resident enterprises have been terminated (accounting for 25.3% of the total number of registered resident enterprises).6 In addition, the tourism and leisure zones do not attract foreign investors at all, so some scholars say that their establishment was a major mistake.7 In 2016, after assessing the effects of Russia’s special economic zones, President Vladimir Putin ordered the closure of 10 special economic zones and suspended the establishment of new special economic zones. Moreover, the state management enterprises responsible for the operation of special economic zones were to be liquidated in 2019, and their management functions were to be authorized by regional authorities. Due to the insistence of the Ministry of Economic Development of Russia, the previous negative experience of the special economic zones was reconsidered. Therefore, 10 special economic zones were closed in advance, and the remaining special economic zones were transferred to the regional level. Within the framework of the approved “roadmap” and in accordance with the presidential order, new standards for the establishment of special economic zones in Russia were established. According to the new conception, regional management departments should be more involved 4 Regulations on Special Economic Zones in Guangdong Province (approved and implemented at the Fifteenth Plenary Session of the Standing Committee of the Fifth National People’s Congress in 1980). 5 Chen Sheying, Chen Yinyi and Zhong Shan, American Journal of Chinese Studies, Volume 10, 2013(1): 1–19. 6 Russian Institute of Accountants, 2019(5). http://audit.gov.ru/activities/bulleten/953/ 2019-07-21. 7 Kuznetsova Olga, Special Economic Zone: Effective or Not, Dimensional Economy, 2016(4–5). https://cyberleninka.ru/article/n/osobye-ekonomicheskie-zony-effektivny-ili-net 2019-06-17.

3 Special Economic Zones in the Russian Far East: A New Paradigm

41

in the operationing of special economic zones. Their main task was to determine the exact plans for and needs of the infrastructure. Federal state institutions should calculate which areas are suitable for the establishment of special economic zones and how to implement investment projects. Russia currently has 25 special economic zones, including 9 industrial production zones, 6 technological innovation zones, 9 tourism and leisure zones and 1 port zone. Russia has continued to profoundly rethink the concept of special economic zones. The Russian Far East has tried to implement a revised concept. In order to avoid repeating a disastrous blunder, the Russian government revised the concept of special economic zones and carried out a lot of legislative work. The result of this structural reform was the establishment of advanced special economic zones and the Vladivostok Free Port. All of these measures were born out of Russia’s strategy of turning to the East and turning to the Asia–Pacific region.

3.4 Special Economic Zones and the Russian Far East Countries in the Asia–Pacific region have become Russia’s emerging strategic partners and economic partners due to the escalating tensions between Russia and Western countries. Therefore, Russia has turned to the East, which aims to drive the Russian economy forward by the rapid economic growth of Asian countries. These Asian countries are playing an increasingly important role in world politics, and their share of the GDP in world GDP is also rising.8 The special feature of Russia’s turn to the East is that Russia’s external factors are closely related to its internal aspects, that is, Russia’s territory belonging to Asia are constantly developing. This correlation simply shows that only if Russia’s territory belonging to Asia is no longer the marginal area, can Russia become a mature part of the Asian economy.9 Fortunately, Russia has a unique geographical location, connecting Europe and Asia. The Russian Far Eastern Federal District is the gateway to Asia and occupies one-third of Russia’s territory. This area is rich in natural resources with a high potential for exploitation. Today, the Russian Far East is an attractive platform for investment in new projects, especially in the mining and logistics fields. The Russian Far East consists of 11 regions, each of which has different climatic conditions, and the availability of resources, the level of infrastructure development and human capital are also different.10

8

Valdai International Debate Club, 2014, Go to Oceania: Russia’s Breakthrough in Asia. http:// vid-.rian.ru/ig/valdai/Twd_Great_Ocean_2_Eng.pdf> 2019-06-21. 9 The same as above. 10 In November 2018, two regions were added to the Far East: The Republic of Buryat and Zabaykalsky Krai, which are currently in the reorganization period. Therefore, since November 3, 2018, the Far East has been officially composed of 11 regions.

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The development of the Far East is one of the priorities of Russia’s modern state policy. In order to promote the development of the region, Russia initiated a significant structural reform in 2012. According to Decree No. 636 of the President of the Russian Federation, a special federal executive institution, the Ministry for the Development of the Russian Far East and Arctic, was established. In addition, in order to assist the complex work of the Ministry, three special development institutions were established, including the Far East Investment and Export Bureau, the Far East and Arctic Development Corporation, and the Far East Human Capital Development Bureau. All these institutions are autonomous non-profit organizations with 100% state participation, aiming to support the Ministry for the Development of the Russian Far East and Arctic to attract investment to the Far East, to improve the special institution for the administrative management for operators, and to improve the quality and quantity of labor. Importantly, all three institutions are involved in the projects and management promoting the development of advanced special economic zones. Strengthening the social and economic development of the Far East requires a sound supervisory framework, including a legal system that provides preferential treatment to investors and entrepreneurs. Since 2013, in order to promote the legal supervision of investment and business in the Russian Far East, a total of 36 federal laws have been passed in the past six years, and 155 bills of the Russian President and the Government of the Russian Federation were signed. Besides, 107 department bills were passed. It is worth mentioning that 2017 was the most productive year, when 12 federal laws and 51 government bills were passed.11 In 2018 and 2019, 6 federal laws were approved, and several laws are currently being enacted. This unprecedented legislative progress aims to establish a sound legal and financial system and promote the prosperity of manufacturing and trade in the Russian Far East. The preferential systems are being established in advanced special economic zones and the Vladivostok Free Port according to the previously mentioned laws and regulations. Then, the legislation of tax revenue, customs and budget has been changed, and the supervision over land and urban planning has been simplified. The start of investment projects in many industries has been accelerated. All these have reduced the pressure on investors and entrepreneurs. Today, more than 1160 investment projects have been carried out in various fields in the Russian Far East. In the first half of 2017, investment in fixed assets increased by 19.8%, four times the growth rate of investment in Russia. The foreign direct investment in the Far East accounted for 26% of all foreign direct investment entering the Russian Federation. Investors from China, Japan, South Korea, the U.S., Singapore, Australia, the European Union and India have successfully conducted business in the Russian Far East. Industrial production grew by 3.5% in the Russian Far East, and the national average rose by 1.8%. Agriculture grew by 6% in the Russian Far East, and the national average rose by 3.8%.12 Resident enterprises in the advanced

11 12

https://minvr.ru 2019-07-30. https://minvr.ru 2019-07-21.

3 Special Economic Zones in the Russian Far East: A New Paradigm

43

special economic zones and the Vladivostok Free Port have conducted most of the projects, resulting in these growth statistics. Therefore, it is important to analyze the nature of advanced special economic zones and the Vladivostok Free Port as the modified types of special economic zones, and these two regions highlight the new era of Russia’s special economic zones. 1. Advanced Special Economic Zones On December 29, 2014, the Law on Advanced Special Economic Zones was passed. So far, 18 advanced special economic zones have been established in the region. There are 401 enterprises operating projects in the region, with a total investment (as of July 2019) exceeding 2.41 trillion rubles.13 The purpose of establishing these advanced special economic zones is to ensure that new investment projects can be implemented as soon as possible and then turn a profit through preferential measures. One of the envisaged preferential measures is to reduce the unified social tax on state extra-budgetary funds from 30 to 7.6%. It is worth noting that in 2018, investors were legally guaranteed that these conditions would remain unchanged for 10 years. Most administrative simplifications seek to save investors’ time. Therefore, it is now possible to become a resident enterprise in the advanced special economic zone by submitting an electronic application on the website of the Far East and Arctic Development Corporation (a management institution of the advanced special economic zone). It only takes 7 days to obtain the building permit, less than 40 days for the environmental assessment and less than two weeks for the national control inspection. The tax preference can be simplified as follows: • Income tax: 0% for the first five years and 12% for the following five years. • Property tax: 0% for the first five years and 12% for the following five years. • Land tax: 0% for the first three years, and then pay taxes and fees in accordance with municipal regulations. • Expedited VAT rebate procedures (less than 10 days). Other advantages for investors in priority development areas include: • Ready-made infrastructure (the state builds infrastructure at its own expense). • Shorten the time for inspection activities to protect the special mechanism from unreasonable inspections by supervisory institutions. • Simplified procedures for attracting foreigners to work here. • The Far East and Arctic Development Corporation has the right to defend the resident enterprise in court. • Duty-free procedures. The first investor was registered in the Primorsky Advanced Special Economic Zone in 2015. In the initial stage, the private investment reached 6.73 billion rubles. At the same time, Russia invested nearly 9 billion rubles to build the necessary infrastructure. Now, there are 32 resident enterprises implementing their projects in 13

https://erdc.ru/ 2019-07-20.

44

T. Anton

the advanced special economic zone, and their total investment exceeds 18.6 billion rubles.14 Foreign enterprises (mainly Asian enterprises) have invested heavily in advanced special economic zones. As of July 2019, the statistics of foreign investment in advanced special economic zones are as follows: Investors’ country of origin

Number of investors

Investment amount (million rubles)

China

12

172,676

Japan

7

7429

Singapore

1

939

Australia

3

8575

The Republic of Korea

3

1225

Others

5

4919

Total

31

195,763

Source Far East and Arctic Development Corporation www.erdc.ru

As of July 22, 2019, 18 advanced special economic zones have been established in the Russian Far East: 1.

2.

3.

4.

5.

6.

14

Gorny Vozduh Advanced Special Economic Zone, with a total investment of 22 billion rubles. Examples of ongoing projects: Yuzhno-Sakhalinsk Airport Corporation (construction of a new terminal at the Yuzhno-Sakhalinsk Airport and a hotel in the airport terminal). Yuzhnaya Advanced Special Economic Zone, with a total investment of 21 billion rubles. Examples of ongoing projects: Mersey Agro Sakhalin Corporation (for a pig farm that produces 62,000 pigs per year), and Green Agro-Sakhalin Co., Ltd. (grow crops and produce milk and beef). Kamchatskaya Advanced Special Economic Zone, with a total investment of 36 billion rubles. Examples of ongoing projects: Ametistovoe Corporation (mine construction and the modernization of mining based on the Ametistovoe mineral deposit), and Tymlatsky Fish Factory (fishery production and seafood). Khabarovsk Advanced Special Economic Zone, with a total investment of 21 billion rubles. Examples of ongoing projects: Khabarovsk Novy Airport Corporation (construction of the new passenger terminal of the Khabarovsk Novy Airport), and Evergreen Co., Ltd. (construction of a greenhouse complex for annual vegetable production). Komsomolsk-na-Amure Advanced Special Economic Zone, with a total investment of 36.7 billion rubles. Examples of ongoing projects: AGMK Co., Ltd. (modernization of the Amur Hydrometallurgy Plant), and RFP Wood Pellets Plant Co., Ltd. (the organization of the production of fuel pellets). Nikolayevsk Advanced Special Economic Zone, with a total investment of 3 billion rubles. Examples of ongoing projects: NGK Resources Co., Ltd.

https://erdc.ru/ 2019-08-1.

3 Special Economic Zones in the Russian Far East: A New Paradigm

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

45

(construction of a gold mining enterprise at the Polyanka mineral deposit), and several fishery projects. Priamurye Advanced Special Economic Zone, with a total investment of 124 billion rubles. Examples of ongoing projects: Amur Energy Co., Ltd. (construction of petroleum refining and petroleum products production plants), and S Technology Co., Ltd. (construction of cement production plants). Belogorsk Advanced Special Economic Zone, with a total investment of 4.7 billion rubles. Examples of ongoing projects: Amursky Oil Extraction Plant (oil production), and Belogorsky Bakery (production of bread and desserts). Neftehimicheskiy Advanced Special Economic Zone, with a total investment of 660 billion rubles. Examples of ongoing projects: Eastern Petrochemical Corporation (building of oil refining and petrochemical facilities for the production of Euro-5 engine fuel and other petrochemical products)—the only huge project in this advanced special economic zone. Nadezhdinskiy Advanced Special Economic Zone, with a total investment of 32 billion rubles. Examples of ongoing projects: Mazda Sollers (Russia) Manufacturing Co., Ltd. (the organization of the industrial production of motor vehicles and Mazda engines), and Yuzhny Primorsky Terminal Corporation (container transshipment). Mikhailovsky Advanced Special Economic Zone, with a total investment of 72 billion rubles. Examples of ongoing projects: Primorsky Bacon Co., Ltd. (two pig farms), and Green BioSinerzhi Co., Ltd. (planting and deep processing of artichokes and soybeans). Bolshoy Kamen Advanced Special Economic Zone, with a total investment of 214 billion rubles. Examples of ongoing projects: Noviy Mir Corporation (Project 1: build a high-tech industrial enterprise with a logistics center for processing pollock and other species of fishes; Project 2: logistics complex in Bolshoy Kamen), and Far East Factory “Zvezda” Corporation (establishment of a large-tonnage shipbuilding and ship transformation plant). Amur-Hingam Advanced Special Economic Zone, with a total investment of 13 billion rubles. Example of an ongoing project: Dalgrafit Co., Ltd. (development of the Topolikhinsky graphite deposit and construction of a mining and processing plant). Khangalassky Advanced Special Economic Zone, with a total investment of 2.3 billion rubles. Examples of ongoing projects: SEIBIEM Co., Ltd. (building of the infrastructure for the jewelry cutting cluster), and Sayuri Co., Ltd. (building of a greenhouse in Yakutsk that grows vegetables all year round). Chukotskiy Advanced Special Economic Zone, with a total investment of 11 billion rubles. Examples of ongoing projects: Bering Gold Co., Ltd. (gold mining in the Nutekingenkveyem River in Anadyr District), StroyInvest-Energy Co., Ltd. (renovation of the wind power station), and Port Ugolny Co., Ltd. (updating of the Beringovsky seaport technical equipment to ensure coal exports during the summer). Svobodny Advanced Special Economic Zone, with a total investment of 948 billion rubles. Examples of ongoing projects: Gazprom Pererabotka

46

T. Anton

Blagoveshchensk Co., Ltd. (construction of a natural gas processing plant)—the main project of this advanced special economic zone. 17. South Yakutia Advanced Special Economic Zone, with a total investment of 110 billion rubles. Examples of ongoing projects: “Ore mining and processing complex” Inaglinsky Corporation (construction of a mining and processing complex for coal mining and for the production of high-quality coal concentrates). 18. Kuril(e) Islands Advanced Special Economic Zone, with a total investment of 5.6 billion rubles. Examples of ongoing projects: Ostrovnoy Fish Factory Co., Ltd. (building of a fish processing complex)—the only project in this advanced special economic zone. It should be mentioned that the system of advanced special economic zones is considered to be more advantageous than that of special economic zones. For example, at present (on July 19, 2019), the Russian government has decided to change the Baikalskayagavan Special Economic Zone of the Republic of Buryatia into an advanced special economic zone, which will be the 19th advanced special economic zone.15 When we talk about advanced special economic zones as a structural reform, a new and significant reform has emerged: 14 advanced special economic zones have been established in Russia’s territory beloning to Europe. On February 15, 2019, Russian Prime Minister Dmitry Anatolyevich Medvedev signed a decree to establish 14 new advanced special economic zones in 7 regions not far from Moscow. This may be a signal that the experiment of advanced special economic zones in the Far East is considered successful and fruitful, so the government has decided to replicate it nationwide. So far, Russia has 32 advanced special economic zones (18 of which are in the Far East). 2. Vladivostok Free Port The term “free port” or “portofranco” is derived from Italian, which refers to a seaport that provides duty-free imported foreign goods.16 It is regarded as the predecessor of the concept of special economic zones, because the main goal of such ports is to attract traders and promote economic activities. Now, “free port” refers to an area that is considered to be outside the country’s borders for customs although it is within the geographic borders of a country. This means that only when the product enters the domestic economy, can the goods enter and re-enter the port without incurring the usual import procedures or tariffs. Under normal circumstances, free ports enjoy lower tax rates, trade tariffs and tariffs than other parts of the country, so as to attract investment, promote trade and stimulate domestic manufacturing and local employment.17 15

https://investvostok.ru/news/2318/?sphrase_id=138305 2019-07-31. https://dictionary.cambridge.org/dictionary/italian-english/porto-franco 2019-07-21. 17 Congressional Research Service Report, U.S. Foreign Trade Zones: Background and Issues for the Congress, 2013, p. 2. 16

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What is the connection between special economic zones and free ports? Although special economic zones require more profound changes in the system of supervision in their areas, special economic zones and free ports have three main goals in common: stimulating economic growth, attracting as many investors as possible, and developing infrastructure and providing new job opportunities. The preferential system of free ports, special economic zones and advanced special economic zones is now used as a tool to improve the social and economic development of the Russian Far East. Vladivostok was designated as a free port from 1861 to 1909. According to Federal Law No. FZ-212 of July 13, 2015 on the Vladivostok Free Port, Vladivostok became a free port for the second time. Initially, the special system was extended to 15 cities in Primorye Territory, including the capital of the region. In 2016, in accordance with the order of Russian President Vladimir Putin, the free port system was extended to major ports in the Far East, including Khabarovsk Kray (Vaninsky District), Sakhalin Oblast (Korsakovsky Urban Okrug), Kamchatka peninsula territory (Petropavlovsk-Kamchatsky), Chukotskiy Avtonomnyy Okrug (Pevek) and Primorye Territory (Razovsky District). Statistics show that there have been increased investment activities after the “free port” system was launched. The project aims to improve cross-border trade, develop transportation infrastructure and integrate Primorye Territory into the world’s transportation routes. A casino area was opened in the free port, making Vladivostok a competitor to Macao and Busan. According to the assessment of economic growth carried out by experts, the building of the Vladivostok Free Port will increase the regional GDP of Primorye Territory by 2.2 times to 1.4 trillion rubles by 2025 and 3.4 times to 2.1 trillion rubles by 2034. It is predicted that as many as 84,000 new jobs will be created by 2021, 108,000 by 2025 and 468,000 by 2034.18 The progress of attracting investment is as follows: Year

2016

2017

2018

Resident enterprises

116

432

1057

Job

21,606

35,900

60,029

Investment amount (100 million rubles)

1180

3660

5820

According to the information on the official website on July 19, 2019, there are a total of 1392 resident enterprises so far. The main preference offered to enterprises resident in free ports is similar to those offered to enterprises resident in advanced special economic zones. The main difference lies in the amount of initial investment. In advanced special economic zones, investors should invest at least 500,000 rubles, while in the Vladivostok Free Port, investors are required to invest 5 million rubles. One of the privileges of the Vladivostok Free Port is the right to receive land through auction and to attract foreign labor regardless of the number of labor services. 18

https://forumvostok.ru/en/news/experts-discuss-results-free-port-vladivostok-two-year-s-work/ 2019-07-31.

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For example, the Aviapolis Yankovsky Industrial Park became the first resident enterprise in the Vladivostok Free Port. It is an “A-level” warehouse complex, which began operations in May 2016. The investment amount reached 1.5 billion rubles. A total of 348 projects are currently being carried out in the Vladivostok Free Port, with the total planned investment exceeding 351 billion rubles. The projects that foreign enterprises participate in are as follows.19 Investors’ country of origin

Number of investors

Investment amount (million rubles)

China

26

20,086

Japan

3

2343

The Republic of Korea

6

2866

Others

6

2105

Total

41

27,400

What is important is that a special immigration system has been established for investors in the Russian Far East. This approach is very typical for special economic zones. For example, in Shenzhen, China, foreigners can obtain visas at the border to enter the city through simplified procedures.20 Similarly, residents of most Asia– Pacific countries do not need to apply for a regular visa to Russia to enter Vladivostok. They only need to apply online for free. Since January 2019, 404 foreigners have obtained electronic visas, and 359 of them are citizens of the People’s Republic of China. In addition, since January 2019, 42 Japanese citizens, 2 Indian citizens and 1 Mexican citizen have arrived in the Far East. Since August 2017, more than 45,600 citizens from 14 countries have visited the Far East due to this convenient system.21 Please note that Chinese citizens do not need a visa to enter Kamchatskaya Kray. In December 2018, the government of the Kamchatka peninsula and the Federal Tourism Administration signed relevant agreements within the framework of the Moscow Far East Day. When discussing the challenges that investors in the Vladivostok Free Port may face, some restrictions on investment activities should be mentioned. Investors are prohibited from engaging in the following business activities: • Extraction of oil and natural gas; • Production of taxable products (except for the production of passenger cars, motorcycles, engine oil, aviation lubricating oil, diesel and gasoline); • Administrative activities and other related services (except for the leasing of agricultural machinery and equipment, engineering machinery and housing construction equipment, transportation machines, air carriers, water carriers, railway conveyance equipment, engines, turbomachines, machine tools and other 19

www.erdc.ru 2019-06-21. Tanley, Malini, China’s Special Economic Zone Policy: Some Key Issues, Indian Quarterly 68, No. 3 (September 2012): 31–50. 21 https://erdc.ru/ 2019-07-11. 20

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machinery, equipment and materials; except for activities organized by travel agencies and other organizations that provide travel services). In addition, businesses that are not supported by the state (no tax preference) include: • Financial and insurance activities; • Organize and conduct gambling activities; • Wholesale and retail trade (except for goods produced by resident enterprises in the Vladivostok Free Port area in accordance with the agreement on the business activities of the resident enterprises in the Vladivostok Free Port). Although the economy of the Vladivostok Free Port has achieved a certain degree of development, there are still considerable issues in human capital. According to statistics, between 2015 and 2019, more than 30,000 people left the region, accounting for 5% of the residents of Vladivostok. Obviously, the prospects in this developing region do not motivate and retain these people. Moreover, a survey conducted by the Primorye Territory Research Center showed that 25% of adults between the ages of 35 and 45 hoped to leave Primorye Territory. This is a big challenge affecting the development of all regions in the Russian Far East. 3. Special Administrative Regions On August 3, 2018, Russia passed Federal Law No. 291-FZ on the Special Administrative Region of the Kaliningrad Oblast and Primorye Territory and other related laws. According to these laws, special administrative regions were established on the Russky Island of Vladivostok and the October Revolution Island of Kaliningrad. Such a government initiative aims to take back offshore state enterprises and bring foreign enterprises under Russian jurisdiction. According to Article 1 of Law No. 291, the special administrative region is a territory with a special legal system. This law stipulates the privileges and special obligations of international enterprises. These privileges and obligations are related to the privileges of state control, tax revenue and currency supervision. The concept of “special administrative region” is similar to the legal system of advanced special economic zones, special economic zones and free ports. However, special administrative regions have specific characteristics, especially in terms of currency control and participant identity. According to Law No. 291, the main objectives of establishing special administrative regions are: • To create an attractive environment for Russian and foreign investors; • To accelerate the social and economic development of Russky Island and the October Revolution Island. The two special administrative regions are located at opposite ends of Russia, and their location was not determined by accident. First of all, in the past six years, these two islands played a prominent role in major events: the APEC Summit was held on Russky Island in 2012, and four games of the FIFA World Cup were held

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on October Revolution Island in 2018. Secondly, their location may attract potential investor groups. The Special Administrative Region of Russky Island aims to attract Asian enterprises, while the Special Administrative Region of October Revolution Island aims to attract European entrepreneurs and investors. Compared with the entire country, the two islands are very small. Russky Island is about 100 km2 and October Revolution Island is about 10 km2 . Considering the size and natural conditions of Russky Island, it is unlikely to develop any large-scale infrastructure on the island. However, urban infrastructure can be developed by establishing new administrative, shopping and logistics centers and other facilities to accommodate entities that provide services to participants in the special administrative region. In addition, Russky Island already has some new infrastructure, including highway bridges and the campus of the Far Eastern Federal University. The special administrative region has recently made new developments. The Ministry of Economic Development of Russia proposes to reduce the requirements for relocation of enterprises (move to another jurisdiction), but the requirements do not include those for membership of foreign legal entities in the Financial Action Task Force on Money Laundering or in the Ad Hoc Committee of Experts of the Council of Europe to Evaluate Anti-Money Laundering Measures and the Financing of Terrorism. According to current laws, foreign legal persons can obtain the status of an international enterprise under certain conditions. One of the conditions is that legal entities must be registered in countries that are members or observers of the Financial Action Task Force on Money Laundering, or members of the Ad Hoc Committee of Experts of the Council of Europe to Evaluate Anti-Money Laundering Measures and the Financing of Terrorism. The revised bill has been submitted to the Federation Council of Russia. It should be mentioned that there are not enough supervisory norms now, so Russian legislators should move on. This is a question of technical regulations and other regulations. The goal of the special administrative region is not to create “loopholes” in which funds can be absorbed from the perspective of tax flows and financial flows. However, it is essential to create a convenient environment for conducting business.

3.5 Conclusion Looking forward to the future, it should be mentioned that the Russian Far East, like other emerging economic centers (such as China’s Hong Kong or Guangdong Province), has a very convenient geographical location. After realizing this, the Russian government is making great efforts to develop the Far East with the help of preferential legal systems. The systems of special economic zones, advanced special economic zones, free ports and special administrative regions have shown positive trends in attracting investment and launching new development projects. All new investment projects require trillions of dollars. From the perspective of global infrastructure, between 2019 and 2040, Russia will provide investors with investment

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opportunities worth $1.6 trillion.22 Therefore, it is particularly important to continue to conduct further academic research on how preferential legal systems, including special economic zones, can realize these opportunities.

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Ministry for the Development of the Russian Far East and Arctic Monthly, June 2019: 3.

Chapter 4

Focus and Emphasis of the Reform of the China Pilot Free Trade Zone Under Sino-US Trade Friction Xiaowen Fan

The current pattern of the international trading system is changing, and the tendency of anti-globalization has brought many uncertainties to international economic and trade relations. The Sino-US trade frictions caused by the United States in containing China’s rise have not only added a lot of uncertainties to the economic and trade relations between China and the United States, but they have also brought uncertainties to the global economy. The pilot free trade zone (short for China Pilot Free Trade Zone) is a high ground for opening-up, and it carries the historical mission of “pilot ground” of a new institution for a comprehensive open economy in China. The institutional reform and innovation need to be explored in the process of opening-up, and the tariff wars and trade frictions run counter to freedom and opening-up. Faced with escalating trade protectionism and trade frictions, what are the key issues facing institutional innovation in the pilot free trade zone? How can the focus of the next institutional reform be located? This is not only about the pilot free trade zone, but it is also an issue facing the reform of China’s economic system. What are the underlying reasons behind the Sino-US trade friction? Will the antiglobalization tendency of the Trump administration reverse globalization? The pilot free trade zone must first have a clear understanding of institutional reform in order to actively respond. Second, whether opening-up means that the government has to withdraw from the market is also to be clarified in the construction of an institution for a comprehensive open economy. Only when we have a correct understanding of the key issues can we determine the focus of institutional reform. Everything has Fan Xiaowen, Ph.D. in Economics, Associate Professor and Master Supervisor of the China Center for Special Economic Zone Research, Shenzhen University. This project is funded by the China Center for Special Economic Zone Research, Shenzhen University (project number: 501-0000033107). X. Fan (B) China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 508060, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_4

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two sides. On the one hand, the Sino-US trade friction has caused difficulties in the institutional innovation of the pilot free trade zone. On the other hand, it has provided a rare soil for innovation for the reform of China’s open economic system and a pilot ground for establishing an institution to respond to the complex and volatile economic situation. This paper asserts that the pilot free trade zone can force institutional reform in the reconstruction of the global value chain under trade frictions. The government should take an active role when faced with major technological changes and globalization, and at the same time establish a unique control mechanism for capital flow risk with Chinese characteristics during opening-up.

4.1 Deep-Seated Causes of Sino-US Trade Frictions The benefits of free trade are well known, but why does the Trump administration practice anti-globalization and provoke Sino-US trade frictions? As a pilot ground for building a comprehensive open economy, the pilot free trade zone should calmly and objectively analyze the underlying reasons behind complex and volatile international economic and trade relations, so as to actively respond to various challenges and carry out institutional innovation. On the surface, the Sino-US trade friction is a tariff war triggered by the imbalance of Sino-US trade. In fact, Trump’s unexpected victory in the general election and Brexit have reflected the prominence of anti-free trade sentiment in some developed countries and globalization. Globalization once again comes to the crossroads. Some studies believe that imports from China have brought a direct competitive impact on manufacturing centers in the Midwest of the United States, and the impact on manufacturers has triggered an impact on suppliers and on the local service industry. Then, the impact has been extended to the regional economy. Moreover, these regions lack growth industries to absorb unemployed workers, and these workers are unwilling (or unable) to find jobs in other regions, so the labor market has a greater employment impact on competition than expected for a longer period of time. Many people believe that the open economy benefits only a small number of elites and does not benefit the general public. Therefore, these difficulties are attributed to opening-up, leading to the rise of anti-free trade sentiment. In fact, the underlying reasons behind the anti-free trade sentiment are more complicated than they appear on the surface. On the one hand, the economic recovery of Western developed countries was slow, impacted by the financial crisis in 2008. At the same time, the advent of another industrial revolution also greatly affected the employment and wages of rich countries, and the increasing gap in profitability among different industries deepened the inequality of income. The rapid decline in the cost of automation put low- and medium-skilled employees at risk of unemployment. The changes in the employment structure caused by technological reform was magnified by globalization, so globalization became a scapegoat for technological reform, which in turn resulted in anti-free trade sentiment among employees at the bottom of the industrial chain.

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On the other hand, since the reform and opening-up, China has successfully entered the global supply chain and has become a major trading country throughout the world. In 2018, China’s export value of goods was 16.4177 trillion yuan,1 accounting for 18.24% of the GDP, and its import value was 14.0874 trillion yuan, accounting for 15.65% of the GDP. The export value has been the largest in the world for several consecutive years, and the import value has been the second. Since 2000, Sino-US trade has grown rapidly, and it is estimated that US imports of goods cause the number of related manufacturing workers to decrease by about 6 million. While free trade brings benefits to the American public, it also undeniably has a negative effect. Studies have shown that the proportion of low-income people in the United States spending on imported goods is much greater than that of high-income people, and low-income people enjoy the high-quality and low-cost goods brought about by free trade while facing competition. However, the low-cost technology produced in developing countries weakens the bargaining power of workers in rich countries like the United States and makes their incomes relatively stagnant. Therefore, the combination of technological revolution and free trade trigger the tendency of antifree trade. If the deep contradictions in the United States cannot be properly resolved, it will be difficult for the Sino-US tariff war to truly cease. Judging from the history of economic development, in 1914, the United States used to increase tariffs to protect its domestic industrial development. The tariff protection policy continued until World War II, and history may repeat itself. In this regard, we should have a clear enough understanding and actively look for countermeasures.

4.2 Focus Issues in the Reform of Pilot Free Trade Zones 1. Will Trade Frictions Reverse Globalization? Globalized international trade has promoted the improvement of production efficiency, enabling the expansion of industries with comparative advantages, and at the same time, shrinking some uncompetitive industries. Trade has made corresponding adjustments to the global economic interest pattern, and some people gain, while some people suffer a loss. Trade imbalance has always been a hotbed of trade protectionism, and the imbalance in Sino-US trade and China’s increasing influence in the world create a state of confrontation between China and the United States. The United States erects trade barriers against Chinese exports, and at the same time it imposes a technical blockade on Chinese high-tech enterprises. Certainly, China has also launched a targeted counterattack. Will the trade friction between China and the United States reverse globalization? The Trump administration’s “anti-globalization” practices have undoubtedly brought troubles to the reform of China’s institution for 1

National Bureau of Statistics: 2018 Statistical Bulletin on National Economic and Social Development http://www.stats.gov.cn/tjsj/zxfb/201902/t20190228_1651265.html.

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a comprehensive open economy, and it has also become one of the focus issues of the institutional reform in the pilot free trade zone. According to estimates from the World Bank’s Global Value Chain Development Report 2017, trade in the value chain has accounted for 70% of the global trade in services and two-thirds of the trade in goods. Global value chains are formed in competition according to their respective comparative advantages. The globalized professional division of labor makes resource allocation more efficient, and countries have also gained economic development by participating in this kind of professional division of labor. The global value chain has a profound impact on international production, trade and investment, and those within the global market are increasingly dependent on each other. The division of labor in the global value chain has become the core of the model of international production. Currently, China has a relatively complete system of industrial support, and the role of the largest exporting country also enables China to deeply integrate with the global industrial chain. However, in the global value chain dominated by developed countries, the United States is at the high end of the global value chain and is the leader in the production standard of the industrial chain. China is at the middle and low end of the value chain, and is subject to the United States to a certain extent. The United States mainly relies on technology and capital in global competition, while China mainly relies on the clustering of industrial chains. Although the competition between the two major powers in the value chain will not lead to a reversal of globalization, it has already triggered shocks in the world economy. China has a market of nearly 1.4 billion people, and a large amount of labor also gives China a clear advantage in the scale of production capacity. In the midnineteenth century, Britain was known as the “world factory”, and most of the world’s export products were produced by Britain. In the twenty-first century, China is the “world factory”, and the “world factory” also means the competitive advantage of the industrial chain. The trade friction is not only caused by the Sino-US trade deficit, but also a trade war initiated by the United States to contain China from a strategic point of view. Therefore, its impact cannot be analyzed from the perspective of economic interests. Although the Sino-US trade war may slow down the pace of globalization and affect the economy, the foundation of globalization has not changed and globalization is irreversible because the Internet has connected the world together and created a global market. More advanced communications and transportation will also become a force to further promote globalization. Economic globalization based on the division of labor in the global value chain will be unstoppable, and seeking development in opening-up will be a general trend. 2. Does Comprehensive Opening-up Mean that the Government Has to Withdraw from the Market? Free trade not only facilitates the effective allocation of resources globally, but it also encourages exporting countries to continuously improve technology, promote scientific and technological progress and exert their comparative advantages, which will have a positive impact on their own economy. But while emphasizing the benefits of free trade, we tend to ignore the negative effects of free trade. If participating

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in international trade purely from the perspective of comparative advantage, those developing countries with a backward level of technology will only engage in the production of primary raw materials that do not require technological accumulation, and they will be at the low end of the global value chain. If participating in international competition based on the comparative advantage from the perspective of market, these marginal countries will not be industrialized, and they will lose their original industries that are not internationally competitive. As a result, de-industrialization will occur, and they will remain on the margins of the world economy forever. How can we develop in opening-up? The history of economic development tells us that we must actively carry out diversified development while giving full play to the advantages of our own resource endowment. The products produced by a country determine its position in the global industrial chain. Only if backward countries can consciously enter manufacturing and other modern industries, can they have the opportunity to narrow the gap with developed countries. If the government allows the market to develop freely without intervention, in the absence of competitiveness, backward countries will not be able to motivate enterprises’ enthusiasm for upgrading by relying solely on the market. The economic development in countries such as Mauritius proves that government’s implementation of industrial policies has played a positive role in promoting economic development. As early as 1791, Alexander Hamilton of the United States emphasized that the view that industry can develop spontaneously without government support was wrong. Hamilton believed that there were many obstacles to the development of industry, and the backward countries did not have any advantage to compete with the leading developed countries under free trade. If the market was allowed to develop freely, industry would not spontaneously rise and develop. Before World War II, the United States was only able to continue to develop and grow with the support of the government’s tariff policy, and then replaced the United Kingdom as the world’s largest power. Throughout the history of economic development in the past, for industries that are in the “sprouting state”, they must be protected from moderate tariffs and supported by relevant industrial policies before they have independent competitiveness, so that they can survive and develop without being impacted by import trade. Developing countries can have the opportunities to catch up with developed countries only by diversified development. Industrial policy is an indispensable part of the entire development plan, and market forces and government policies that promote industrial development are complementary. It is inevitable for the government to implement policies in support of industry. As long as national borders exist, each country will trigger the formulation of relevant policies from the perspective of maximizing its own interests. Trade protectionism is unlikely to die out in a short period of time. What the government should consider is entering the market of other countries and protecting the domestic market, which is more conducive to the development of the country. Comprehensive opening-up does not mean that the government withdraws from the market. In the event of market failure, the government must do something.

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Practice has proved that the so-called “Washington Consensus” that is completely market-oriented is not in line with developing countries.

4.3 Emphasis of the Reform of Pilot Free Trade Zones 1. Forcing Institutional Reform in the Restructuring of the Global Value Chain Needless to say, the impact of the trade frictions caused by the United States to contain China’s rise on China’s economy is objective, and it is an indisputable fact that the United States is in a leading position in technological innovation. The United States poses a greater threat to China due to its dominant position in the global value chain. When there is a crisis, there are opportunities. The trade frictions give China a historic opportunity to move from the low-end to the mid-to-high end of the global value chain. Since the outbreak of Sino-US trade frictions, some enterprises at the low end of the value chain have begun to move to Vietnam and Southeast Asian countries. Such international competition will force China to carry out supply-side structural reform, to find weak links in the industrial chain from the market, and to strengthen the supporting system of the manufacturing industry chain, so as to actively integrate with the value chains of the “Belt and Road” countries along the route. The pilot free trade zone is not only a high ground for China’s opening-up, but it is also an “experimental field” for the institutional reform of the new institution for an open economy. The key to upgrading from the low-end of the value chain to the high-end of the value chain lies in innovation, and only innovation can help to become positioned at the high end of the value chain to realize the dream of a powerful country. The pilot free trade zone has made considerable progress in improving the business environment and trade facilitation. The next stage can focus on the new technological revolution, and take the reconstruction of the value chain as the core to conducting the reform of institutional innovation that is beneficial to the industrial chain and to the supply chain. At this stage, China’s capabilities for technological innovation are still relatively weak, so it needs to draw on strength to achieve development. Starting from multinational enterprises at the high end of the global value chain, China can simplify and innovate related institutional rules on various obstacles in trade, further reduce transaction costs, so as to configure and improve the policies and institutions of the global value chain, and eventually promote the domestic industrial chain from the low-end to the high-end of the global value chain. Judging from the history of economic development, even rich countries may become underdeveloped if only limited to short-term comparative advantages without considering long-term economic development in the future. The impact of free trade on the country may be positive or negative. If a country blindly considers the existing comparative advantages to participating in international competition from a market perspective, it may be eliminated in this global economic transformation. According

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to the book Global Economic History written by Robert C. Allen, in 1750, products manufactured in China and the Indian subcontinent accounted for 33% and 25% respectively of the world’s total. At that time, there was a small gap between Asia’s per capita output and that of the more affluent Western European countries. By 1913, the proportion of products manufactured in China and the Indian subcontinent had fallen to 4% and 1% respectively, and the products manufactured by the United Kingdom, the United States and Europe accounted for three fourths of the world’s total. Asia’s per capita output was also far behind that of Western European countries. The fundamental reason was that during the First Industrial Revolution, the industrialization of Western countries led to the deindustrialization of China and India. Therefore, we must seize the historical opportunity of the new industrial revolution, participate in open competition with a long-term strategy for economic development, and build mechanisms and institutions that encourage innovation while fully improving the market system. 2. The Government Must Do Something about Major Technological Change and Globalization Technological change can affect employment and wage earnings, and the impact of free trade on income distribution may be greater than many people think. The author of The Globalization Paradox has done an analysis and concluded that if trade is completely liberalized, $50 of income will be redistributed for every US dollar of net trade gains! When we formulate a policy, we must study and grasp the extent of the influence of the income redistribution brought about by trade, and then formulate corresponding policies to eliminate its negative effects as much as possible. Major technological revolutions and free trade have always been double-edged swords. While developing and expanding some industries, some sunset industries or uncompetitive industries will inevitably be negatively affected, and the employment and income of labor in different industries will be affected to different degrees. This has happened in the course of China’s reform and opening-up, and its impact on employment cannot be eliminated overnight. Relying solely on the market is obviously not the best solution. The government must formulate relevant policies to help the “losers” in economic transformation and globalization. The rise of domestic trade protectionism in the United States is all related to the lack of corresponding policies by the government. While we denounce trade protectionism, we should explore its deep reasons and learn from it in development. The market is highly efficient in the effective allocation of resources, but the government should do something about the formulation of rules and development strategies. The government and the market complement each other in ensuring the stable development of society. On the road to marketization in China, not only the strengths of the market should be given play to, but also the limitations of the market should be recognized. It is impracticable to leave everything to the market or to the government. The effective allocation of resources and the stable development of society require the collaboration and cooperation of the market and the government. Letting the nation live a prosperous, stable, free and high-quality life has always been the goal pursued by all countries, and whether it is technological change or

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trade liberalization, whether it is the market or the government, all are tools or means to achieve this goal. The goal of an open economy is to allocate resources more effectively on a larger market and enjoy more and better goods and services. Therefore, the institutional reform of the pilot free trade zone should also take this goal as the starting point for institutional innovation. Globalization or free trade is not an end in itself, but a means to helping society achieve its goals. International rules should not allow the United States to use trade sanctions or other pressures to force China to adopt the same practices as the United States. In global trade, according to market operating rules, trade must first be beneficial to the country. The form of market exchange itself restricts the mutual benefit of both parties in the trade, otherwise the transaction will not occur. Similarly, for the global market, countries should also implement trade policies from the perspective of self-interest. Each country has different resource endowments, different cultures and different levels of development, so each country has the right to retain its differences. International economic and trade rules should respect diversified development, and differences and disputes can be easily resolved by formulating corresponding countermeasures on the basis of respect, instead of threats and restrictions. “Make opening-up a catalyst for reform and make reform a catalyst for development” is China’s consistent path of reform and development. Faced with technological changes and trade frictions, the market is powerless for frictions or disputes among countries, and the government must do something. Under the grand development strategy, the pilot free trade zone will continue to innovate institutions in the restructuring of the global value chain and find a way to adapt to China’s unique development. 3. The Control of Potential Risks of the Flow of Free Capital In the prevailing economic theories, the free flow of capital seems to be an indispensable condition for opening-up. People only see the efficient use of global savings brought about by the free flow of capital and the economic growth brought about by free investment. However, everything has two sides, and the free flow of capital also has a negative impact. The global financial crisis triggered by the U.S. subprime mortgage crisis in 2008 was caused by the free flow of debt capital. Some scholars and professionals have realized this, and the consensus on advocating unconstrained capital flows is weakening. The International Monetary Fund2 believes that under certain circumstances, the cost of the free flow of capital outweighs the benefits. Judging from historical experience, the risk of a country that completely opens its doors to foreign investment is far greater than the return on economic growth. The free flow of capital is closely related to the exchange rate. The free flow of capital will inevitably have an impact on the market of domestic exchange rates, and the stability of the exchange rate directly affects foreign trade and the domestic economy. Economist Keynes believes that fully free-flowing capital not only threatens financial stability, but also affects the balance between full employment and price stability. The instability of the exchange rate will have an uncertain impact on international trade, which in turn will affect the domestic economy. From 2

International Monetary Fund: Neoliberalism: Excessive Boasting?

