The architecture of the Chinese economy began to take shape in the late 1980's, because of the new reforms that the Chinese Communist Party started to take. With the death of Mao Zedong in 1976, the Chinese leadership is taken by Deng Xiaoping, who stated a blitz course in capitalism. The new president encouraged foreign direct investments by creating special economic zones near the costal cities, were foreign companies obtained several tax brakes and other incentives, only to invest in those regions. With the help of statistical data from WTO, IMF, and the World Bank, the current paper analyzes the impact of these special economic zones on the Chinese economy, raging from mutations in the labor market and economic sectors structure and their evolution in the formation of the GDP, FDI inflows, and last but not least external trade and current account situation. On the other hand, the paper tries to make a connection with Romania, computing and predicting, based on the Chinese figures, the way in which the Romanian economy, by creating four economic zones within the counties of Satu Mare, Bihor, Arad, and Constanţa, will be able to experience the same growth. The first three counties have been piked up based on their proximity to the Schengen area, and/or on their infrastructure, plain terrain, and a qualified and skilled labour force. Constanţa, the only one that resembles with its Chinese counterparts, has been considered because of its capabilities of shipping products right away as they are manufactured. The results would decrease the disparity that exists in revenue levels across Romania, Bucharest leading the group way ahead of the other counties. Foreign direct investments in those areas will attract more others made by the local authorities in the infrastructure (schools, universities, roads, airports, high speed railways). This development will have a direct impact on the current account of the Romania's balance sheet of payments, while its external trade deficit will reduce in time, even transforming in a trade surplus, and helping this way in putting an end to the chronically external debt.special economic zones, counties, external trade, economic impact, foreign direct investment

NEGREA Adrian

English

Research Papers in Economics

103 
SUSTENABLE DEVELOPMENT OF THE ROMANIAN ECONOMY BY 
ADOPTING THE CHINESE MODEL OF SPECIAL ECONOMIC ZONES 
Negrea Adrian 
University of Oradea, Faculty of Economic Sciences 
 
The architecture of the Chinese economy began to take shape in the late 1980’s, because 
of the new reforms that the Chinese Communist Party started to take. With the death of 
Mao Zedong in 1976, the Chinese leadership is taken by Deng Xiaoping, who stated a 
blitz course in capitalism. The new president encouraged foreign direct investments by 
creating special economic zones near the costal cities, were foreign companies obtained 
several tax brakes and other incentives, only to invest in those regions. With the help of 
statistical data from WTO, IMF, and the World Bank, the current paper analyzes the 
impact of these special economic zones on the Chinese economy, raging from mutations 
in the labor market and economic sectors structure and their evolution in the formation of 
the GDP, FDI inflows, and last but not least external trade and current account situation. 
On the other hand, the paper tries to make a connection with Romania, computing and 
predicting, based on the Chinese figures, the way in which the Romanian economy, by 
creating  four  economic  zones  within  the  counties  of  Satu  Mare,  Bihor,  Arad,  and 
Constan￿a, will be able to experience the same growth. The first three counties have been 
piked up based on their proximity to the Schengen area, and/or on their infrastructure, 
plain  terrain,  and  a  qualified  and  skilled  labour  force.  Constan￿a,  the  only  one  that 
resembles with its Chinese counterparts, has been taken in consideration because of its 
capabilities of shipping products right away as they are manufactured. The results would 
decrease the disparity that exists in revenue levels across Romania, Bucharest leading the 
group way ahead of the other counties. Foreign direct investments in those areas will 
attract  more  others  made  by  the  local  authorities  in  the  infrastructure  (schools, 
universities, roads, airports, high speed railways). This development will have a direct 
impact on the current account of the Romania’s balance sheet of payments, while its 
external  trade  deficit  will  reduce  in  time,  even  transforming  in  a  trade  surplus,  and 
helping this way in putting an end to the chronically external debt. 
 
