Overhaul economic zones

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Overhaul economic zones

The government decided to revise its policies governing free economic zones, which to date have been relatively ineffective. As part of the plan, it will strip economic zone status from areas that have been neglected by both foreign and domestic investors. At the same time, it will enhance support to areas that have been successful in luring new businesses. The government will also ease regulations to make it easier for foreign educational and medical institutions to set up shop in economic zones, addressing complaints that a lack of schools and hospital facilities is making it hard to draw foreign investors.

The government, it seems, is finally getting around to addressing the superficiality and inefficacy of these areas.

The six economic zones across the nation have attracted a combined $8.5 billion over the last seven years, 95 percent of which is invested in real estate or leisure businesses. Foreign direct investment that accompanies a physical presence by foreign companies totals just $1.89 billion in these areas, making up 2.5 percent of the country’s foreign direct investment.

The failure of this concept was predictable, as these regional zones lack key infrastructure elements like schools and medical facilities. There’s also little difference from one zone to the next, and they don’t offer anything special enough from an economic perspective to entice foreign investment.

The government was right to revise its policies related to economic zones, but the feasibility of its new plan is questionable. The six economic zones could certainly improve, as they now must actually compete to survive. But in the long run, these efforts will prove fruitless.

If the government really wants to create economic hubs favored by foreign investors along the lines of the Pudong New District in Shanghai, it must first reduce the number of such zones to concentrate resources and funding. It then must come up with drastic deregulation measures to enhance international competitiveness and increase the number of foreign educational and medical facilities in the areas.

Since the country is already knee-deep in this issue, the government should ensure that it addresses the fundamental problems associated with these zones. If it shies away from this challenge for fear of a regional outcry, the government will only end up increasing the list of city projects it has squandered taxpayers’ money on.
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