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historical experience, if capital is allowed to flow completely freely, financial markets are extremely vulnerable to optimistic expectations and pessimistic expectations, and arbitrages will cause exchange rate fluctuations. In this case, the system of a fixed exchange rate will essentially exist in name only. The United Kingdom in the 1970s, the Latin American countries in the 1980s and Europe and Asia in the 1990s were all attacked by foreign exchange speculators under the free flow of capital, leading to financial crises. Under the condition of free flow of capital, the monetary policies of various countries will cause the global flow of capital, and domestic monetary policies will inevitably be affected. If other countries implement loose monetary policies with low interest rates but we want to raise interest rates to shrink the amount of money, relatively high interest rates will attract capital inflows, which will offset the effect of monetary policy to some extent. Conversely, if other countries implement monetary policies with high interest rates but we cut interest rates, we will face capital outflows. In an open economy, the impact of financial behavior is complex. In the institutional reform experiment of pilot free trade zones, the capital account and exchange rate are difficult problems for financial reform. On the one hand, opening-up means the free flow of people, money and materials; on the other hand, opening-up does not mean leaving everything to the market. This is because the market mechanism has its limitations, and currency as a medium of exchange requires a certain degree of stability, which is contrary to the free flow of capital and the marketization of exchange rates. We are not opening up for the sake of opening up. The purpose of opening up is to develop the economy and improve people’s living standards and quality. Therefore, the innovation of an open economic system also takes this purpose as its purpose and puts the stable development of the domestic economy in the first place. Globalization should respect the national conditions of each country, and financial openness with supervision is a wise choice. The control of risks should be put in the first place in opening-up. For the short-term capital flow, it is necessary to further improve the institution of risk supervision for dealing with arbitrage. So far, in several global or regional financial crises, China has not been significantly affected, which shows the reasonability of its financial system to a certain extent. Therefore, while intensifying opening-up, it is necessary to build a regulatory and risk-controllable mechanism for the free flow of capital with Chinese characteristics. In order to adapt to changes in new technologies, changes in the balance of power in international relations, and changes in the balance of economic power among powerful countries, the rules of the game will be adjusted accordingly at regular intervals. Changes in naval power are the most powerful factors affecting business development and world trade, and in turn, changes in the world economy.

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References Economic Daily: Globalization Is Unstoppable, and No Winners in Trade War https://news.sina. com.cn/c/2019-06-21/doc-ihytcerk8282900.shtml. Fan Xiaowen, China’s Pilot Free Trade Zone and an Institutional Reform for a Comprehensive Open Economy, Studies on China’s Special Economic Zones, 2015(1). http://www.china-shftz.gov.cn/Homepage.aspx. Robert · C. Allen, translated by Lu Yun, Global Economic History: A Very Short Introduction (Chinese edition), Yilin Press, January 2015.

Chapter 5

Functional Evolution of the Guangdong-Hong Kong-Macao Greater Bay Area and Hong Kong’s Role Switching Chao Ji and Zhilan Li

For a long time, the economic and trade cooperation between Hong Kong and mainland has been very close. In the Guangdong-Hong Kong cooperation system, Hong Kong is positioned as a financial center, trade center, and commercial center. In March 2017, Premier Li Keqiang proposed in the Report on the Work of the Government for the first time to deepen cooperation between Guangdong, Hong Kong and Macao, and further enhance the status and function of the Guangdong-Hong Kong-Macao Greater Bay Area in national economic development and opening-up. The development plan for the Guangdong-Hong Kong-Macao Greater Bay Area urban agglomeration was formulated in the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (hereinafter referred to as the Outline) officially issued by the Central Committee of the Communist Party of China and the State Council in February 2019, which showed that the development of the Greater Bay Area has become a national strategy. This was also the first time that Hong Kong and Macao were included in the national overall strategic plan for development. Compared with the coordinated development of the Beijing-Tianjin-Hebei Region Ji Chao, Associate Professor in Xuchang University, Post-doctorate at City University of Hong Kong. Main research direction: economic growth and government governance. Li Zhilan, Professor in the Department of Public Policy, City University of Hong Kong, Doctoral Supervisor, Director of the Research Center for Sustainable Hong Kong and convenor of the Research Hub for Sustainable Hong Kong. Her research areas include effective governance, central-local relations, government reform, and cross-border cooperation. Fund projects: 2017 Xiangjiang Scholars Talent Plan: Hong Kong Professional Services and the Belt and Road: Promote Sustainable Innovation and Initiative (No. XJ2017004); 2018 University Science and Technology Innovation Talent Plan of Henan Province (Humanities and Social Sciences) (project number: 2018-cx-029). C. Ji (B) · Z. Li Henan Center for Research on the Theoretical System of Chinese Characteristic Socialism, Xuchang 461000, Henan Province, China e-mail: [email protected] Department of Public Policy, City University of Hong Kong, Kowloon, Hong Kong 999077, China © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_5

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and the integrated development of the Yangtze River Economic Belt, the Outline particularly emphasized the role of the Greater Bay Area in promoting China to deepen reforms and the building of the Belt and Road Initiative. This marked a major change in Hong Kong’s role and positioning in the new era, as well as major changes in the regional relationship and coordination mechanism between Hong Kong and the mainland. In order to better understand the current positioning of Hong Kong in the Greater Bay Area, and to better promote the building of the Greater Bay Area and the sustainable development of Guangdong, Hong Kong and Macao, this paper first analyzes the concept and functional evolution of the Greater Bay Area from the perspective of policy and practice. On this basis, a new perspective beyond regional development is proposed, focusing on the analysis of Hong Kong’s new positioning from the perspective of reform strategies. The core is to make good use of Hong Kong’s institutional diversity under the framework of “One Country, Two Systems”, so as to promote the system and mechanism reforms in the Greater Bay Area and further drive forward the deepening of reforms in the whole country.

5.1 Identification of the Concept of the Guangdong-Hong Kong-Macao Greater Bay Area The Guangdong-Hong Kong-Macao Greater Bay Area is an urban agglomeration composed of the nine cities and two regions in the Pearl River Delta, including nine adjacent cities (Shenzhen, Dongguan, Huizhou, Guangzhou, Foshan, Zhaoqing, Jiangmen, Zhongshan, and Zhuhai) in Guangdong Province and the two special administrative regions of Hong Kong and Macao. The Greater Bay Area has a land area of 56,000 km2 , a total population of nearly 70 million at the end of 2017, and a regional GDP of nearly 10 trillion yuan. It is one of the areas with the highest degree of openness and the strongest economic vitality in China.1 The Greater Bay Area has always been regarded as a growth nucleus of the economy, a core impetus and an innovation hub. The New York Bay Area, the San Francisco Bay Area and the Tokyo Bay Area are currently recognized as three bay areas that have formed scale effects. The international literature for bay areas mainly focuses on regional economic development and is in a deep-rooted economic analysis paradigm. Many of China’s domestic scholars usually directly apply the international analysis paradigm when discussing the Guangdong-Hong Kong-Macao Greater Bay Area. Once the perspective for the analysis of regional integration is followed, the institution of “One Country, Two Systems” in Hong Kong and Macao will inevitably hinder the overall development of the Greater Bay Area. There are much talk about the fact that Guangdong, Hong Kong and Macao cannot make any unique contributions or innovative breakthroughs at the governance level under the existing institution. In order to bridge differences among institutions, a coordinated legislative mechanism is 1

Source: Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area http://www.gov.cn/zhengce/2019-02/18/content_5366593.htm#1.

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recommended to eliminate various “exceptions” (Yizhou 2018) under “One Country, Two Systems”. Some scholars also propose setting up special experimental areas or formulating “regional cooperation laws” to promote cooperation (Liang and Dongming 2018; Zuixin 2018; Yu 2018). In the recent literature on the Greater Bay Area, another focus is on the comparison of cities in the Greater Bay Area and the competition for the top (Wenjuan et al. 2018; Chenglin 2018). The official goal of the Greater Bay Area is the cooperation of member cities based on common interests, as well as to establish mutual benefit and win–win regional cooperation, but in practice, many people are concerned about inter-city competition, which deviates from the original intention. If the Greater Bay Area is only regarded as a regional development plan, it is easy to emphasize “integration”. The goal is to integrate and unify the original diversified institution and differences in the practices of each member city to promote the free flow of economic elements. Therefore, the institutional differences under “One Country, Two Systems” (including tariffs, trade, foreign exchange, justice, taxation, etc.) will inevitably be regarded as institutional barriers (Xi 2018), and deep-rooted institutional differences will also become the source of various differences among cities. This will restrict coordinated development in the Greater Bay Area eventually. For example, some people believe that under the policy framework of the Greater Bay Area, the high degree of autonomy enjoyed by the Hong Kong and Macao SAR governments in terms of independent planning may greatly diminish, thus harming the interests of Hong Kong and Macao (Yunfu and Zhong 2018). However, this paper believes that the negative impact of institutional differences under “One Country, Two Systems” on inter-city cooperation is likely to be exaggerated. For instance, many people believe that the border control between Hong Kong, Macao and the mainland cities hinders the flow of technology R&D personnel, but this difficulty can obviously be overcome by measures such as remote communication established through modern information technology. In fact, if higher education institutions and R&D institutions in Hong Kong and Macao can play a key role in guiding the upgrading of the regional industrial chain, then the institutional cost of obtaining the high-tech production factors will be almost negligible. In view of the regional development perspective on coordinating the principle of “One Country, Two Systems”, especially the difficulty and limitations at the practical level, we need to try to understand the Greater Bay Area from another perspective. This paper believes that the Greater Bay Area is not only a regional development plan, but it can also play a new role in the country’s comprehensive deepening of reform and opening-up. There is still a lot of room for Hong Kong to promote the common development of cities in the Greater Bay Area by virtue of “One Country, Two Systems” and to help advance reform and opening-up in the hinterland of China, and the advantages and potential of “One Country, Two Systems” are far from being fully released. Through the multiple institutions of the Greater Bay Area, Hong Kong’s advantages can integrate with the needs of the country. In any case, “One Country, Two Systems” has always been the biggest institutional dividend and basic prerequisite for the construction of the Greater Bay Area. Hong Kong also has extensive experience in the legal system, protection of private property, and the protection

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of basic rights and freedoms of citizens. Hong Kong under the “One Country, Two Systems” will surely promote the sustainable development of the Greater Bay Area and lead the deepening of the reform of the system and mechanism throughout the country.

5.2 Functional Evolution of the Guangdong-Hong Kong-Macao Greater Bay Area If the academic community’s understanding of the Greater Bay Area is still limited to the perspective of regional development, and that of promoting the free flow of capital and population through the liberalization of trade in goods and services, the Greater Bay Area has actually already taken greater steps in promoting national reforms at the practical level. Judging from the nearly 40 years of experience in cooperation and development in Guangdong, Hong Kong and Macao, Guangdong Province is embodied as a development path of “make opening-up a catalyst for reform”. Under the specific domestic and foreign environment at that time, Guangdong Province grasped the opportunity to achieve leapfrog development by integrating into the world division of labor as soon as possible through opening-up and cooperation, and Guangdong, Hong Kong and Macao achieved win–win cooperation. At the same time, this open cooperation has also contributed to the construction of the institution and the development of productive forces for the national economy, and has provided a practical basis for China to establish a socialist market economic system. However, as the economic development of the Greater Bay Area has reached a high level and the overall development environment at home and abroad has changed, the Greater Bay Area is no longer the only growth pole in China, and it becomes less attractive to factors such as foreign capital and labor. It is no longer possible for the Greater Bay Area to increase factor productivity simply through changes in the industrial structure or the introduction of foreign technologies and systems, and the current growth mode has adaptability problems. In this case, the Greater Bay Area must shift from the “speed” and “total value” of economic development in the past to the “length” and “quality” of development, and from “making opening-up a catalyst for reform” to “making reform a catalyst for opening-up”. Taking the initiative to reform and exploring the division of labor and cooperation among Guangdong, Hong Kong and Macao in the new era has become the new function and mission of the Greater Bay Area. 1. The First Stage: Cooperation in the Economic Field Intercity cooperation in the Greater Bay Area has a long history, which can be traced back to the earlier development of the Pearl River Delta region. Before the return of Hong Kong and Macao and in the early days of the return, the institutional differences between the cities in the Greater Bay Area were greater than the current ones, and the two sides were very unfamiliar with each other’s political, economic and social systems, and the transaction costs were obviously higher than the current

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ones. However, this did not affect the cooperation among Guangdong, Hong Kong and Macao, and this difference instead created a highly complementary and coordinated division of labor among the three places. In the early implementation of the policy of reform and opening-up in the late 1970s, coastal cities in Guangdong actively developed the secondary industry relying on their low-cost advantages, and Hong Kong and Macao, which were highly internationalized, were in the process of transforming to the tertiary industry. Therefore, Guangdong, Hong Kong and Macao (mainly in Hong Kong) quickly formed a cooperation model of “front store and back factory” (Guanghan and Yang 2018). Guangdong obtained a large amount of capital, technology, talents and international management experience from Hong Kong and Macao, and accumulated a large number of production factors. Therefore, it quickly became the world’s leading manufacturing center, and the national economy had achieved leapfrog development. Hong Kong and Macao further developed modern production and life service industries such as finance, professional services, tourism and leisure. Each of the three parties took what they needed to achieve a win–win situation. After the return of Hong Kong and Macao to the motherland in 1997 and 1999, the central government and the Hong Kong and Macao SAR governments continued to work to strengthen the cooperation between the newly established Hong Kong and Macao SAR and the inland areas of Guangdong Province. In 2003, the Hong Kong and Macao SAR governments signed the Closer Economic Partnership Arrangement (CEPA) with the central government. Subsequently, a series of follow-up agreements on trade in goods, trade in services, economic and technical cooperation, and investment facilitation were signed. In the following years, the Hong Kong and Macao SAR governments and the Guangdong provincial government continued to update and improve the framework on a regular basis. In general, the cooperation between Guangdong, Hong Kong and Macao during this period was mainly concentrated on regional development,2 and the achievements of cooperation on the economic level were very significant. The three places of Guangdong, Hong Kong and Macao also achieved leapfrog development and established a deep foundation for division of labor and cooperation, and their economic development rose to new heights. Meanwhile, the cooperation among Guangdong, Hong Kong and Macao objectively promoted the reform of the economic system in the hinterland of Guangdong, and promoted China’s transformation from a planned economic system to a market economic system. It not only opened the door to China’s opening-up, but it also made important contributions to the progress in China’s overall institution. 2. The Second Stage: From Economic Cooperation to Social and Environmental Cooperation By 2008, the concept of the Bay Area began to emerge. If the previous framework of Guangdong-Hong Kong-Macao cooperation was more focused on economic development, then Guangdong, Hong Kong and Macao during this period have taken 2

See the Closer Economic Partnership Arrangement (CEPA) for details.http://tga.mofcom.gov.cn/ article/zt_cepanew/.

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steps towards broader cooperation. In 2008, the National Development and Reform Commission proposed the Study on the Action Plan for the Bay Area of the Pearl River Estuary to strengthen the cooperation between the Pearl River Delta region and Hong Kong and Macao.3 In April 2010, the National Development and Reform Commission further launched the Framework Agreement on Hong Kong/Guangdong Cooperation, hoping to guide and coordinate the functional layout, ocean development and land utilization of the region through the establishment of a regional industrial core, an ecological core, a transportation hub and a multicultural integration zone with a clear action plan, so as to create a livable Bay Area around the Pearl River Estuary.4 In 2011 and 2014, the Study on the Action Plan for the Bay Area of the Pearl River Estuary underwent two public consultations in Hong Kong, Macao and Guangdong. The focus of discussion included how to improve ecological management and transportation networks, as well as provide more diversified leisure spaces, better protection of cultural relics, stronger innovation capabilities and more comprehensive public services, and ultimately improve the quality of the life of local residents. It can be seen that at this stage, the cooperation among Guangdong, Hong Kong and Macao has gradually expanded from economic development to social, environmental and ecological fields, and the embryonic form of a Bay Area unity covering more dimensions has gradually emerged. 3. The Third Stage: Collaboration in the Field of Reform and Innovation In March 2015, the National Development and Reform Commission, the Ministry of Foreign Affairs and the Ministry of Commerce jointly published the Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road white paper. The official first clearly proposed the concept of the “Greater Bay Area”. One of the tasks for China’s coastal areas to be more proactive and open is to create the Guangdong-Hong Kong-Macao Greater Bay Area. In addition to Qianhai, Nansha and Hengqin, the surrounding “open cooperation zones” outside the Pearl River Delta, such as Pingtan, Fujian, were also listed as priority areas for deepening cooperation with Hong Kong, Macao and Taiwan. At this stage, the concept of the Greater Bay Area has gradually surpassed the scope of regional development in the Pearl River Delta, and has been given a higher national strategic significance.5 In March 2016, the State Council issued guidelines on deepening cooperation in the “Pan-Pearl River Delta” region, covering Guangdong, Fujian, Jiangxi, Guangxi, Hainan, Hunan, Sichuan, Yunnan, Guizhou and the two special administrative regions of Hong Kong and Macao. The Greater Bay Area was immediately defined as a “world-class city cluster”, which would focus on driving forward the development

3

See the Study on the Action Plan for the Bay Area of the Pearl River Estuary for details. See the Framework Agreement on Hong Kong/Guangdong Cooperation for details. http://www. hmo.gov.cn/hzjl_new/jmhz/201711/t20171117_1247.html. 5 See the Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road for details.http://www.ndrc.gov.cn/gzdt/201503/t20150330_669162.html. 4

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of China’s south-central and southwestern regions.6 Since then, the concept of the Greater Bay Area was formally written into the 13th Five-Year Development Plan7 issued in the same month, and has become an important part of the national development strategy since then. In the 2017 and 2018 annual government work reports, the drafting of the development plan of the Greater Bay Area began to be repeatedly mentioned, reflecting more attention to the Greater Bay Area by the country (Zhilan and Yuqing 2018). In July 2017, the National Development and Reform Commission and the governments of Guangdong, Hong Kong and Macao signed the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area, which aimed at strengthening cooperation among Guangdong, Hong Kong and Macao and jointly developing the Greater Bay Area. The goal was to “implement comprehensively and accurately the principle of ‘One Country, Two Systems’, perfect the innovative cooperation mechanism… jointly advance the construction of the Guangdong-Hong Kong-Macao Greater Bay Area”, and the cooperation principles included “guided by opening up, driven by innovation”, “complementary advantages, win–win cooperation”, “market-led, government-driven”, “early and pilot implementation, making breakthroughs in key points”, “ecology first, green development”. In addition, the key areas of cooperation and institutional arrangements in the Greater Bay Area were also clarified.8 In February 2019, after more than two years of drafting, the State Council officially released the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area. The goal of the Outline is to develop the Greater Bay Area into “a world-class bay area and a world-class city cluster” by 2022, and to form an “innovation-based economic system and development model” in the Greater Bay Area by 2035. Hong Kong, Macao, Guangzhou, and Shenzhen have been identified as four central cities, and the other 7 cities have been positioned as node cities. According to the Outline, the Greater Bay Area will be built as an important economic supporting belt with Guangdong, Hong Kong and Macao as the leader and the Pearl River-Xijiang Economic Belt as the hinterland, driving the development of China’s central and southwestern regions and radiating Southeast Asia and South Asia.9 Comparing the 2017 framework agreement with the 2019 outline development plan, it is not difficult to find that the latter pays more attention to the role of “One Country, Two Systems”. In the framework agreement, the comprehensive and accurate implementation of “One Country, Two Systems” is only part of the goal, and it 6

Source: Guideline of the State Council on Deepening Pan-Pearl River Delta Regional Cooperation http://www.gov.cn/zhengce/content/2016-03/15/content_5053647.htm. 7 See the Outline of the Thirteenth Five-Year Plan for National Economic and Social Development of the People’s Republic of China for details.http://www.ndrc.gov.cn/fzgggz/fzgh/ghwb/gjjh/201 605/P020160516532684519514.pdf. 8 See the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area for details.http://www.pprd.org.cn/fzgk/hzgh/201707/t20170 704_460601.htm. 9 Source: Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, http://www.gov.cn/zhengce/2019-02/18/content_5366593.htm#1.

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Table 5.1 Main principles of relevant policy documents in the Greater Bay Area 2017 framework agreement

2019 outline development plan

• • • •

• Driven by innovation, guided by reform • Coordinated development, overall planning and all-round consideration • Green development, ecological protection • Open cooperation for mutual benefit • Shared development, improving people’s livelihood • One Country, Two Systems, acting by law

Guided by opening-up, driven by innovation Market-oriented, government-driven Ecological first, green development Complementary advantages, win–win cooperation • Early and pilot implementation, making breakthroughs in key points

Source Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area; Outline Development Plan for the Guangdong-Hong KongMacao Greater Bay Area

is not emphasized. In contrast, the guiding ideology of the outline development plan not only emphasizes “fully understanding and using the advantages of the system of ‘One Country, Two Systems’, the unique advantages of Hong Kong and Macao, and the strengths of early and pilot implementation in the process of Guangdong’s reform and opening-up”, but it also emphasizes the importance of the principle of “One Country” and the differences of “Two Systems” time and again. If we understand the Greater Bay Area from the perspective of reform and national development rather than just regional development, the role and effect of Hong Kong and Macao in the times will be better understood (Table 5.1). In summary, bold exploration and practice are always the mission of the Greater Bay Area. Whether it is the Pearl River Delta in the early days or the GuangdongHong Kong-Macao Greater Bay Area in the new era, the Greater Bay Area has always been the pioneering explorer and practitioner of China’s reform and openingup. Therefore, Guangdong, Hong Kong and Macao have always joined hands to explore new development paths, constantly break through the shackles of traditional institutions, and provide a preliminary experiment for the overall transformation and development of China’s economy and society. Obviously, to absorb and learn from the international advanced system practices and the civilizational achievements created by the institution, and then to improve, test and promote them on this basis is the institutional practice path in the period of collaborative development in the Pearl River Delta region. In this process, the primary content of institutional practice in the Pearl River Delta is the selection and introduction of institutions, followed by institutional innovation based on introduction and absorption. However, when the overall cooperation among Guangdong, Hong Kong and Macao reaches a high level, it will be difficult for the Hong Kong and Macao regions with a higher overall level of development and Guangdong Province with a larger volume and a wider hinterland, or even other developed countries to directly provide the Greater Bay Area with readymade institutions that meet the needs of development. Simple learning, introduction and imitation are obviously difficult to complete the task of institutional innovation and deepening reform. Therefore, when China’s reform and opening-up has entered a higher stage (namely, when it is more necessary to establish an institution that suits its

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own national conditions on the basis of the existing institution), the Guangdong-Hong Kong-Macao Greater Bay Area came into being. The mission of the Greater Bay Area in the new era began to further deepen reform and make independent innovation, as well as to explore all-round reforms in the economic, social and political fields, so as to achieve the goals of sustainable high-quality development, legalization, and happiness in people’s livelihoods eventually.

5.3 Hong Kong’s Advantages in the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area As an international financial, shipping, and trading center, Hong Kong has many advantages in financing, commerce, logistics, professional services, international asset management, international law and dispute resolution, and social governance. Therefore, it can develop in coordination with cities in the Greater Bay Area, and coordinate with the Belt and Road Initiative and supply-side reforms. In fact, since the reform and opening-up, Guangdong and Hong Kong have worked hand in hand to break through many institutional barriers under the banner of national strategy and explore many innovative paths. In terms of institutional differences, it was definitely greater in the initial stage of reform and opening-up than it is now. However, Hong Kong has played an active role in the establishment of the Shenzhen Stock Exchange in Guangdong, the public auction of the first piece of land in China, and even the promotion of the shareholding system and dividends of state-owned enterprises. It can be said that the cooperation between the capitalist system implemented in Hong Kong and the market economy under the socialist system of Guangdong is the key to the real take-off of Guangdong and Hong Kong’s economy. This has also made Guangdong the vanguard of China’s reform and opening-up. Many policies were implemented and promoted across the country after the success of Guangdong’s first trial (Zhilan and Yuqing 2017). Compared with other cities in the Greater Bay Area, Hong Kong’s advantage lies not only in its large economy and high level of development, but also in its implementation of a system different from that of the mainland. The reason why Hong Kong can develop from a small fishing village into the Pearl of the Orient with a world-leading position is that in addition to its unique historical conditions and geographical advantages, it is more important for its fine traditions, core values, institutional culture (such as respect for human rights, inclusiveness and diversity, freedom and equality, rule of law, etc.), and excellent business environment, which are permeated in all aspects of Hong Kong society. Specifically, Hong Kong’s advantages mainly include, but are not limited to, the following aspects: 1. System Advantage If we re-examine the role of the Guangdong-Hong Kong-Macao Greater Bay Area in the overall development of the country from the perspective of strategic integration,

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the institutional differences under “One Country, Two Systems” will become Hong Kong’s unique advantages. The regional collaboration based on the two systems will provide reference for the deep cooperation between cities in the Greater Bay Area. With the development of China’s economy to a certain level, the hardware environment has been greatly improved. In the new era, China needs to strengthen the construction of soft power, especially the modernization of national governance and the construction of rule of law. Hong Kong can take advantage of its institutional advantages to encourage the Guangdong-Hong Kong-Macao Greater Bay Area to take the lead in this regard and make up for the weakness of the soft power of the mainland in institutional and cultural aspects. Hong Kong’s diversified systems will play a positive role in enhancing China’s ability to handle business disputes, follow international standards, improve business efficiency and corporate social responsibility, and ease social conflicts. By giving full play to Hong Kong’s open platform and demonstrative role, it can help the nine cities in the Pearl River Delta to accelerate the establishment of institutional rules that are compatible to international high-standard investment and trade rules, assist the Greater Bay Area to take the lead in carrying out reforms that meet advanced international standards, give full play to the market’s decisive role in the allocation of resources, reduce administrative intervention, and strengthen comprehensive market supervision, so as to form a stable, fair, transparent, and predictable first-class business environment as soon as possible. 2. Opening-up Advantage As an international metropolis, Hong Kong is very open. From the 1970s to the 1980s, China began to use the Hong Kong platform to attract foreign investment and trade in goods, boldly attempting to reform and open up. The 40 years of cooperation and development experience in Guangdong, Hong Kong and Macao have confirmed the importance of opening up to regional prosperity. Guangdong, Hong Kong and Macao have moved from isolation to openness and cooperation, and toward close integration with the international market. Each step of its growth is closely related to the division of labor in the world, and Hong Kong’s role in it is indispensable. The international division of labor has created conditions for the leapfrog development of the Greater Bay Area. The Greater Bay Area has seized this opportunity to establish and develop its own industrial system through actively integrating into the international market and undertaking international industrial transfers, resulting in the continuous improvement of regional integration. The continued opening-up is a necessary condition for deepening reforms in the Greater Bay Area as well as in China as a whole. In the post-globalization era, with the rise of local protectionism and nationalism, the process of globalization has begun to encounter obstacles, and the global division of labor system and governance order are facing new changes. The Greater Bay Area must respond to the situation, integrate regional forces, and actively explore new mechanisms for the integration of development and mutual promotion between reform and opening-up, so as to promote the process of globalization and regional integration with a new attitude. This requires the central government to give better play to Hong Kong’s functions and role in China’s opening-up, improve the level of the development of the open economy of the nine cities in the Pearl

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River Delta, promote the effective alignment of domestic and international markets and resources, and make Hong Kong an important support for the Belt and Road Initiative. 3. Innovation Advantage It is believed in the theory of organizational institutionalism that the endogenous forces for reform are usually generated in the field of institutions that present multiple and contradictory characteristics. The root causes of internal system changes and resistance are likely to lie in their contradictions (Friedland and Alford 1991), and the innovative ideas are often produced in the marginal area of the system field, because only there, is the influence of the system less entrenched (Greenwood and Suddaby 2006). This is the fact that the institutional differences of “One Country, Two Systems” have nurtured innovation, making the Greater Bay Area a pioneer in China’s reform experiment. In the future comprehensive deepening of reform, Hong Kong will still be able to provide China with innovative solutions to cope with internal and external challenges and pressures. As the pioneer area of China’s reform and opening-up, the Greater Bay Area took the lead in breaking through the shackles of the traditional system in the early 1980s. The system transformation from a planned economy to a market economy promoted the rapid rise of Guangdong, Hong Kong and Macao in the last century. The formation of adaptive institutional innovation through deepening reforms is the key to Guangdong’s action of taking the lead in breaking the traditional rigid development mode, and it is also the reason why Guangdong has become a national experimental window. In the new era, in order to further realize an effective institutional supply, it usually requires the joint efforts and cooperation of most members of the society. If the social and non-governmental cohesion is strong, the conditions of equilibrium for efficient and reasonable use of resources will be greatly relaxed, and most members of the society will be more likely to achieve new and effective institutional supply through cooperation (Yiming and Chao 2014). In this regard, Hong Kong has strong non-official organizations such as social organizations, which provides conditions for the gathering of social forces. Strong civil society and social forces also help restrain excessive government intervention, help restrain special interest groups’ monopoly on the market, promote the free flow of factors and cross-sectoral reallocation. This is another unique feature that distinguishes Hong Kong from other regions. In addition, Hong Kong also has good advantages in higher education and basic research. According to the Times Higher Education, 5 universities of Hong Kong were among the top 50 of the 2019 Asian University Rankings, which lays the foundation for university cooperation, talent training, and technological innovation in the Greater Bay Area. 4. Industrial Advantage In addition, Hong Kong’s industrial advantages are also significant, which has laid the foundation for the division of labor and cooperation in the Greater Bay Area. First of all, as a world-class financial center, Hong Kong can become a platform for seeking international commercial financing in the Greater Bay Area and the Belt and Road Initiative projects. The enterprises on the mainland can also attract foreign sovereign

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funds, private equity funds or other private investors via Hong Kong, which not only facilitates the project to raise diversified funds, but it also provides a platform for foreign investors to participate in the development of the Greater Bay Area. This helps to implement the cooperation concept of extensive consultation, joint contribution and shared benefits. Secondly, Hong Kong can also build an internationally recognized green bond certification body to provide a green project bond issuance platform for qualified Chinese and foreign enterprises. Third, Hong Kong is also a world-recognized hub for international arbitration and mediation. As a leading international dispute resolution center, Hong Kong has rich mediation experience. The mediators of Hong Kong can use English, Cantonese and Chinese to mediate, and can manage the multifaceted and complex nature of cross-border disputes. With the vigorous development of cross-regional commercial affairs and investment in the Greater Bay Area in the future, Hong Kong, with its rich experience in handling cross-border disputes, will provide support for the development of mediation in the Greater Bay Area. In addition, as an international financial center, Hong Kong is also a well-known hub for the resolution of financial disputes. For example, the Financial Dispute Resolution Center (FDRC) provides independent mediation and arbitration services for financial institutions and public investors. In addition, Hong Kong also has significant comparative advantages in common law traditions, rule of law concepts, and legal frameworks. It also has an internationally benchmarked certification system and professional skills in accounting and other professional services. These are the essential factors for the continuous development of the Greater Bay Area.

5.4 Hong Kong’s Positioning in the Guangdong-Hong Kong-Macao Greater Bay Area Under the new situation, China needs to continuously enhance its national soft power and improve its institutional construction. Guangdong Province also needs to explore this aspect and try it out first. In this process, Hong Kong can play an active role in making up for the mainland’s weakness in soft power such as the system and culture. As long as Hong Kong and Guangdong make good use of the national strategy of the Greater Bay Area and elevate traditional inter-regional cooperation to another level, they can once again provide a pioneering experience for the country to respond to the challenges of the times. 1. The Promoter of In-depth Institutional Reforms in the Greater Bay Area At present, China’s economic development is facing some structural and systemic contradictions and problems that have accumulated over a long period of time. The Greater Bay Area will be the first to advance structural reforms so that the supply system can better adapt to changes in the demand structure, thus playing a demonstrative role for the country. Hong Kong can play an important role in the process:

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The first thing is to learn from Hong Kong’s experience to advance the reform of the business environment. The Hong Kong government’s management of the market is not direct control and administrative intervention. Instead, it uses clear laws and regulations to guide enterprises to self-discipline. Enterprises are completely autonomous in the broad scope of the law, and once the enterprise violates the law, it will be clearly punished in accordance with the law to maintain a healthy market order. These institutional experiences based on the rule of law are conducive to Guangdong’s promotion of the supply-side structural reform that includes government reforms, and to providing a fair environment for the effective operation of enterprises and competition among enterprises. The second thing is to promote the construction of a modern system of corporate governance. Corporate governance is currently an important topic of concern to all walks of life around the world. In the new era, business disputes and lawsuits triggered by issues such as environmental protection, labor rights and consumer safety have further increased the difficulty and complexity of corporate governance, especially manufacturing enterprises. Hong Kong has relatively complete regulations on environmental, social and corporate governance. For example, since 2016, listed enterprises in Hong Kong must disclose in detail the relevant situation of the enterprise in accordance with the Guidelines on Environmental, Social and Governance Reporting issued by the Hong Kong Stock Exchange. This has had a positive impact on building a monitoring and evaluation system for corporate social responsibility and improving the transparency of information regarding corporate social responsibility. In addition, Hong Kong’s professional services, especially the accounting industry, have rich professional knowledge and experience in the field of corporate governance, which can assist enterprises in the Greater Bay Area in establishing a sound structure of corporate governance, in formulating guidelines, providing training, and promoting the effective implementation of corporate social responsibility, so as to reach sustainable development. The third is to strengthen cooperation and innovation in the financial field. The strong fund-raising and financing capabilities reflect the unique advantages of Hong Kong’s financial system. This not only helps Guangdong enterprises to grow, but also provides a new channel for solving the financing problems of small and medium-sized enterprises, and it also provides a reference for financial institutional reform in the Greater Bay Area. For example, the Hong Kong Stock Exchange continues to review the enterprise listing mechanism, and continues to provide more flexible capital raising channels for growth-stage enterprises with deep development potential. As the region with the largest number of start-ups in the country, strengthening the Greater Bay Area’s cooperation in the financial field, continuously innovating the reform of the financial system and mechanism, and creating more financing channels for enterprises are the keys to the sustainable development of the Greater Bay Area. The fourth is to promote judicial reform in the Greater Bay Area. Hong Kong has extensive experience in the judicial field. For example, the City University of Hong Kong has been providing systematic professional training courses for judges on the mainland for more than ten years. For example, as early as 2016, the Qianhai Court appointed 13 Hong Kongers as jurors (including people from the legal and other

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professional sectors) to assist the trial judge in handling foreign-related commercial litigation, and Hong Kong’s law was used with the consent of both parties in the litigation to settle disputes and to arbitrate. The Greater Bay Area can rely on Hong Kong’s judicial advantages to strengthen the cooperation on judicial education in order to further explore how to appropriately expand and deepen the content and scope of cooperation, and jointly improve and promote the experience of Qianhai. The fifth is to promote the collaborative governance of society in the Greater Bay Area. In recent years, Guangdong has actively promoted the transformation of the government and explored how to better provide public services. Hong Kong’s experience in diversified social governance has important reference significance for Guangdong. Hong Kong has maintained a relatively free social form for a long time and has rich experience in social collaborative governance. Highly autonomous social organizations and industrial associations have become important parts of social governance, and when they regulate their own industrial behavior, they also provide some public services to the society. Hong Kong is also one of the cities with the highest concentration of non-governmental organizations (NGOs) in the world. The development of non-governmental and social organizations can ease the government’s limited resources and more sustainably respond to complex social governance needs. In addition, Hong Kong’s social worker registration system leads the world. Hong Kong began to send senior social workers as supervisors in 2007 to assist Shenzhen in establishing a social worker registration system. After 10 years, the number of social workers in Shenzhen jumped from more than 30 to several thousand, an increase of more than 100 times. How to more effectively help more cities in the Greater Bay Area train professional social workers will in turn open up more service areas for social welfare organizations in Hong Kong, which is also an important direction for the collaborative development of the Greater Bay Area. 2. The Source of High-tech Development and Independent Innovation in the Greater Bay Area The overall development of the Greater Bay Area has reached a considerable height. The development of high-tech industries, enhancement of China’s independent innovation capabilities, and continuous advancement of the shift in production possibilities are the inevitable directions for the sustainable development of the Greater Bay Area. In this process, Hong Kong, with its open and tolerant cultural atmosphere, good rule of law, and high-level university clusters, can assume the function of a creative source and a talent pool for the construction of an international science and technology innovation center. First, technological innovation is highly dependent on human creativity. Hong Kong’s broad international perspective and relaxed cultural atmosphere have cultivated a soil conducive to inspiration and free exploration. The number of highly cited papers published by Hong Kong scientific and technical personnel has long ranked first in the cities of the Greater Bay Area, reflecting its advantages in basic research. Second, the transformation of ideas into products is inseparable from all-round talent support such as high-quality technology, industry, and professional services. Hong Kong happens to have the world-class

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university cluster with the highest density in China, which can continuously cultivate and transport a large number of outstanding talents to the Greater Bay Area. This provides important support for the transformation of scientific creativity into products. With the deepening of the degree of interaction in the Greater Bay Area and Hong Kong’s increasing emphasis on the technology innovation industry, Hong Kong has the ability to nurture new areas of strength from its existing areas of strength, and explodes with more energy in fostering creativity, transforming scientific and technological achievements, training and attracting innovative, entrepreneurial and industrial technical personnel. 3. An Important Platform for Enterprises in the Greater Bay Area for Participating in the Belt and Road Initiative In the new era, China’s opening-up and regional coordinated development have entered a new stage. The Guangdong-Hong Kong-Macao Greater Bay Area strategy, the Beijing-Tianjin-Hebei coordinated development strategy, the Yangtze River Economic Belt construction strategy and the Belt and Road Initiative have jointly built a pattern for China’s domestic and international connectivity. Its internal structural connection is intensively reflected in: the development of the Guangdong-Hong Kong-Macao Greater Bay Area having a unique strategic role in the construction of the Belt and Road Initiative. On the one hand, the Guangdong-Hong Kong-Macao Greater Bay Area, which is known for its internationality, openness, and diversity, is an organic part of the construction of the Belt and Road Initiative. On the other hand, the unique advantages of the Greater Bay Area are also a key resource for the “Belt and Road” in moving from “initiative” to “action”. The first step is to take advantage of Hong Kong’s platform to integrate internationally. In the course of the “Belt and Road” construction, enterprises in the Greater Bay Area and even in China must learn to make full use of the advantages of Hong Kong’s professional services and reduce the risk of going global through corporate collaboration. For Chinese enterprises aiming to “go global”, they can also consider registering and setting up branches in Hong Kong first, and carrying out foreignrelated business affairs in Hong Kong, because Hong Kong has already established business cooperation and exchanges with many overseas countries, which makes more convenient docking. This is an effective model of “going global” that many state-owned enterprises have summarized over the years. The second is to expand the role of Hong Kong as an international arbitration center. In the process of advancing the construction of the “Belt and Road”, the number of foreign-related commercial legal disputes will inevitably increase day by day. It is urgent to establish an effective mechanism for the resolution of disputes. This is not only an objective need for project implementation, but it is also related to the country’s international image. The Greater Bay Area takes the lead in trying to introduce and improve a new model of arbitration, which can provide reference and accumulated experience for courts in other cities across the country in handling foreign-related cases. Hong Kong has an independent judicial system. Its impartial and rigorous judges and legal professionals are praised, and its legal education is also very mature. Hong Kong is also the most popular arbitration center in Asia

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for international business people, ranking third in the world after London and Paris. Currently, Hong Kong is actively studying the expansion of the scale of existing international arbitration institutions. Guangdong and Hong Kong should negotiate to encourage more enterprises to use arbitration to resolve disputes, and further improve mutual legal assistance and the implementation of each other’s arbitration, thereby enhancing the quality of arbitration in the Greater Bay Area. The third is to give play to the advantages of Hong Kong’s engineering industry in line with international standards. For example, many major projects involved in the construction of the “Belt and Road” are not only large in scale, but also concern numerous sub-projects, closely related structures, high technical requirements and a wide-ranging coverage of knowledge. The participants are diversified with interaction and interdependence among various entities, and the degree of openness is very high. At present, the internationalization of many domestic engineering contracting enterprises is still in its infancy. The decision-making system, strategic orientation, organizational structure, management process and other aspects of most engineering contracting enterprises are not sufficiently internationalized, so cross-border cooperation is becoming more and more important. In 2018, the Shenzhen Qianhai Free Trade Zone took the lead in piloting the Hong Kong model of project construction, which played a demonstrative role in promoting the whole management project and construction mode of the project, and played an important role in promoting the construction of major projects in China in line with the international frontier. The further exertion of the Hong Kong model of project construction can provide a useful reference for enterprises in the Greater Bay Area to better participate in the Belt and Road Initiative. The fourth is to make use of Hong Kong’s role as a financing platform in the construction of the Belt and Road Initiative. The gap in the funding for the construction of the Belt and Road is relatively large. According to the calculations of the Development Research Center of the State Council, the China and the Asian Development Bank, the infrastructure investment demand in Asia alone is close to $8 trillion in 10 years. Although the demand for funds is strong, the level of economic development of the countries along the Belt and Road is generally relatively backward, so there is not much capital that can be invested by themselves. With rich experience in the financial industry, Hong Kong is able to provide more convenient financial tools and suitable insurance products for the construction of the “Belt and Road”, help investors hedge exchange rate and interest rate risks, and provide engineering payment arrangements and treasury management services. In addition, Hong Kong can rely on its own advantages to provide a lot of help for the construction of the “Belt and Road” in terms of providing a credible new rating system and improving the quality of project design and full-process risk management as well as a full range of professional services. Hong Kong is highly internationalized under “One Country, Two Systems”, and various systems are in line with international standards. Moreover, Hong Kong has the entry visa-free policy available for many countries, and it has the advantages of connecting the mainland and having native speakers of three languages. Both Guangdong and Hong Kong should straighten out the conditions so that the various professional sectors in Hong Kong can more

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effectively provide services to enterprises in the Guangdong region. When Hong Kong helps them to explore more international markets, it will also obtain more business opportunities, so as to achieve a win–win situation.

