Lessons from China’s special economic zone

Reforms must be adapted to the specific context of each country, and be applied within the boundaries of what is possible.

Institutional change requires a long, tedious and modest implementation of multiple small steps, in which the correct sequencing of reform is crucial.

But Indonesia could draw several good lessons from China’s experiences in transforming its economy from ruins to the world’s second-largest economy today.

One of the best lessons from China’s success is using the concept of special economic zones as the key instrument of its reform and opening up policies in 1979 and the establishment of super inter-ministerial body (p.108-109), State Import and Export Commission in charge of coordinating all things related to foreign trade and foreign investment licensing and operations.

The operations of the commission, which was chaired by Vice Premier Gu Mu, were run by Jiang Zemin as vice chairman (officially called vice minister).

This commission virtually acted as the Mr. Fixer for any problems encountered in SEZ development, mandated to ask for cooperation of virtually all other ministries and government agencies, including banks.

Example: When Jiang learned during an inspection in Shekou that red-tape had stalled construction work, he immediately called for a coordination meeting with the officials of all related ministries and agencies, including banks, to remove the bottlenecks.

Likewise, when Jiang (who later became China’s President in 1993-2003) read a story by Xinhua News Agency on construction problems at a development zone, he acted immediately and firmly to fix the problem.

Certainly, such an expedient decision making and policy execution had been made possible by the strong leadership provided by Deng from top down through all key executives of the Party Central Committee.

The strong mandate enabled the commission to operate as a nerve center or a crisis management center entirely bent to translate the political resolve on reform into real action by the bureaucracy and the business community.

Any issues related to SEZ development were immediately settled at the highest level as Deng’s leadership kept all officials on their toes.

There was a sense of urgency within the commission that made bureaucratic action more important than bureaucratic rules and rigidities, resolving problems by executive fiat on the spot, all with the clear objective to repair the economic ruins caused by the Cultural Revolution.

The fundamental rationale of the commission’s sense of urgency is that a critical condition requires truly fast decisions and action.

Certainly, the special and more flexible rules enforced in SEZ, the generous tax incentives granted and the broad-based authority vested in the management of SEZ, including an autonomy to recruit officials and set their own standards of remunerations, different from other civil servants on the rest of the mainland, also contributed to the great achievement.

The involvement early on of local governments in the development, administration and management of SEZ further smoothed the process and made the program more politically acceptable due to a strong sense of local ownership.

Also contributing to accelerate the pace of SEZ development was the willingness and confidence with which China’s central and local governments tapped the expertise, ideas and financing power of overseas Chinese conglomerates in Hong Kong, Macao, Singapore and Taiwan and other countries.

“Some have become my personal friends, including Kuang-piu Chao, K.C. Wong, Ma Man-kei, Henry Fok Ying-tung, Li Ka-shing and Run Run Shaw”, the author Li Lanqing says.

— Vincent Lingga