5.5 Conclusion In order to promote in-depth cooperation among cities in the Greater Bay Area, local governments must adjust their development strategies accordingly. For most cities in the Greater Bay Area, the development strategy in the new era should not just blindly pursue investment or GDP growth, but prioritize existing resources to improve the soft power, such as corporate governance, education, human capital, and medical and health care, so as to attract talents and improve the efficiency of the use of existing elements. Only after a solid foundation has been laid, can investment in the new economic sector in the Greater Bay Area be able to bring sustained returns. Therefore, unlike the traditional concept of regional development, the Greater Bay Area, known for its internationality, openness and diversity, is not only an integral part of the Belt and Road construction, but also an important platform for the effective advancement of the reforms of China’s internal system. With its high degree of internationalization and the unique soft power advantage of “One Country, Two Systems”, Hong Kong is bound to become a key resource for the sustainable development of the Greater Bay Area. What is important is that we need to go beyond the thinking of industrial layout and administrative divisions, and re-examine the role of the Greater Bay Area and Hong Kong in the overall development of the country from the perspective of reform strategies. The regional differences between the two systems in the Greater Bay Area are their characteristics rather than their shortcomings. The key is how to make good use of the two systems to promote the development of different cities in the Greater Bay Area and radiate into the hinterland of China. At present, China’s comprehensive deepening of reform and various international pressures are gradually increasing. How to properly handle international commercial disputes, comply with the international rule of law, promote corporate efficiency and social responsibility, and straighten out social conflicts is also becoming increasingly important, and Hong Kong happens to have comparative advantages in these aspects. In any case, China should make good use of Hong Kong’s “second system” to open up the space for institutional reforms in the Greater Bay Area, so that the Greater Bay Area will once again act as a forerunner in the process of improving soft power in the country, thus continuing to make important strategic contributions to China’s overall development. Decision-makers in various regions also need to prudently and meticulously formulate and implement relevant policies based on diverse and dispersed interest demands, and adjust them flexibly according to specific conditions.

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References Chen Guanghan, Liu Yang, From the “Front Store and Back Factory” to the Guangdong-Hong Kong-Macao Greater Bay Area, International Economics and Trade Research, 2018: 34(11). Li Zhilan, Liang Yuqing, Hong Kong’s New Role in the Construction of the Belt and Road Initiative: Based on the Perspective of Soft Power, China Opening Journal, 2017(4). Li Zhilan, Ji Chao, and Li Jian’an, et al., The Belt and Road Initiative and the Guangdong-Hong Kong-Macao Greater Bay Area: Soft Power Construction in Strategic Integration, Beijing: The Commercial Press, 2018. Liu Yunfu, Yan Zhong, The Development Dilemma and Optimal Path of the Rule of Law Culture in the Guangdong-Hong Kong-Macao Greater Bay Area, Journal of the Guangdong Institute of Public Administration, 2018: 30(1). Ouyang Xi, Interregional Customs Law Conflict and Cooperation in the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area, Journal of the Hubei University of Police, 2018: 186(03). Roger Friedland, Robert R. Alford. Bringing Society Back In: Symbols, Practices, and Institutional Contradictions, in Walter W. Powell & Paul J. DiMaggio, eds., The New Institutionalism in Organizational Analysis [M]. Chicago: The University of Chicago Press, 1991: 232–263. Royston Greenwood, Roy Suddaby. Institutional Entrepreneurship in Mature Fields: The Big Five Accounting Firms [J]. The Academy of Management Journal, 2006, 49(1): 27–48. Sui Wenjuan, Zhang Yu, and Wang Dawei, The Status Quo of Industrial Coordination in the Guangdong-Hong Kong-Macao Greater Bay Area—Taking the Manufacturing Industry in Nine Cities in the Pearl River Delta as an Example, Urban Insight, 2018: 57(05). Tan Chenglin, Pan Dandan, Analysis of the Convergence and Desirability of Industrial Structure in the Guangdong-Hong Kong-Macao Greater Bay Area, Review of Economy and Management, 2018(3). Wang Yu, Theory of Comprehensive Governance: The Cornerstone of the Rule of Law in the Guangdong-Hong Kong-Macao Greater Bay Area, Frontiers, 2018: 157(21). Ye Yizhou, Rustic Opinions on the Construction of a Cooperative Legislation Mechanism in the Guangdong-Hong Kong-Macao Greater Bay Area, Local Legislation Journal, 2018: 11(04). Yuan Yiming, Ji Chao, The Transformation Path of Economic Growth under Resource Constraints— Taking the Shenzhen Special Economic Zone as an Example, Economic Perspectives, 2014(10). Zhang Liang, Li Dongming, Issues Regarding Legislative Protection in the Guangdong-Hong KongMacao Greater Bay Area, Local Legislation Journal, 2018: 11(04). Zhu Zuixin, Theoretical Construction of Regional Legislation in the Guangdong-Hong Kong-Macao Greater Bay Area, Local Legislation Journal, 2018: 11(04).

Chapter 6

The Historical Evolution and Future Prospects of the Guangdong-Hong Kong-Macao Greater Bay Area Yikun Zhou

6.1 The Concept of a Bay Area From the perspective of geography, a bay is the convex bank or ocean reentry area formed by the movement of the ocean. The bay area refers to an area composed of a bay or several connected bays, harbors, and adjacent islands. It is the waters formed by the coastline recessed into the land, surrounded by land. The spatial structure of agglomeration towards the bay is conducive to improving economic efficiency. From the perspective of economics, the bay area is an area where production activities are carried out around a specific bay, and the economic effect derived from this is called the bay area economy. Unlike islands, the bay area is connected to the mainland with a vast economic hinterland, which is conducive to building an open regional economy. There are many bay areas in the world, most of which are located along the coast of North America, Europe and Asia. There are more than 240 large bay areas, of which the Bay of Bengal, the Gulf of Guinea, the Gulf of Mexico, and the Gulf of Alaska all cover an area of more than 1 million km2 . The ocean area of small and medium-sized bay areas generally does not exceed 1000 km2 , and that of small-scale bay areas does not exceed 10 km2 . According to statistics, there are more than 200 bay areas with an area of over 5 km2 in China. Most of the world’s developed regions are clustered around the bay areas. According to the World Bank, 60% of the world’s economic aggregate is generated in cities at entrance to the sea, and 75% of the world’s large Zhou Yikun, Lecturer at the China Center for Special Economic Zone Research, Shenzhen University, Ph.D. in Economics, Master Supervisor; mainly engaged in regional economics and industrial economics research. This paper is the result of research on the Guangdong Philosophy and Social Science Planning Project (Grant No.: GD17CYJ07). Y. Zhou (B) China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, Guangdong, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_6

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cities and 70% of the industrial capital and population are concentrated in a 100-km range away from the coastline. The world-class bay areas enjoy an open economic structure, efficient capability for the allocation of resources, powerful agglomeration and spillover functions, and a convenient international communication network. The more famous ones such as the New York Bay Area, the San Francisco Bay Area, and the Tokyo Bay Area have become clusters of global innovation resources. They lead the world’s technological changes and play an important role in the development of the global economy. It is generally believed that a bay area economy is characterized by openness, innovation, habitability, and internationalization, and is regarded as a high-end form of regional economic development. However, not all bay areas can form a bay area economy with developed industries, powerful functions, and agglomeration spillovers. Bay areas that can form a strong economic form generally show the following basic characteristics: First, the scale of a bay area is moderate. The water area of the bay area can be neither too large nor too small. The world’s super-large bays such as the Bay of Bengal and the Gulf of Guinea are almost impossible for agglomeration towards the bay due to the large water area of the bay area, which is similar to the ocean. Similarly, bays that are too small, such as Sydney Cove and Jiaozhou Bay, are located either within the city or between two cities, which limits the scale of industrial agglomeration and population, resulting in insufficient ability to radiate into the surrounding areas. Second, the climate of bay area is suitable. They are generally in subtropical or temperate regions, and a livable climate is conducive to population aggregation. Third, the sovereignty of bay area is unique. The bay area is within a sovereign country and enjoys an opening-up policy. If the bay area and the mainland are located in different sovereign countries, geopolitical and military strategies in the bay area are often prior to economic strategies, which is not conducive to convenient circulation of elements, efficient allocation of resources, and industrial division of labor and cooperation. And if the bay area is closed to international intercourse, it is difficult to achieve a bay area economic effect of 1 + 1 > 2 even if there are the best resources in the bay area. At last, innovation drives the economy forward. The role of innovation in a bay area economy is becoming more and more important. The process of the development of a bay area economy is, to a certain extent, an innovation-driven process. Innovation in different periods leads the direction of industrial development, promotes the continuous evolution of the industrial form of the bay area, and determines the hierarchy and energy level that the bay area economy can reach.

6.2 Historical Evolution of the Guangdong-Hong Kong-Macao Greater Bay Area In March 2017, Premier Li Keqiang proposed in the government work report at the Fifth Session of the Twelfth National People’s Congress to “study and formulate the development plan for the city cluster in the Guangdong-Hong Kong-Macao Greater

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Bay Area”, which triggered high attention and lively discussion on the development of the Guangdong-Hong Kong-Macao Greater Bay Area from the Mainland to Hong Kong and Macao. In fact, the Guangdong-Hong Kong-Macao Greater Bay Area is actually developed from the Pearl River Delta. From academic discussions to local government planning, then to the formulation of national strategies, the planning of the Pearl River Delta from city cluster to the Greater Bay Area has gone through a long period of more than 20 years. 1. Early Discussion on the Guangdong-Hong Kong-Macao Greater Bay Area In October 1994, the Guangdong government proposed building the Pearl River Delta Economic Zone, referred to as the Pearl River Delta or the Small Pearl River Delta, including 9 cities of Guangzhou, Shenzhen, Foshan, Dongguan, Zhongshan, Zhuhai, Jiangmen, Zhaoqing, and Huizhou. In the same year, Professor Wu Jiawei, the founding father of the Hong Kong University of Science and Technology, proposed to benchmark the San Francisco Bay Area and develop the “Hong Kong Bay Area” with Hong Kong as the core (later called the “Hong Kong-Shenzhen Bay Area”), namely taking Shenzhen, Nansha (in Panyu then) and Zhuhai as the vertices of an equilateral triangle to form a 21st-century metropolis similar to the San Francisco Bay Area consisting of Hong Kong, Shenzhen, Dongguan, Nansha, Zhongshan, Zhuhai, and Macao. Professor Wu believed that it would be conducive to a win–win situation for the economic growth of Hong Kong and the Mainland by giving full play to the radiating role of Hong Kong as a core city, cooperating and complementing each other, and making use of international capital and technological innovation to promote regional economic upgrading. Professor Zheng Tianxiang from Sun Yat-sen University held that the capacity for regional radiation and economic volume should be taken into consideration in the construction of the “Bay Area”. As a major economic city in China and the provincial capital of Guangdong Province, Guangzhou tends to reach the economic volume of Hong Kong, and it also has a strong capacity for radiating. It would be difficult for the “Hong Kong Bay Area” to develop without Guangzhou. Therefore, Professor Zheng advocated that Guangzhou should be included in the “Hong Kong Bay Area” to build a larger “Bay Area around the Pearl River Estuary”. However, because the situation of high land prices in Hong Kong at that time was very different from the low land prices of melon farmers in the San Francisco Bay Area, the “Hong Kong Bay Area” eventually became the real estate concept stocks of real estate developers, and the Bay Area industrial belt at the end did not appear. Soon after the signing of CEPA in 2003, Professor Huang Zhilian from Macao University of Science and Technology called for the establishment of a “Lingdingyang Bay Area” or a “Southern China Bay Area”, and advocated the development of the Lingdingyang Bay Area similar to the San Francisco Bay Area in CEPA to develop Hengqin and Wanshan Islands through a “third system” different from the system of the mainland and that of Hong Kong and Macao. There were expressions of “Pearl River Estuary Bay Area” and its development of the bay area in the Plan for the Coordinated Development of a City Cluster in the Pearl River Delta (2004– 2020) issued by Guangdong government in 2004, but the scope of the bay area only covered Guangzhou, Shenzhen, Zhuhai, Dongguan, and Zhongshan.

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Around 2006, experts and scholars also proposed ideas such as the “China Bay Area”, the “Hong Kong-Zhuhai-Macao Bay Area”, the “Pearl River EstuaryGuangdong-Hong Kong-Macao Development Bay Area”, and the “Wanshan Islands Bay Area”, calling for cities in the Greater Pearl River Delta to jointly establish the Lingdingyang Bay Area at the Pearl River Estuary, so as to promote the “9 + 2” regional cooperation in the Pan-Pearl River Delta. Most of these ideas included cities such as Hong Kong, Macao, Guangzhou, Shenzhen and Zhuhai, and their scope and connotation have been expanded compared with those of the “Hong Kong Bay Area”. In addition to technological innovation, livable ecological environment, harbor industry, marine industry, and higher education were also discussed. While cities near the Pearl River Estuary are rapidly differentiating, they are also developing towards urban integration, and different city clusters, metropolitan circles, and economic circles have been formed in competition and cooperation, agglomeration and dispersion. In 2008, the Guangdong government compiled the Outline of the Program for Reform and Development of the Pearl River Delta (2008–2020), which included the nine cities in the Pearl River Delta and the content of close cooperation with Hong Kong and Macao into the plan, and proposed to work with Hong Kong and Macao to build a dynamic and internationally competitive city cluster in the Asia–Pacific region, and form a metropolitan region with the division of labor and cooperation, complementary advantages and the best competitiveness in the world among Guangdong, Hong Kong and Macao. In June 2009, Guangdong Province issued the Guidelines on Accelerating the Promotion of the Regional Economic Integration of the Pearl River Delta, requiring that the core cities in the three major economic circles of Guangzhou-Foshan-Zhaoqing, Shenzhen-Dongguan-Huizhou and Zhuhai-Zhongshan-Jiangmen should give full play to the leading role and coordinate and optimize the regional industrial layout. In October 2009, the governments of Guangdong, Hong Kong and Macao put forward the concept of “One Bay and Three Areas” in the Research on the Coordinated Development of Urban Agglomerations in the Greater Pearl River Delta, that is the Bay Area around the Pearl River Estuary and the three metropolitan areas including Guangdong-Foshan, Hong Kong-Shenzhen and Macao-Zhuhai. In 2010, in order to further implement the abovementioned cross-border regional cooperation, the governments of Guangdong, Hong Kong and Macao jointly formulated the Study on the Action Plan for a Livable Bay Area around the Pearl River Delta. 2. Proposal of the Concept of the “Guangdong-Hong Kong-Macao Greater Bay Area” Shenzhen was the first city in China to study and propose the vigorous development of the bay area economy, and further suggested that the central government should build the Guangdong-Hong Kong-Macao Greater Bay Area. In January 2014, Mayor Xu Qin of Shenzhen Municipality proposed to develop the bay area economy in the government work report at the Sixth Session of the Fifth Municipal People’s Congress. The original intention of developing the bay area economy was to find new coordinates of Shenzhen for international development, so as to promote Shenzhen

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to participate in global competition and cooperation on a larger scale and at a higher level, and inject new impetus into Shenzhen’s international development. The relevant agencies of the Shenzhen Municipal People’s Government put forward suggestions on how to develop the bay area economy. From the perspective of the economic development of the bay area, it is difficult for Shenzhen to get support from the central and provincial governments for its single promotion of the economic development of the bay area, which is not conducive to building Shenzhen into a world-class bay area city. If the nine cities in the Pearl River Delta together with Hong Kong and Macao are regarded as a whole, the Pearl River Estuary Bay Area that they formed will be competitive with the San Francisco Bay Area, the New York Bay Area, and the Tokyo Bay Area in terms of GDP, imports and exports, container throughput, and airport passenger and freight volumes. Although there is a gap with the above-mentioned three bay areas in terms of international influence and other aspects, the Pearl River Estuary Bay Area can totally reach the level of the world-class bay areas through integration and improvement. From the perspective of national strategy of regional development, the Pearl River Estuary Bay Area has been an important growth pole for domestic development since the reform and opening-up. However, in China’s new round of sectors of regional development strategy, there is the Beijing-Tianjin-Hebei region in the north and the Yangtze River Delta in the middle, while the southern sector has not been determined. In fact, the southern sector will not only continue to take the important responsibility as domestic growth poles, but it will also play an irreplaceable role in the national South China Sea strategy and in promoting the long-term prosperity and stability of Hong Kong and Macao. In view of this, the Development and Reform Commission of Shenzhen Municipality has finished a research report on building a world-class bay area in Guangdong, Hong Kong and Macao to serve the national strategy in the new era, which was submitted to the National Development and Reform Commission and the Guangdong Provincial Committee of the CPC and the Provincial Government. It was pointed out in the report that the world-class bay areas such as the San Francisco Bay Area, the New York Bay Area and the Tokyo Bay Area have become important engines for the development of the world economy. The Guangdong-Hong KongMacao Greater Bay Area can be built into a world-class bay area comparable to it, and the “first square team” representing China in international competition. In December 2014, Shenzhen issued the Opinions on Vigorously Developing the Bay Area Economy as a Bridgehead of the 21st-Century Maritime Silk Road (S.F. [2014] No.16), which indicated connecting the bay area economy to the national “Belt and Road” initiative. This document not only was in the first batch of guidance documents issued by local government to promote the Belt and Road Initiative, but it also explained the “Guangdong-Hong Kong-Macao Greater Bay Area” in a special section, and clearly proposed to “actively promote the construction of a world-class bay area in Guangdong, Hong Kong and Macao”. This should be the first statement about the “Guangdong-Hong Kong-Macao Greater Bay Area” in a public government document. In January 2015, Professor Tan Gang, a member of CPPCC in Guangdong Province and the Vice President of the Shenzhen Party School, submitted a proposal

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of Building the Guangdong-Hong Kong-Macao Greater Bay Area and Promoting New Normal of the Economic Development of Guangdong. In February of the same year, Shenzhen Mayor Xu Qin published a signed article on “Accelerating the Development of the Bay Area Economy and Serving the Belt and Road Initiative” in the People’s Tribune, stating that “Shenzhen must strive to build a first-class bay area city with outstanding capabilities for innovation, high-end industrial levels, developed traffic networks, complete infrastructure, a beautiful ecological environment, and powerful radiation functions”. The National Development and Reform Commission and Guangdong Provincial Government also conducted in-depth studies on the basis of this research report submitted by Shenzhen. In March 2015, the National Development and Reform Commission, the Ministry of Foreign Affairs, and the Ministry of Commerce launched the “Belt and Road” initiative and actions, which clearly stated the concept of the “building of the Guangdong-Hong Kong-Macao Greater Bay Area”. In 2016, the literal expression of the “Guangdong-Hong KongMacao Greater Bay Area” successively appeared in the Outline of the National “13th Five-Year Plan” (March), Opinions on Pan-Pearl River Delta Regional Cooperation (March), and the Guangdong Provincial Government Work Report (November). Until March 2017, Premier Li Keqiang proposed to “study and formulate the development plan for the city cluster in the Guangdong-Hong Kong-Macao Greater Bay Area” in the government work report at the Fifth Session of the Twelfth National People’s Congress, and in this way, the Guangdong-Hong Kong-Macao Greater Bay Area has become a major national strategy for regional development. It is worth noting that when the concept of the “Guangdong-Hong Kong-Macao Greater Bay Area” was mentioned in General Secretary Xi’s speech, Premier Li’s government work report and other national-level documents, it was all based on the content of “One Country, Two Systems, and the long-term prosperity and stability of Hong Kong and Macao”. For example, on July 1, 2017, General Secretary Xi pointed out at the Meeting Celebrating the 20th Anniversary of Hong Kong’s Return to the Motherland that, “we will support Hong Kong in playing out its advantages and role in promoting the Belt and Road Initiative, the construction of the GuangdongHong Kong-Macao Greater Bay Area, and the internationalization of the RMB”. On the same day, the National Development and Reform Commission and the governments of Guangdong, Hong Kong and Macao signed the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area. It was clearly indicated in the first paragraph that, “in order to give full play to the comprehensive advantages of the Guangdong-Hong KongMacao region and deepen cooperation among Guangdong, Hong Kong and Macao, it is necessary to promote the construction of the Guangdong-Hong Kong-Macao Greater Bay Area to participate in high-level international cooperation, enhance its leading role in national economic development and all-round opening-up, inject new momentum into the development of Hong Kong and Macao, and maintain the long-term prosperity and stability of Hong Kong and Macao.” In October 2017, General Secretary Xi pointed out at the 19th National Congress of the Communist Party of China that, “we will continue to support Hong Kong and Macao in integrating their own development into the overall development of the

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country. We will give priority to the development of the Guangdong-Hong KongMacao Greater Bay Area, cooperation among Guangdong, Hong Kong and Macao, and regional cooperation in the Pan-Pearl River Delta, thus fully advancing mutually beneficial cooperation between the mainland and the two regions. We will formulate and improve policies and measures to make it more convenient for people from Hong Kong and Macao to develop careers on the mainland”. In February 2019, the Central Committee of the Communist Party of China and the State Council issued the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area. The preface pointed out once again that, “we should give full play to the comprehensive advantages of Guangdong, Hong Kong and Macao, deepen cooperation between the Mainland and Hong Kong and Macao, and further enhance the role of the Guangdong-Hong Kong-Macao Greater Bay Area in supporting and leading China’s economic development and opening-up”. Therefore, the core concept of the Guangdong-Hong Kong-Macao Greater Bay Area is still Guangdong-Hong KongMacao, and the Greater Bay Area is a new high-end platform for further deepening cooperation among Guangdong, Hong Kong and Macao. As pointed out in the above documents, it is imperative to build momentum for the long-term economic development of Hong Kong and Macao and realize its long-term prosperity and stability under the principle of “One Country, Two Systems”, promote the innovation of the system and of the mechanism of an open economy with the help of Hong Kong and Macao as international windows, and enhance the status and functions of Guangdong, Hong Kong and Macao in China’s economic development and opening-up, which is the core and essence of the construction of the Guangdong-Hong Kong-Macao Greater Bay Area.

6.3 Future Prospects of the Guangdong-Hong Kong-Macao Greater Bay Area Since the reform and opening-up, the economic cooperation among Guangdong, Hong Kong and Macao has been roughly divided into the following three stages: The first stage, in the early 1980s, the Guangdong-Hong Kong-Macao region started a model for cooperation on the cross-border processing trade of “front store and back factory”, which is the economic and trade cooperation centering on Hong Kong and with the Pearl River Delta as its economic hinterland. With the return of Hong Kong and Macao, the economic cooperation among Guangdong, Hong Kong and Macao has gradually shifted from being led by the private sector to being led by the government. In the second stage, the signing and implementation of the CEPA agreement in 2003 brought economic cooperation among Guangdong, Hong Kong and Macao into a phase from cooperation in the manufacturing industry to cooperation in the service industry. Since the Outline of the Program for Reform and Development of the Pearl River Delta (2008–2020) was issued by Guangdong Provincial Government in 2008, Guangdong, Hong Kong and Macao have further strengthened economic and

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trade cooperation across borders. With the rise of the Pearl River Delta, the Greater Pearl River Delta city cluster has evolved from being a single dominant city in Hong Kong in the past to a multi-center dynamic competition pattern in Hong Kong, Guangzhou and Shenzhen. In the third stage, the establishment of the Guangdong Pilot Free Trade Zone in 2014 and the promotion of the Guangdong-Hong KongMacao Greater Bay Area as a national development strategy in 2017 have enabled the cooperation among Guangdong, Hong Kong and Macao to enter a new stage, led by scientific and technological innovation, internationalized integration of economic and trade rules, and the liberalization of the high-end service trade. At this stage, Guangdong, especially the nine cities in the Pearl River Delta, needs to gradually improve the system for the management of foreign investments to solve the deeplevel institutional obstacles in the service industry, such as “large doors open, small doors closed”, “glass doors”, and “swing doors”. Hong Kong and Macao should be developed into a two-way communication platform for the “bring in” and “go global” strategies of the mainland. The future development goals and directions of the Guangdong-Hong Kong-Macao Greater Bay Area are to not only benchmark the world-class bay areas, but also create a high-level technological innovation carrier and platform, increase and improve in terms of quantity and quality, and form an economic system and development model led and supported by innovation. Moreover, it is necessary to combine the functions of the national development strategy to make new breakthroughs in solving the deep-level development issues of Hong Kong and Macao, make new progress in radiating and driving the development of the Pan-Pearl River Delta region forward, and play a supporting and leading role in the national economic development and opening-up, so as to inject new momentum into the sustainable development of Hong Kong and Macao, and explore experience for China in participating in international competition and cooperation at a higher level. 1. Explore and improve the mechanism of the coordinated development of the Greater Bay Area. The Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Bay Area signed by the National Development and Reform Commission and the Guangdong, Hong Kong and Macao governments in July 2017 stated that the four parties will hold regular consultation meetings every year to coordinate and resolve major issues and cooperation issues in the development of the Greater Bay Area. On the one hand, unlike the previous cooperation mechanism of Guangdong, Hong Kong and Macao, this cooperation model has increased the leading and coordinating function of the National Development and Reform Commission and reinforced the overall planning and coordination. On the other hand, because the content of the implementation is limited to issues for which consensus has been reached, if any party finds it difficult to implement, it will affect the coordinated development of the Greater Bay Area. In August 2018, in accordance with the convention that “groups rule the country, and big events depend on groups” formed in the longterm practice of the Communist Party of China and the Chinese government, the Leading Group for the Construction of the Guangdong-Hong Kong-Macao

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Greater Bay Area was established at the national level to study and resolve major issues related to policy implementation, project arrangements, innovation of the system and mechanism, and platform establishment in the construction of the Guangdong-Hong Kong-Macao Greater Bay Area. The group is headed by Han Zheng, a member of the Standing Committee of the Political Bureau of the CPC Central Committee and Vice Premier of the State Council. The deputy group leaders are the Secretary of the Guangdong Provincial CPC Committee and the Director of the National Development and Reform Commission, and the chief executives of Hong Kong and Macao are the members of the group. This is the first time that the chief executives of Hong Kong and Macao have been included in the CPC central group, which shows that the central government has given full attention and its trust to Hong Kong and Macao in the construction of the Greater Bay Area and the integration of Hong Kong and Macao into the country. Subsequently, the Guangdong Provincial Leading Group for Promoting the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area was established in Guangdong Province, with the Secretary of the Guangdong Provincial CPC Committee as the group leader and the Provincial Governor as the executive deputy group leader, and 6 special groups were established to coordinate and promote special works in related key areas. Correspondingly, the nine cities in the Pearl River Delta have successively established the Leading Group for the Promotion of the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area, and are implementing major strategic tasks through the establishment of inter-departmental leading groups. This means that the coordinated development of the Greater Bay Area has entered a new stage. In the future, in order to promote the coordinated development of the Greater Bay Area, the binding mechanism for coordination should be further improved at the national level to enhance the voice and disposal power of the Greater Bay Area coordination agencies in handling major issues. For example, explore in order to establish a mechanism for a four-party cooperation joint conference, and gradually realize the institutionalization and normalization of the internal collaborative governance mechanism in the Greater Bay Area. At the provincial and municipal level, it is necessary to rationally use the legislative power of the special economic zones and local legislative power, give full play to the advantages of reform and opening-up, innovate cross-regional coordinated development models, and enhance the level of integration of the Pearl River Delta. 2. Collaborate to build a modern industrial system led by high-end technologies. On the basis of optimizing and upgrading the pattern of the development of the networked space in the Greater Bay Area, as the core engines for regional development, the four central cities of Hong Kong, Macao, Guangzhou, and Shenzhen should give full play to different industrial advantages in the Greater Bay Area, cultivate an industrial value chain with sharing benefits, and build a platform for cross-regional industrial cooperation and development. Pilot free trade zones such as Shenzhen Qianhai, Guangzhou Nansha, and Zhuhai Hengqin should be taken as major platforms in promoting the development of industrial dislocation and accelerate the comprehensive cooperation among Guangdong, Hong Kong

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and Macao. Cities in the Greater Bay Area should carry out a reasonable division of labor, complementary functions, and development of dislocation through government guidance and market competition in terms of cultivating strategic emerging industries, building advanced manufacturing industrial clusters, developing characteristic financial industries, and building a modern service industry system, so as to coordinate the construction of an innovative modern industrial system with international competitiveness. 3. Build an international center for the innovation in science and technology. The Guangdong-Hong Kong-Macao Greater Bay Area is relatively similar to the San Francisco Bay Area in terms of urban spatial scale, and is more suitable for establishing a regional innovation network like that of the San Francisco Bay Area. It is necessary to create a comprehensive national science center, and strive for national laboratories in the Greater Bay Area to enhance its basic research capabilities. The governments should actively attract and connect global innovation resources, build a “Guangzhou-Shenzhen-Hong Kong-Macao” technological innovation corridor, and create a number of high-level platforms for the innovation of industrial technology, centers for the innovation of manufacturing, and enterprise technology centers to comprehensively enhance the capabilities for independent innovation of the Greater Bay Area. Key and core technology breakthroughs should be made in key areas such as new generation of information technology, the high-end equipment manufacturing industry, the green and lowcarbon industry, the bio-pharmaceutical industry, and a digital economy. Efforts should be made to improve the system and mechanism of cooperation on innovation, optimize the model for the development of cross-regional cooperation and innovation, and build an international and open regional innovation system, so as to continuously improve the level and efficiency of the transformation of the results of scientific research, and accelerate the formation of an economic system and development model led and supported by innovation. 4. Speed up infrastructure interconnection. We need to build a convenient and unobstructed comprehensive transportation system, promote comprehensive external transportation channels, improve internal connectivity, promote the expansion of an interconnection broadband among Guangdong, Hong Kong and Macao, and build a new generation of information infrastructures. We should continue to promote the coordinated development and constructive interaction of the worldclass airport clusters and port clusters in the Greater Bay Area, consolidate and enhance the status of Hong Kong as an international shipping center and an international aviation hub, strengthen the functions of hub ports and airports in Guangzhou and Shenzhen, and expand the domestic and overseas maritime and air networks in the Greater Bay Area. In accordance with the goal of seamless connection, with a focus on connecting the Mainland with Hong Kong and Macao, as well as the east and west banks of the Pearl River Estuary, a Greater Bay Area bus network with high-speed railways, intercity railways and high-grade highways as the main body should be constructed to achieve the goal of one-hour arrival between major cities in the Greater Bay Area. Moreover, efforts should be made to strengthen the transportation links among Hong Kong, Macao and

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the Mainland, enhance the customs clearance capacity and facilitation level of Guangdong, Hong Kong and Macao ports, and promote the efficient and convenient flow of personnel, funds, goods and information. Giving full play to the role of existing channels such as the Hong Kong-Zhuhai-Macao Bridge, we should promote the construction of the passage across the Pearl River Estuary, accelerate the integrated and interactive development of the east and west banks of the Pearl River Estuary, enhance the development momentum on the west bank of the Pearl River, and build a new belt for regional economic development. 5. Jointly build a high-quality living circle in the Greater Bay Area. We need to strengthen environmental protection and ecological restoration, and build ecological protection barriers. Guided by the concept of building a beautiful bay area, we will strive to improve the quality of the ecological environment. At the same time, we will deepen the comprehensive management of the Pearl River Estuary, integrate shoreline resources, highlight the division of coastal economic functions, and create a green and low-carbon, and blue ecological bay area. We will promote cooperation in higher education in the Greater Bay Area, establish a highland for international education and talents, explore and integrate the humanistic value of the Greater Bay Area, and promote international humanistic exchanges in the Greater Bay Area. We need to adhere to the people-oriented principle, explore the mutual recognition and sharing of the resources of public service systems and mechanisms in the Greater Bay Area in fields such as medical care and healthcare, jobs and employment, education and training, elderly care and settlement, and social security, promote the connection of health and social security resources, increase high-quality public services and supply of production and living products, and build a high-quality living circle that is suitable for living, employment and travel.

References Cai Chimeng, Strategic Significance and Realistic Challenges of City Cluster Construction in the Guangdong-Hong Kong-Macao Greater Bay Area, Social Sciences in Guangdong, 2017(4). Dai Chunchen, Yi Defa, Benchmarking against the World-Famous Bay Area, World-Class City Cluster Rising around the Pearl River Estuary, 21st Century Business Herald, May 6, 2017. Guangdong Provincial Leading Group for Promoting the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area, Three-Year Action Plan of Guangdong Province for Promoting the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area (2018–2020), July 5, 2019. Li Hong, Theoretical Exploration on the Development of the Cross-Border Bay Area: Taking the Beibu Gulf between China and Vietnam and the Guangdong-Hong Kong-Macao Greater Bay Area as Examples, Southeast Asian Studies, 2009(5). Li Lixun, Thoughts on the Guangdong-Hong Kong-Macao Greater Bay Area, Tropical Geography, November 2017. Lu Wenbin, Bay Area Economy: Exploration and Practice, Social Sciences Academic Press (China), March 2018.

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Min Jie, The Guangdong-Hong Kong-Macao Greater Bay Area: Exploring the “Reintegration” of Hong Kong, China Newsweek, July 1, 2017. National Development and Reform Commission, People’s Government of Guangdong Province, Government of Hong Kong Special Administrative Region, and Government of Macao Special Administrative Region, Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area, July 1, 2017. Shen Yong, The Mechanism for the Formation of the Bay Area Economy and the Exploration of the Positioning of the Guangdong-Hong Kong-Macao Greater Bay Area, Practice and Theory of SEZS, 2017(5). The Central Committee of the Communist Party of China and the State Council, Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, February 2019. Zhang Rixin, History and Next Steps of the Guangdong-Hong Kong-Macao Greater Bay Area, Reform, May 2017.

Chapter 7

The Development of Cultural Industries in the Guangdong-Hong Kong-Macao Greater Bay Area Based on the Perspective of Integration Yaqin Zhong and Liangbi Chen

In 2016, the building of the “Guangdong-Hong Kong-Macao Greater Bay Area” was formally included in the national “Thirteenth Five-Year Plan”; in 2017, the national Government Work Report clearly stated that “it is necessary to study and formulate the development plan for the city cluster in the Guangdong-Hong KongMacao Greater Bay Area”. In 2019, the Central Committee of the Communist Party of China and the State Council formally released the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, and the important status of the planning and construction of the Guangdong-Hong Kong-Macao Greater Bay Area as a national strategy was officially established. As a city cluster composed of 11 cities, the Guangdong-Hong Kong-Macao Greater Bay Area has become a new engine driving regional economic development and will become a new platform for China to participate in international economic cooperation at a higher level. Located among the three major economic circles of “Guangzhou-Foshan-Zhaoqing”, “ShenzhenDongguan-Huizhou” and “Zhuhai-Zhongshan-Jiangmen”, the unique location brings the Guangdong-Hong Kong-Macao Greater Bay Area a geographical advantage that distinguishes it from other bay areas. The GDP of the city cluster in the GuangdongHong Kong-Macao Greater Bay Area exceeded 10 trillion yuan.1 The cities in the Guangdong-Hong Kong-Macao Greater Bay Area are making concerted progress in many aspects such as economic development, industrial development, resource

1

Ministry of Commerce of the People’s Republic of China http://history.mofcom.gov.cn/?new china=粤港澳大湾区 2019–09-09. Zhong Yaqin, Ph.D. (postdoctor), Associate Research Fellow at the Institute for Cultural Industries, Shenzhen University, Master Supervisor. Chen Liangbi, Research Assistant at the Institute for Cultural Industries, Shenzhen University. Y. Zhong (B) · L. Chen Institute for Cultural Industries, Shenzhen University, Shenzhen, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_7

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allocation, talent training, system innovation, and an integrated developmental trend is forming.

7.1 The Status of the Development of the Cultural Industry in the Guangdong-Hong Kong-Macao Greater Bay Area 1. The Status of the Development of the Cultural Industry in the Pearl River Delta In 2017, the added value of cultural and related industries in Guangdong Province was 481.717 billion yuan, accounting for 5.37% of the GDP. The total volume ranked first among all provinces and municipalities in China for 16 consecutive years.2 The Pearl River Delta region is the core area for the development of the cultural industry in Guangdong Province. In 2016, the added value of culture and related industries in the Pearl River Delta region was 305.06 billion yuan, accounting for 83.6% of the added value of cultural and related industries in Guangdong Province, among which the advantageous industrial clusters such as print media, film and television, digital publishing, printing and copying, animation and online games, and the production of entertainment and game equipment took the lead in China.3 However, the problem of the unbalanced development of urban cultural industries in the region is still very prominent, and the mechanism of horizontal coordinated development has not yet been established and improved. Shenzhen and Guangzhou are the most mature cities in the Pearl River Delta region. Their distinctive industrial layouts provided different advantages and necessary conditions for them to lead the development of cultural industries in the Pearl River Delta. Shenzhen and Guangzhou have attracted most college graduates in the Pearl River Delta to work there. The gathering of high-end talents is one of the foundations for the cultural industries of Guangzhou and Shenzhen for developing good potential. At present, there are many excellent cultural enterprises in Guangzhou and Shenzhen, such as Tencent Holdings, Guangdong Alpha Animation, and Guangzhou Chimelong Group. Numerous outstanding private cultural enterprises help promote the high-level development of the regional cultural industries. According to statistics, the added value of the cultural and creative industries of Shenzhen in 2018 was 262.177 billion yuan, accounting for more than 10% of the

2

Total Volume Leads the Country, Structure and Layout Continue to Be Optimized, and New Business Types Are Vigorously Developing, SZNEWS, May 18, 2019. http://www.sznews.com/news/ content/2019-05/18/content_21976615.htm. 3 The Publicity Department of the Guangdong Provincial Committee of the Communist Party of China and the Guangdong Provincial Bureau of Statistics, Overview on Statistics of Cultural and Related Industries of Guangdong Province in 2016, June 2017.

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GDP of Shenzhen.4 The high proportion once again highlighted the status of the cultural industry as a pillar industry in Shenzhen. In recent years, under the guidance of high-tech industries, the Internet industry has gradually become the biggest feature of Shenzhen’s cultural industries. As early as 2016, the Internet industry in Shenzhen realized an added value as high as 76.75 billion yuan, an increase of 15.3%. The China (Shenzhen) International Cultural Industries Fair deeply embodies the organic integration of culture and technology in the development of cultural industries in Shenzhen. The mature system of cultural and creative industry parks has become one of the basic units for the development of Shenzhen’s cultural industries and a platform for the gathering and exchange of important industries. There are already about 200 industrial parks and bases in Shenzhen, of which cultural industrial parks account for a large proportion. This further improves the level of industrial intensification and competitiveness, and strengthens the developmental potential of industries. The cultural industries of Guangzhou continue to expand in industrial scale. In 2016, the proportion of the added value of its cultural industries to GDP rose to 5.3%.5 The cultural industries of Guangzhou showed a good momentum of development, and the total volume of industries and the quality of development were on an upward curve. The cultural industries of Guangzhou are dominated by the cultural service industry, including digital content services, advertising, intellectual property services, fairs and tourism, industrial design, film and television services, and cultural tourism. Guangzhou has a profound historical and cultural heritage and considerable cultural resources. On this basis, the municipal government has actively introduced excellent cultural projects under the label of Guangzhou Lingnan Culture in recent years. Local characteristic tourism has become a new growth point in the development of the city’s cultural industries for the past few years. The revenue from tourism in Guangzhou in 2015 was 321.705 billion yuan, a year-on-year increase of 12.01%, which was approximately 2.35 times that of Shenzhen.6 The added value of Dongguan’s cultural industries in 2016 was 34.027 billion yuan, ranking third after Shenzhen and Guangzhou in the Pearl River Delta region.7 Policies such as the Outline Plan for Building Dongguan into a Famous Cultural City (2011–2020) and the Opinions on Accelerating the Development of Cultural Industries have been released one after another, providing official solutions and

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Xinhuanet: The Cultural and Creative Industry of Shenzhen Has Become a Pillar Industry with an Annual Added Value of More Than 260 Billion Yuan, February 24, 2019. http://www.xinhuanet. com/2019-02/24/c_1124156248.html. 5 Yin Tao, Yang Daiyou, and Li Mingchong, Analysis of the Developmental Situation of Cultural Industries of Guangzhou in 2016 and Outlook for 2017, Report on Guangzhou Cultural and Creative Industry, July 2017. 6 China Business Industry Research Institute: Tourism Revenue Rankings of 21 Cities in Guangdong Province in 2016: Guangzhou Was 2.3 Times that of Shenzhen, AskCI, December 10, 2017. http:// www.askci.com/news/chanye/20171210/115122113674.shtml. 7 Dongguan Sunnet: The Cultural Undertakings and Industry Report: The Annual Revenue of the “Three-Above” Cultural Industry Exceeds 100 Billion Yuan, Dongguan Sunnet, October 11, 2018. http://news.sun0769.com/dg/headnews/201810/t20181011_7944292.shtml.

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policy support for promoting the transformation of the economic structure of Dongguan. Dongguan has a developed manufacturing industry and is famous as a “world factory”. The developed manufacturing industry can not only produce high-quality light industrial products, but it can also produce excellent spiritual and cultural products. The development of the cultural industries of Dongguan shows a good trend with distinctive characteristics and a rapid rise. The animation product manufacturing industry of Dongguan is showing the feature of “Dongguan-style manufacturing”, which made Dongguan become China’s largest center for the production of animation products. The annual China International Animation Copyright Fair provides a good platform for Dongguan, the holding city, and promotes the cultural industries of Dongguan in achieving leapfrog development from “product manufacturing” to “content manufacturing”. Foshan and Zhaoqing are both representative cities of Lingnan culture. Foshan is one of the birthplaces of the Lingnan school of martial arts. Foshan has a long tradition of strong Lingnan style, which endowed it with rich and various cultural resources. The Foshan Municipal Government proposed in 2015 to “build the tourism cultural and creative industry into a strategic pillar industry” and “the goal of the added value of cultural industries reaching 8% of GDP by 2020”.8 Zhaoqing has excellent natural tourism resources and is suitable for the development of tourism. Foshan and Zhaoqing can take advantage of the integration process of the Guangzhou-FoshanZhaoqing city cluster, take Guangzhou as the leader of cultural industries in small regions, and undertake the transfer and branch construction of Guangzhou’s cultural industry. Since 2013, the proportion of the cultural industries in the GDP of Huizhou accounted for more than 5%.9 In recent years, the cultural industries have been a new point of breakthrough in the economic development of Huizhou. “An industrial system with cultural manufacturing as the mainstay, cultural service industry as an emerging point of growth, and relatively complete categories”10 are characteristics of the cultural industries of Huizhou. Printing, cultural tourism, cultural entertainment, press and publishing, and distribution industries are the main components of the cultural industry of Zhongshan. The Zhongshan International Games&Amusement Fair has been widely recognized by the society and is a cultural fair brand with a certain degree of influence. As of 2016, the fair has contributed a trade volume of more than 18 billion yuan. As a relatively backward city in the development of cultural industries in the Pearl River Delta, Jiangmen has vigorously adjusted its industrial layout in recent years and has achieved significant results in industrial transformation and upgrading. The cultural and creative industries of Zhuhai started late but developed rapidly, 8

Jing Jinjin, Foshan Proposed Building Cultural and Creative Industries to Reach 8% of GDP by 2020, ycwb.com, November 2, 2016.http://news.ycwb.com/2016-11/02/content_23414169.html. 9 Nanfang Daily: Deeply Explore Local Culture and Build a New Brand of Huizhou Culture, Sohu.com, May 30, 2018. http://www.sohu.com/a/233374680_161794. 10 Xu Lele, Huizhou Striving to Become a National Model City for Cultural Consumption, Nanfang Daily, October 26, 2017.http://epaper.southcn.com/nfdaily/html/2017-10/26/content_7 676910.htm.

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Added Value of Cultural Industries (HK$ million)

Fig. 7.1 The added value of cultural and creative industries of Hong Kong from 2006 to 2016. Source Census and Statistics Department (C&SD)—The Government of the Hong Kong Special Administrative Region (HKSAR)

like a rising star. Each district of Zhuhai is developing differently depending on its own industrial advantages, cultural resources and existing key projects. A distinctive layout of the cultural and creative industry is the main direction and path for the development of the cultural industries of Zhuhai. Cultural tourism has always been the key development category of the cultural industries of Zhuhai. In addition, the cultural industries with light asset and high added value are the current focus of the development of cultural industries. 2. The Status of the Development of the Cultural Industry in Hong Kong The cultural and creative industries of Hong Kong were developed over a long period of time, and have been relatively complete in the fields of market cultivation, laws and regulations, and cultural atmosphere, taking the leading position among the city cluster in the Guangdong-Hong Kong-Macao Greater Bay Area. In 2016, the added value of the cultural and creative industries of Hong Kong reached 109.6 billion HKD, a slight year-on-year increase of 0.6%, and accounting for 4.5% of the GDP,11 close to the regional pillar industry criteria of 5% (Fig. 7.1). Since 2006, the cultural and creative industries of Hong Kong have developed rapidly, and the annual value-added growth rate has been maintained at a high level, with an average of 6.7%. Compared with Hong Kong’s average annual GDP growth rate of 5.1%, the cultural and creative industries of Hong Kong are the sunrise 11

Hong Kong Monthly Digest of Statistics: Cultural and Creative Industries of Hong Kong, Hong Kong Monthly Digest of Statistics, Census and Statistics Department (C&SD)—The Government of the Hong Kong Special Administrative Region (HKSAR), June 2018.

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industries with a fast growth and they are full of vitality. In 2016, the number of people engaged in cultural and creative industries in Hong Kong exceeded 212,000, accounting for 5.6%. Since 2006, the average annual increase has been about 1.8%, which is 1.0% higher than the average growth rate of employment in various industries in Hong Kong in the same year.12 In recent years, the total volume of import and export trade of cultural and creative products of Hong Kong has shrunk a little. In 2016, the export value of Hong Kong’s cultural and creative products was only about 450 billion HKD, which was a significant drop from the peak of about 540 billion HKD in 2012. In terms of imports, the value dropped from over 600 billion HKD in 2012 to nearly 500 billion HKD. The development of Hong Kong’s cultural and creative industries is unbalanced. In terms of added value and employment in the industries, computer software, games and interactive media, the publishing industry, the construction industry, and the art industry are the four best-developed categories. In 2016, the added value of the computer software, games and interactive media industry was 48.3 billion HKD, accounting for 44.1% of the total value of the industry; in 2016, the added value of the publishing industry reached 12.5 billion HKD, accounting for 11.4% of the total value, with nearly 40,000 employees, accounting for nearly one-fifth; the added value of the construction industry reached 11.8 billion HKD, accounting for 10.8% of the total value; the art industry reached its peak in 2013, when the proportion of the added value to the GDP accounted for 12.9% of the total value, and then gradually declined. In 2013, the added value reached 18 billion HKD, accounting for 7.3%. 3. The Status of the Development of the Cultural Industry in Macao Since the opening of gambling rights in 2002, Macao has gradually formed a development model of economic structure dominated by gambling tourism based on its local cultural resource foundation and advantages. The dominance of the gaming industry has brought instability to the economic structure of Macao. In recent years, the economic growth value of Macao has declined, which is due to the substantial adjustment of the gaming industry. The Macao government realized the seriousness of the problem and was actively looking for solutions to adjust the industrial structure to promote the development of a diversified economy. The cultural industries became the industrial categories that have been actively developed by the Macao government over the past few years. Although the cultural industries of Macao started late and have not yet become regional pillar industries, its prospects for development are promising. Based on the characteristic that its industrial structure is dominated by the service industry, the main body of Macao’s cultural industries is also the cultural service industry. In 2017, the revenue of Macao’s cultural service industry increased by 4.8% compared with 2016, breaking through the 7 billion mark, with 2.38 billion yuan in added value, a significant increase of 6.9%, accounting for about 0.6% of the total added value of 12

Hong Kong Monthly Digest of Statistics: Cultural and Creative Industries of Hong Kong, Hong Kong Monthly Digest of Statistics, Census and Statistics Department (C&SD)—The Government of the Hong Kong Special Administrative Region (HKSAR), June 2018.

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Macao’s overall industry.13 The four fields of creative design, cultural performance, art collection, and digital media are the four major categories of Macao’s cultural industry. In 2016, there were a total of 564 operating organizations in the “digital media” field, and the service revenue and added value accounted for 50.65 and 57.31% of the total value of the cultural industry. “Digital media” includes services such as information, publishing, radio and television programs, theater operations, and film production and distribution. In 2017, the revenue was 2.06 billion MOP, which accounted for half of the total revenue in the field, and the added value was 660 million MOP. The field of “creative design” covers all design-related cultural services. In 2017, there were 1,149 institutions related to “creative design”, with an added value of 670 million MOP, exceeding that of “digital media”. Advertising design is currently the most important component in this field. In 2017, the revenue reached 860 million MOP, accounting for more than one-third of the total revenue in the “creative design” field.14 “Cultural performance” includes related services including performing arts, art production, brokerage, training and venue operation services. In 2017, there were 220 such operating institutions and the revenue reached 1.44 billion MOP, of which ticket sales accounted for the largest, being 51.5%, with an added value of 300 million MOP. Performing arts production covered the most in this field, with annual revenue of 1.22 billion MOP, accounting for more than 80% of the “cultural performance” field. The total volume of the “art collection” field was small but developed rapidly, covering a series of services including artwork creation, sales and auctions. As of 2017, there was a total of 107 operating organizations, with 110 million MOP in revenue.15

7.2 Characteristics of the Development of the Cultural Industry in the Guangdong-Hong Kong-Macao Greater Bay Area 1. Unbalanced Development of the Cultural Industry among Regions within the Area

13

Government of Macao Special Administrative Region Statistics and Census Service: Cultural Industry Statistics in 2017, Macao Special Administrative Region government portal, November 21, 2018. https://www.gov.mo/zh-hans/news/226476/. 14 Government of Macao Special Administrative Region Statistics and Census Service: Cultural Industry Statistics in 2017, Macao Special Administrative Region government portal, November 21, 2018. https://www.gov.mo/zh-hans/news/226476/. 15 Government of Macao Special Administrative Region Statistics and Census Service: Cultural Industry Statistics in 2017, Macao Special Administrative Region government portal, November 21, 2018. https://www.gov.mo/zh-hans/news/226476/.

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The Guangdong-Hong Kong-Macao Greater Bay Area covers a total of 11 cities. In terms of the degree of the development of the cultural industry, there is a clear echelon phenomenon. In terms of total output value, Shenzhen, Guangzhou and Hong Kong are significantly ahead of other cities in the area. In terms of the proportion of GDP, the added value of the cultural industry of Shenzhen, Guangzhou, and Dongguan in the Pearl River Delta region accounts for more than 5% of the GDP, which is in line with the general standards of regional economic pillar industries. The added value of the cultural and creative industries of Hong Kong accounts for 4.5% of the GDP, which is not much different from the general standard of 5%. The three cities of Shenzhen, Guangzhou and Hong Kong all have relatively mature and distinctive cultural industries, and are in the first echelon of the development of the cultural industry in the area. The cultural industries of cities in the second echelon have their own strengths and weaknesses, represented by Dongguan and Macao. In recent years, Dongguan has been ranked among the top three in terms of the added value of the cultural industries in Guangdong Province. However, from the perspective of the total volume of cultural industries and the status of industrial development, there is still a huge gap between Dongguan and the first-echelon cities. The cultural industries of the four cities of Zhongshan, Jiangmen, Zhuhai, and Zhaoqing in the third echelon are far away from those of cities in the first echelon in terms of scale and proportion of GDP due to lack of production capital and professional talents. However, under the influence of cities in the first echelon in the area, significant progress has been made in recent years. 2. The Rapid Development of Emerging Cultural Industries in the Pearl River Delta The cultural industries of Guangdong Province are mainly developed in the Pearl River Delta. The cultural information transmission service industry with “Internet+“ as the main format has been an emerging format of the cultural industries in Guangdong Province in recent years, which is mainly developed in the Pearl River Delta centering around Shenzhen and Guangzhou. Since 2016, the number of entities of operational Internet cultural units in Guangdong has increased, ranking first in China.16 In 2016, the total value of the output of the digital publishing industry of Guangdong Province was 180 billion yuan, ranking first in China. The total value of the output of the animation industry was 40 billion yuan, accounting for one-third of the country’s total. As the “locomotive” leading industry in China, the total value of the output of online music accounted for about one-half of the country’s total. The total revenue of the game industry was 134.5 billion yuan, accounting for 73.4% of the total national value and 37.5% of that of the Asia–Pacific region.17 The value of the 16

China Economy Network: The Added Value of Cultural and Related Industries in Guangdong Ranked First in All Provinces, Regions and Cities in 2016, Sina Finance, October 16, 2017. http:// finance.sina.com.cn/roll/2017-10-16/doc-ifymvece2144286.shtml. 17 China Economy Network: The Added Value of Cultural and Related Industries in Guangdong Ranked First in All Provinces, Regions and Cities in 2016, Sina Finance, October 16, 2017. http:// finance.sina.com.cn/roll/2017-10-16/doc-ifymvece2144286.shtml.

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output of entertainment and game equipment and performance equipment manufacturing accounted for four-fifths of the country’s total. The rapid development of high technology is an important reason why the cultural industry in the Pearl River Delta region has the driving force for innovation. Based on this, the cultural and technology industries have gradually narrowed the gap with the cultural product manufacturing industry that has absolute advantages. 3. Urgent Adjustment Needs to Be Made in the Internal Structure of the Cultural Industries in the Pearl River Delta The manufacturing industries in the Pearl River Delta region have been strongly developed. For a long time, the Pearl River Delta region has relied on strong cultural production and manufacturing enterprises to drive the cultural industry forward regarding continuous growth in the added value. The cultural service industry is the fastest-growing category of the cultural industries in Guangdong Province. In 2015, the added value of the cultural service industry above the designated size reached 92.49 billion yuan, a year-on-year increase of 5.5%. This shows that the cultural service industry is currently one of the key points in the strategic layout of cultural industries in Guangdong Province. Despite the rapid development of cultural industries in the region, the structure of cultural industries in the Pearl River Delta is still unscientific. The excessive proportion of cultural manufacturing in the structure of overall industries has seriously affected the optimization of the internal structure of the industry. The cultural manufacturing industry is downstream in the cultural industry chain. The Pearl River Delta intended to move the cultural industry chain from “processing and manufacturing” in the low end to the upstream of “R&D and creativity”. For now, it will still take some time for development. One of the most important measures for optimizing the internal structure of the cultural industries in this region is to focus on improving the innovation of cultural industries in the region and achieve greater economic benefits through high value-added products. 4. New Vitality Needs to Be Injected Urgently into the Development of the Cultural Industries in Hong Kong and Macao In 2016, the added value of the cultural and creative industries of Hong Kong reached 109.6 billion HKD, a year-on-year increase of 0.6%; the added value of cultural industries of Macao in the same year was 2.38 billion MOP, accounting for 0.6% of the GDP. Compared with the medium-to-high-speed growth of cultural industries in the Pearl River Delta region in recent years, the development of the cultural industries in Hong Kong and Macao, especially those in Macao, has been relatively slow. The cultural and creative industries of Hong Kong are classified into sophisticated categories, and the industrial supporting facilities are relatively complete. The economy of Hong Kong is developed, with a large proportion in the service industry but a small scale in the local market. Currently, the development of local cultural industries is approaching the saturation point. Macao’s cultural industries account for a small proportion of the GDP. Due to the dominance of the gaming industry in the

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economic structure, there is little room for the development of the cultural industries that have just started. It can be seen that the cultural industries in Hong Kong and Macao lack stamina, and the external economic momentum is urgently needed. Hong Kong and Macao should actively take advantage of the platform provided by the Guangdong-Hong Kong-Macao Greater Bay Area to export their excellent cultural capital to the mainland, expand the scale of their local cultural industries on the mainland market, and provide new driving forces for the development of their own cultural industries. In recent years, with continuous economic development and an increasing level of cultural consumption on the mainland, the mainland has become an important export destination for cultural products of Hong Kong and Macao. Hong Kong and Macao urgently need to take advantage of their own multicultural advantages as international cities, make use of creative design, information services and other advantageous industries to cater to the wave of integration of industrial development in the Greater Bay Area, further strengthen their economic links with the mainland, attract investment from the mainland, and advance cooperation in coordination to meet new opportunities for development with the nine cities in the Pearl River Delta.

7.3 Suggestions for the Development of Cultural Industries in the Greater Bay Area from the Perspective of Integration The trend of integration of the Guangdong-Hong Kong-Macao Greater Bay Area is unstoppable. Building the most dynamic world-class economic zone globally through the establishment of a new open economic system is a requirement and a benign choice for the rapid development of the Greater Bay Area. The development of the Greater Bay Area requires the interconnection of cities in the region and the joint cooperation for platform construction to further enhance the level of regional economic integration. Cities in the Guangdong-Hong Kong-Macao Greater Bay Area have their own advantages and shortcomings in developing cultural industries. Governments in the Pearl River Delta region must attach importance to the division of labor and cooperation with Hong Kong and Macao, rationally allocate the production factors of the three core cities, and build a vibrant and competitive district of creative clusters in the Asia–Pacific region in the future. 1. Clarify Urban Specialization and Promote the Coordinated Development of Regional Cultural Industries The development of urban cultural industries in the Guangdong-Hong Kong-Macao Greater Bay Area has its own advantages. That optimizing the structure of resource allocation and clarifying urban specialization is the only way to promote the development of regional cultural industries. The three core cities in the first echelon are more competitive in cultural industries and need to strengthen their advantages and actively take the role of leading the regional development. The conditions of Guangzhou are

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good enough for the development of import and export trade and of the service industry. As one of the earliest cities in China to open to the outside world, there are convenient sea, land and air transportation means in Guangzhou. It is an important national central city and plays the role of driving regional radiation. As a highly innovative city with a high concentration of talents, Shenzhen has a dual status of a national innovation city and a city that is aneconomic center. Innovation is the core of its city competitiveness and could provide innovative driving forces for the economic development of the Greater Bay Area. It should act as a pioneer and lead the innovation of the regional cultural industry in industrial structure, technology and systems. As an international metropolis, Hong Kong boasts developed financial, shipping, and trade industries, and has excellent conditions for serving as a window for the cultural industries in the Greater Bay Area to undertake international exchanges. With sound laws and regulations and a mature development of the cultural industry, Hong Kong will become the guide for the cultural industries in the region, provide advanced experience for the Pearl River Delta region and Macao, and inject international elements. Cities in the second echelon are Macao, Dongguan, Foshan, and Huizhou. There is still a large space for improvement in the development of their cultural industries. They can take on the momentum of industries in the first echelon to improve themselves and expand their regional radiation coverage. with a developed service industry, Macao should further promote the development of its cultural tourism industry, which is another window of cultural industries in the Greater Bay Area. With developed manufacturing industries, Dongguan and Huizhou have relatively low prices for human resources and land resources. They can undertake the transfer of the Shenzhen cultural manufacturing industry, rely on their own advantages to focus on cultivating superior industries and enriching the industrial format, so as to develop comprehensive, a large-scale, high-quality, and high-level ecology for the development of the cultural industry with distinctive characteristics. Foshan is close to Guangzhou and has a profound historical and cultural heritage. Cultural tourism has become one of the main directions for the development of its cultural industry. The local government can serve to undertake the transfer of Guangzhou’s cultural service industry and attempt to develop other directions of cultural industries to enhance its level of development. Cities in the third echelon, namely Zhongshan, Zhuhai, Jiangmen, and Zhaoqing, are currently relatively weak in their cultural industries. Therefore, they need to strengthen the construction of related infrastructure, and increase policy support and capital investment. In addition, it is also necessary to give full play to its own advantages of abundant land and labor resources at lower costs, undertake the transfer of some industries from other districts in the region, shorten the gap with other cities, fill up the shortcomings in the development of regional cultural industries, and provide strong stamina for the development of regional cultural industries. Through the division of labor in the cities in the region, a good pattern of development for the promotion of cultural industries at all levels in the region will be formed. With first implementation in the front and driving force in the back, it is helpful to form a regional

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industrial cluster with complete functions, reasonable structure and balanced development in the cultural industries of the Guangdong-Hong Kong-Macao Greater Bay Area, which will bring about a large-scale effect of city cluster with high competitive advantages. 2. Open up Flow Channels for Production Factors and Optimize Resource Allocation in the Greater Bay Area There are two political systems and three independent legal systems in the Guangdong-Hong Kong-Macao Greater Bay Area, which hinder the integration of the Greater Bay Area and the circulation of production factors. However, the diversified institutional background also brings unique advantages to the region. What the government should do is open up flow channels and promote the rational distribution of resources in the region. For the bay area economy with the obvious label of regional economic integration, opening up the flow channels of production factors is a basic requirement of the concept of “interconnection” and a powerful measure for deepening regional cooperation and promoting common development. The development of the cultural industry is dependent on the support of the economic foundation. The opening of the Shenzhen-Hong Kong Stock Connect has increased the degree of capital flow between Guangdong and Hong Kong, and facilitated the investment in cultural industries by enterprises or organizations in different districts in the region, but this is far from enough. The financing of capital is conducive to the optimal allocation of regional capital and allows capital to flow to places where it is needed to play a greater role. Therefore, further improving the system of capital circulation is of great significance to promoting the development of regional cultural industries. Encouraging enterprises to invest in different regions and giving play to the role of enterprises as market players are also of great significance to the financing of cultural industries. The current regional cultural industry-related talents are unevenly distributed. It is recommended to establish a sound creative talent exchange platform and service organization to guide the free flow of cultural and creative talents in the region and achieve a balanced distribution of related talents. The smooth flow and reasonable distribution of talents is of great significance to the balanced development of the cultural industries and the reduction of urban gaps. The government can introduce relevant policies and measures to increase the attraction of less competitive cities to cultural and creative talents, and help cities to catch up in cultural industries. 3. Speed up Personnel Training and Promote the Integration of Industries in the Greater Bay Area Excellent practitioners are the core of the development of cultural industries. At present, the resources of creative talents and innovative talents in the Greater Bay Area are relatively in shortage. Training institutions for the training of targeted professional personnel can be considered to co-construct in cities in the region to cultivate cultural industry-related professionals with international perspectives and rich professional knowledge, such as industrial operation management, new media operations, art, design, and creation. It is advisable to establish special workshops on cultural and

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creative industries to promote mutual exchanges and level improvement of college talents, promote exchanges between college talents and social operating institutions, increase the practical experience of talents, and help them integrate into the process of the development of the regional cultural industry faster after graduation. It is necessary to vigorously support scientific research institutions, university research activities and scientific research personnel training, increase capital investment, increase the number of regional invention patent applications and authorizations, enhance the soft power of scientific and technological innovation, improve the level of technical content and development of the cultural industries, and strengthen connections and cooperation between scientific research universities and social enterprises; provide policy preferences for new projects in the development of technology, promote the application and commercialization of scientific and technological innovation achievements, and truly establish a three-in-one innovation system of “production, learning, and research”. 4. Improve Laws and Regulations and Guide the Healthy Development of Industries The laws and regulations on cultural industries in the Pearl River Delta region are not yet complete, and there are big loopholes in the protection of intellectual property rights and copyrights in particular. At present, the infringement of intellectual property rights and copyrights is relatively serious. The subjects of invention and creation are not aware enough of their own rights and interests. The rapid popularization of the Internet makes copyright protection more difficult. The phenomenon of piracy and copycats is very serious, which lowers the level of the development of the regional cultural industry. The society has not yet formed a good atmosphere for respecting intellectual property rights and protecting individual inventions. The laws and regulations on intellectual property protection in Hong Kong and Macao are relatively systematic and complete. In particular, intellectual property protection in Hong Kong is at an international level, which is of great reference significance for the Pearl River Delta region. It is recommended to learn from the advanced experience of Hong Kong and Macao, further cooperate with Hong Kong and Macao in this regard, popularize intellectual property and copyright knowledge, deepen the scope of paid use of Internet materials, and promote the formation of an atmosphere that respects inventions, originals, and personal innovations in the whole society. With the development of free trade zones and cross-border e-commerce, the flow of cultural products is more rapid and complicated than in the past. It is even more important to formulate a set of unified and applicable intellectual property management and protection regulations for the city cluster in the Guangdong-Hong Kong-Macao Greater Bay Area. 5. Deepen Regional Cooperation and Build a World-Class Center for the Cultural Industry The Guangdong-Hong Kong-Macao Greater Bay Area is a further upgrading of the cooperation among Guangdong, Hong Kong and Macao over the past few decades.

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The Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area is designed to link regional cooperation at the national level. The Guangdong pilot free trade zones, which include Guangzhou Nansha, Shenzhen Qianhai, and Zhuhai Hengqin, have deployed regional cooperation platforms, actively explored the deepening of cooperation between the Mainland and Hong Kong and Macao, and provided opportunities for regional trials of methods for the management of the cultural industry, tax policies, and market systems. The three free trade zones play the roles of strengthening the advantages of the airport and harbor of Guangzhou, and deepening cooperation between Shenzhen and Hong Kong, and between Guangdong and Macao. Among them, supporting the strengthening of cooperation between the Hengqin Free Trade Zone and Macao is conducive to the closer economic and trade exchanges between the Greater Bay Area and Portuguese-speaking countries. It is advisable to make full use of the advantages of the Hong Kong Free Trade Port and Macao Free Trade Port to integrate excellent cultural industries into the region to the international market, open up trade channels for cultural products, promote cultural products to go global, and enhance the international status of regional cultural industries. It is also advisable to innovate the regional cooperation mechanism, promote inter-regional integration as much as possible while maintaining the current basic system, and integrate cultural resources in the Guangdong-Hong Kong-Macao Greater Bay Area.

Chapter 8

Construction of an Index System for the Evaluation of the Degree of Coordination of the Energy-Economy-Environment System and Empirical Analysis—Based on Data of Shenzhen Meng Li and Liang Yang

8.1 Introduction The quality of economic growth is a prominent problem faced in the process of economic growth worldwide. For this reason, the research report of The Quality of Growth by the World Bank put forward the importance of research on this issue in 2000. Since the reform and opening-up, Shenzhen’s aggregate economy has maintained a sustained and rapid growth, but at the same time, issues regarding the quality of economic growth such as the structure of economic growth, the stability of economic growth, the unequal distribution of welfare, and the cost of resources and environment have become the city’s main contradiction in economic development. Improving the quality of economic growth and transforming the model of economic growth have become an urgent need for economic development. Currently, the quality of economic growth has become a key content in China’s economic development, and Li Meng, Director of the Quantitative Economics and Data Science Research Center of Shenzhen University, Director of the Statistics Department, College of Economics, Shenzhen University, Professor, and Postdoctor of the Chinese Academy of Social Sciences; Yang Liang, Director of the Business Department, College of International Exchange, Shenzhen University, Associate Professor and Ph.D.. This research was supported by the National Social Science Fund of China (NSSFC) Project (19BJY098), the Provincial Basic Research and Applied Research Major Project of Guangdong Ordinary Colleges and Universities (Humanities and Social Sciences) (2018WZDXM016), the NSSFC Major Project (18ZDA004), the Humanities and Social Sciences Research Fund Project of the Ministry of Education (15YJA790033, 18YJA790094), the “Key Research” Project of Shenzhen Philosophy and Social Science Planning Program (SZ2018A003) and the “Co-construction Project” of Shenzhen Philosophy and Social Science Planning Program (SZ2019D011). M. Li (B) · L. Yang College of Economics, Shenzhen University, Shenzhen 518060, Guangdong, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_8

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there are rare existing results of research to discuss and study this issue systematically. This paper fully integrated the actual needs of the current and future development of Shenzhen, and has important guiding significance for the implementation of the “high-quality development of the national economy” proposed in the 19th National Congress of the Communist Party of China. At present, whether it is from the perspective of developing theory of economic growth or from the perspective of solving problems in economic growth, it is of great significance to systematically discuss the quality of economic growth. Research on the quality of economic growth is not only a requirement for theoretical development, but also the need for the advancement of practice. This paper built an index system for the evaluation of the degree of coordination of the energy-economy-environment (3E) system to effectively promote a statistical index system for high-quality development, make various regions find ways to follow in promoting high-quality development, and support Shenzhen in actively exploring an effective way to promote sustainable and high-quality development in light of actual conditions. Based on this, this research was in accordance with the interpretation of the connotation of sustainable development in UN Sustainable Development Goal SDG11, combined with the construction requirements of Shenzhen as a demonstration pilot zone for socialism, and used the latest Blue Book of Sustainable Development: Evaluation Report on the Sustainable Development of China (2018) issued by the Chinese Academy of Social Sciences and relevant domestic and foreign documents for reference. For the 3E system, we need to shift from “achieving economic growth by ignoring technology and management and relying on a large amount of inefficient consumption of various resources to relying on improving the efficiency of the allocation of resources and the efficiency of utilization “.1 It can be seen that the research on the coordinated development of the energy-economy-environment (3E) system is extremely important for energy, economic and environmental development. Therefore, this research first integrated the China Sustainable Development Indicator System (CSDIS) with the 3E system, and designed a set of simple and operable index systems for the evaluation of the degree of coordination of the 3E system; then it revealed the internal laws in the energy-economy-environment system with a coupling model of the evaluation of the degree of coordination based on the constructed index system, explored the development coordination mechanism of the 3E system in Shenzhen, and provided a reference basis for government decisions.

8.2 Construction of the Index System for the Evaluation of the Degree of Coordination of the 3E System 1. Structure and Ideas of the Index System for the Evaluation of the Degree of Coordination of the 3E System 1

Accelerating the Transformation of the Economic Development Mode Compilation Group, China Chang’an Press.

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The energy-economy-environment (3E) system includes three subsystems: energy, economy, and environment. The three depend on, promote and influence each other. Economic growth depends on energy consumption. Energy provides the impetus for economic growth. In turn, economic growth drives the rapid development of energy. However, if there is no proper proportional relationship between total energy consumption and economic aggregate or between the rate of growth of energy consumption and the economic growth rate, economic development will be severely impeded and restricted. At the same time, in the above system, the environment, as an important resource, provides material conditions for economic development and is the fundamental guarantee for economic development. The economic system depends on the environmental system both in material and energy. The environmental system not only provides material conditions for economic development, but it is also counteractive on the economy from all aspects, which can directly promote or impede economic development. When the degree of economic development exceeds the carrying capacity of the environment, nature will be influenced and cause direct and indirect economic losses to the economic system. Meanwhile, the economic system is also counteractive to the environmental system. When the economic system develops to a certain extent, the economic system can promote the sustainable development of the environmental system. Therefore, only by continuously improving science and technology and modern scientific management can the relationship among economic development and energy consumption and environmental pollution be effectively improved. That is to say, on the premise of the same scale of production, the higher the technological level and the more scientific management is, the less energy consumption and the lower the degree of environmental damage there will be. Therefore, it is imperative to transform the extensive development of “high input, low output, high consumption, and low efficiency” to the intensive and high-quality development of “low input, low consumption, low pollution, and high output”, and realize the coordinated development of the 3E system. As the ultimate purpose of the coordinated development of the 3E system, sustainable development is the primary goal of high-quality development and a key strategy that must be implemented in the construction of China’s modern economic system. When constructing a sustainable development indicator system, three goals need to be achieved. First, it must support the international commitment of China (Shenzhen) to participate in global sustainable development, and provide a decision-making basis for China (Shenzhen) to better participate in global environmental governance. Second, it must monitor and evaluate the sustainability of macroeconomic development of China (Shenzhen), and provide decisional support for macroeconomic policy formulation and strategic planning. Third, it must inspect and assess the status of the sustainable development of various regions to provide help for the improvement of the system for the assessment of performance. It is necessary to fully consider the actual basis of current development, and gradually advance the current standard control to the total amount, quality and capacity control. At the same time, the comparability of the evaluation objects should be taken into consideration, and related sustainable

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development fields should be restricted by selecting some efficiency indicators, total amount indicators and standard indicators. Based on this, in the process of constructing the index system for the evaluation of the degree of the coordination of the 3E system, this research combined the 3E system with the realistic basis of sustainable development, and built a set of index systems for the evaluation of the degree of the coordination of the 3E system with the analytic hierarchy process. The system is divided into first-level indicators, secondlevel indicators and third-level indicators: including three subsystems of energy, economy, and environment, with a total of 24 indicators in the third level. The data on the third-level indicators are mainly from the Opinions of the Central Committee of the Communist Party of China and the State Council on Accelerating the Construction of an Ecological Civilization, the Blue Book of Sustainable Development: Evaluation Report on the Sustainable Development of China (2018), the From China to the World: Looking for New Indicators for Sustainable Development “Beyond GDP”, the United Nations (UN): Transforming Our World: The 2030 Agenda for Sustainable Development and other documents. The specific index system is shown in Table 8.1. 2. The Design of the Index System for the Evaluation of the Degree of the Coordination of the 3E System Specifically, for the energy subsystem, primary energy production, energy consumption, energy consumption growth rate, energy consumption per unit of GDP, water consumption per 10,000 yuan of GDP, per capita energy consumption of residents, and energy consumption elasticity coefficient are mainly used to describe energy consumption and the overall situation of utilization. At the same time, the impact of human activities on energy consumption was taken into account, that is, energy consumption, energy consumption growth rate, energy consumption per unit of GDP, water consumption per 10,000 yuan of GDP, per capita energy consumption of residents, energy consumption elasticity coefficient and other indicators were added. For the economic subsystem, the aggregate indicators and efficiency indicators are the main indicators: per capita GDP, the proportion of the added value of the tertiary industry to GDP, urban registered unemployment rate, the proportion of fiscal science and technology expenditure to GDP, GDP growth rate, per capita fiscal expenditure for social security and employment, the proportion of fiscal education expenditure to GDP, urban road area per capita, etc. Among them, the aggregate indicators restrict behavior of economic development, and efficiency indicators reflect economic development; and the proportions of fiscal science and technology expenditure and fiscal education expenditure to GDP reflect the percentage of various fiscal expenditures on the one hand, and on the other hand they reflect the situation of science and technology and modern scientific management. For the environmental subsystem, since it is similar to the energy system, the natural environment must be taken into consideration, and the urban environment of Shenzhen, an important place for human activities, must also be considered, that is, the urban green land area per 10,000 people, and the days of air quality index (AQI) to or above Grade II; the increasing consumption and production in people’s daily life also need to be considered. Here, it is reflected in consumption emissions.

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Table 8.1 The index system for the evaluation of the degree of the coordination of the 3E system First-level indicators Second-level indicators Third-level indicators

Unit

3E system

Primary energy production (+)

10,000 tce

Energy consumption (−)

10,000 tce

Energy consumption growth rate (−)

%

Energy consumption per unit of GDP (−)

tce/10,000 yuan

Energy system

Water consumption per m3 10,000 yuan of GDP (−) Per capita energy consumption of residents (−)

kgce

Energy consumption elasticity coefficient (−) Economic system

GDP per capita (+)

10,000 yuan

The proportion of the added value of the tertiary industry to GDP (+)

%

Urban registered % unemployment rate (−) The proportion of fiscal % science and technology expenditure to GDP (+) GDP growth rate (+)

%

Per capita fiscal expenditure for social security and employment (+)

Yuan/person

The proportion of fiscal % education expenditure to GDP (+)

Environmental system

Urban road area per capita (+)

m2

Urban green land area per 10,000 people (+)

ha/10,000 people

The days of air quality index (AQI) to or above grade II (+)

Day

(continued)

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Table 8.1 (continued) First-level indicators Second-level indicators Third-level indicators

Unit

Per unit of the added 10,000 yuan/ha value of secondary and tertiary industries accounting for the area of the built-up area (+) Sulfur dioxide emissions per unit of gross industrial output value (−)

t/10,000 yuan

Industrial wastewater discharge per unit of gross industrial output value (−)

10,000 t/10,000 yuan

Urban domestic sewage % treatment rate (+) The proportion of fiscal % energy conservation and environmental protection expenditure to GDP (+) Rate of the comprehensive utilization of industrial solid waste (+)

%

Rate of the harmless treatment of domestic garbage (+)

%

The cited indicators include: per unit of the added value of secondary and tertiary industries accounting for the area of the built-up zones, sulfur dioxide emissions per unit of gross industrial output value, industrial wastewater discharge per unit of gross industrial output value. Governance and protection are the main methods for realizing the positive impact of the economy on the environment. Governance includes capital investment and the setting of major environmental governance goals. In terms of governance investment, both fiscal environmental protection expenditure and the investment in environmental pollution control of the entire society are considered, which is reflected by the indicators including the proportion of fiscal energy conservation and environmental protection expenditure to GDP, the urban domestic sewage treatment rate, the comprehensive utilization rate of industrial solid waste, and the harmless treatment rate of domestic garbage. This paper constructed the index system for the evaluation of the degree of the coordination of the 3E system mainly from the perspective of Shenzhen, and comprehensively combined the basic data such as municipal and district-level statistical

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yearbooks and statistical bulletins. At the same time, the index system can also be used in all municipal-level 3E coordination degree measurements nationwide.

8.3 Empirical Analysis of the Degree of the Coordination of the 3E System 1. Processing and Weight-assigning of Evaluation Indicators In the index system above, the data are mainly from the Shenzhen Statistical Yearbook, the China City Statistical Yearbook, the Statistical Bulletin on Human Resources and Social Security of Shenzhen, and the Statistical Bulletin on the National Economic and Social Development of Shenzhen. For the missing data of some indicators in some years, in this study, a linear fitting method was used to obtain the estimated value. In addition, the entropy method was used to determine the weight. Since the dimensions and directions of the selected indicators are different, it is necessary to deal with the indicators accordingly. The indicators in this paper include positive indicators and inverse indicators. In Table 8.1, positive indicators are represented by + , and inverse indicators are represented by –. The positive indicators are standardized by Formula (1), and the inverse indicators are standardized by Formula (2): zi j =

xi j − min(xi j ) max(xi j ) − min(xi j )

(8.1)

zi j =

max(xi j ) − min(xi j ) max(xi j ) − min(xi j )

(8.2)

In this formula, xi j represents the sample value of the indicator j in the ith year (i = 1, 2, . . . , 5; j = 1, 2, . . . , 24), z i j represents the standardized sample value, and z i j ∈ [0, 1]. Calculate the proportion pi j of the indicator j in the ith year zi j pi j = m

j=1 z i j

, i = 1, . . . , 5, j = 1, . . . , 24

(8.3)

Calculate the entropy value e j and information entropy redundancy d j of the indicator j: e j = −k

n 

pi j ln pi j

(8.4)

i=1

dj = 1 − ej

(8.5)

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In this formula, k = 1/ ln n, e j ∈ [0, 1], when pi j = 0, ln pi j = 0. Calculate the weight w j of each indicator: dj w j = m j=1

dj

(8.6)

w j is the weight of each indicator  determined by the entropy method, and w j meets the condition of w j ∈ [0, 1], mj=1 w j = 1. Based on the entropy method, the comprehensive evaluation scores of the energy (E 1 ), economy (E 2 ), and environment (E 3 ) subsystems are calculated as follows: E 1=

m1 

w j z i j , (m 1 = 1, 2 · · · 7)

(8.7)

w j z i j , (m 2 = 1, 2 · · · 8)

(8.8)

w j z i j , (m 3 = 1, 2 · · · 9)

(8.9)

j=1

E 2=

m2  j=1

E 3=

m3  j=1

In the formula, E k , (k = 1, 2, 3) respectively represent the comprehensive evaluation scores of energy, economy, and environment systems; w j is the weight of each subsystem calculated by the entropy method. 1.1. The Degree of the Coordination of Energy, Economic and Environmental Subsystems The standard values for specific evaluation of the energy-economy-environment system and the analysis of the characteristics of the degree of coordination of each subsystem are shown in Table 8.2. The degree of coordination of energy, economic and environmental subsystems was poor, but the situation was improving year by year. Among them, the degree of the coordination of the environmental subsystem was better than that of the energy subsystem and the economic subsystem. The degree of the coordination of the energy subsystem was the worst, and only the environmental subsystem showed a good state of coordination. (1) From the overall structure, the degree of coordination within the three subsystems generally shows an upward trend. It can be observed from Table 8.2 that among the three subsystems, the environmental subsystem rose the fastest, the energy system showed a downward trend first and then rose, and the economic subsystem showed an upward spiraling trend. (2) The results of the evaluation of the degree of the coordination of energy, economic and environmental subsystems in Shenzhen from 2008 to 2018 show that the status of the coordination of the energy subsystem from 2009 to 2012

8 Construction of an Index System for the Evaluation of the Degree … Table 8.2 Degree of the coordination of energy, economic and environmental subsystems

115

Year

Energy subsystem

Economic subsystem

Environmental subsystem

2008

0.6192

0.4796

0.457

2009

0.5036

0.4702

0.4362

2010

0.4679

0.4431

0.4463

2011

0.4755

0.4748

0.4851

2012

0.4872

0.5183

0.4897

2013

0.5315

0.5415

0.4844

2014

0.5641

0.4926

0.5399

2015

0.5805

0.5025

0.591

2016

0.6325

0.5653

0.7591

2017

0.6867

0.614

0.7682

2018

0.7821

0.7958

0.875

was poor, with a low degree of imbalance, and it was above barely coordinated in other years. Among them, it was barely coordinated from 2013 to 2015, and it was moderately coordinated in 2008, 2016, and 2017. The status of coordination in 2018 was good. It can be seen that the energy subsystem of our city has shown a trend of better development in recent years. Since 2013, energy consumption, energy structure, energy output and energy efficiency have been basically balanced, that is, the energy subsystem can basically achieve sustainable development. It can be seen through the results of the evaluation of the economic subsystem that the degree of th ecoordination of the economic subsystem was on the verge of coordination and imbalance from 2008 to 2016, and the situation began to improve in 2017. Among them, the degree of the coordination of the economic subsystem from 2007 to 2011 did not reach the boundary of coordination and was in a state of low imbalance. The degree of coordination from 2012 to 2013 improved and achieved a status of bare coordination, but the degree of coordination from 2014 to 2015 fell below the coordination limit. The years of 2016, 2017 and 2018 were the three years in which the degree of economic coordination in Shenzhen gradually increased, being barely coordinated, moderately coordinated, and well coordinated respectively. It reflected that the status of the coordination of the economic subsystem has been improving year by year. This is the inevitable result of social development and is consistent with the actual economic situation. Before 2012, the city’s economic development emphasized economic speed while neglecting quality, and a development model at the expense of resource consumption and environmental pollution was adopted. The 18th National Congress of the Communist Party of China held in 2012 put forward more stringent requirements on the model of economic development, emphasized the continuity of development, and proposed that the socialist economic system with Chinese characteristics should be open and tolerant, and attention should be paid to coordination and balance in economic development.

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It can be seen by looking at the results of the evaluation of the coordination of the environmental subsystem that the environmental subsystem was in a state of low imbalance from 2008 to 2013. After 2014, the degree of the coordination of the environmental subsystem improved, and in 2018, it reached a state of high-quality coordination. The improvement of the status of the coordination of the environmental subsystem is also closely related to the gradual transformation of the model of economic development. The model of extensive economic growth ignored the destructive effects of economic development on the environment, and the development of the environmental subsystem itself could not achieve coordination and was in a state of low imbalance. And with the transformation of the model of economic development, people’s attention to the environment has gradually increased, and the importance of the coordinated development of the environmental system has become more prominent. (3) Comparing the three subsystems, we can find that the degree of the coordination of the environmental subsystem is the best, the economic subsystem is in the middle, and the energy subsystem is the worst. The environmental subsystem has the fastest growth rate, and the economic subsystem has generally shown a upward spiraling trend. After the degree of the coordination of the energy subsystem fell to its lowest point in 2010, the situation has improved year by year. 1.2 Measurement and Analysis of the Degree of the Coordination among Systems Canonical correlation analysis is a multivariate statistical analysis method, which generally reflects the overall correlation between the two sets of indicators by using the correlation between the comprehensive variable pairs. The basic principle of this method is: in order to be able to grasp the correlation between the two sets of indicators to be evaluated as a whole, we need to determine the number of comprehensive variables that need to be extracted in the two sets of variables, and then extract the representative corresponding comprehensive variables (comprehensive variables are linear combinations of variables in these two variable groups). Then these two comprehensive variables will be used to reflect the overall correlation between the two sets of indicators. First, we used STATA statistical software to carry out a canonical correlation analysis on the energy-economy binary system, and the operating results are shown in Table 8.3. As shown in Table 8.3, the first eigenvalue was 2473.09, and its rate of variance contribution was 81.2%. The first pair of canonical correlation variables extracted most of the information about the original data. The second eigenvalue was 402.32, and the rate of variance contribution was 13.2%. Relatively speaking, the explanation about the relationship between the energy subsystem and the economic subsystem was much smaller than that of the first eigenvalue. By observing the rate of cumulative variance contribution of the two pairs of canonical correlation variables, we can see that the interpretation of the original information by the first two canonical correlation variables reached 94.3%, in which the correlation between the energy subsystem and

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Table 8.3 Eigenvalue and contribution rate of the energy-economy binary system Serial Correlation Eigenvalue Variance number coefficient

Contribution Cumulative F-statistics Significance rate contribution level rate

1

1.000

2473.090

2069.773 0.81 l

0.811

20.86

< 0.000 l

2

0.999

402.317

274.96

0.132

0.943

11.85

< 0.0001

3

0.996

127.357

104.338

0.042

0.985

7.480

< 0.0001

4

0.979

23.019

12.864

0.008

0.993

4.86

< 0.0001

5

0.954

10.155

3.72

0.003

0.996

3.74

< 0.000 l

6

0.930

6.435

4.453

0.002

0.998

3

< 0.0001

7

0.815

1.982

0.112

0.00 l

0.999

2.31

0.002

8

0.807

1.871

1.041

0.001

0.999

2.2

0.006

9

0.673

0.83

0.224

0

1.000

1.8

0.056

10

0.614

0.606

0.335

0

1.000

1.71

0.114

ll

0.462

0.271

0.252

0

1.000

1.31

0.283

12

0.137

0.019

–

0

1.000

0.38

0.545

the economic subsystem can be fully extracted with less information lost. At the same time, in the process of canonical correlation analysis, after testing the correlation coefficients of the two pairs of canonical correlation variables extracted, we can see that the corresponding probability P values were close to 0. It can be seen that under the condition of a given significance level that α = 0.05, the canonical correlation coefficient passed the significance test and was highly representative. In general, the calculated canonical correlation coefficient can adequately explain the relationship between the energy subsystem and the economic subsystem. In the same way, the canonical correlation analysis of the economy-environment, environment-energy binary system was carried out, and the operating results are shown in Table 8.4. According to the requirements of constructing a model of evaluation for the degree of the intersystem coordination of energy, economic and environmental subsystems, the calculation of the system degree of coordination was carried out on the basis of the comprehensive evaluation results of the energy, economic and environmental subsystems. We performed a weighted summation of the canonical correlation variables of the energy subsystem and the economic subsystem in the energy-economy binary system, so that the comprehensive evaluation function of the economic subsystem and the energy subsystem can be obtained, and the magnitude of the weight was determined according to the eigenvalue. As shown in Table 8.5, in general, the status of the intersystem coordination of the economic subsystem and the energy subsystem was better than that of the environmental subsystem, and the degree of the intersystem coordination of the economic subsystem was the best. It was in a state of high-quality coordination for four consecutive years from 2015 to 2018. The degree of the intersystem coordination of the

3418.6430

3.0601 2.0667

0.1847 0.1337

0.9999

0.9973

0.9958

0.9722

0.9550

0.8682

0.8209

0.7083

0.6440

0.3948

0.3434

0.1994

1

2

3

4

5

6

7

8

9

10

11

12 0.0414

0.7086

1.0066

10.3612

17.2244

118.9701

185.2776

Eigenvalue

Correlation coefficient

Serial number

–

0.0923

0.0510

0.5239

0.2980

1.0601

0.9934

7.3011

6.8631

101.7457

66.3075

3233.3660

Variance

0

0

0

0.0002

0.0003

0.0005

0.0008

0.0028

0.0046

0.0317

0.0493

0.9098

Contribution rate

Table 8.4 Eigenvalue and contribution rate of the economy-environment binary system

1

1

1

0.9999

0.9997

0.9994

0.9989

0.9981

0.9953

0.9907

0.9591

0.9098

Cumulative contribution rate

0.83

0.82

0.72

1.08

1.28

1.61

1.91

2.67

2.52

5.69

8.41

16.03

F-statistics

0.3737

0.5191

0.6861

0.3927

0.21 52

0.0453

0.0057

< 0.0001

< 0.000|

< 0.0001

< 0.0001

< 0.0001

Significance level

118 M. Li and L. Yang

8 Construction of an Index System for the Evaluation of the Degree … Table 8.5 Intersystem coordination degree of energy, economic and environmental subsystems

119

Year

Energy subsystem

Economic subsystem

Environmental subsystem

2008

0.2641

0.5213

0.3822

2009

0.3011

0.5632

0.3534

2010

0.3659

0.5862

0.3398

2011

0.4258

0.6262

0.3291

2012

0.4748

0.6815

0.2730

2013

0.5242

0.7191

0.2331

2014

0.5996

0.7983

0.2537

2015

0.6316

0.8109

0.2394

2016

0.6117

0.8511

0.1943

2017

0.7437

0.9177

0.6359

2018

0.7862

0.9376

0.7033

energy subsystem was more evenly distributed, while the environmental subsystem had greater fluctuations. (1) In terms of the overall structure, the degree of the intersystem coordination of the three subsystems generally showed an upward trend. It can be observed from Table 8.5 that among the three subsystems, the economic subsystem and the energy subsystem have a roughly straight upward trend, and their trends were almost parallel. The score of the economic subsystem was much higher than that of the energy subsystem. The environmental subsystem was almost showing a V-shaped trend. According to Tables 8.3, 8.4 and 8.5, it can be understood that the score of the degree of intersystem coordination in 2016 was 0.1943, which was the lowest point between 2008 and 2018. (2) According to the results of the evaluation of the degree of the intersystem coordination of energy, economic and environmental subsystems in Shenzhen from 2008 to 2018, the degree of the intersystem coordination of the energy subsystem was increasing year by year, and that in 2008 it was less than 0.3, which was in a serious state of imbalance. Since then, the status of the coordination of this subsystem has been in a straight upward trend. It was moderately unbalanced from 2009 to 2010, at a low-level of unbalance from 2011 to 2012, barely coordinated from 2013 to 2014, and moderately coordinated from 2015 to 2016 after further improvement. From 2017 to 2018, it reached the status of high-quality coordination. This reflected that after Shenzhen gradually paid attention to energy issues, the production, consumption, and efficiency of the use of energy have been improving. The energy system can better serve economic development with more attention to the protection of the environment. The degree of the intersystem coordination of the economic subsystem was greater than 0.5, and the status of coordination was good. Similar to the energy subsystem, the evaluation value of the degree of the intersystem coordination of the economic

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subsystem also increased year by year. The degree of intersystem coordination from 2008 to 2010 was between 0.5 and 0.6, which was in a barely coordinated state. From 2011 to 2012, it was between 0.6 and 0.7, which was in a moderately coordinated state, and from 2013 to 2014, it was between 0.7 and 0.8, which was in a well-coordinated state. From 2015 to 2018, it even exceeded 0.8, reaching a status of high-quality coordination. It can be seen that the status of the intersystem coordination of the economic subsystem has become better and better over time, and there has been a clear trend of improvement. The status of the intersystem coordination of the environmental subsystem was the worst. Except for improvements in 2017 and 2018, the scores of all other years were less than 0.4, which was in a moderate state of coordination. The trend of the degree of the intersystem coordination of the environmental subsystem was roughly V-shaped, and this degree in 2016 was 0.1943, which was the lowest score. It showed that after 2008, the coordinated development among the environmental subsystem and the economic subsystem and the energy subsystem was poor. The degree of the intersystem coordination of the environmental subsystem has increased significantly after 2016, which also showed that after that the 17th National Congress of the Communist Party of China had emphasized strengthening the construction of a socialist ecological civilization and included ecological construction in the “Five-in-One” overall layout, the development of the environmental system has correspondingly improved. (3) Comparing the three subsystems, we can find that the degree of the intersystem coordination of the economic subsystem was the best, the energy subsystem was the second, and the environmental subsystem was the worst. The scores of the economic subsystem were all above 0.5, and the degree of the intersystem coordination was the best. The degree of the intersystem coordination of the energy subsystem was evenly distributed and increased year by year. Compared with the stable development state of the economic and energy subsystems, the environmental subsystem had relatively large fluctuations and poor stability. 2. Comprehensive Evaluation and Analysis of the Degree of the Coordination of the Total System In this part, we used the capacity coupling and model in physics to calculate the degree of the coordination of the energy-economy-environment (3E) system, combined with frontier research at home and abroad. The current formula for the main model of the degree of coupling is as follows:  Cn =

E1 × E2 × · · · × En  E1 +E2 +···+En n

 n1 (8.10)

n

According to Formula (10), the formula for the coupling degree of the coordination of 2E and 3E systems can be deduced:

8 Construction of an Index System for the Evaluation of the Degree …

 C2 =

E1 × E2  E1 +E2 2

121

 21 (8.11)

2

 C3 =

E1 × E2 × E3  E1 +E2 +E3 3

 13 (8.12)

3

After calculating the coupling degree, the total comprehensive evaluation scores of the three systems of energy, economy and environment can be calculated: T = α E1 + β E2 + γ E3

(8.13)

Among them, under the two systems: T = α E1 + β E2

(8.14)

In this formula, α, β, γ are undetermined coefficients, which are used as the weight of the comprehensive evaluation score. The above objective entropy weighting method was not adopted in the weight here, but artificial settings were used. This is because the three systems can compensate each other. The magnitude of weight reflected the importance of the three systems. It is believed in this paper that energy, economy, and environment systems are equally important, so let α = β = γ = 13 ; in the same way, when the two systems are used, take α = β = 21 . Although the coupling degree can show the strength of the interaction among the systems, it cannot show the overall coordination status of the system. The degree of coordination can better judge the degree of the coupling coordination among the three systems. Therefore, we constructed a suitable model of the degree of coupling coordination in this paper, and the formula is as follows: D=

√ C×T

(8.15)

In this formula, D represents the coordination degree; T is the total comprehensive development score of the three systems. In the previous part of this paper, we used grey relation analysis to extract the information on coordination in the subsystems of the energy-economy-environment system and obtained the evaluation values of the degree of the coordination of each subsystem as E11, E12, and E13; we used canonical correlation analysis to extract the intersystem coordination information of the energy, economic and environmental subsystems and obtained the evaluation values of the degree of the intersystem coordination of each subsystem as E21, E22, and E23. To establish a comprehensive evaluation model for the degree of the coordination of the energy-economy-environment system, it is necessary to make full use of the coordination information in the subsystems of the energy-economy-environment system and between the subsystems of the energy-economy-environment system, the importance of which were not strictly

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distinguished, and should be treated equally, with the weights of 0.5. According to the information obtained above, the comprehensive value of the evaluation of the degree of the coordination can be calculated and the results of the evaluation of each subsystem are shown in Table 8.6. (1) Table 8.6 shows the comprehensive results of the evaluation of the degree of the coordination of the subsystems of the 3E system in Shenzhen from 2008 to 2018. From the results, it can be seen that the degree of the coordination of the economic subsystem was the best, that of the energy subsystem was in the middle, and that of the environmental subsystem was the worst with many fluctuations. (2) From 2008 to 2018, the degree of the coordination of the energy subsystem was relatively evenly distributed. As time went by, the degree of coordination has improved year by year. In 2018, the coordination degree was 0.7765, reaching a well-coordinated state. With the government paying more and more attention to energy issues, the energy system will have a more long-term development, and the energy system will be better connected with the economic system and the environmental system, which is more conducive to economic and social development. The degree of the coordination of the economic subsystem was lower than 0.5 from 2009 to 2012, which was in a state of low imbalance, and that of the remaining years was greater than 0.5. After 2016, the degree of coordination exceeded the critical value of 0.6 for moderate coordination, and this degree has increased year by year since then. In 2018, it was the best, reaching 0.7716, achieving a well-coordinated state. It can be seen that with the growth of the economy, the status of the coordination of the economic subsystem, the energy subsystem, and the environmental subsystem has been optimized year by year, and the government’s policy has begun to show its effectiveness. Table 8.6 Degree of the coordination of the energy, economic and environmental subsystems

Year

Energy subsystem

Economic subsystem

Environmental subsystem

2008

0.4356

0.5213

0.4151

2009

0.3974

0.4456

0.3905

2010

0.4123

0.4355

0.3887

2011

0.4460

0.4561

0.4023

2012

0.4762

0.4769

0.3765

2013

0.5227

0.5219

0.3540

2014

0.5763

0.5646

0.3915

2015

0.6003

0.5847

0.4094

2016

0.61 59

0.6180

0.4692

2017

0.7084

0.6908

0.6945

2018

0.7765

0.7716

0.7805

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However, the status of the coordination of the environmental subsystem was not good enough. Only the degrees of coordination for the years 2017 and 2018 were greater than 0.5 in a coordinated state. The degrees of coordination for the years before 2017 were all less than 0.5 in a state of imbalance. Among them, it was moderate imbalance from 2009 to 2014, with a poor status of coordination. (3) Generally speaking, except for the large fluctuations in the environmental subsystem, the economic subsystem and the energy subsystem were relatively stable, showing an upward trend year by year. After the environmental subsystem experienced a decline from 2009 to 2014, the situation had also begun to improve, showing a positive momentum of development. Observing the results of the evaluation of the degree of the coordination of the energy, economic and environmental subsystems, we can find that with the passing of time, the values of the evaluation of the degree of the coordination of the three subsystems were getting larger and larger, and changes in energy subsystem were the most obvious. (4) The results showed that the coordinated development level of Shenzhen’s energy-economy-environment system from 2008 to 2018 was at a moderately coordinated level or below, and the values of the evaluation of its degree of coordination showed an inverted U-shaped trend over time. The value of the evaluation of the degree of coordination from 2009 to 2010 was between 0.6 and 0.7, which was in a moderately coordinated state. The values of the evaluation of the degree of coordination in 2008 and in the period 2011–2013 were between 0.5 and 0.6, which were in a barely coordinated state. The value of the evaluation of the degree of coordination from 2014 to 2016 was between 0.4 and 0.5, which was in a low level of imbalance. It can be seen that although the status of the coordination of the energy, economic and environmental subsystems has improved, the comprehensive coordination status of the 3E system has not effectively improved. Instead, it has become worse and worse. The reason is mainly because over time, although the status of the coordination of the economic subsystem and the energy system has greatly improved, that was not the case for the environmental subsystem. As a whole, the coordination of the 3E system was determined by the comprehensive status of the coordination of the three subsystems, and one uncoordinated subsystem will lead to the incoordination of the whole system.

8.4 Conclusion In this paper, we first of all used the grey relation analysis method to establish the model for the evaluation of the degree of coordination for the subsystems of the energy-economy-environment system in Shenzhen, calculated the value of the evaluation of the degree of coordination of each subsystem of the 3E system from 2006 to 2018, and analyzed and evaluated the results on this basis. The results showed that

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the degree of the coordination of the energy, economic and environmental subsystems was poor, but the status has been improving year by year. Among them, the degree of the coordination of the environmental subsystem was better than that of the energy subsystem and the economic subsystem, and the degree of the coordination of the energy subsystem was the worst. Only the environmental subsystem showed a state of high-quality coordination. The environmental subsystem showed the fastest growth rate, and the economic subsystem showed generally an upward spiraling trend. After the degree of the coordination of the energy subsystem fell to its lowest point in 2010, the status has improved year by year. From the overall structure, the degree of the coordination of the three subsystems generally showed an upward trend. Among them, the environmental subsystem was in the fastest rise, the energy subsystem showed a V-shaped trend that first declined and then rose, and the economic subsystem showed an upward spiraling trend. Second, the method of canonical correlation analysis was used to establish the model of the evaluation of the degree of the intersystem coordination for the subsystems of the energy-economic-environment system, and the degree of the intersystem coordination of each subsystem of Shenzhen’s 3E system from 2008 to 2018 was comprehensively evaluated. The results showed that the status of the intersystem coordination of the economic subsystem and of the energy subsystem was better than that of the environmental subsystem; the status of the intersystem coordination of the economic subsystem was the best, and it was in a state of high-quality coordination for four consecutive years from 2015 to 2018. The degree of the intersystem coordination of the energy subsystem was more evenly distributed, while the environmental subsystem had greater fluctuations. In terms of the overall structure, the degree of the intersystem coordination of the three subsystems generally showed an upward trend. Among them, the economic subsystem and the energy subsystem had a roughly linear upward trend, and the two were almost parallel. The economic subsystem scored much higher than the energy subsystem. The environmental subsystem almost showed a V-shaped trend. In addition, based on the model of the evaluation of the degree of the coordination for the subsystems of the energy-economy-environment system and the model of the evaluation of the degree of the intersystem coordination for the subsystems of the energy-economic-environment system, this paper used the coupling function in physics to establish a model for the comprehensive evaluation of the degree of the coordination for Shenzhen’s 3E system, and made an empirical analysis of the data from 2008 to 2018. The results showed that the level of coordinated development of Shenzhen’s energy-economy-environment system from 2008 to 2018 was at a moderately coordinated level or below, and its evaluation value of the degree of coordination showed an inverted U-shaped trend over time. The evaluation value of the degree of coordination from 2009 to 2010 was between 0.6 and 0.7, which was in a moderately coordinated state. The evaluation values of the degree of coordination in 2008 and in the period 2011–2013 were between 0.5 and 0.6, which were in a barely coordinated state. The evaluation value of th degree of coordination from 2014 to 2016 was between 0.4 and 0.5, which was in a low level of imbalance. It can be seen that the energy-economy-environment system is a complex system that

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promotes and restricts each other. The low-level imbalance of a subsystem may lead to the uncoordinated status of the entire energy-economy-environment system.

Suggested Readings Chao Xiaojing, Hui Kang, Study on the Measurement of the Quality of China’s Economic Growth, Journal of Quantitative and Technical Economics, 2009(6). Chao Xiaojing, Ren Baoping, Analysis of Time Series Changes and Regional Differences in the Quality of China’s Economic Growth, Economic Research Journal, 2011(4). Chen Shiyi, Chen Dengke, Smog Pollution, Government Governance, and High-Quality Economic Development, Economic Research Journal, 2018(2). Fan Jin, Jiang Weimin, and Liu Ruixiang, Can the Value-Added-Rate Reflect the Quality of Economic Growth?, Journal of Quantitative and Technical Economics, 2017(2). Gan Chunhui, Zheng Ruogu, and Yu Dianfan, The Impact of China’s Industrial Structure Changes on Economic Growth and Fluctuation, Economic Research Journal, 2011(5). Jin Bei, Economic Research on “High-Quality Development”, China Industrial Economics, 2018(4). Li Ping, Fu Yifu, and Zhang Yanfang, Can the Productive Service Industry Become New Momentum for China’s Economic Growth?, China Industrial Economics, 2017(12). Liu Ruixiang, Why Did China’s Value-added Rate Decline?—Based on the Perspective of Noncompetitive Input-Output Framework, South China Journal of Economics, 2011(9). Liu Ruixiang, Explore the Sources of China’s Economic Growth: Factor Input, Productivity and Environmental Consumption, The Journal of World Economy, 2013(10). Liu Wenge, Zhou Wenzhao, Zhong Shen, and Li Feng, Government Intervention, Capitalization Process and the Quality of Economic Growth in Financial Development, The Economist, 2014(3). Liu Yanni, An Liren, and Jin Tianlin, The Quality of China’s Economic Growth under the Background of Economic Structural Imbalance, Journal of Quantitative and Technical Economics, 2014(2). Ma Yiqun, Shi Anna, Research on the Impact of Financial Development on the Quality of China’s Economic Growth—An Empirical Analysis Based on the VAR Model, Studies of International Finance, 2012(11). Qi Yue, Zhao Chenhui, Liao Kezhi, and Wang Zhihao, Construction and Empirical Analysis of the Index System for the Evaluation of the Ecological Civilization, Statistics and Decision, 2018(24): 6–3 Ren Baoping, The Quality of Economic Growth: Theoretical Explanation, Basic Propositions and Ethical Principles, Academic Monthly, 2012(2). Ren Baoping, The Quality of Economic Growth: Expansion of the Theoretical Framework of Economic Growth, Economic Perspectives, 2013(11). Ren Baoping, Innovative Socialist Development Economics with Chinese Characteristics Interprets China’s High-Quality Development in the New Era, Tianjin Social Sciences, 2018(2). Ren Baoping, China’s Economy from High-Speed Growth to High-Quality Development in the New Era: Theoretical Explanation and Practical Orientation, Academic Monthly, 2018(3). Shen Kunrong, Fu Yuanhai, The Impact of Technology Transfer of FDI on the Quality of Domestic Economic Growth—A Test Based on China’s Regional Panel Data, China Industrial Economics, 2010(11). Shen Lisheng, Analysis of China’s Economic Growth: Quality and the Changes in Value Added Rate, Jilin University Journal Social Sciences Edition, 2009(3). Shen Lisheng, Wang Heng, What Does the Decline of Value Added Rate Mean?, Economic Research Journal, 2006(3).

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Sun Gennian, Yang Yali, Study on the Time and Space Changes in the Construction of the Engel Coefficient of Chinese Tourism Version 2.0, Human Geography, 2014(3). Tang Yinan, Is Chinese Economy “the Extensive Growth Model”?—Research on the Growth of China’s Economic Quality, Academic Monthly, 2014(12). Wang Jun, Guo Dong, and Zhang Huanbo, Annual Report on China’s Sustainable Development Evaluation Index System in 2018, China Center for International Economic Exchanges, 2018: 1–27. Wei Jie, Ren Baoping, Measurement and Ranking of the Index of the Quality of Economic Growth in Various Regions of China, Economic Perspectives, 2012(4). Wei Min, Li Shuhao, Construction and Measurement of Evaluation of the Quality of China’s Economic Growth System under the New Normal, The Economist, 2018(4). Zhan Xinyu, Cui Peipei, Measurement and Evaluation of the Quality of China’s Inter-provincial Economic Growth—An Empirical Analysis Based on the “Five Development Concepts”, Public Finance Research, 2016(8). Zheng Yuxin, A Recognition of Total Factor Productivity—Analyze Limitations of the Quality of Economic Growth with TFP, Journal of Quantitative and Technical Economics, 2007(9).

Chapter 9

Research on the Spillover Effect of RMB Exchange Rate Fluctuation on the Exchange Rate of Major Countries Along the “Belt and Road” Maojia Guo and Fei Li

9.1 Presentation of Questions The so-called spillover effect of an exchange rate refers to the impact of delayed volatility of the exchange rate of one market on the current volatility of another market. It includes two types: mean spillover effect and volatility spillover effect. Among them, the mean spillover effect mainly emphasizes that the delayed credits of one exchange rate market has a certain impact on the current yield of another exchange rate market. At the same time, the delayed credits of the exchange rate market itself will also affect the current yield; and the volatility spillover effect can only be studied under the premise of the heteroscedasticity of market returns, which emphasizes that the delayed volatility of one exchange rate market has a certain influence on the current volatility of another exchange rate market. At the same time, the delayed volatility of the exchange rate market itself will also affect the current volatility to a certain extent, which shows the mechanism of the transmission of volatility of the foreign exchange market. Through organizing the existing documents, we found that the research carried out by domestic scholars on the spillover effects of RMB exchange rate volatility can be roughly divided into three branches: One is the study of the spillover effects of RMB exchange rate volatility in offshore markets. For example, Jing et al. (2017) Guo Maojia, Professor at the China Center for Special Economic Zone Research, Shenzhen University, Ph.D. in Economics. She has long been engaged in research on financial theory and capital market; Li Fei, Master of Economics from the China Center for Special Economic Zone Research, Shenzhen University. She has been engaged in research on SEZ financial issues for many years. This paper is a phased result of the project “Research on Regional Financial Issues” funded by the China Center for Special Economic Zone Research, Shenzhen University. M. Guo (B) · F. Li China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, Guangdong, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_9

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used the “8.11” exchange rate reform as a node to analyze the linkage between the onshore RMB and Hong Kong offshore exchange rate markets, and concluded that the dynamic correlation coefficient has increased volatility. The second is the study of the spillover effects between the volatility of the RMB exchange rate and the exchange rate markets in developed countries. For example, Genhua (2015) selected the data for the monthly real effective exchange rates from January 1994 to November 2014 to analyze the tail dependence and linkage between the RMB and several major foreign currencies such as the US dollar, the British pound, the Japanese yen and the euro. The conclusion was that the RMB had tail dependence with several major foreign currencies such as the US dollar, the British pound, the Japanese yen, and the euro. Among them, the tail dependence with the exchange rate for the US dollar was the largest. The third is the study of the spillover effects between the volatility of the RMB exchange rate and the exchange rate markets in emerging economies such as East Asia. For example, Tongjuan and Lixue (2016) used daily data on exchange rates between the RMB and major East Asian currencies from 2005 to 2015 to compare the dynamic correlation and persistence of the exchange rates between the RMB and major East Asian currencies before and after the two exchange rate reforms. The conclusion was that the two reforms of the exchange rate systems have promoted the development of RMB regionalization. Regrettably, six years have passed since General Secretary Xi Jinping proposed the Belt and Road Initiative in 2013. The volatility of the RMB exchange rate has affected the exchange rates of countries along the “Belt and Road” through market information transmission, resulting in obvious spillover effects. However, the related research was obviously lagging behind. As the strength of the spillover effect of RMB exchange rate volatility in regions along the “Belt and Road” and the differences in different countries have not been quantified, the management cannot take precise and targeted measures to try to expand the influence of the RMB in countries along the “Belt and Road”. We believe that it is an urgent need to compare the applicability of various models of spillover effects to empirically study the magnitude of the spillover effect of RMB exchange rate volatility on the exchange rate markets of major countries along the “Belt and Road” and the differences in volatility, and put forward targeted and operable recommendations based on corresponding research achievements.

9.2 Theoretical Analysis and Hypothesis 9.2.1 Theoretical Analysis The reason why RMB exchange rate volatility can have spillover effects on the exchange rates of major countries along the “Belt and Road” is because: First, the economic connection is getting closer and closer. With the introduction of the Belt and Road Initiative in 2013, China and countries along the “Belt and

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Road” have become increasingly close in trade, finance, and investment. During the period 2013–2018, the total volume of imports and exports of China and other “Belt and Road” countries reached over US$ 6 trillion, and the influence of the RMB in major countries along the route has reached a new level. Second, the function of the RMB as a world currency is becoming more and more significant. In the process of implementing the Belt and Road Initiative, China has introduced two important measures. One is the implementation of the reform of the “8.11” exchange rate system in 2015. The IMF announced that the RMB was included in the SDR, which has greatly promoted the process of marketization of the RMB exchange rate and accelerated the internationalization of the RMB. As a result, the currencies of countries in the “Belt and Road” region have weakened their dependence on the US dollar, and their dependence on the RMB has risen accordingly. Third, direct investment has grown steadily. In recent years, although the flow and stock of China’s direct investment in countries along the “Belt and Road” have fluctuated to some extent, they have basically maintained a steady trend of growth. As of the end of 2018, the direct investment of Chinese enterprises in countries along the “Belt and Road” exceeded US$ 90 billion, allowing the exchange rate volatility of the RMB to act on the exchange rate markets of other countries along the route through the direct investment behavior of enterprises, thus spillover effects were created. Fourth, the demand for hedging has become stronger and stronger. China is a major importer of oil and natural gas and other commodities. Among the countries along the “Belt and Road”, West Asia and Russia in Eastern Europe are major exporters of oil and gas. In order to avoid the risk of great commodity price fluctuations on the international market, currency swap settlement methods are used in more and more cases, as shown in Table 9.1. It can be seen from Table 9.1 that from September 2014 to November 2018, China signed 22 local currency swap agreements (including renewal) with countries along the “Belt and Road”, which not only provided convenience for investment financing and market transactions, and strengthened the cooperation between China and countries along the route, but it also made the exchange rate volatility of the RMB and that of the major countries along the “Belt and Road” increasingly closely linked.

9.2.2 Theoretical Hypothesis According to the theoretical analysis, we can make at least two hypotheses. Hypothesis 1: As the RMB becomes market-oriented and internationalized, the spillover effect of RMB exchange rate volatility on the exchange rate markets of major countries along the “Belt and Road” will not only exist, but will also become larger and larger.

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Table 9.1 List of local currency swap agreements signed between China and countries along the “Belt and Road” Country/region

Signing date

Scale (100 million yuan)

Expiry date (yr)

Sri Lanka

2014–09–16

100/225 billion rupees

3

Russia

2014–10–13

1500/815 billion rubles

3

Qatar

2014–11–03

350/20.8 billion rials 3

Kazakhstan

2014–12–14 (re-signed)

70/200 billion tenge

3

Pakistan

2014–12–23 (re-signed)

200/351 billion rupees

3

Armenia

2015–03–25

10/77 billion drams

3

South Africa

2015–04–10

300/54 billion ZAR

3

Ukraine

2015–05–15 (re-signed)

150/540 trillion grvna

3

Belarus

2015–05–10 (re-signed)

70/16 trillion rubles

3

Tajikistan

2015–09–03

30/3 billion somoni

3

Turkey

2015–09–26 (re-signed)

120/5 billion lira

3

The United Arab Emirates

2015–12–14 (re-signed)

350/20 billion dirhams

3

Singapore

2016–03–07 (re-signed)

3000/60 billion SGD 3

Serbia

2016–06–17

15/27 billion Dinars

Hungary

2016–09–12 (re-signed)

100/416 billion HUF 3

3

Egypt

2016–12–06

180/47 billion EGP

3

Mongolia

2017–07–06 (re-signed)

150/5.4 trillion Tugrik

3

The Republic of Korea

2017–10–17 (re-signed)

3600/64 trillion won

3

Thailand

2017–12–22 (re-signed)

700/370 billion THB 3

Albania

2018–04–03 (re-signed)

20/35.8 billion leks

3

Malaysia

2018–08–20 (re-signed)

1800/110 billion Malaysia Ringgit

3

Indonesia

2018–11–19 (re-signed)

2000/440 trillion rupees

3

Source Official website of the People’s Bank of China

Hypothesis 2: The influences of the RMB on the exchange rate markets of major countries along the “Belt and Road” are different, and there are obvious differences in the strength of the spillover effect of RMB exchange rate volatility on the exchange rates of different countries along the route.

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9.3 Empirical Study 9.3.1 Data Selection and Description 9.3.1.1

Data Selection

Considering that there are many countries involved in the Belt and Road Initiative, as of June 2019, there were more than 150 countries and international organizations that had signed the “Belt and Road” cooperation documents with China, and complete statistical data was not easy to obtain, for the sake of simplicity, countries along the “Belt and Road” were divided into six regions in this paper: East Asia, Central Asia, West Asia, South Asia, Eastern Europe, and Africa. In addition, six countries including South Korea, Kazakhstan, Saudi Arabia, India, Russia, and South Africa were selected as sample countries according to the standard of their degree of connectivity of currency exchanges and trading with China. Finally, the RMB and the six currencies against the US dollar were used as the standard, the exchange rate data of the RMB (CNY), the Korean won (KRW), the tenge (KZT), the riyal (SAR), the rupee (INR), the ruble (RUB) and the rand (ZAR) from September 1, 2013 to September 1, 2018 were obtained in order from the Columbia University Database Pacific Exchange Rate Service (http://fx.sauder.ubc.ca/data.html), and the sample capacity was 8748. In order to reduce the exchange rate volatility, the data was processed by natural logarithmic first-order difference processing, that is, Rt = 100 × (ln Pt − ln Pt−1 ) was used as the exchange rate return for each country. Eviews10 was used to analyze the return series, and the results are shown in Fig. 9.1. It can be seen from Fig. 9.1 that R1 RMB always fluctuated up and down, and the range of fluctuation was wide and intensive from 2016 to 2018; R2 Korean won, R4 riyal, R5 rupee and R7 rand fluctuated sharply and intensively. Among them, the Korean won fluctuated more from 2014 to 2017; the riyal and rupee fluctuated more in 2013 than at other times; the rand fluctuated significantly from 2015 to 2017; the tenge fluctuated very little before 2015 and several extremely violent fluctuations appeared in 2015, after which regular fluctuations began to appear; the ruble fluctuated intensively from 2014 to 2016. According to the analysis of agglomeration characteristics, the exchange rate returns of various countries were not uniform, there were obvious fluctuations, and there may be heteroscedasticity.

9.3.1.2

Descriptive Statistics

Table 9.2 shows that the average exchange rate returns of the sample countries were all close to 0, the skewness was not equal to 0, and the kurtosis for all was greater than 3. Among them, the kurtosis of the tenge reached 354.1906, all of which had the characteristic of a higher peak and a fat tail. All countries had a large amount of J-B statistics, and the p-value was less than 1%, which did not obey the normal distribution. From the perspective of the residual autocorrelation Q statistics, except

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Fig. 9.1 Time series of exchange rate returns of countries

for the Korean won, the riyal, and the rupee, others all showed significant autocorrelation, while Q2 was significant. Therefore, all return series of exchange rates conformed to the characteristics of the GARCH model, which provided a basis for the establishment of the the BEKK-GARCH model. Table 9.2 Descriptive statistics of exchange rate returns of countries Mean value CNY

0.008802

Skewness 0.594648

KRW 0.001337 −0.22407 KZT

0.069147

12.79258

SAR

0.00386

−0.16608

INR

0.00386

−0.16608

RUB

0.056306 −0.17904

ZAR

0.028286

0.133771

Kurtosis

J-B statistics

P-value Q

5677.703

0

5.086907 237.1026

0

13.37713 354.1906

6,452,616 0

7.483406 1051.827

0

7.483406 1051.827

0

Q2 6.6048***

47.174***

1.2464

2.7102*

104.49***

59.969***

0.01

15.746***

0.01

15.19862

7750.808

0

10.863***

5.81512

416.1502

0

3.2085*

Note ***, ** and * means significant at the levels of 1%, 5%, and 10% respectively

15.746*** 118.69*** 28.378***

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9.3.2 Model Selection and Construction 9.3.2.1

Model Comparison

There are many models to refer to in studying the volatility of time series, such as the autoregressive conditional heteroscedasticity (ARCH) model, the univariate GARCH model, and the multivariate GARCH model. Among them, the multivariate GARCH model derived three forms of CCC-GARCH, DCC-GARCH and BEKK-GARCH. In comparison, although the ARCH model can better reflect the volatility clustering of the time series, it is often not ideal when measuring the influence of the positive and negative disturbances in the price of financial assets on the volatility. And the ARCH model has high predictions on volatility, which imposed strict requirements for constrained parameters. Compared with the ARCH model, although the univariate GARCH model can fit the time series more flexibly and concisely and it can also describe the clustering of volatility in more detail, compared with the Gaussian process, the tail of the model is fatter, and it is difficult to accurately describe the tail of the high-frequency data in actual economic problems, and the limit for obtaining continuous clustering of volatility is too strong; although the multivariate CCCGARCH and DCC-GARCH models can describe the time-varying characteristics of the correlation coefficient between two markets and solve the shortcomings of the univariate ARCH model and the univariate GARCH model, they can only analyze the dynamic volatility among markets, and cannot empirically study the spillover effects between two markets. Since the core of this paper is to study the spillover effects of RMB exchange rate volatility on major countries along the “Belt and Road”, the BEKK-GARCH model has more advantages because it can not only describe the time-varying characteristics of the correlation coefficient between two markets, but it can also analyze the dynamic volatility between markets and empirically study the spillover effects between two markets.

9.3.2.2

The Construction of the Model

Based on the above analysis, we could build the VAR-MVGARCH-BEKK model and use the binary form to compare the exchange rate return between the RMB and the currencies of other sample countries so as to effectively observe the required empirical results. (1) The Mean spillover effect (VAR) model. The mean spillover effect between markets can be described by establishing the conditional mean equation of the VAR model, the expression is: r t = φ0 +

p ∑ i=1

ϕi rt−i + εt

(9.1)

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M. Guo and F. Li

where, rt is the rate of return matrix, φ0 is the constant matrix, ϕi is the coefficient matrix, and εt is the disturbance term. Assuming that there are two markets, those of i and j, r1,t is the rate of return of market i and r2,t is the rate of return of market j, and a binary VAR model can be established by analyzing the mean spillover effects of the two markets: r1,t = φ10 + φ11r1,t−1 + β11r2t−1 + ε1t

(9.2)

r2,t = φ20 + φ21r1,t−1 + β21r2t−1 + ε2t

(9.3)

where, β11 is the mean spillover effect of market j on market i, and φ21 is the mean spillover effect of market i on market j. (2) The volatility spillover effect (MVGARCH-BEKK) model. Since GARCH(1,1) can better describe the financial time series, BEKK(p,q) chooses the lag order 1 to describe, that is, BEKK(1,1). This model is divided into two parts. The mean equation adopts the above VAR model, and the variance model is expressed as follows: Ht = CC ' +

p ∑ i=1

[

( ) ∑ ' + Ai εt−i εt−i B j Ht− j B 'j q

(9.4)

j=1

] ] ] [ [ h 11,t h 12,t c11 0 a11 a12 , C = , A = , B = h 21,t h 22,t a21 a22 c21 c22

where, Ht = ] b11 b12 . The main diagonal element h 11,t and h 22,t represent the conditional b21 b22 variance of the return rates of market i and market j, and the non-main diagonal element h 12,t and h 21,t represent the conditional covariance between the return rates of the two markets, which can be used to explore the existence and strength of the volatility spillover effect. The diagonal elements a11 and a22 in matrix A can express the clustering of the volatility of the market (also known as the ARCH-type volatility spillover effect), and the diagonal elements b11 and b22 in matrix B can express the continuity of the market’s volatility on its own (also called the GARCH-type volatility spillover effect). Then we expand the variance–covariance matrix Ht into the form of an equation system: [

) ( 2 2 2 2 2 h 11,t = c11 + a11 ε1,t−1 + 2a11 a12 ε1,t−1 ε2,t−1 + a12 ε1,t−1 ) ( 2 2 h 11,t−1 + 2b11 b12 h 12,t−1 + b12 h 22,t−1 + b11

(9.5)

) ( 2 2 2 2 2 h 22,t = c22 + a22 ε2,t−1 + 2a22 a21 ε1,t−1 ε2,t−1 + a21 ε1,t−1 ( 2 ) 2 + b22 h 22,t−1 + 2b22 b21 h 12,t−1 + b21 h 22,t−1

(9.6)

9 Research on the Spillover Effect of RMB Exchange Rate Fluctuation … Table 9.3 ADF unit root test

t-Statistic

1% level

135 Prob

CNY

−32.81073

−3.435377

0.0000

KRW

−36.43003

−3.435377

0.0000

KZT

−22.08920

−3.435385

0.0000

SAR

−35.46653

−3.435377

0.0000

INR

−35.46653

−3.435377

0.0000

RUB

−32.14485

−3.435377

0.0000

ZAR

−33.56859

−3.435377

0.0000

h 12,t = h 21,t = c11 c12 ] [ 2 2 + a11 a21 ε1,t−1 + (a12 a21 + a11 a22 )ε1,t−1 ε2,t−1 + a12 a22 ε2,t−1 [ ] + b11 b21 h 11,t−1 + (b12 b21 + b11 b22 )h 12,t−1 + b12 b22 h 22,t−1 (9.7) In formulas (9.5) and (9.6), what are in the two brackets are represented as ARCH and GARCH terms, which can reflect the impact of the previous period on the current period, that is to say, ai j is expressed as that market i has the shock transmission effect on market j, that is, it will produce the ARCH-type volatility spillover effect; bi j is expressed as that market i has the volatility transmission effect on market j, that is, it will produce the GARCH-type volatility spillover effect, where i, j = 1, 2, and i /= j, which is also applicable in the matrix.

9.3.3 Data Test 9.3.3.1

ADF Test

The log return of the RMB, the Korean won, the tenge, the riyal, the rupee, the ruble, and the rand exchange rates is tested by the unit root with Eviews10 software, as shown in Table 9.3. It can be seen from Table 9.3 that at the significance level of 1%, the p-values of all series are extremely small, and the significance is extremely high, rejecting the null hypothesis that there is a unit root. Therefore, at the 1% level of significance, all time series of log returns are stable and meet the requirements of the model.

9.3.3.2

ARCH Test

The results of the ARCH effect test on the lag return of the exchange rate in Table 9.4 show that when the lag order is selected as 1, except for the Korean won and the tenge, the F-statistics are relatively large and significant at the level of 1%. When the lag order is selected as 2, the p-value of the tenge exchange rate return series is less

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M. Guo and F. Li

Table 9.4 ARCH effect test results Heteroscedasticity test

ARCH

CNY

F-statistic Obs*R-squared

47.02595

Prob. Chi-Square(1)

0.0000

KRW

F-statistic

5.279364

Prob. F(4,1240)

0.0003

Obs*R-squared

20.84757

Prob. Chi-Square(4)

0.0003

48.78901

Prob. F(1,1246)

0.0000

F-statistic

30.78608

Prob. F(2,1244)

0.0000

Obs*R-squared

58.80984

Prob. Chi-Square(2)

0.0000

SAR

F-statistic

15.91498

Prob. F(1,1246)

0.0001

Obs*R-squared

15.73949

Prob. Chi-Square(1)

0.0001

INR

F-statistic

15.91498

Prob. F(1,1246)

0.0001

Obs*R-squared

15.73949

Prob. Chi-Square(1)

0.0001

KZT

RUB ZAR

F-statistic

130.5047

Prob. F(1,1246)

0.0000

Obs*R-squared

118.3214

Prob. Chi-Square(1)

0.0000

F-statistic

28.90121

Prob. F(1,1246)

0.0000

Obs*R-squared

28.29137

Prob. Chi-Square(1)

0.0000

than 0.01, and the result is significant. When the lag order is 4, the p-value of the Korean won is less than 0.01, which is significant. Therefore, all series can reject the null hypothesis that there is no heteroscedasticity, the ARCH effect test results are all significant, and the GARCH model can be established. Among them, the ARCH effect of the Korean won and the tenge is lower than that of other countries.

9.3.4 Empirical Test of the VAR-MVGARCH-BEKK Model 9.3.4.1

The VAR Optimal Lag Order Test

The RMB exchange rate return series is tested against that of other countries. Observation shows that under the SC criterion, the lag order in each group is the most stable, which is better than other criteria. Therefore, we select the data under the SC criterion, and the statistical results are shown in Table 9.5. It can be seen from Table 9.5 that, except for the fact that the RMB and the tenge have a mean spillover effect when the lag order is 3, the RMB and other sample Table 9.5 Optimal lag order of the VAR model

Order

Order

CNY-KRW

1

CNY-INR

1

CNY-KZT

3

CNY-RUB

1

CNY-SAR

1

CNY-ZAR

1

9 Research on the Spillover Effect of RMB Exchange Rate Fluctuation …

137

currencies have this effect when the lag order is 1, indicating that the mean spillover effect of the RMB exchange rate on the tenge is lower than that on the currencies of other sample countries. It can be seen that the RMB exchange rate has a certain radiating effect on the “Belt and Road” region, and the radiating effect of the RMB on West Asia is slightly weaker than that on other regions.

9.3.4.2

BEKK-GARCH Model Estimation

With WinRats8.0, according to the VAR lag order obtained in Table 9.5, a binary BEKK-GARCH model can be established to estimate the exchange rate return series of countries, and the results are shown in Table 9.6. By observing the subdiagonal elements A(1, 2) and A(2, 1) of matrix A and the subdiagonal elements B(1, 2) and B(2, 1) of matrix B respectively in Table 9.6, we can see that there are significant ARCH effects (i.e. shock transmission effects) and significant GARCH effects (i.e. volatility transmission effects) between the RMB and the Korean won, the riyal, the rupee, the ruble, and the rand, but there is only a significant volatility transmission effect between the RMB and the tenge, while the shock transmission effect is not significant; there is a two-way shock transmission effect and a volatility transmission effect between the RMB and the rand, and there is a two-way shock transmission effect between the RMB and the Korean won; the ARCH effect of the riyal, the rupee, and the ruble on the RMB is significant at the level of 1%, and the shock transmission effect is very strong; the RMB has a one-way volatility transmission effect on the Korean won, the riyal, and the rupee, at the level under 1% and 5%. And the GARCH effect of the ruble and the tenge on the RMB is significant. Through the diagonal elements a11 , a22 , b11 , and b22 in matrices A and B, we can observe the volatility influence of the exchange rate return series on its own. Therefore, it can be seen that the current RMB, the Kazakhstan tenge, and the Russian ruble exchange rate returns are affected significantly by their own exchange rate returns in the previous period. Kazakhstan is more persistently affected by its own exchange rate returns. Through the diagonal elements b11 ×b22 in matrix B, we can observe the continuity of the volatility between two markets. Therefore, it can be seen that the continuity of the exchange rate volatility between the RMB and the South African rand is strong, while the continuity of the exchange rate volatility between the RMB and the Russian ruble is the weakest, which is only 0.124, and the continuity of the exchange rate volatility with other countries maintains a level of about 0.4, indicating that the RMB exchange rate as a whole has volatility persistence on all regions along the route, and its impact on Eastern Europe needs to be strengthened.

9.3.4.3

Wald Test

With WinRats8.0 to do the Wald test, the results are shown in Table 9.7.

138 Table 9.6 Results of the parameter estimation of the BEKK model for the RMB and the currencies of the sample countries

M. Guo and F. Li

CNY-KRW

CNY-KZT

Matrix element

Parameter estimation

P-value

A(1, 1)

−0.610391392

0.00000000

A(1, 2)

6.429698632

0.00104768

A(2, 1)

−0.000044610

0.08561455

A(2, 2)

0.063218943

0.14667883

B(1, 1)

0.881722535

0.00000000

B(1, 2)

7.060795619

0.00036565

B(2, 1)

0.000083837

0.15872204

B(2, 2)

0.460175092

0.00061336

A(1, 1)

0.632214311

0.00000000

A(1, 2)

−0.285556964

0.93092413

A(2, 1)

0.000001161

0.85491721

A(2, 2)

0.000870791

0.97898857

B(1, 1)

0.877072089

0.00000000

B(1, 2)

−0.365370637

0.92354056

B(2, 1)

−0.000038500

0.01062388

B(2, 2)

−0.045289406

0.26622624

CNY-SAR

A(1, 1)

0.617667529

0.00000000

CNY−SAR CNY−INR

A(1, 2)

−0.891254205

0.24861116

A(2, 1)

0.000137489

0.00000324

CNY-INR

CNY-RUB

CNY-RUB CNY-ZAR

A(2, 2)

0.015337173

0.69983312

B(1, 1)

0.880332508

0.00000000

B(1, 2)

1.951106040

0.05325922

B(2, 1)

0.000087034

0.18714617

B(2, 2)

0.500967410

0.08255359

A(1, 1)

0.617667529

0.00000000

A(1, 2)

−0.891254205

0.24861116

A(2, 1)

0.000137489

0.00000324

A(2, 2)

0.015337173

0.69983312

B(1, 1)

0.880332508

0.00000000

B(1, 2)

1.951106040

0.05325922

B(2, 1)

0.000087034

0.18714617

B(2, 2)

0.500967410

0.08255359

A(1, 1)

0.622477693

0.00000000

A(1, 2)

5.685024939

0.10197738

A(2, 1)

0.000044493

0.00874489

A(2, 2)

0.340134520

0.00000000 (continued)

9 Research on the Spillover Effect of RMB Exchange Rate Fluctuation … Table 9.6 (continued)

CNY-ZAR

139

Matrix element

Parameter estimation

P-value

B(1, 1)

−0.874493424

0.00000000

B(1, 2)

2.017830026

0.58148628

B(2, 1)

0.000059674

0.00033918

B(2, 2)

−0.143168612

0.43177317

A(1, 1)

−0.594135933

0.00000000

A(1, 2)

2.732306675

0.00018292

A(2, 1)

−0.000048276

0.00025239

A(2, 2)

−0.013687174

0.71662362

B(1, 1)

0.888310816

0.00000000

B(1, 2)

2.606740833

0.00001331

B(2, 1)

−0.000020332

0.02724537

B(2, 2)

0.890422036

0.00000000

Table 9.7 Volatility spillover effects of return series between the RMB and the currencies of the sample countries Volatility Spillover Effect

Chi-Squared

F-statistics

P-value

Volatility spillover effect of CNY on KRW

12.795702

6.39785

0.00166513

Volatility spillover effect of KRW on CNY

4.323490

2.16174

0.11512407

Volatility spillover effect of CNY on KZT

0.071745

0.03587

0.96476346

Volatility spillover effect of KZT on CNY

6.541445

3.27072

0.03797898

Volatility spillover effect of CNY on SAR

5.221262

2.61063

0.07348814

Volatility spillover effect of SAR on CNY

29.939201

14.96960

0.00000032

Volatility spillover effect of CNY on INR

5.221262

2.61063

0.07348814

Volatility spillover effect of INR on CNY

29.939201

14.96960

0.00000032

Volatility spillover effect of CNY on RUB

4.881769

2.44088

0.08708380

Volatility spillover effect of RUB on CNY

31.035517

15.51776

0.00000018

Volatility spillover effect of CNY on ZAR

23.212009

11.60600

0.00000911

Volatility spillover effect of ZAR on CNY

20.559058

10.13269

0.00000003

It can be seen from Table 9.7 that at the significance level of 1%, the RMB has a volatility spillover effect on the Korean won and on the rand; at the significance level of 10%, the RMB has a volatility spillover effect on the riyal, the rupee, and the ruble, and the test effect of the RMB on the tenge is not significant with no volatility spillover effect. Conversely, at the significance level of 1%, the riyal, the rupee, the ruble, and the rand have a volatility spillover effect on the RMB; at the significance level of 5%, the tenge has a volatility spillover effect on the RMB, while the Korean won has no significant effect on the RMB, without any volatility spillover effect.

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9.4 Conclusions and Recommendations Through theoretical and empirical analysis, the main conclusions drawn by the authors are that: First, RMB exchange rate volatility has a significant mean spillover effect and volatility spillover effect on the sample countries. It can be seen from the empirical results that the RMB has a significant mean spillover effect on the representative countries in the “Belt and Road” region, namely South Korea, Kazakhstan, Saudi Arabia, India, Russia, and South Africa. From the empirical results of the volatility spillover effect, it can be seen that the RMB has a shock transmission effect and a volatility transmission effect on the Korean won, the riyal, the rupee, the ruble, and the rand, indicating that the RMB has a certain position in all regions along the “Belt and Road”, and the exchange rates of almost all sample countries are affected by RMB exchange rate volatility. Second, the volatility of the RMB exchange rate has great differences in the mean spillover effects and volatility spillover effects of different sample countries. Analyzing the mean spillover effect, the mean spillover effect of RMB exchange rate volatility on the Korean won, on the rand, the riyal, the rupee, and the ruble is relatively strong, while the mean spillover effect on the tenge is relatively weak. From the perspective of volatility spillover effects, the volatility spillover effect of the RMB exchange rate on the Korean won and on the rand is higher than that on the riyal, the rupee, and the ruble, and there is only a volatility transmission effect on the tenge, but no shock transmission effect. Third, the spillover effect of RMB exchange rate volatility on sample countries is not static. For example, when the exchange rate data of different frequencies are used at different stages before and after the exchange rate reform in 2015, the results of the exchange rate spillover effect are obviously different. It is certain that the impact of current RMB exchange rate volatility on the sample countries is still difficult to compare with that of currencies of other major countries in the world. However, with the deepening of the internationalization of the RMB and the deepening of the marketization of the mechanism of the formation of the RMB exchange rate, the correlation between RMB exchange rate volatility and the exchange rate volatility of countries along the “Belt and Road” will continue to increase. Based on the above conclusions, the main recommendations made by the authors are: First, take a multi-pronged approach. In order to increase the overall influence of the RMB exchange rate on the countries along the “Belt and Road”, the first thing is to maintain sustained and stable macroeconomic growth and lay a solid foundation for the RMB to play the role of a world currency in the countries along the route. The second is to maintain the relative stability of the value of the RMB currency both domestically and abroad, and continuously improve the reputation of the RMB on the international currency market. The third is to gradually increase the proportion of the RMB in the special drawing rights (SDR) currency basket, and give full play to the role of the RMB as a reserve currency, settlement currency and payment currency

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worldwide. The fourth is to try out the policy of preferential use of the RMB as the settlement currency in countries along the “Belt and Road”, increase the number of Chinese-funded banking institutions and outlets, boost the number of UnionPay cards issued, and increase the scope and the degree of the utilization of the RMB in cross-border payments in countries along the “Belt and Road”, so as to extend the duration of the spillover effect of the exchange rate volatility of the RMB and currencies of related countries. Fifth, it is necessary to encourage and support thirdparty payment platforms such as Alipay and WeChat Pay to go global as soon as possible, which will not only change the payment habits of residents of the countries along the “Belt and Road”, but it will also increase the recognition of the RMB in countries along the route. Sixth, it is necessary to expand the scale of bilateral local currency swaps, and avoid direct conflicts between the RMB and the currencies of other countries by signing bilateral local currency swap agreements and increasing foreign exchange reserves. Seventh, it is necessary to enrich the RMB derivatives market and design more financial derivatives that maintain and increase the value of RMB funds to minimize the excessive impact on the RMB exchange rate when there are devaluations in the foreign exchange markets of other countries. Second, consolidate strengths to make up for weaknesses. The reason why RMB exchange rate volatility has a strong spillover effect on the Korean won and on the rand is that the regionalization of the RMB has been well developed in East Asia and Africa. Therefore, we must continue to increase the influence of the RMB on East Asia and Africa. The reason why the spillover effect of RMB exchange rate volatility on the riyal, the tenge, the rupee, and the ruble is relatively weak is that the regionalization of the RMB is relatively weak in West Asia, Central Asia, South Asia, and Eastern Europe. To make up for this shortcoming, there are three urgent tasks in the future: the first is to increase bilateral currency cooperation with West Asia, Central Asia, South Asia and Eastern Europe, and to further promote the signing of cooperation agreements with more countries and international organizations in the regions so as to expand the scale of currency swaps; the second is to achieve full coverage of the member states of the Asian Infrastructure Investment Bank and expand the impact of RMB exchange rate volatility on the exchange rate of countries in the regions; third, make good use of the Silk Road Fund, develop investment and financing projects in countries in the region, and increase the number and proportion of direct investment projects dominated by the RMB. Third, keep pace with the times. In order to ensure that the quantified results of the spillover effect of RMB exchange rate volatility on the exchange rate of major countries along the “Belt and Road” are closer to reality, research on the exchange rate spillover effect among foreign exchange markets must be proceeding. It needs to be continuously tested over time with more methods needed in continuous optimization and updating.

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References Cai Tongjuan, Chen Lixue, Research on the Dynamic Linkage of Exchange Rates between the RMB and the Main Currencies in East Asia—An Empirical Analysis Based on the VAR-MVGARCHBEKK Model, Asia-pacific Economic Review, 2016(5). Hu Genhua, Tail Dependence and Linkage between the RMB and Major Foreign Currencies, Statistical Research, 2015(5). Li Jing, Wu Yuanyuan, and Zhao Qilin, The Spillover Effect and the Dynamic Correlation of Onshore and Offshore RMB Exchange Rate: A Comparison of Before and After the “8.11” Exchange Rate Reform, World Economy Study, 2017(9).

Suggested Readings Guo Qing, Zhong Huaming, and Chen Weiguang, A Study on RMB Regionalization under Global Economic Governance Based on Countries along the “Belt and Road”, Macroeconomics, 2018(4). Zou Zongsen, Wang Xiuling, and Feng Dengtian, Does Third-Party Exchange Rate Volatility Affect China’s Bilateral Trade Relations?—Evidence from Trade Partners along “the Belt and Road”, Studies of International Finance, 2018(9).

Chapter 10

Urban Village Reconstruction in Shenzhen from the Perspective of the Interaction of Population, Land and Industry—Research and Analysis of Qinghu Village, Longhua Ping Zhang and Xueyan Mo

10.1 Introduction Shenzhen has a large floating population and is a huge immigrant city. This is reflected in the continuous increase in its permanent population. The rapid growth of Shenzhen’s permanent population originated from the reform and opening-up. After experiencing rapid growth in the 1980s and 1990s, Shenzhen entered a relatively slow growth stage in the twenty-first century. At the end of 2018, Shenzhen had a permanent population of 13.0266 million, of which 4.547 million were permanent residents, accounting for 34.9% of the permanent population. The population density of Shenzhen has been steadily increasing. The growth rate of the population density in the past three years has remained at 4.6%. The floating population in Shenzhen has continued to increase, and a large number of surplus rural labor workers have entered the city (Fig. 10.1). Abundant resources of the labor force factor is the prerequisite for industrial transformation and upgrading. The free movement and migration of the labor force promoted the effective allocation of social labor force resources on the labor force market (Cai 2017). The floating population is an important force in Shenzhen’s reform and opening-up and modernization, and it has played a huge role. According to the latest research by Lu Ming, Zhong Yuejun and others, the Repressed Service Zhang Ping, Associate Professor at the China Center for Special Economic Zone Research, Shenzhen University; Mo Xueyan (Corresponding Author), Postgraduate at the China Center for Special Economic Zone Research, Shenzhen University. This paper is funded by the National Social Science Fund of China Project (14BZZ086) and the Shenzhen Philosophy and Social Science Planning Program (SZ2019C006). P. Zhang (B) · X. Mo China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_10

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Permanent population (10,000 people) Non-registered population (10,000 people)

Registered population (10,000 people) Growth rate of permanent population (%)

Fig. 10.1 The population of Shenzhen in the past 40 years of reform and opening-up

Industry—Study on Unbalanced and Inadequate Development from the Perspective of Spatial Distribution of the Population, it is estimated that the speed of the development of China’s urban service industry will be affected by the decline in urban population density and the barriers to the mobility of the labor force. From the perspective of industrial allocation, the transfer of the population from agriculture to manufacturing and to the service industry is conducive to the optimization of the industrial structure, thereby effectively releasing the demographic dividend. Since 2008, the tertiary industry has been the mainstay in Shenzhen’s industrial structure. The proportion of added value of the tertiary industry has exceeded that of the secondary industry and has gradually moved towards the 60% barrier. The proportion of industrial added value has gradually, but steadily declined. The proportion of the added value of the service industry has been rising year by year (see Fig. 10.2); Zhang and Tian (2018), Cheng and Pan (2008) and others indicated that there are strong regional and industrial characteristics of rural labor force transfer. The proportion of Shenzhen’s employment in the tertiary industry has remained above 50% in the past five years.

The secondary industry

The tertiary industry

Industry

Fig. 10.2 The proportions of added value of Shenzhen’s secondary and tertiary industries and industry in the past 40 years of reform and opening-up

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However, with the advancement of urbanization and industrialization, Shenzhen’s industrial transformation and upgrading is facing constraints of land area. Xu and Qi (2017) stated that the reform of the land system is an inherent requirement for the promotion of a new type of urbanization, and the existing dual urban–rural land system hinders industrial restructuring, upgrading and innovation. The main reason why the structure of urban construction land is difficult to adapt to the adjustment of industrial structure and transformation and upgrading is that the contradiction between land supply and demand has become increasingly prominent. Since the reform and opening-up, Shenzhen has developed rapidly, and its economic vitality has attracted a large number of enterprises and talents from all over the country and even the world to develop here. However, Shenzhen’s land resources are becoming increasingly scarce and need more industrial upgrading space and residential space through the secondary development of land. To this end, Shenzhen has begun the era of secondary development of old industrial areas, shanty towns, urban renewal, etc. In the secondary development of land, the problem of urban villages in urban renewal is complicated. Urban villages lack unified planning and management, there is a complex population structure, and some development ownership rights are unknown, making it difficult to develop. At the same time, urban villagers rely on the superior location of the urban village and the low land price relative to the city, and have no planned expansion, resulting in many nonstandard buildings in urban villages, and the property rights of many buildings are unknown, which increases the difficulty of reconstruction. In order to balance the relationship among land, population and industry, the government began to make plans on land and houses in urban villages. Due to historical problems and the current land development system, the property right structure of land and houses in urban villages has been complicated. So how can the win–win situation of population, land and industry be maximized? In order to answer the above questions, this paper mainly did the following work: (1), Faced with the challenges of large-scale population flow, limited land resources, and the lack of continuous optimization and upgrading power of the industrial structure in the process of urbanization and industrialization, this paper attempted to tease out the relationship among population, land and industrial development based on the urban villages. (2) As mentioned above, the problem of urban villages in the wave of secondary land development is prominent, and all regions have begun to explore reasonable and scientific reconstruction models. This paper summarized the situation of some urban village reconstruction models in domestic cities and objectively analyzed advantages and disadvantages of some typical transformation models, so as to highlight the characteristics of the current reconstruction model in the comprehensive improvement of urban villages in Shenzhen. (3) This paper carried out a field inspection of Qinghu Village in Shenzhen, which is undergoing reconstruction, and compared all aspects of the completed reconstruction. In order to comprehensively think about the implementation of the reconstruction, and objectively evaluate the existing reconstruction model, we paid attention to various stakeholders, especially the views of low-income tenants, about their attitudes towards reconstruction.

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The research in this paper shows: (1) In order to maintain the sustainable development of the economy and promote continuous upgrading of the industry, it is the current task to improve the efficiency of land use and optimize the space in a limited space. The reconstruction of urban villages can balance the relationship among population, land and industrial development during the process of urbanization. This shows that the implementation of large-scale urban village reconstruction can solve the problems of large-scale demand for housing for the population and urgent upgrading and optimization of industries, and alleviate land pressure. (2) By summarizing the reconstruction models of the urban villages that have been renovated, it was found that appropriate models can be selected in the reconstruction according to the actual situation of the urban villages, that is, it can solve the primary problem and remain and develop the characteristics of the urban villages, but it does not take the interests of the tenants into consideration. (3) The reconstruction model of Qinghu Village is mainly “Comprehensive Improvement of Urban Villages+Introduction and Management of Tenement + Urbanized Commercial Operation”, which effectively consolidated the safety foundation of urban villages in tenement management, and comprehensively and finely renovated the buildings of urban villages. From the perspective of all parties, we can see that reconstruction is indeed a game of interests of all parties. As the weaker party, the interest of tenants is the rent. The contribution of this paper is mainly reflected in three aspects: (1) In 2019, Shenzhen clearly pointed out the direction of the latest reconstruction of urban villages. On the basis of existing research, this paper explored and analyzed the latest reconstruction of an urban village, and enriched the cases of reconstruction of comprehensive improvement of urban villages. (2) The research in this paper provided a new perspective. First, it viewed the reconstruction of urban villages from the perspective of the relationship among the population, land and industrial development, and few documents analyzed it from this perspective; second, the external population was added to the interests of all parties, which enriched the comprehensive understanding of the model of the reconstruction of an urban village and was more in line with the people-oriented thinking. (3) This paper summarized Shenzhen’s model of reconstruction and gave an explanation based on the model of the reconstruction of an enterprise. Many studies have focused on the macro-level reconstruction model. This paper turned to the micro-analysis of the model of reconstruction at the enterprise level. The remaining structural arrangements of this paper are as follows: The first part is a review of the literature regarding the development of reconstruction models of urban villages; the second part is to sort out the framework of the relationship among population, land and industry in urban villages; the third part is a summary of existing domestic models of reconstruction; the fourth part reported and analyzed the reconstruction case of Qinghu Village; the fifth part proposed relevant ideas for the diversified development and classified management of the urban villages in Shenzhen from the perspective of the relationship among population, land and industry.

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10.2 Review of Literature: Model of the Development of an Urban Village During the Process of Urbanization and Industrialization During the process of urbanization and industrialization, the reconstruction of urban villages is inevitable. Urbanization and industrialization are important engines for the sustainable development of China’s economy. Lai and Wu (2013) stated that the rapid development of urbanization and industrialization has laid a sound economic foundation for cities. However, urbanization is a dynamic process. Facing huge challenges in terms of resources, the environment, and industrial structure, to achieve sustainable development and ensure the dual realization of “quality” and “efficiency” of economic development, the focal point is to carry out urban renewal. Urban renewal is an important driving force for the development of new urbanization. During the process of urbanization, for the urgency of land resources shortage, inefficient land use, urgent transformation of industries, and urgent need to improve the image of the city, urban renewal is an effective method of realizing the rational allocation of space resources, improving the efficiency of land use, adjusting the industrial structure, improving the living environment, and enhancing urban functions. The urban village is a product of the urban–rural dualism and of the model of the management of land ownership. It is the result of “extensive management” during the process of urbanization (Zhang and Zhao 2007), including problems of population disorder, waste of resources, land repurchase and resale, and difficulties in funding for reconstruction, which is a difficult point in urban renewal. A certain speed of development needs to be guaranteed by a corresponding space carrier (Zou, 2013). There is a waste of land resources in urban villages, which needs to be optimized and updated. For this reason, the reconstruction of urban villages is an important measure in promoting the coordinated and sustainable development of the urban economy, society, and environment, and is one of the keys to the organic and sustainable development of urbanization. From different perspectives, various types of divisions can be made for the reconstruction of urban villages. Xue (2007) mainly started from the reconstruction process, and analyzed the reconstruction model of the urban villages in Shaoxing based on the degree of demolition during the reconstruction, the subject of investment, the section of construction, and the situation of resettlement. Guan et al. (2013) mainly focused on the combination of various factors such as the role of the government, preferential policies, subjects of reconstruction, forms of reconstruction, compensation methods, financing methods, changes in the system of the urban village, and difficulties faced by the cities, and summarized the models of the reconstruction of the urban villages of Guangzhou, Zhuhai and Shenzhen. In terms of methods of reconstruction, there are mainly three models of demolition and reconstruction, comprehensive improvement, and functional change (Zou 2013). Methods of demolition and reconstruction may change the subject of land use rights, and will be implemented in strict accordance with the renewal plan, which is more conducive to releasing land

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potential, optimizing urban structure, and providing space for industrial optimization; comprehensive improvement is mainly to carry out safety hazard management and environmental improvement for urban villages on the basis of not changing the main structure of the building; and functional change is only to continue small-scale changes to infrastructure and public service facilities. From the perspective of the subjects of reconstruction, the government-led model can be roughly divided into three types: government-led type, village collective-led type, and developer-led type. (Zhao and Nan 2008; Liu 2010; Shi 2011; Zhang et al. 2015), the specific summary is shown in the following Table 10.1. Some scholars continue to summarize and improve the model of urban village reconstruction on this basis. Xinyang concluded that in addition to the above three models of reconstruction, there is a government-led and multi-participatory model of reconstruction. This model is suitable for the government, enterprises and village collectives to jointly participate in the reconstruction, and can better maintain the balance of the interests of all parties, and accelerate the progress of the development of urbanization. Zhu (2013) took the reconstruction of Datan Village, an expanding urban village in Lanzhou, as an example, and said that the CAS model ecological farm is applicable for the reconstruction of Datan Village. This model is a way to solve issues of food safety, that is, a production model that directly connects field production and household needs. In this model, the village will sign an agreement on the supply and demand of related organic food with farmers. The food will be delivered directly from the farm to the consumers. And a relationship of risk-sharing and profit-sharing will be established between producers and consumers. The CAS model can both preserve the farmland area of urban villages and guarantee an increase in the farmers’ economic income. Zhang et al. (2017) summarized the model of reconstruction of conditional transfer of land, and made it clear that the bidders need to hand over part of the housing and public supporting buildings to the government free of charge as compensation for the resettlement of the villagers, and the buildings developed on this plot shall reach corresponding standards. This model emphasizes adaptability rather than efficiency. It can effectively arrange the huge resettlement compensation in the reconstruction of urban villages through market forces, form a redistribution of land rights, and make sure that villagers can obtain better living conditions after the reconstruction. However, there are few documents to analyze and tease out the model of reconstruction of urban villages by enterprises. This paper focused the model of reconstruction of Shenzhen’s urban villages on the model of reconstruction with enterprises’ participation. In the research on the development of the model for the reconstruction of urban villages, the model for the reconstruction of urban villages has shifted from initially emphasizing the improvement of the material environment and ignoring the housing and employment needs of the floating population to gradually considering the interests of the floating population. The key to successful reconstruction is to coordinate the interests of local governments, developers, and village collectives (and villagers) (Yan et al. 2004; Zhang et al. 2006), but Jia et al. (2011) indicated that the reconstruction of urban villages required comprehensive and systematic consideration of the core interests of temporary migrants; Chen and

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Table 10.1 Types of reconstruction of different subjects Government-led reconstruction model

Village collective-led reconstruction model

Developer-led reconstruction model

Subject of implementation

Local government or government-funded development company

Village joint-stock company or project company established by a joint developer, but the village stock holds a controlling position

Real estate developer or project company controlled by the developer formed with a village joint-stock company

Mechanism of reconstruction

The government is responsible for all the reconstruction work including planning, demolition, compensation, construction, relocation or resettlement, commercial housing sales, etc., and the villagers are the subjects of the reconstruction

The government is responsible for the work including preferential policies, and the construction of infrastructures. Under the overall government plan, the village collective or joint-stock company is responsible for financing, demolition, resettlement, relocation, and commercial housing sales

Under conditions of government guidance, supervision and preferential policies, the developer alone undertakes the reconstruction of all urban villages

Applicable types

Cultural heritage protection and utilization type, comprehensive improvement type

Demolition and reconstruction in the city, control and adjustment outside the city, continuation and development of scenic spots

Demolition and reconstruction type, comprehensive improvement type

Advantages

The government can control the reconstruction process and get land finances

High efficiency, no nail Compared with households phenomenon government dominance, it is not only efficient but also low-cost in transactions

Disadvantages

High transaction costs, low efficiency, unsustainable capital operations, or being trapped in the nail household dilemma, fierce social conflict, driving out the floating population

Insufficient capital, insufficient ability and insufficient foresight to control the future, leading to low-end reconstruction; problems such as land use efficiency and non-registered permanent population continue to accumulate, resulting in driving out the floating population

The result of the reconstruction is to maintain the most difficult parts to be transformed. At the same time, there is a lack of public space and a serious rent-seeking phenomenon, leading to social conflicts and to crises of government governance, and driving out the floating population

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Liu (2011) emphasized that the reconstruction of urban villages should take the “people-oriented” principle, based on the purpose of protecting the interests of residents and improving the living conditions of migrants; based on the perspective of the feasible ability theory by Jia et al. (2015) analyzed the welfare balance in the reconstruction of urban villages, believed that reconstruction can realize the transformation from “things” to “people”, and indicated that the temporary migrants in urban villages can make contributions to urbanization and society, and this group of people should be included as one of the subjects of welfare compensation. Many scholars said that the reconstruction of urban villages should not only pay attention to the urban industry and spatial structure, but also to the urbanization of people and to the reconstruction of social relations (Lu 2017; Huang 2013; Sun 2013). Among them, the reconstruction of urban villages in Shenzhen has gradually developed from a single-oriented model to a multivariate parallel model. Song (2017) stated that various models should be used flexibly in the reconstruction of urban villages. According to its characteristics, part of the village can be reserved for comprehensive improvement, and part of it can be demolished and reconstructed. Cai (2017) analyzed several cases of urban villages that were demolished and reconstructed in the early days of Shenzhen’s development, and the results showed that the original urban renewal in the Shenzhen Special Economic Zone was initially carried out mainly in the form of demolition and reconstruction, mainly under a government-led model. Su et al. (2018) combed through the historical context of Shenzhen’s urban renewal and found that the reconstruction of urban villages has undergone a transformation from demolition and reconstruction to a multivariate parallel model, and has gradually turned from the government-led to the market-led model. Shenzhen’s early reconstruction of urban villages was mainly based on “large-scale demolition and construction, and pulled down and reconstruction”, but now it has turned to “comprehensive improvement”, paying more attention to the inherent organic characteristics, continuity and cultural connotation of the city as a whole. Based on the above analysis, we can find that there are few documents based on how enterprises in Shenzhen’s latest model of reconstruction rationally and comprehensively reconstruct existing urban villages and from the perspective of tenants. Regarding the analysis of the model of the reconstruction of urban villages and the need to pay attention to humanism, the relevant documents mainly focus on whether the villagers receive reasonable compensation and whether the people’s living environment is optimized. This paper improved on the basis of existing literature, and analyzed the needs of tenants. At present, the reconstruction of urban villages in Shenzhen is mainly led by the government and undertaken by enterprises, and the reconstruction is mainly based on comprehensive improvement. The above literature summarized the model for the reconstruction of urban villages from a macro perspective, while this paper investigated the urban villages that are undergoing comprehensive improvement, and analyzed whether the model of reconstruction selected by the participating enterprises can be more suitable for the actual situation of the urban villages in Shenzhen.

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10.3 An Framework for the Analysis of the Reconstruction of Urban Villages Based on the Interaction of Labor, Land and Industry According to statistics, there are 1427 urban villages in Shenzhen. The total land area of urban villages in Shenzhen is about 320 square kilometers, and about 12 million people live in them. The floating population is mainly rural migrant workers with low levels of income, who generally lack the ability to improve housing conditions in cities, and urban villages provide housing security for the floating population. In Shenzhen, where the supply of residential land is extremely scarce, the contradiction between the living demand of the floating population and the supply of housing is intensifying. Urban renewal has long become the main force of the housing supply, but the rise in rents is oncoming, which in turn leads to the migration of part of the population (Fig. 10.3). In the process of passive urbanization, the problems that arise at the three factors of land, population and industry are not isolated, and there are correlation, interplay, and interaction among the three factors (Fang and Zhang 2017). The “urban village” is a special carrier and an important unit of Shenzhen’s urban development. It has played an important role in promoting the economic and social development of the special economic zone, improving the planning and layout, adjusting the urban functions, and enhancing multivariate supply. However, the reconstruction of urban villages in urban renewal is a tough problem. At present, there are still prominent problems in “urban villages” such as prominent hidden safety hazards, insufficient municipal supporting facilities, and poor city appearance and environment. From the reconstruction of the old village of Caiwuwei led by Kingkey, to the reconstruction of the old village of Gangxia led by Excellence Group and Gemdale, then to the reconstruction of the old village of Dachong Village neighboring Baishizhou led by China Resources, these are typical cases of demolishing and rebuilding urban villages. As early as 2012, the project of the reconstruction of the old village of the Caiwuwei area was declared and approved. After the completion of the new Caiwuwei area, it will become the core area of Shenzhen’s financial business, which will lead to an increase in the income

Allocation of land resources

Release provide

and

Optimization of industrial structure

Allocation of labor resources

(Urbanization) Provide houses and meet the demand for living Coordination paths: urban renewal; urban village reconstruction

Fig. 10.3 The intersection of trade-offs among land, labor and optimization of industrial structure

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from rentals of the majority of property owners, but behind the increase there are a large number of forced relocated tenants. The status of urban land use in Shenzhen determines that the land space mainly turns to the unconfirmed land, that is urban villages, for security housing and land. The demolition and reconstruction of urban villages will lead to an increase in the cost of living in the area and a shortage of labor. Shenzhen is facing the important task of building a “pilot demonstration area” and needs to guarantee sufficient labor resources. Chen (2010) stated that in order to stabilize the level of economic development, the pace of population transformation and industrial evolution must be consistent. In the context of the slowdown in the growth rate of agricultural population migration and the gradual emergence of new trends of migrant workers returning to their hometowns to start businesses, further optimization of the industrial structure needs to guarantee the full use of labor. Urban villages are the basis for resolving the living problems of the floating populations, alleviating land pressure, and retaining labor for industrial development. This determines that the reconstruction of urban villages cannot be demolished and reconstructed on a large scale. In December 2016, the Planning and Natural Resources Bureau of Shenzhen Municipality issued the Thirteenth Five-Year Plan for the Urban Renewal of Shenzhen, which has indicated that urban villages have as their target improving supporting facilities and the environment, comprehensive improvement as their main task, and demolition and reconstruction as a supplement. In March 2019, the Master Plan on the Comprehensive Improvement of Urban Villages (Old Villages) in Shenzhen (2019–2025) was released, stipulating that the land within the comprehensive improvement area shall not be demolished and rebuilt within 7 years, and multiple parties are encouraged to participate in the comprehensive improvement of the urban village and long-term planning on the recontruction of the urban village has been made. Shenzhen has become more and more rigorous in making the overall plan of urban renewal and reconstruction, and is constantly “correcting” and improving it. In this paper we analyzed the main existing models of the reconstruction of urban villages and made a summary of them. Based on the above analysis, we started with the reconstruction case of Qinghu Village, and summarized the latest reconstruction of an urban village in Shenzhen from the perspective of the relationship among population, land and industry. On this basis, we analyzed the current situation of the reconstruction of Qinghu Village in Shenzhen, and got an in-depth understanding of the main direction and the operation of specific models of the reconstruction of urban villages in Shenzhen.

10.4 Summary of the Existing Urban Village Reconstruction Models in China 1. Liede Village in Guangzhou: a Top-down Government-led Model

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The reconstruction of the old village of Liede Village is the first attempt to reconstruct an urban village in Guangzhou. It is located adjacent to the opening place of the Asian Games. In order to prepare for the hosting of the Asian Games, under the topdown promotion of the government, the overall reconstruction of Liede Village was officially launched in May 2007. The reconstruction of Liede Village established an organizational form of being led by the government with enterprises involved. Through the clear division of responsibilities, they could complete the monitoring, management and implementation of the entire reconstruction. The government clarifies the reconstruction requirements, coordinates and updates the preparation of the plan, and provides policy support; the enterprise is the main body of the implementation of the reconstruction of the urban village, and is responsible for a series of activities such as land property investigation, land acquisition, demolition, and construction. In the entire process of the reconstruction of Liede Village, from planning to full implementation, the government has assumed a leading role. Therefore, during the process of reconstruction, the government can comprehensively consider the overall interests of the society and allocate the resources of relevant departments from a macro perspective, thus giving full protection to the disadvantaged groups. As a non-economic interest subject, the government represents and implements the city’s public interests. The actual pattern of benefits of the reconstruction of Liede Village is that the government sets a series of policy frameworks, including standards for demolition compensation and property rights, to standardize the operating space of enterprises. The villagers communicate with the developer to discuss about the plan and the scheme of reconstruction, and finally form an updated model of replacing land ownership with development and resettlement. 2. Cuiwei Village in Zhuhai: Leveraging on the Market Mechanism to Reconstruct Cuiwei Village has a long history of more than 700 years and once had the reputation of “Little Macao”, but it is now in dilapidated conditions and is the largest urban village in the main urban area of Zhuhai. With the help of the Aoyuan Property Group to carry out renewal and reconstruction, Cuiwei Village adopted the “overall demolition and reconstruction + partial protection” method of reconstruction. The Aoyuan Property Group is responsible for the process of reconstruction as a whole, and the government plays a role of demodulation and supervision in it. In order to protect the legitimate interests of the villagers, the original village collective economic organization was transformed into a joint-stock cooperative company, and the shares were specifically quantified to each household in the village to remove the worries of the land-lost farmers. Although the government has no direct investment, it gives profits to regulate the market, and does not approve new residential land within 3 years to release the market space for the reconstruction of urban villages and promote the reconstruction. 3. Shiliang Village in Foshan: Multiple Driving Forces of Development Organized by the Village Collective

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The Shiliang Village of Chancheng District, Foshan City established a real estate development company through the village collective, converted collective construction land into state-owned land, implemented rolling development, and embarked on a road of sustainable development. The village collective of Shiliang Village has successively adjusted and incorporated the land into the village, implemented largescale land integration, and concentrated all resources including the scattered land, property, and funds of the original village collective to the village committee, and implemented the model of unified management, centralized planning and layout, and transparent calculation of dividends, so as to solve the problems of difficulty in unified land development, difficulty in upgrading and transforming old, large-scale industrial areas, and difficulty in developing economies of scale. The process of rolling development is as follows: the village collective first selects the old factory buildings with lower reconstruction costs as the first batch of renewal objects, and after obtaining the benefits, dividends are distributed to the villagers according to the shares; the residential development will proceed after villagers accumulate a certain amount of capital, with a ratio of 1:1 to replace the villagers’ homesteads to free up land resources. In the process of implementing rolling development, the village has achieved rapid economic development and rapid appreciation of collective assets. 4. Hubei Village in Shenzhen: Public Participation, Open Planning, Benefit Negotiation and Reconstruction Hubei Village has a history of more than 500 years. It is part of the “Shenzhen Ruins” established in the late Ming and early Qing dynasties. It is the historical clue and spatial evidence of the origin of the name of Shenzhen and the changes in the core area. The relatively complete historical pattern of Shenzhen was preserved here. The three-vertical and eight-horizontal village structure has been well preserved so far. It is a typical Cantonese-style townhouse village in lanes, located in the downtown of the Dongmen commercial district, which is boisterous and bustling. But over the years, population expansion, old drainage and circuit systems in disrepair, and disorderly-built houses in Hubei Village have made it gradually become the typical representative of the urban villages in Shenzhen. As early as 1992, the Luohu District Government proposed the reconstruction plan of Hubei Village. However, due to the densely-spaced existing buildings in this area, the complex ownership, and the high difficulty of land development, reconstruction has been stalled for many years. At the Conference of Willingness Voting for Urban Renewal of Old Hubei Village held in 2012, 98% of the villagers agreed that China Resources Land (Shenzhen) Development Co., Ltd. was the subject of the renewal to implement the reconstruction. However, when the villagers, government, and developer reached a consensus, scholars and artists in different fields initiated the “Hubei 120 City Public Plan” and questioned the ignorance of the protection of the ancient village in the Draft of Hubei Urban Renewal Project Plan, which aroused widespread public attention. Many social organizations and individuals have begun to actively participate in the public discussion of the ancient village of Hubei, or intervene in the exploration of

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the renewal and reconstruction of Hubei Village through specific project research and practice. Today, Hubei Village has formed a model of reconstruction of joint decision-making by the government, experts, enterprise, and villagers, which not only protected the interests of the enterprise, but also safeguarded the interests of the village collective, and strove for the interests of the public, so as to achieve a win–win situation for all parties. 5. The Reconstruction Should Be “People-oriented” and Focus on Comprehensive Improvement No matter what kind of model of reconstruction was adopted, the situation in which the low-income floating population was forced to evacuate due to rent pressure has been ignored. The demolition and reconstruction of urban villages frees up space for industrial upgrading, but the effective allocation of labor resources is a prerequisite for industrial upgrading. For this reason, urban villages still have to retain a part of their low-rent housing to provide residential services for migrant workers after industrial upgrading. The relationship among population, land and industry must be reasonably coordinated, and the reconstruction of urban villages in the process of urbanization must focus on comprehensive improvement.

10.5 Investigation on the Reconstruction of Qinghu Village Qinghu Village is located in Longhua District, Shenzhen, which belongs to the urban villages included in the comprehensive improvement plan. It was mentioned in the Master Plan on Comprehensive Improvement of Urban Villages (Old Villages) in Shenzhen (2019–2025) that optimizing the comprehensive improvement of urban villages requires improving the mechanism of participation of market entities and encouraging them to participate in the comprehensive improvement renewal of urban villages. At the same time, through comprehensive improvement, it is conducive to strengthening the supervision of the urban village leasing market, requiring enterprises to control the cost of reconstruction, practicing reasonable pricing with reference to the lease guidance price, and guiding the development of large-scale leasing business for the stock houses in urban villages. 1. Enterprises Participating in the Reconstruction At present, the main projects involved in the reconstruction of Qinghu Village include Port Apartment of Vanke, Gemdale Strongberry Community, and Wowqu of the Plateno Group. The Qinghu Village is Vanke’s fourth project of the reconstruction of urban villages. Earlier, Vanke had started the reconstruction of Yutian Village in Shenzhen Futian, Xinweizai Village in Longgang Bantian, and Jingle New Village in Longhua. There are more than 300 properties in the new village of Qinghu Community, and there are three reconstruction projects of the Strongberry Community of Gemdale under operation. In the field investigation, it was found that there are also three buildings across the street from the Strongberry Community that have signed

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contracts with Gemdale and have already cleared their tenants in order to be reconstructed. As of July 2018, Vanke had acquired 13 self-built houses out of nearly 70 in Qinghu New Village at the north gate of Foxconn. As of February 2019, Vanke had launched the first batch of rentable houses, located in Qinghu West Village, with a total of 4 buildings. Wowqu is an apartment brand of the Plateno Group, including diversified apartment products such as white-collar apartments for pan-90 s urban youths, service apartments for 80 s gold collars, and apartments for corporate staff. Wowqu entered the Qinghu Village very early and opened around October 2016. Its address in Qinghu Village is Wowqu Light Community, Building C3, Qinghu Industrial City, Qinghu Neighborhood Committee. 2. Main Model of Reconstruction Comprehensive improvement is the main model of reconstruction for Qinghu Village. The government department, as the leading role in the comprehensive improvement of urban villages, is mainly responsible for guiding relevant enterprises in participating in the reconstruction of the urban village. The participating enterprises Gemdale, Vanke and Plateno will cooperate with the government in the construction of infrastructures. To this end, we mainly introduce the operational model of Vanke, a developer involved in comprehensive improvement. Vanke started the “Vanke Village Plan” to reconstruct urban villages in 2017, and has now explored the operational model of “Comprehensive Improvement of Urban Villages + Introduction and Management of Tenement + Urbanized Commercial Operation”, and will introduce the operation and management of goods and materials and urbanized commercial operations in the comprehensive improvement and management of urban villages. In terms of the product model of Vanke’s business, the core idea is to promote whole village operations and open community management. Specifically, Vanke adopted the plan of “one village, one plan” for the reconstruction of urban villages, which retained important elements of urban villages for personalized reconstructions. Regarding the issue of tenant clearance after signing a contract with the landlord, the relevant person in charge of Vanke has explained that Vanke does not require the owner to complete the tenant clearance within a short time limit, and the time for emptying the house and delivery is entirely determined by the owner. Vanke adopts the form of rolling removing in the “Vanke village model” to minimize the impact on tenants. That is, after the first batch of houses (generally the number of buildings is in a single digit) is emptied and delivered, Vanke will immediately start the reconstruction and decoration. After the reconstruction is completed, the next batch of tenants in houses to be reconstructed will move to the houses that have been reconstructed, and so on in the same manner. Vanke’s logic of reconstruction shows two aspects: one is to improve the level of safety, and to reconstruct the original unreasonable evacuation passages into a standardized evacuation environment; the other is to improve the efficiency of the utilization of the house and space, and promote the level of living hardware and storage space in the house. Its internal departments have repeatedly announced an

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expression that the “Vanke Village Plan” is in response to the government’s call, like most long-term rental apartment projects in China with no clear profit model. 3.

Changes before and after the Reconstruction

3.1. Changes in the Environment At present, Qinghu Village is under partial construction, and some buildings have erected scaffolds, to be reconstructed or already under reconstruction. During the reconstruction period, the environment in the village is noisy and the air is dusty. The reconstruction of houses is unreasonable, and the environment during the process of the reconstruction of urban villages is poor. The self-built buildings of the villagers in Shenzhen were all built on the homesteads. Since they had not been approved for planning, the construction was random and disorderly. In order to maximize the benefits, the villagers tried their best to fill the area of the homesteads with the foundation, and even expanded from the second floor, thus forming handshake buildings. There was no public space on the first floor, the internal pipelines of the self-built buildings were aging, and the fire-fighting facilities were missing. In order to prevent theft, each window was equipped with an anti-theft net, which posed a great security risk. Before the reconstruction, the interiors of the houses were simple and crude, with almost no decorations. After the reconstruction, the interiors of the reconstructed houses are all finely decorated, equipped with appliances including air-conditioning, refrigerators, range hoods, and water heaters, and furniture including beds, sofas, floor-standing desks, chairs, and wardrobes. 3.2 Changes in Rent The interior decorating after reconstruction is clean and tidy, with complete household appliances and furniture, and various aspects such as safety and property management have been improved and upgraded. As a result, the rent after the reconstruction has risen significantly, more than twice what it was before the reconstruction. Among them, Vanke explained that it has invested a lot in fire protection, pipelines, interior decorating, operations and maintenance of the houses during the reconstruction (Table 10.2). 4.

Interest Demands in the Reconstruction of Qinghu Village, Shenzhen from Different Perspectives

The essence of “urban village” is the connection of different interests of various stakeholders. The essence of “urban village reconstruction” is the contract re-arrangement of interest coordination among different stakeholders. The goal of “urban village reconstruction” is to effectively create value for all stakeholders (Jia Shenghua 2011). This survey conducted interviews with different stakeholders involved in the reconstruction of Qinghu Village, and tried to evaluate the attitudes from the perspectives of the local government, developers, village collectives (and villagers), tenants and other stakeholders, and the effects of the reconstruction of Shenzhen Qinghu Village.

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Table 10.2 Changes in rents of rental houses in Qinghu Village before and after the reconstruction Before reconstruction

For a single room with no more than 10–20 square meters, the rent is 450–920 yuan, generally 700–800 yuan, and the room equipped with an elevator is 920 yuan max

After reconstruction

Gemdale strongberry community

Luxurious decorating, fully decorated, divided into comfortable single room, LOFT duplex, one bedroom and one living room, the discounted prices are 1880 yuan/month, 2350 yuan/month, and 2980 yuan/month

Vanke port apartment

For a single room, the rent is between 1198–1498 yuan/month The rent for one bedroom and one living room is 1598–1798 yuan/month

Wowqu community

The monthly rent for a room of 35 square meters is 2400 yuan

Excellent apartment

For a single room, the rent is 1380–1480 yuan/month For a house with one bedroom and one living room, the rent starts from 1880 yuan/month

Other non-brand

For a single room, the rent starts from 1180 yuan/month For a house with one bedroom and one living room, the rent is 1680–1980 yuan/month

4.1. The perspective of government: maximize the land benefits, and realize urban renewal. From the interest demands collected by the urban government in the reconstruction of the urban village, we can see that in order to improve the overall image of Shenzhen, accumulate funds and land for urban construction, maximize the benefits of land assets, and solve historical problems, the government supports the reconstruction of th eurban village and hopes to pay as little in demolition and resettlement fees as possible during the reconstruction, and provide as much land for reconstruction as possible. 4.2. The perspective of enterprises participating in the reconstruction: obtain a share of the profits of the reconstruction project, and establish a peoplefriendly brand of enterprise. In recent years, the comprehensive improvement of urban villages in Shenzhen has become a general trend, because the existing properties of urban villages are very large. According to the results of the survey of the Housing and Construction Bureau of Shenzhen Municipality, there are 241 urban villages with administrative villages as the unit in Shenzhen. There are more than 350,000 “farmer houses” or private self-built houses in urban villages, with a total construction area of 120 million square meters, accounting

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for 49% of the total housing in the city. With such a large-scale stock of properties, real estate companies that need to develop long-term rental apartments are trying to get a share of the pie. During the reconstruction of Qinghu Village, we learned the reasons why developers stationed in Qinghu Village. On the one hand, they are to help solve problems in urban development; on the other hand, they are to make profits. It is not difficult to find that the interest demands of developers participating in the reconstruction of urban villages are mainly there to get an appropriate share of the profitfrom the reconstruction project, establish a people-friendly brand of enterprise, and build a good cooperative relationship with the government. For developers, the reconstruction of urban villages is one of the main channels for the expansion of the business of leasing housing, that is, the expansion of long-term rental apartments. In the reconstruction process, the developers mainly pursue the maximization of corporate profits, hoping to obtain as many preferential conditions as possible, withdraw funds in the least amount of time, and get the greatest return on profit. 4.3. The perspective of the villagers in urban villages: obtain reasonable compensation for demolition. When enterprises participated in the reconstruction of Qinghu Village, there were also house owners who reconstructed their own houses. Villagers who have not decided to reconstruct their houses mainly have too high expectations for land and house compensation, feel that they cannot get a clear commitment to social and employment security, and worry about spending too much money, so they are not motivated to reconstruct their houses. The villagers who decided to reconstruct their houses expressed that they would basically accept the reasonable reconstruction plans and cooperate to implement them. They also received part of the land value-added benefits, and received reasonable land and house compensation, which could realize long-term social security and improve their living conditions and the quality of their life. Villagers in urban villages expressed that they would actively participate in community reconstruction work to improve the quality of low-cost housing rentals. It can be found that the village collective (and villagers) not only expect to be able to truly “integrate” into the city, but are also afraid of losing their vested rent and other benefits, hoping to get as much compensation for demolition as possible in the reconstruction of the urban village and to minimize the impact on the source of economic income. 4.4. The perspective of the tenant: live in a house with low rent and a comfortable environment, and protect their housing rights. The first factor most tenants would consider is cheap rent. In Qinghu New Village, tenants who care a lot about rent believe that their living space does not need to be renovated. There are surveillance, security doors, fire extinguishers, and fire hydrants. Except for the slightly aging wires, other safety facilities are not problems. Moreover, it is impossible to change the distance between the buildings after the reconstruction, and the buildings are still “handshake buildings”, without sunlight. On the one hand, rents will increase along with the improvement of the living environment and the upgrading of supporting facilities; on the other hand, repossession and reconstruction of the buildings means an input of cost,

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which will eventually be transmitted to the terminal tenants. Most of the tenants are migrants. They are afraid that while the reconstruction of the urban village is being vigorously advanced, it will also eliminate their “homes” in the city. Therefore, they eagerly hope that the society and the government can protect their own housing rights during the process of the reconstruction of the urban village. Based on the on-site inspection of Qinghu Village, combined with the Master Plan on the Comprehensive Improvement of Urban Villages (Old Villages) in Shenzhen (2019–2025) released in March this year, it shows that Shenzhen has further clarified that there will be no more large-scale demolition and construction in urban villages, and the focus is on comprehensive improvement. The prerequisite for reconstruction is to conform to the city’s overall planning and the regulatory planning of the area. It is also necessary to take the interests of the broad masses of villagers as the foundation to get their support. To this end, the government needs to increase the supply of alternative housing in urban villages, increase social support, and increase the capacity for housing consumption of the floating population, so as to take into account the rights and interests of the floating population. In short, the reconstruction of “urban villages” is a new thing, and it is more difficult and complicated in actual operations than imagined. It involves many factors such as the household registration system, the land system, the system of urban management, the system of administrative management, the financial system and other systems. However, there are no clear, unified and complete regulations in the laws and regulations in our country, and many cities are still in the exploratory stage. At the same time, for the model of reconstruction, enterprises can refer to Vanke’s “Unified Renting and Operation + Property Management + Comprehensive Improvement” model, and carry out reconstruction without demolishing existing buildings, which meets the requirements of the Master Plan and can also improve the living environment of the migrants.

10.6 Conclusion and Policy Implications 1. Improve the Self-housing Consumption Ability of the Floating Population with People-oriented Urbanization as the Core With low rent and a good location, urban villages have become the first choice for the migrants to live in. The urban villages have eased the pressure on the supply and demand of affordable urban housing to a certain extent, and at the same time have made up for the shortcomings of the government’s low-rent housing policy. Shenzhen is responsible for the establishment of a “pilot demonstration area”. It has the ability and obligation to improve the low-rent housing policy and provide adequate affordable housing to protect the housing rights of the floating population. The government should gradually include the floating population into the coverage of urban economically affordable housing, government low-rent housing, and housing provident fund, increase the supply of alternative housing in urban villages, increase

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the coverage of housing security, and formulate and improve relevant systems of housing leasing and management. At the same time, in the face of the problem of low-income groups being “marginalized”, tenants must be aware of worries, improve their competitiveness, and seize opportunities. The government and enterprises can carry out relevant vocational training for migrants, improve their professional skills, expand their employment opportunities, stimulate their enthusiasm for improving their abilities through learning, and reduce their pressure to survive in the city. 2. Encourage Market Entities to Carry out Flexible Reconstruction, and Innovate the Model of the Reconstruction of Urban Villages The developers to reconstruct the villages should focus on the demands of the residents in the urban villages. To this end, branded real estate companies should carry out flexible measures for reconstruction. First of all, when formulating marketing strategies, it is necessary to do a good job of research on the needs of low-end consumer groups in the early stage. Rising prices have not brought real profit growth, but have placed a greater burden on consumers. For low-income and middle-income groups, comfort is not the primary consideration, but price is the key. Second, it is the problem of profit model. It is necessary to select an appropriate model of reconstruction according to the actual situation in a pertinent and reasonable manner. 3. Optimize the Structure of Land Development and Utilization, and Promote Transformation and Upgrading and Industry-City Integration The most important goal of the reconstruction of urban villages is to realize the upgrading and transformation of local industries and promote the development of the local economy. To achieve a benign model of development where cities and industries complement and coordinate the development of each other, it is necessary to take overall consideration of Shenzhen’s actual comprehensive carrying capacity. The reconstruction of the land in urban villages can appropriately increase the land plot ratio, the proportion of land used for commercial services and residential use, and attract social funds into the development; in the process of “urban village” reconstruction, it is necessary to pay attention to the comprehensive configuration of industries, and make reasonable choices during the reconstruction, focusing on tertiary industry projects, and appropriately developing some new secondary industry projects. The reconstruction of urban villages should coordinate with the local economic structure, introduce advanced industries, develop emerging business formats, promote intensive and innovative development of urban land use, and optimize the allocation of resources to produce maximum benefits. Shenzhen must simultaneously promote the reconstruction of urban villages and industrial transformation and upgrading, prepare industrial plans to provide support for industrial transformation and dislocation development, and truly realize the win–win situation of “industry, land, and people” during the process of “urban village” reconstruction. 4. Adapt Measures to the Conditions of the Places, People and Industries, Adopt the “One Village, One Policy” Approach, and Promote Diversified Development and Classified Management

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Reconstruction needs to adapt measures to local conditions and adopt the “one village, one policy” approach. Urban villages undertake the most basic function of housing security in Shenzhen. Each urban village has different characteristics, and each model reflects its own advantages and disadvantages, so it needs to be considered comprehensively in order to adjust relevant policies in a timely manner. And it is necessary to combine the actual conditions of each urban village for an appropriate model of reconstruction. According to local conditions and tapping their own characteristics, some characteristic reconstruction and planning can be done to enrich Shenzhen’s cultural diversity. Flexible application of the three urban renewal methods including comprehensive improvement, functional change, and demolition and reconstruction is conducive to making urban villages a carrier and base for innovation and entrepreneurship.

References Cai Fang, Reform Effects in China: A Perspective of Labor Reallocation, Economic Research Journal, 2017(7). Chen Tao, Liu Yang, Research on the Model of “People-oriented” Urban Village Reconstruction, Academic Forum, 2011(9). Chen Yanguang, Research on the Correspondence of China’s Demographic Transition, Urbanization, and Industrial Structure Evolution, Geographical Research, 2010(12). Huang Zhi, Research on the Reconstruction Model and Strategy of Urban Villages, Master’s Thesis of Wuhan University, 2013. Jia Shenghua, Zheng Wenjuan, and Tian Chuanhao, Theory and Countermeasures of Stakeholder Governance in the Reconstruction of Urban Villages, City Planning Review, 2011(5). Lai Shouhua, Wu Jun, Speed and Benefit: Discussion on “Three Old” Reconstruction Policies of Guangzhou against the Background of New Urbanization, Planners, 2013(5). Liu Ximin, Model Selection and Analysis of Problems in Urban Village Reconstruction—A Case of Kuiwen District, Weifang City, Shandong Textile Economy, 2010(4). Lu Fuying, Urban Village Reconstruction: A Systematic Project for New Urbanization, Journal of Social Sciences, 2017(10). Ou Guoliang, Liu Fang, Typical Model and Evaluation of Urban Renewal in Shenzhen—Taking the Type of Demolition and Reconstruction of Urban Villages as an Example, China Real Estate, 2017(3). Shi Yingjun, Research on the Model of Urban Village Reconstruction, Henan Social Sciences, 2011(1). Song Xinghui, Thoughts on Recreating the Process of Urbanization in Shenzhen and Protecting Typical Urban Villages, Housing and Real Estate, 2017(20). Su Haiwei, Hu Zhang, and Li Rong, Reconstruction Model and Dilemma Comparison of Demolition and Reconstruction in Urban Renewal, Planner, 2018(6). Sun Mengshui, Research on the Development of the “Urban Village” Based on Complex System Theory, Master’s Thesis of China Agricultural University, 2013. Xu Lin, Qi Luming, Promote the Reform of the Land System, Review of Economic Research, 2017(26). Xue Guoqin, Analysis of the Reconstruction of the Village and Its Operational Mechanism—A Case of Shaoxing City, Zhejiang Province, Issues in Agricultural Economy, 2007(12).

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Yan Xiaopei, Wei Lihua, and Zhou Ruibo, Research on the Coordination between Urban and Rural Areas in the Rapid Urbanization: A Case of the Reconstruction of the Urban Village in Guangzhou, City Planning Review, 2004(3). Zhang Jingxiang, Zhao Wei, Urban Village in a Dual-system Environment: Development and Significance, City Planning Review, 2007(1). Zhang Xia, Zhao Deyi, Zhu Xiaodong, and Peng Buzhuo, Analysis and Countermeasures of Interest Relationships in the Reconstruction of Urban Villages, Economic Geography, 2006(3). Zhang Yu, Ou Minghao, and Cai Yujun, Overall Village Coordination: An Exploration of Land Use and Development Issues of Urban Villages, City Planning Review, 2015(2). Zhang Zhengtao, Li Heping, and Qi Rui, Urban Village Reconstruction Practice with Model of Conditional Land Transfer: A Case of Lixi and Fuxi Village Reconstruction in Zhuhai, Modern Urban Research, 2017(7). Zhao Qing, Nan Ling, Analysis of a Model of “Urban Village” Reconstruction, Special Zone Economy, 2008(10). Zhu Xiaojuan, Research on the CSA Reconstruction Model of the Growing Urban Villages in Lanzhou—A Case of Datan Village in Qilihe District, Hubei Agricultural Sciences, 2013(24). Zou Bing, From “Physical Expansion” to “Built-up Area Improvement”: Shenzhen Master Plan Transition Forces and Paths, Planner, 2013(5).

Suggested Readings Bao Haijun, Ye Qunying, The Humanistic Scale and Welfare Balance in the Reconstruction of the Urban Village Based on Sen.’s Capability Theory, China Land Science, 2015(11). Cheng Mingwang, Pan Xuan, Historical Review and Characteristic Analysis of China’s Rural Labor Migration, Social Science Front, 2008(3). Guan Lingzhi, Guan Zhengguang, and Bai Yuxian, Study of the Differentiation of Models of the Reconstruction of Urban Villages in Guangdong Province, Guangdong Agricultural Sciences, 2013(14). Fang Da, Zhang Guanghui, Function of the PPP Mode in Urbanization: From the Perspectives of Land, Industry and Population, Finance and Economics, 2017(2). Zhang Guangsheng, Tian Zhouyu, China’s Rural Labor Flow in Forty Years of Reform and OpeningUp: Changes, Contributions and Prospects, Issues in Agricultural Economy, 2018(7).

Chapter 11

The Selection of a Path and the Focus of Policies for the Innovation and Transformation of Resource-Based Cities in China Chang Liu

China has a large number of resource-based cities and covers a wide area. The types of resource-based cities are complex, and they are at different stages of development. In order to achieve the four goals, namely, “by 2020, the model of development of urban resources in the period of growth will be more scientific, and the mechanism of coordination for urban development and resource development will be initially established; the diversified industrial system of cities in their mature period will be more complete, and the momentum of endogenous development will be significantly enhanced; the historical issues of cities in the period of their decline will be basically solved, and the foundation for transformation and development will be more solid; significant progress has been made in replacing old growth drivers with new ones in cities in their period of regeneration, and economic and social development has entered a virtuous track”, it is imperative to choose different transformation paths according to local conditions. Resource-based cities in the period of their growth should choose a “comprehensive development path”; resource-based cities in their mature period should choose a “resource-driven development path”; resource-based cities in the period of their decline should choose an “alienated development path”; and resource-based cities in the period of their regeneration should choose an “innovative development path”.

Liu Chang, Shenzhen Asicer Electronics Co., Ltd., Ph.D. in Economics, Postdoctoral in Shenzhen University. C. Liu (B) Shenzhen Asicer Electronics Co., Ltd., Shenzhen 518103, China e-mail: [email protected] Shenzhen University, Shenzhen 518103, China © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_11

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11.1 Resource-Based Cities in the Period of Their Growth: A Comprehensive Development Path Resource-based cities in the period of their growth are in the rising stage of the development of their resource industry and the development of their resources, with great potential for resource protection and sufficient potential for economic and social development. They are the supply and reserve base of our country’s energy resources. Among them, the supply of coal resources and reserve bases include: Hulunbuir, Ordos, Liupanshui, and Yulin; the supply of natural gas resources and reserve bases include: Ordos, Yan’an, and Qingyang. Only by adhering to orderly development, efficient utilization, scientific regulation, and optimized layout can we maximize the ability to guarantee resources. Therefore, for resource-based cities in the stage of their growth, they cannot follow the traditional growth path and blindly extract and process resources after discovering them. Until serious environmental problems or resource exhaustion occurs, they will realize the importance of economical economic development. Only by choosing a comprehensive development path can the coordination between resource development and utilization and urban economic and social development be ensured. The so-called comprehensive development path refers to the selection of a green and efficient model of resource development, improvement of industries for intensive processing of resources, cultivation of alternative industries, planning for the strategic emerging industries, and further standardization of the healthy and orderly development of resource-based cities in the period of their growth based on the full understanding and grasp of the general laws of resource-oriented economic growth and development models, according to the current urban resource conditions and stage of development. First, a green and efficient model for the development of resources requires optimizing the layout of the development of resources in accordance with the basic principles of scientific mining methods, efficient resource utilization, standardized corporate management, environmentally friendly production processes, and an ecological mining environment; strictly controlling the conditions for access for the development of minerals; improving the mining recovery rate of mineral resources, mineral recovery, and comprehensive utilization; strengthening the exploration, reserve and protection of superior resources. Through the transformation and upgrading of productive mines and the construction of green mines, a number of strategic bases for guaranteeing mineral resources will be built in resource-based cities in the period of their growth. Second, the development of industries for the intensive processing of resources is to transform resource advantages into industrial advantages. By improving the ability to transform resources on the spot, the chain of resource industries can be extended to the maximum extent. In accordance with the principle of “more advanced technology, more high-end products, and more efficient production”, we will coordinate the developmental constraints of resources, technology, capital, market, environment and culture, and build a series of bases for deep processing industries with an excellent

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and complete industrial chain and distinctive features under the guidance of the main industries in resource-based cities in the period of their growth. Third, according to the requirements of the cultivation of industries and the planning of strategic emerging industries, it is necessary to strengthen construction of infrastructures, improve the system of capital market investment and financing, pay attention to the accumulation and cultivation of human capital, and optimize the business environment to the greatest extent. More specifically, while developing traditional advantageous industries such as mining, metallurgy and other large complete sets of equipment and engineering machinery, we should pay attention to the comprehensive utilization of the equipment manufacturing industry, and accelerate the development of supporting industries such as molds and key parts. After meeting the technical, capital and talent conditions, we should vigorously develop new material industries such as nano materials and high-performance rare earth materials, encourage the development of renewable energy and clean energy, and lay the foundation for the future development of new energy industries such as wind power, the generation of photovoltaic power and biomass energy. Finally, it is necessary to actively promote the integration and development of large industrial and mining enterprises with local governments to continuously improve the optimization benefits of the industrial structure, economies of scale, and benefits of coordinated regional development. For the new resource development projects of resource-based cities in the period of their growth, they must conform to the planning of mineral resources and the overall planning for land use, and they must be connected with the overall urban plan. As far as possible, it is imperative to rely on the existing urban industrial parks as bases for logistics support and resource processing in order to break the dual model of the city and mining. Based on the facts of growth and development in the past three years, the following resource-based cities in the period of their growth (70% of this category of cities), driven by the development of the resource industry, still have a certain gap with the developmental goals for economic vitalization, structural rationalization, and effective investment. Only through a faster and better conversion to a comprehensive development path can the effectiveness of growth be guaranteed (Table 11.1). The path towards the comprehensive development and transformation of resourcebased cities in the period of their growth belongs to the compound model of development, which is the most ideal model of transformation. It can not only provide a guarantee of resources for economic and social development, but it can also stimulate economic vitality, optimize industrial structure, and promote harmonious economic and social development. It is worth noting that the comprehensive development path requires the establishment of a brand-new industrial model, which places high requirements on the amount and methods of input of other production factors besides resources. Therefore, we can not only rely on the market to guide development, but also on the support and guidance of relevant national policies.

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Table 11.1 List of the status of the development of resource-based cities with urgent transformation needs Per capita GDP (yuan) Entire country 49,351

Proportion of the tertiary industry

Rate of industrial development (%)

Growth rate of investment (%)

9:40.5:50.5

5.9

9.8

Hezhou city

23,178

22:40.3:37.7

5.4

18

Nanchong city

23,881

22.1:8.9:29

8.2

11.6

Liupanshui city

41,618

9.5:51.1:39.4

10

24.3

Bijie city

22,230

22.2:38.8:39

11.7

19.2

Qiannan autonomous prefecture

27,888

17.5:36.3:46.2

12.3

24.9

Qianxinan autonomous prefecture

28,464

21.0:34.1:44.9

11.9

26.6

Zhaotong city 13,112

19.8:43.6:36.6

4.8

11.4

Chuxiong autonomous prefecture

20:38.3:41.7

10

28.1

15.3:57.5:27.2

8.9

22.9

27,942

Xianyang city 43,426 Wuwei city

22,931

24:36.6:39.4

5.8

12.8

Longnan City

11,028

22.3:23.1:54.6

9.9

10.84

Altay area

36,506

20.7:39.5:39.8

−1.2

−12.39

Source National Economic and Social Development Statistical Bulletin 2016–2018

11.2 Resource-Based Cities in Their Mature Period: Resource-Driven Development Path Resource-based cities in their mature period are in the stable stage of development of resource industries and resource development with strong capabilities for guaranteeing resources, which are the core of our country’s guarantee for current energy resource security. By deepening the supply-side structural reform, it is necessary to transform from a point-source economy to a radiation economy, and build a new business environment. For cities with a forest industry in the mature period, they should transform from extensive forest logging to tending to the management of forest resources, deep processing of forest resources, undergrowth resource development and the utilization of forest ecological resources, so as to realize the transformation of a resource-driven

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development path. The specific measures are as follows: First, maximize the advantages of the forest industry. Based on the deep processing of wood, led by the development of the forest industry, and taking high-tech industry as the forerunner, it is necessary to promote industrial transformation and upgrading, and form a wood processing base and a new base for the building material industry with regional competitiveness and successfully entering the international market. Second, creatively develop characteristic industries. Cities should take advantage of the breeding conditions in the forest region to develop the catering service industry; make use of the unique resources of traditional Chinese medicinal materials to develop the medicine and massive health industries. Third, build a brand city of modern tourism. Cities could rely on the advantages of natural landscapes, develop eco-tourism and recuperation, build international forest resorts, and drive forward the development of the tertiary industry. Among the 126 resource-based cities, there are a total of 7 forestry cities, among which Jilin, Heihe and Mudanjiang are all resource-based cities in their mature period. The transition to a resource-driven development path will benefit the sustainable development of these cities. By firmly establishing and implementing the new concept of development, and adhering to the supply-side structural reform as the main line, Jilin has continuously improved the quality and efficiency of development, realized steady economic growth, achieved initial results in structural adjustment, made comprehensive progress in social undertakings, and achieved a good developmental situation during the period of the “Thirteenth Five-Year Plan”. During this period, the regional GDP increased by 6.9 percentage points from the previous year, reaching 253.13 billion yuan. Among them, the primary, secondary and tertiary industries increased by 6.9%, 6.4%, and 8.2% respectively. The three-industry structure ratio was adjusted from 10.5:45.4:44.1 in the previous year to 9.5:44.9:45.6, forming a new pattern of “tertiary, secondary, primary” industries. On the one hand, this benefits from the continuous advancement of industrial transformation and upgrading. The city’s strategic emerging industries, focusing on energy conservation and environmental protection, biomedicine, electronic information, high-end equipment manufacturing, new materials, and new energy, completed an output value of 116.79 billion yuan, an increase of 6.7%. Strategic emerging industries are becoming a new pillar of the city’s industrial development. High-tech industries realized an added value of 4.91 billion yuan, accounting for 6.5% of the added value of industries above the designated size. On the other hand, the reason is the construction of a demonstration zone of global tourism. Focusing on the development positioning of the “Tourism and Cultural City” and the requirements for the construction of the “6411” industry support system, the Thirteenth Five-Year Plan of Jilin and the Master Plan of Global Tourism Development was launched; the Three-Year Action Plan for Promoting the Rapid Development of Tourism in Jilin City was issued, the Implementation Plan on Expanding and Strengthening the Ice and Snow Industry was formulated, and the Plan for Construction of the Demonstration Zone of Traditional Chinese Medicine Health Tourism was completed. Jilin plans to continue and build 33 key tourism projects, with an investment of 5.72 billion yuan. During the entire year, 44.768 million tourists were received, an increase of 17.5% year-on-year, accounting for 27% of the province’s

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total; the revenue from tourism was 67.82 billion yuan, an increase of 25.1% yearon-year, accounting for 23% of the total in the province. In the future development process, Jilin will focus on making breakthroughs regarding the following eight aspects: publicity, participation, number of activities, innovative products, attracting tourists, people-benefiting policies, economic and trade exchanges, and internal and external exchanges. Regarding the cities with mineral resources in their mature period, they should promote the development of the five integrated aspects of “prospecting, mining, mineral separation, smelting, and processing”; establish an open and transparent trading market for prospecting rights and mining rights, and strictly implement a competitive transfer system; break the administrative monopoly of some resource industries, introduce investors from outside the industry to stimulate competitive vitality; and seek new growth points based on the financial strength accumulated during the development of the mineral resources industry and the established development carriers. In addition, efforts should also be made to achieve the following development goals: the joint development of the mineral resources industry and the non-mineral resources industry; the coordinated development of resource development and urban construction; the interactive development of investment and talent recruitment; the common development of economic transformation and cultural construction; and the coordinated development of urban transformation and regional strategy.1

11.3 Resource-Based Cities in the Period of Their Decline: Alienated Development Path Resource-based cities in the period of their decline, with low economic vitality and development that is lagging behind, prominent livelihood problems, and high pressure on the ecological environment, are the key and difficult areas for the transformation of resource-based cities. It is necessary not only to resolve the problems left over from history, namely the internal dualistic structure of the city, the widespread unemployment, the reconstruction of shanty towns, geological disasters, environmental pollution, etc.; but also to explore new drivers of economic growth. The alienated development path requires tasks on the following three aspects: the comprehensive management of environmental problems, the guiding of policies to cultivate alternative industries, and the spatial transfer of independent mining areas. Regarding the comprehensive management of environmental issues, according to the principle of “whoever destroys, manages”, it is necessary to strengthen the guidance and coordination of the government, and give full play to the mechanism of adjustment and allocation of the market, thereby minimizing the negative externality caused by production. We should mainly proceed beginning with the following three 1

Zhi Hang, Jin Zhaohuai, Discussion on the Transformation Model and Path of Different Types of Resource-based Cities [J], Economic Review, 2016(11).

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aspects. One measure is to comprehensively treat the areas of coal mining subsidence. Specifically, it is to strengthen the construction of infrastructure and public service facilities in subsidence areas, implement employment and social security policies, promote the reclamation and utilization of damaged land, and encourage and support market entities to invest in the governance of subsidence areas. For the area of historical subsidence where the responsible entity is vague, relevant governance plans must be coordinated and implemented as soon as possible. The second measure is to strengthen the prevention and control of key pollutants. The key pollutants include: volatile organic pollutants produced by desulfurization, denitrification and dust removal in high energy-consuming, high-polluting enterprises in the fields of thermal power, metallurgy, chemical, and building materials, etc. The discharge of toxic waste gas and wastewater must strictly comply with the environmental access and discharge standards of industries that are prone to producing key pollutants, and the total discharge control index of major pollutants must be used as the preconditions for the approval of new projects for construction and expansion. After the implementation of pilot projects for comprehensive treatment such as the pilot project for the comprehensive management of the heavy metal pollution in Fankou’s lead–zinc mining area in Renhua County, Shaoguan; the pilot project for the comprehensive management of tailings pond pollution in the Dashu pyrite mine area in Luzhou; and the pilot projects for the comprehensive management of the Luotuoshan coal mine area in Wuhai, the Lieshan coal mine area in Huaibei, and gangue hill pollution in the Anyuan coal mine area in Pingxiang, the industrial wastewater discharge will achieve full compliance with the standards, and the comprehensive utilization rate of industrial solid waste (excluding tailings) will reach over 85% in 2020. The third measure is to restore the geological environment of forest areas and mines. We should give key support to the treatment of prominent geological environmental problems such as deep mined-out areas with complex geological structures, serious hazards, and difficult governance. We need to effectively do a good job in the post-closing management of tailings reservoirs, and intensify the treatment of water level sedimentation funnels and land salinization caused by the exploitation of liquid mineral resources such as petroleum, groundwater, and brine. And we need to energetically promote the reclamation of abandoned land and ecological restoration, support the development of pilot projects for the reclamation and utilization of abandoned industrial and mining land left over from history, and actively guide social forces to participate in the environmental management of mines. Among the resource-based cities in the declining period, the Lingdong coal mine area in Shuangyashan City and the Taozao closed coal mine area in Zaozhuang City are listed as key subsidence control projects; the Haizhou coal mine area in Fuxin City, the Lingbei coal mine area in Hegang City, and the Tongguanshan copper mine area in Tongling City are included in the key treatment projects for large pits; the fluorite mining area in Wushan Town, Lechang, Shaoguan City, and the limestone mining area in Chuankou, Tongchuan City are included in the key treatment projects for landslides and mudrock flows; and the Taixin coal mine in Liaoyuan City, and the pyrite mine in Luobu area, Xuyong County, Luzhou City are included in the key treatment projects for groundwater damage. The forest areas in Baishan City, Yichun City and the Great

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Khingan Range should also be scientifically planned and reasonably distributed, and the environmental impact assessment of forest resource development planning and construction projects should be strengthened to effectively prevent environmental and ecological damage. Moreover, efforts should be made to intensify the supervision of forest mining activities, strictly implement the “three simultaneous” system, and strengthen synchronous restoration and governance. As far as the policy guidance and cultivation of alternative industries are concerned, resource-based cities in the period of their decline are required to make use of alienated alternative models according to local conditions to achieve the development of transformation and shifting. We should support the development of labor-intensive enterprises and small, medium and micro enterprises, cultivate and introduce a group of leading enterprises, and create specialized industrial parks and clusters with distinctive characteristics. And we should earnestly support the undertakings of industrial transfer from developed regions, and establish a cadre exchange mechanism between developed regions, thereby improving the efficiency of government decision-making. The Fuxin City in Liaoning Province is China’s first batch of energy bases and the first transitional pilot place among resource-based cities in the period of their decline in China. In the past, severe exhaustion of resources, a single industrial structure, and serious unemployment problems resulted in the city’s low degree of vitality. By using the park agriculture with small-scale investment as an alternative industry, a number of new leading industries have re-led the economic and social development and created the “Fuxin style” of agriculture industrialization in resource-based cities in the period of their decline. In the past three years, Fuxin has built 15 agricultural parks over 1000 mu and 30 specialized parks over 500 mu, effectively promoting the development of agricultural industries such as specialty vegetables, flowers, and high-quality livestock and poultry. According to the Statistical Bulletin on the National Economic and Social Development of Fuxin, the annual regional gross domestic production (GDP) was 54.21 billion yuan, which was 4.8% lower than the previous year at comparable prices. The annual per capita disposable income of urban permanent residents reached 22,662 yuan, an increase of 6.9% over the previous year. The per capita disposable income of permanent rural residents reached 11,109 yuan, an increase of 5.1% over the previous year. The number of realname employment was 41,000 throughout the year, and the registered urban unemployment rate was 3.61%. The added value of the primary industry was 11.83 billion yuan, that of the secondary industry was 21.23 billion yuan, and that of the tertiary industry was 21.15 billion yuan; the proportion of the three industries was further optimized and adjusted from 19.7:44.7:35.6 in the previous year to 21.8:39.2:39.0. The equipment manufacturing industry achieved an added value of 2.67 billion yuan, the agricultural product processing industry achieved an added value of 3.26 billion yuan, and the energy industry achieved an added value of 4.16 billion yuan. During the entire year, a total of 20.78 billion yuan was invested in fixed assets, of which 1.74 billion yuan, 7.82 billion yuan and 11.22 billion yuan were invested in the primary industry, secondary industry, and tertiary industry. Based on the composition ratio of the three major industries and the distribution of investment, it can be seen that the industrial structure of Fuxin is continuously optimized and upgraded, and it has

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gradually gotten rid of its excessive dependence on the resource industry. In the future, while continuing to energetically develop alternative agricultural industries, we should give full play again to the existing technological advantages of the coal industry, rely on the remaining coal resources and the rich coal resources of neighboring Inner Mongolia and other places to build a coal chemical base; we should use policy preference and capital orientation to foster and strengthen industries such as the supporting processing of equipment manufacturing, new building materials, new electronics, and clothing; we should promote the development and utilization of renewable energy through the introduction of technology and talents, and build a new energy base. Regarding the spatial transfer of independent mining areas, it is necessary to improve the living conditions of local people as the main focal point, focus on breaking through the bottleneck restricting the transformation and development of independent industrial and mining areas, and explore practical and effective transformation and relocation models to ensure “flexible moving out and stable settling down”. Most of these mining areas are located in remote areas, far away from central towns. After the resources are exhausted, it is difficult to achieve a turnaround or the development of transformation by relying on its own strength. And the rate of return on investment with the help of external forces is minimal. Therefore, it is necessary to reduce the size of the city through the transfer of permanent residents in order to seek new possibilities for development. When carrying out the spatial transfer of independent mining areas, we should deal with the following tasks in earnest: First, we should refer to the methods of poverty alleviation and relocation in different places, steadily implement relocation and resettlement, guide the population to transfer to areas with relatively better conditions for development, and properly solve the problem of follow-up employment of relocated residents. Second, we should strengthen the construction of infrastructure and public facilities such as transportation, water and electricity, heating, garbage and sewage treatment for the new urban areas to be stationed. Third, we should attach importance to the construction of public services such as education, culture, medical and health care for the transferred residents, and improve the level of basic public service guarantees. Fourth, it is also extremely important to maintain and rebuild the old mining site that has completed spatial transfer. We should closely integrate the urban transformation, environmental restoration and implantation of new industries.

11.4 Resource-Based Cities in the Period of Their Regeneration: Innovative Development Path The economic growth of resource-based cities in the regeneration period basically no longer depends on the resource industry, or their dependence on the resource industry is relatively limited, and is the forerunner of the transformation of resourcebased cities. In order to further improve the quality and effectiveness of economic

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growth and optimize the industrial structure, it is necessary to shift from the previous model of development that relied on factor input to the model of development that relies on innovation. Resource-based cities in the period of their regeneration have been on the innovative development path by transforming and upgrading traditional industries, guiding industrial agglomeration, accelerating the development of modern service industries, cultivating strategic emerging industries, deepening opening-up, improving people’s livelihood, shaping a good living environment, and encouraging innovation and entrepreneurship, etc. Based on the transformation and development, a number of regional central cities, ecologically livable cities, and famous tourist cities will be formed. The data in describes the basic conditions, carrier conditions, and talent conditions for the innovation and development of resource-based cities in the period of their regeneration. Among them, the Kailuan National Mining Park in Tangshan, Hebei Province, and the House of the Huangcheng Chancellor ecological culture area in Jincheng, Shanxi Province were developed respectively based on the mining industry and human history, and both belong to characteristic service industries. On the basis of effective protection of resources, leisure and vacation tourism can be developed in resource-based cities with a suitable ecological environment. Cities with a beautiful landscape can develop natural scenery tourism, cities with a long industrial history can develop the characteristic industrial tourism, and cities with concentrated revolutionary relics can develop red tourism. By strengthening overall planning and optimizing the industrial layout, some industries can be guided towards key parks and clusters, thereby a new pattern of intensive and characteristic industrial development can be formed. At the same time, industrial agglomeration is also conducive to promoting the realization of innovation. In the theory of industrial organization, industrial agglomeration can stimulate and intensify competition, forcing enterprises to adjust their development strategies and increase investment in innovation and R&D. In this way, a group of leading enterprises with outstanding performance in technology content, their level of environmental protection, investment intensity, and ability to absorb employment can be formed. Among the resource-based cities in the period of their regeneration, some cities have begun to initiate and cultivate alternative industrial clusters. The cluster of talc and calcite deep processing industries in Anshan belongs to the cluster of industries regarding the deep processing of resources; the cluster of ship supporting industries in Panjin belongs to the cluster of advanced manufacturing industries; and the cluster of plastic and new building materials industries in Panjin belongs to the cluster of industries regarding the comprehensive utilization of resources. Other cities can also further build industrial clusters to absorb employment and cultural and creative industries.

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11.5 The Focus on and Policy Recommendations for Innovation and Transformation of Resource-Based Cities In the early stages of urban development, resource-based cities developed rapidly relying on the construction of mining areas. However, as the resources were exhausted, those cities fell into the development bottleneck. How these cities, which originally relied on resource extraction as their pillar industry, complete their transformation and upgrading, and how to achieve the alternation and replacement of new and old drivers are practical issues that must be carefully studied. The sustainable development of resource-based cities lies in the realization of innovation. However, it needs to be realized that current innovation and development are far from being achieved by emphasizing the past industrial advantages. Only in the field of current innovation can new industrial advantages be formed, that is, we should promote industrial transformation through innovation. Resource-based cities do not lack potential technological innovations, especially those related to the resource industry, but the key issue is how to transform current technological innovations into new market conditions. In summary, this can be expanded from the following aspects: 1. Introduce a Compound Model of the Development of Industrial Extension and Renewal The ultimate goal of resource-based city transformation is to get rid of the dependence on resources and achieve sustainable development. In this process, the original leading industries and models of development cannot be totally abandoned but used to renew the entire industry. In the early development of resource-based cities, the original industries should be extended. With the expansion of urban functions and the improvement of the technological level, the transformation of leading industries and industrial renewal should be realized, and then the cities will be transformed from resource-based cities to comprehensive cities and innovative cities. Therefore, industrial extension and renewal are important models for the development of resource-based cities. To achieve industrial renewal, we must first achieve the renewal and upgrading of leading industries. The leading industries of most resource-based cities are resourcebased industries. This is also the “power source” that promotes the initial development of this type of city. To achieve industrial renewal, the original leading industries must not be completely abandoned. First, on the basis of the original industrial structure, we should expand the production lines of leading industries, earnestly develop resourcebased products with scientific and technological content, extensively use new technologies to increase the added value of products, and expand the industrial chain of the original leading industries. Second, we should actively cultivate forerunner industries, achieve the transformation of future industrial models through the development of forerunner industries, and open up new economic growth points. Third, we should adapt measures to local conditions and combine the unique local location, physical and spatial advantages to open up a path of transformation with local

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characteristics. The development of replacement industries can broaden employment channels, solve employment problems, and improve people’s living standards. It can also improve the efficiency of the utilization of resources and increase economic benefits while venturing down a new road towards industrialization. 2. Strengthen the Cultivation and Development of Human Capital In the transformation and upgrading of resource-based cities, human resources are the first resource. It is necessary to build an system of innovation that combines production, learning and research, speed up the overall planning and deployment of talent strategies, and promote the convergence and flow of talents through park construction, the construction of a system of intermediary services, and the innovation of the mechanism of investment and financing, so as to achieve innovation-driven development. First of all, to achieve industry-university-research cooperation, it is necessary to establish a human resource supporting system, and form a stable new hybrid talent delivery channel by improving the talent training system and industrial cooperation mechanism of universities and research institutes. Second, it is necessary to establish a system in support of enterprise technology and increase support for enterprise technology research and development. We should integrate corporate resources through the development of a cooperative and competitive network between small and medium-sized enterprises and large state-owned enterprises. We must pay attention to international cooperation, and while introducing foreign capital and technology, we should effectively integrate it with local resource conditions. Third, while achieving industry-university-research cooperation, we must give full play to the leading and guiding functions of government departments. The innovation of resource-based cities is inseparable from the support of a hightech team. To this end, we can proceed by dealing with the following aspects: First, we should carry out targeted cultivation of a group of professional and technical personnel. In response to the needs of urban industrial development and the demand for talents in key areas, we should focus on cultivating and introducing a group of talent teams and technological leaders who can break through key technologies in industrial development; second, strengthen talent training. To achieve the development and renewal of the original industry, it is impossible to rely solely on the original technical level. This requires training for the original employees to accelerate the promotion and application of advanced concepts and technologies in resourcebased cities; finally, we should strengthen cooperation with high-level universities at home and abroad, and actively promote the establishment of the analysis of high-level universities in resource-based cities, and realize local cultivation and employment of talents, which is crucial for resource-based cities. 3. Create a Market Environment that Accelerates the Commercialization of Scientific and Technological Achievements Only by transforming the achievements of scientific and technological innovation into actual productive forces can economic transformation and development be promoted. As soon as possible, we should build an enterprise-oriented and market-oriented

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platform for technology services to accelerate the transformation and promotion of innovative achievements. First, we should strengthen the cooperation between enterprises and universities and research institutes, strengthen the leading position of enterprises in scientific and technological innovation, and build a number of national engineering centers, laboratories and enterprise technology research and development centers in advantageous areas. Second, we should speed up the construction of bases for the transformation of scientific and technological achievements, establish an incubation network centered on industrial parks for high-tech achievements and relying on scientific and technological enterprise dissolvers, and improve the industrial chain of scientific research and development—achievement transformation—scientific and technological services. Third, we should establish and improve public service platforms and intermediary service markets that promote the transfer and transformation of the results of scientific research. We should try to establish a batch of venture capital companies for technological innovation to support the construction of industrial parks related to the transformation of scientific and technological achievements. We need to speed up the establishment and improvement of centers for the promotion of productivity, patent offices and other intermediary agencies to provide technology-based small and medium-sized private enterprises with services such as achievement transformation, information consultation, project declaration, and technical cooperation. We should transform the methods of evaluation and promotion based solely on the number of papers, projects, funds, and patents, distinguish among different evaluation standards for basic research and applied research, and increase the weight of the transformation and application of the results of scientific research in applied evaluation. We should form targeted and easy-to-operate implementation rules regarding the aspects of property rights confirmation, value evaluation, pricing and shares, enterprise establishment, personnel incentive and income distribution as soon as possible, and attract more scientific researchers who want to work via a guarantee of a perfect system and good income expectations. Moreover, we should speed up the development of the technology market, improve the service functions of the technology market, make full use of the professional services of the technology market, reduce the costs of technology transactions and improve the efficiency of technology transactions, and catalyze the flow of technology and the transformation of results among universities, research institutes, and enterprises. 4. Optimize the Policy and Institutional Environment The current institutional constraints on innovation of resource-based cities are mainly reflected in three aspects: First, the development of resource-based cities has gradually shifted to the continuous strengthening of resource-based industries due to the benefits of resource development, thus forming a relatively serious path dependence, resulting in a single industrial structure dominated by resource-based industries, and the innovative industries are severely constrained; second, most resource-based state-owned enterprises have not yet established a relatively complete modern enterprise system. The phenomenon of “no separation of government and enterprise, no separation of government and capital” still exists, and administrative barriers and

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monopoly barriers have not been broken, which has restricted corporate efficiency and technological improvement; third, the relationship between the government and the market has not been fully clarified. The government is keen to intervene in the market in pursuit of local economic growth and departmental interests. As a result, the functions of government and the market were misplaced, management was too rigid with too many limitations, leading to low efficiency. The key to realizing resource-based city innovation is to provide a reasonable policy and institutional environment. The innovation of resource-based cities is a systematic project that requires the reform of the administrative examination and approval system and the promotion of the innovation of government management. We can start from the following aspects: First, we should integrate existing resources, coordinate all aspects of the transformation of resource-based cities, and formulate appropriate transformation and development plans. We should establish an effective mechanism of coordination between local urban governments and enterprises, coordinate all aspects of urban transformation and innovation, and guide the rational advancement of urban innovation. Besides, we should reasonably formulate development plans to reflect the short-term and long-term differences in urban development. In the short term, we can focus on industrial extension and deep processing, and in the long term, we need to pay more attention to the economic growth driven by technological innovation. Second, resource-based cities generally face the problem of insufficient funds, resulting in insufficient self-accumulation and a serious lack of construction funds. It is unrealistic to rely solely on the self-accumulation of cities. They require financial assistance and the establishment of mechanisms for resource development compensation and declining industry assistance. We should reorganize the financial system of resource-based cities, improve self-accumulation, and strengthen the capabilities for self-accumulation. Moreover, we should input targeted insurance of construction bonds to local governments to improve their ability to absorb social capital. Third, the proportion of state-owned enterprises in resourcebased cities is generally large, their ideological concepts are outdated, and the development of other economies is also facing serious problems of lagging behind, which restricts the development of resource-based cities. Therefore, on the basis of changing ideological concepts, we must increase reforms, promote the innovation of systems, form new systems and mechanisms as soon as possible, release government functions, make government functions more inclined to public services, and provide a good environment for technological innovation.

Suggested Readings Chen Jin, Yang Yinjuan, Theoretical Basis for and Connotation of Collaborative Innovation, Studies in Science of Science, 2012(3). Feng Zibiao, Industrial Policy Innovation Promotes Sustainable Economic Development in Shanxi, On Economic Problems, 2007(8).

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Guo Jianwan, Yuan Li, Research on the Relationship between Abundance of Natural Resources, the Quality of the System and Economic Development, South China Journal of Economics, 2009(10). Ma Yu, Cheng Daojin, “Resource Gospel” or “Resource Curse”: An Empirical Study Based on the Threshold Panel Model, Finance and Trade Research, 2017(1). Sun Pibin, Sun Lixin, et al., Regional Innovation Motivation Mechanism and Empirical Analysis: Taking Shanxi Province as an Example, Science and Technology Management Research, 2013(2). Shao Shuai, Qi Zhongying, Energy Development and Economic Growth in Western China: An Empirical Analysis Based on the “Resource Curse” Hypothesis, Economic Research Journal, 2008(4). Wang Yanming, Research on “Market Failure” in the Sustainable Development of Resource-Based Regions, On Economic Problems, 2011(3). Xu Kangning, Wang Jian, Study on the Relationship between Abundance of Natural Resources and the Level of Economic Development, Economic Research Journal, 2006(1).

Chapter 12

Research on the Growth Path of Low-Educated Female Migrant Workers in Shenzhen—Based on a Case Study of Six Women Chunhong Sheng

12.1 Introduction The rate of participation of the female labor force in China is at the world’s leading level, reaching 61%, which is even higher than the 8 percentage points of high-income countries. Based on the national conditions of China’s household registration system, many female workers are migrant workers, and the proportion of Chinese women among the migrant workers has gradually increased. According to the Rural Migrant Workers Monitoring Survey Report in 2018 of the National Bureau of Statistics, the total number of migrant workers in 2018 was 288.36 million, of which 34.8% were women, and the proportion of women had increased by 0.4 percentage points from the previous year. At the same time, the level of education of outside job-seekers is relatively low. Among all migrant workers, 1.2% have never attended school, 15.5% have a primary school education, and 55.8% have a junior high school education (National Bureau of Statistics 2019). Because of the “preference of boys over girls”, poverty and other reasons, female migrant workers may have even lower academic qualifications. According to the Improving Career Prospects for the Low-Educated— —The Role of Guidance and Lifelong Learning published by the European Union in 2016, low-educated persons are a kind of resource for society and the economy, but because of their low levels of education, they often face the risk of unemployment and marginalization. How to make society more tolerant of this group and enable them to better integrate into the economy is the foundation of long-term social and economic prosperity. Sheng Chunhong, Postdoctor at the China Center for Special Economic Zone Research, Shenzhen University. She is engaged in public management and urban governance research. C. Sheng (B) China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, Guangdong, China e-mail: [email protected] © Social Sciences Academic Press 2023 Y. Yuan (ed.), Studies on China’s Special Economic Zones 5, Research Series on the Chinese Dream and China’s Development Path, https://doi.org/10.1007/978-981-99-0341-2_12

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Shenzhen is a city mainly made up of migrant workers. Shenzhen’s achievements today are closely linked to the hard work of thousands of migrant workers. From a macro perspective, Shenzhen’s industrial structure has evolved from the previous “three-plus-one” trading-mix (custom manufacturing with materials, designs or samples supplied and compensation trade) to an economy dominated by high-tech industries and service industries. Many scholars have analyzed Shenzhen’s economic development from the perspectives of national special economic zone policies, Shenzhen’s own industrial policies, and enterprises and other actors. This paper aims to analyze the interactive relationship between personal development and Shenzhen from the perspective of micro-individuals, especially from the perspective of loweducated migrant women to analyze the opportunities that Shenzhen has created for them and their tracks of development. The topics of this paper are: Why can female migrant workers with low education achieve development in Shenzhen? What are the key factors for their development? Compared with other places, what opportunities for growth does Shenzhen offer to these low-educated women? The research in this paper has multiple meanings. On the one hand, it is to make clear why Shenzhen attracts so many migrant workers and makes them stay behind. What is the connection between this and the city’s lasting competitiveness? On the other hand, this paper focuses on women’s perspectives and expects cities to become a better place for women to use their talents. Hu Shi once said, “When you look at the civilization of a country, you only need to examine three things: first, how they treat children; second, how they treat women; third, how they make use of their leisure time”. In other words, to evaluate the degree of civilization of a city, we need to examine how women are treated.

12.2 Literature Review There is a lot of research on women’s career growth, but most of the fields they focus on are successful female entrepreneurs, female executives, women with high degrees of education, female technologists, female leaders, etc., and less attention is paid to female migrant workers. There is even less research on the career growth of female migrant workers with low academic qualifications (Metz 2001; Jinlian et al. 2018). In terms of research content, the research mainly highlighted the hardship and exploitation of female workers at the bottom. The industries concerned mostly embodied strong gender characteristics, such as housekeeping, catering, waitresses, sex workers, etc. (Ngai 2004; Dong and Cheng 2017; Dooling 2017). In terms of research on female career growth factors, most only focused on personal factors, organizational factors, or social factors, and there are still few studies on the combination of the three. In addition, most of the research on women is still in theoretical discourse, with a comprehensive summary of the various difficulties in women’s career growth, but there are still few empirical and detailed studies.

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Among the research on the relationship between education and personal career growth, most scholars emphasized the importance of education for career advancement. For example, NG and Feldman (2009) talked about the impact of education on job performance. They believed that education not only affected the completion of the main tasks of the work, but it also affected people’s creativity and the quality of personal daily behavior. Based on China’s national conditions, that is, the level of education of most female migrant workers is relatively low, this paper tried to demonstrate the important roles of personal factors, corporate and social factors in women’s career growth. The growth of female employees refers to the process of their continuous improvement and accumulation of knowledge, skills, and experience during a certain period of the growth of their careers, and constantly enriching the potential of their inherent competence, so as to achieve the balance of growth relationships among outstanding performance, work and family, and ultimately reach a successful state of self-identity. (Haiyan et al. 2008). Personal growth is a lifelong process. The factors affecting personal growth are not only personal factors, but also corporate and social factors (Jinlian et al. 2018). This paper will borrow the theory of achievement motivation of the American psychologist Dr. McClelland, who believes that personal achievement depends on values, attitudes, self-image, personality qualities, internal drive, social motivation and other potential competencies, while knowledge and skills, which have always been considered extremely important, are relegated to a secondary position, and potential competency is critical to the growth of female employees (MacClelland 1985; Haiyan et al. 2008). This paper summarizes the internal and external causes of women’s growth as indicators (see Fig. 12.1). It mainly examines the impact of individuals, organizations, and social factors on women’s growth. The indicators for women’s growth are divided into personal potential competency, performance, knowledge, skills, experience, and work and family balance.

Independent variable: factors

Dependent variable:

affecting women's growth

women's growth

Personal factors: internal drive

Personal potential competencies

Organizational factors:

Performance, knowledge,

enterprise

skills and experience

Social factors: social

Balance of work and family

environment

Fig. 12.1 Internal and external causes of women’s growth and growth indicators

184

C. Sheng

Studies have shown that an important factor hindering women’s growth is women’s internal driving force for professional achievement, that is, the need to have confidence and motivation to achieve professional achievement. In Leslie Chang’s Factory Girl, the author states that in the vocational training class, the most important course content is to cultivate the self-confidence of migrant workers, and to motivate them to obtain professional achievements, from assembly line workers to white-collar workers. At the same time, the difference in future career choices and development of the two different low-educated migrant girls is also due to a different degree of confidence and motivation. The organizational factors of women’s growth are mainly the company’s training of employees’ skills and corresponding punishment and rewards. However, from an analysis of different studies on female migrant workers, from the bottom level, it was found that many studies point out that in the initial labor-intensive enterprises, companies prefer to recruit female migrant workers, believing that they are more obedient and disciplined (BSR 2013). However, from a cautious perspective on positions with higher technical and managerial content, women are believed to be weaker than men (Xianmiao and Jinlian 2016). The social environmental factors for women’s growth are the fact that society expects more from women in family life. Women generally need to spend more time doing housework and caring for children. This results in women’s study and working time being significantly less than men’s, which is also a key obstacle to women’s growth.

12.3 Research Design In order to make an in-depth study of the growth path of low-educated female migrant workers in Shenzhen, this study selected 6 low-educated female migrant workers in Shenzhen, one of whom is in online reports. They are an accountant, an ordinary worker in the subsidiary of a foreign enterprise producing hard disks, a driving coach, th founder of vocational training in primary and secondary schools, a female owner of an Internet cafe in the urban village, and a programmer of a foreign enterprise. Their age distribution is also relatively scattered, from their 20 s to their 50 s. They came to Shenzhen from the 1990s to the twenty-first century. Most of them are married, have children and only one is unmarried. There are in-depth interviews with them. The interview methods include WeChat interviews and face-to-face interviews. Most of the interviews include more than one for each subject, and there are follow-up interviews. In order to protect the rights and interests of the interviewees, all names in this paper and their businesses and regions have been replaced with initials. The research objects selected in this paper are low-educated female migrant workers, because low academic qualification means that these female workers have a poor educational background. How did they keep up with Shenzhen’s industrial upgrading and transformation step by step being a low-educated migrant worker? What experience is there? An important reason for choosing female migrant workers

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Table 12.1 Basic information of the research sample Number Code Sources

Initial Arrived Age education in Shenzhen when

Marital status

Birthplace

Occupation

1

Y1

Interview

Junior high school

1994

50–60 Married

Jiangxi Province

Accountant

2

S1

Interview

Junior high school

2009

40–50 Married

Sichuan Province

Driving coach

3

Y2

Interview

Junior high school

2009

20–30 Married

Jiangxi Province

Ordinary worker of an electronic enterprise

4

H

Interview

Primary school

2006

40–50 Divorced

Henan Province

Education and training institution owner

5

S2

Secondary Senior data middle school

2009

30–40 Unmarried Hunan Province

Programmer

6

K

Interview

2014

30–40 Married

Junior high school

Guangdong Internet cafe Province owner

is that women have more difficulty in finding jobs than men. What are the factors that make them successful in Shenzhen? (Table 12.1). This paper mainly used interviews to understand the growth path of the research object, and to understand the main factors that affected the growth of the interviewee. The interview mainly focused on several main research topics. First, what factors prompted the interviewee to come to Shenzhen, and what did they do before coming to Shenzhen? Second, how did they find their first job and how did they stick to it? Third, what do the companies they work for provide for their growth? Fourth, what does the city of Shenzhen provide for their growth? Fifth, why did they choose to stay in Shenzhen, and their plans for the future? The personal factors, such as the internal driving force, are understood mainly based on the answers regarding the pursuit of competent work during the interview process. In addition, it is also necessary to understand their values, such as how to overcome difficulties at work, how to deal with job changes, how to treat competition at work, etc. This paper mainly adopted the method of telling a story, and extracted relevant variables and elements from it to deconstruct the factors that promote their growth. First of all, this paper sorted out the interview material, categorized and sorted out the original sentences of the interviewees, internal and external factors that affected growth, and growth indicators. The first step was to classify and organize some original sentences of the interviewees through some concepts (Table 12.2).

Original sentences

Shenzhen’s advantages for career growth?

(continued)

Y2: I went out to work after graduating from junior high school. I used to be in Zhejiang, but those factories are relatively rubbish compared to the factories in Shenzhen today. At that time, I often switched jobs, but after I came to this factory in Shenzhen, I never changed jobs again. (Employee’s sense of belonging) Y1: If I hadn’t come to Shenzhen, I wouldn’t be who I am today. Shenzhen does not care about your origin, as long as you have the ability, you can settle down. I studied accounting (knowledge) by myself in Shenzhen and passed the accounting qualification examination organized by the Shenzhen Finance Bureau. (Government factors, personal self-learning ability) S1: After I came to Shenzhen, I felt very comfortable. The company has the last elimination system, and my salary is linked to the students I teach. (Corporate organization) S1: My high income indicates that my students have a high rate of passing, which shows that I have a strong working ability. Rather than in the past, income relied on “gray income”, which could not be spoken about. Now I can honestly tell others how much I earn this month. (Professional achievement)

Why did you leave your previous place and come to Shenzhen? Y1 came to Shenzhen with her husband. As the sole auditor of a small county, her husband was treated unfairly. He was talented, but not good at connecting. As a result, his audit work was replaced by a person who was not qualified, and he was dispatched to a post that did not need to exert his auditing talents. They decided to leave the small place and come to Shenzhen. She also gave up her previous work. (Social factors, personal talents difficult to use) S1: My friend recommended that I should come to Shenzhen. Before I came to Shenzhen, I worked in a driving school in my hometown. However, there were problems in the whole system of the driving school. First of all, the work performance is not linked with the performance of the students, because if the students fail the test, the driving teachers themselves may create “gray income”. (Organizational relations of enterprises) Second, the local traffic supervisory department accepts bribes, and whether the driving test can be passed depends on whether or not you give gifts, rather than whether you have learned driving skills. (Government factors) Third, the relationship between driving school teachers and students is very tense, and there is no sense of accomplishment at work. The working atmosphere is very depressing. (Personal sense of professional achievement)

Conceptual questions

Table 12.2 Concepts and original sentences

186 C. Sheng

Y2: When I first came in, the company organized training. After a new position, the technical content of the work was higher and the training time was longer. (Corporate training) Y2: The management of the enterprise is very strict, with an elimination system. If you are notified in writing twice, you will lose your job. (Enterprise incentive mechanism) S1: Companies have the last-one-hired elimination system for coaches. If the teaching is unreasonable, they can be removed. At the same time, there are rewards for coaches who teach well. (Enterprise incentive mechanism) Y2: Compared with Zhejiang, it is more formal than the previous factory, and nothing can squeeze employees. There are small manufacturers over there, and many benefits are not given, and you have nothing to say. The government here has some welfare regulations, and the factory here is relatively human S2: Shenzhen has a variety of IT training possibilities, or English tutoring classes, as well as adult education. As long as you are interested, you can continue to study and continuously improve yourself. (Social training institution)

Personal factors

Organizational factors

(continued)

Original sentences S2: You should never forget being a better version of yourself. (Internal drive) Y1: After I got off work, I would study accounting knowledge at home, pass certificate examinations, and enhance my business ability. (Self-learning ability) Y2: If you don’t understand English at the beginning, you should ask your teacher for advice. This job requires standing up all the time, and the content is very boring. I have thought of resigning and giving up many times, but I still persevered. (Persistence) S1: I usually think for the sake of students, about how to explain more clearly and make it easier for students to master driving skills. (Business learning) H: Apart from eating and sleeping, I usually think about my work. (Enthusiasm for work)

Conceptual questions

Table 12.2 (continued)

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Original sentences Y1: Shenzhen is a place where you can eat by your skills. I came to Shenzhen to look for a job, and went directly to the job market to apply. I didn’t go through the back door by looking for relationships or entrusting others. (Social justice and fair competition environment) Y1: The atmosphere of the civil service department in Shenzhen is quite good. My accounting examination is held by the Finance Bureau, which just needs registration. And there are not so many rules. However, the examination process is relatively strict and is audited twice a year. If you are in your hometown, it is uncertain whether the test registration is fair and the result is fair. (Government environment) S1: The service attitude of the Shenzhen government is relatively good, and the atmosphere is honest and clean. We took the students to the exam, and the civil servants in our hometown ignored us, often as if we owed them millions of dollars. Questions to the coach were just like reprimand, the tone of a superior. The coach himself has to serve these examiners carefully. This creates a very depressing atmosphere to a certain extent. The traffic police here is of a high quality. When we ask questions, their tone is very kind. (Government environment)

Conceptual questions

Social environment

Table 12.2 (continued)

188 C. Sheng

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This paper also sorted out the original sentences related to the personal growth of the interviewees. Personal potential of competency refers to an individual’s conjecture and self-confidence about his/her ability to complete a certain task (Table 12.3). Table 12.3 Personal growth indicators and original sentences Concepts

Personal growth indicators

Personal potential of competency

K: I am very familiar with opening Internet cafes, and I could open one anywhere S1: The company assigns many poor students to me. For example, the older ones, I don’t think there is a problem. For me, I have the confidence to make them pass the tests Y1: I have managed a large company. Although I am now retired, I can still help when my friend has accounting affairs

Performance, knowledge, skills and experience Y1: I used to be the deputy general manager of a company, which is unimaginable for my friends in my hometown H: Although the level of my education is low, I cooperate with graduate students, and even many masters and doctors from prestigious universities work for me Y1: I am very familiar with the tax reform in Shenzhen. If you want to ask questions about taxation, just ask me Balance of work and family

Y2: We are treated very well for having children, just like working in government departments. We have all the necessary subsidies and benefits. We are in the Futian Free Trade Zone. Yes, I have given birth to two children in the company (compared to other female factory workers who face dismissal because of having a baby) K: I want to stay in Shenzhen and continue to open Internet cafes. Of course, I am very free. But I need to go home and take care of my children to study (I have 5 children). My parents-in-law are very old and were able to help me take care of them when my children were little, but they can’t help them with homework Y1: Shenzhen is my home. My children study, work, get married and buy houses here

190

C. Sheng

12.4 Research Findings Through the analysis of the growth experience and personal, organizational and social factors of low-educated female workers, it can be found that many low-educated women came to Shenzhen to work by means of having been introduced by relatives and friends. However, after in-depth questioning of the reasons for coming to Shenzhen, many people were found to stay in Shenzhen because of its fairness and recognition of human abilities that they had received. The justice and fairness in the social environment is reflected in several aspects. First, it is the recognition of personal abilities. In other places, social relations and backdoors have distorted the normal matching relationship between personal abilities and positions, and capable people are excluded. The phenomenon of incapable people taking on important tasks creates a social atmosphere that does not respect talents. Second, the sense of honor of personal work is poor. For example, it is difficult for S1 to feel the sense of accomplishment brought about by work at the driving school in her hometown. Instead, she feels guilt and disgrace, because much of her income depends on “gray income”, which leads to a bad working mood. In Shenzhen, it is different. Although her work is busier than in her hometown, she has a harmonious relationship with students, her interests are in line with students, and her sense of accomplishment is better. Third, government departments play an important role in creating a local atmosphere of social justice and fairness, and they are also an important factor in attracting talents. The interviewees felt the attitude of “officials” in other local government departments and the service-oriented attitude in Shenzhen, which makes them feel the difference in the social atmospheres. In terms of professional skills examination, government departments should relax the threshold of examination qualification, but the examination itself needs to be strict and fair, which is conducive to promoting the improvement of professional skills of low-educated women. Although these women did not have high academic qualifications before coming to Shenzhen, their own strong internal drive to learn allowed them to increase their knowledge, skills and work experience. S1 talked about people in her hometown drinking tea and chatting at work and playing mahjong after work. Although she is busier than them at work, she thinks she has created more social value and has a very worthwhile lifestyle. S2 has been working in the assembly line before, and later through learning IT, learning English, through college upgrades, overseas training, etc., greatly improved her professional knowledge and skills. This shows the importance of business training to the improvement of the skills of low-educated women. However, it can be seen from the interviewee’s experience that it is not easy for them to find time to learn. The vocational skills training organized by the enterprise itself is only for one position, and it is not combined with the long-term career planning of female migrant workers with a low educational background. From the experience of interviewees Y1 and S2, it can be seen that they were all promoted through self-study in business hours outside normal working hours, or giving up work and spending money participating in business vocational skills training. One of the important enlightenments is how to allow low-educated female migrant workers

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to have sufficient business time to participate in training and improve their professional skills. The interviewees all showed high enthusiasm for their work. Another important phenomenon is that many women show self-confidence, which is not lost to men. Among them, Y1 mentioned that her career development in Shenzhen is better than that of her husband. The explanation is that she has stronger social skills and is more flexible. In addition, Y2 said that in her factory, it was men who could not maintain their positions but not women. S1 also talked about her performance as a driving school coach better than many men. In general, these interviewed women confirmed Dr. McClelland’s assertion that although their innate educational background is relatively poor, their knowledge and skills have been improved through their own internal driving forces. And the next important issue is what role do organizational and social factors play in improving the professional skills of low-educated women? First of all, the incentive mechanism of corporate organizations has created conditions for low-educated women to improve their vocational skills, and they all actively train themselves to be competent for the job. When the company’s incentive mechanism is improper, women may face more difficulties than men. For example, S1 talked about being at a disadvantage in her hometown due to others’ underhand means. Y1 even mentioned that if she is in her hometown, it will be difficult for her to take the accounting qualification certificate examination because she is a female with a low education. Women’s performance in an enterprise with a relatively sound incentive mechanism is more likely to be reflected, and the gender discrimination they face will be reduced, which is conducive to the improvement of women’s professional skills. Looking at the growth of low-educated women from the perspective of lifelong learning, from the conversations and comparisons of several interviewees, it can be seen that corporate vocational skills training is extremely limited and most vocational skills need to be acquired through self-study or business training institutions. In the end, many women expressed strong personal potential of competency. They were confident about their competency in the work they were engaged in, and they gained a sense of accomplishment from it. It can be seen from the interviewees’ speech on their own growth that the balance between family and work has become an important indicator of their growth. Among them, whether enterprises can provide good social security has become an important indicator that affects women’s decisions on whether to have children. Similar to other research findings, this paper finds out that many female migrant workers are married women with children. One of the important factors that affect women’s abandonment of work in the city is worry about their children’s education and grandparents’ being incompetent in the task of educating their children. Another important reason is that although Shenzhen has relaxed the conditions for applying for a household registration, Y2 mentioned that because of the hidden economic conditions such as high housing prices, she chose to give up even if she could have applied for a household registration in Shenzhen, and she has doubts about whether she will stay in Shenzhen in the future (Fig. 12.2).

192

C. Sheng Government fair public rules The government does not value talent skills Distortion Enterprise incentive

Negative Positive

factors Personal growth

factors

Promotion Enterprises improve the incentive mechanism

mechanism Suppression

Personal internal driving force

Cultivation

Intrinsic drive for personal struggle

The path before coming to Shenzhen

Shenzhen path

Fig. 12.2 Comparison of the growth paths of female migrant workers with low academic qualifications before and after coming to Shenzhen

12.5 Conclusion This paper focused on studying the growth path of low-educated female migrant workers in Shenzhen, and obtained first-hand data through in-depth interviews with six women to explore the influence of personal, organizational and social factors on the growth of low-educated women. Research has found that among social factors, whether there is respect for talents and whether the government environment is just and fair are important factors that affect the growth of women, and of course this is the same for men. At the corporate organization level, an effective incentive mechanism and a good social welfare system can provide a better growth environment for low-educated women. Finally, at the personal level, the internal driving force of low-educated women, self-learning ability, persistence, good communication skills and other abilities have become important factors for their growth. What needs to be emphasized is that women with a low educational background need to balance the relationship between family, work and study, whether they have enough time to study and whether they have the opportunity to participate in vocational skills training and take vocational skills examinations organized by the government have become an important factor in their growth. The shortcoming of this paper is that because the research object is successful women, there is a certain lack of factors that make loweducated female migrant workers not successful. In addition, the interviewees in this paper are still limited in number and lack universal representation.

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References BSR (2013), Business for social responsibility, Between the Lines: Listening to Female Factory Workers in China, .https//www.bsr.org/en/our-insights/report-view/between-the-lines-listeningto-female-factory-workers-in-china. Dong, W, Cheng, Y. (2017), Sex work, migration, and mental health in Shenzhen. in Mary Ann O’Donnell, Winnie Wong, and Jonathan Bach edited Learning from Shenzhen: China’s Post-Mao experiment from Special Zone to model city. The University of Chicago Press, Chicago. Dooling, A. (2017), Representing Dagongmei (Female migrant workers) in contemporary China. Front. Lit. Stud. China 2017, 11(1): 133–156. DOI https://doi.org/10.3868/s010-006-0170006-9 Huang Haiyan, Sun Fen, and Lu Ming, Construction of a Comprehensive Index System for the Growth of Female Employees, Statistics and Decision, 2008(8). Li Xianmiao, Luo Jinlian, Some Grounded Theoretical Research on the Construction of Female Executives’ Professional Identity: ASD-Based Growth Model, Journal of Management Case Studies, 2016(1). Luo Jinlian, Yang Yijia, and Sun Caixia, Study on the Individual-Organization Matching Law of the Professional Growth of High-level Female Talents in Enterprises, Management Review, 2018(12). MacClelland, D. (1985), How Motives, Skills, and Values Determine What People Do. American Psychologist, 40(7), 812–825. Metz, I. ( 2001), Women’s career advancement, the relative contribution of human and social capital. Group & Organization Management, 26(3), 312–342. National Bureau of Statistics: Rural Migrant Workers Monitoring Survey Report in 2018 http:// www.stats.gov.cn/tjsj/zx fb/2019 04/t2 019 0429_16 62268.html , 2019. NG, T., Feldman,D. (2009), How broadly does education contribute to job performance? Personnel Psycholog y, 62, 89–134. Ngai, P. (2004), Women workers and precarious employment in Shenzhen Special Economic Zone, China. Gender and Development, 12(2), 29–36.

Suggested Readings Bu Yi, 10 years of a female worker on an assembly line in Shenzhen: The salary has increased by 40 times, and I still don’t accept my fate! Vision from WeChat public account, 2019. Chang, L. (2008), Factory girl: From villages to city in a changing China. Spielgel & Grau, New York. EU (2016), Improving career prospects for the low-educated: The role of guidance and lifelong learning. https://www.cedefop.europa.eu/files/5554_en_0.pdf. Luo Qinglan, Sun Naiji, and Yu Guilan, Research on the Influencing Factors on Career Success of High-level Female Talents Based on the Analysis of the Literature, Economic Survey, 2014(2). Luo, G. ( 2006), China’s Rural-Urban Migration: Structure and Gender Attributes of the Floating Rural Labor Force Zheng Meiqin, An Economic Analysis of Women’s Options and Labor Participation in DecisionMaking, Doctoral Thesis of Huazhong Agricultural University, 2006.