Key words: special economic zones, counties, external trade, economic impact, foreign 
direct investment 
 
JEL codes: F21, F32, G18 
 
New conditions of doing business in China 
Leaders of any country feel when something needs to be changed. In 1978, the Chinese 
communist leader Deng Xiaoping, felt that the Chinese economic model was suffering 
greatly and something was needed to be done. In a comparison with Romania today, 
when every economic reform affect all the inhabitants, the Chinese started with only a 
handful of regions were they tried to experiment different approaches that were targeting 
fiscal policies, labor legislation, bureaucracy and other measures that were similar to 
those in the capitalist western economies. All these measures were put in action in the so 
called “Special Economic Zones” or simply SEZ.  104 
In order to understand what a SEZ is, we will take a look at what some international 
organizations define them: 
-SEZs are generally defined as geographically delimited areas administered by a single 
body, offering certain incentives (generally duty-free importing and streamlined customs 
procedures, for instance) to businesses which physically locate within the zone 
-Designated areas in countries that possess special economic regulations that are different 
from  other  areas  in  the  same  country.  Moreover,  these  regulations  tend  to  contain 
measures that are conducive to foreign direct investment. Conducting business in a SEZ 
usually means that a company will receive tax incentives and the opportunity to pay 
lower tariffs. 
In 1980, four SEZ were created - Shenzhen, Zhuhai, Shantou and Xiamen - in order to 
experiment how new legislation, labor conditions and a lower bureaucracy will interact 
with the economy. And the results came quickly. As presented bellow (Table 1: FDI 
Inflows in SEZs, million current US$, 1978–2008) foreign direct investment started to 
pore  in,  reaching  almost  4  billion  $ in  2008  for  Shenzhen,  1  billion  for  Zhuhai  and 
Hainan. All the figures indicate a huge increase, especially after the year 2000, after 
China  got  accepted  in  the  World  Trade  Organization.  This  move  made  China  more 
appealing to international investors. As presented below, all four SEZ registered a surge 
in ISD inflow. 
 
Table 1: FDI Inflows in SEZs, million current US$, 1978–2008 
Year  Shenzhen  Zhuhai  Shantou  Hainan 
1978  5.48  n.a.  1.61  0.1 
1990  389.94  69.11  98.09  100.55 
2000  1961.45  815.18  165.61  430.80 
2006  3268.47  824.22  139.61  748.78 
2007  3662.17  1028.83  171.62  1120 
2008  3929.58  1138.49  n.a.  n.a. 
Source: SBHN 2007, SBST 1994, SBST 2007, SBSZ 2007, SBSZ 2008, SBZH 2007 
 
All  of  the  investment  made  was  concentrated  on  building  production  facilities  from 
scratch, and from there to supply the internal market and the ship products all over the 
world. As presented in Table 2, exports increased exponentially, Shenzhen leading the 
group and being the first in the group to register figures above 100 billions $, reaching 
almost  170  billion  $  in  2007.  These  numbers  are  the  result  of  FDI  inflows  in  these 
regions, as well as the accession into the ranks of WTO. 
 
Table 2: Exports, million current US$ in SEZs, 1978–2008 
Year  Shenzhen  Zhuhai  Shantou  Hainan 
1978  0.009  0.009  0.251  n.a. 
1990  8.152  0.489  0.841  0.471 
2000  34.654  3.646  2.595  0.803 
2006  135.959  14.843  3.484  1.376 
2007  168.542  18.477  3.912  1.838 
2008  163.780  19.73  3.278  n.a. 105 
Source: SBHN 2007, SBST 1994, SBST 2007, SBSZ 2007, SBSZ 2008, SBZH 2007 
 
All that inflow of FDI, the surge in exports, automatically influenced the living conditions 
in those zones. For instance, if we watch closely in Table 3 and 4, its presented the 
evolution of the GDP and Per Capita GDP. 
These four zones made it possible to present the multiplier effect of Keynes upon the 
local economy. If the state offers you tax brakes for the next 30 years, you, as a business 
entity, will build a production facility. Building a production facility means hiring local 
workers. Perhaps, some of your suppliers will follow you there. If everything goes well, 
some of your competitors will join in. This step can be made in any industry. At one 
point, if the Chinese see that there are jobs needed in that region, they will move there in 
order to work for a higher salary and better working conditions. 
If this thing happens, we can imagine that the local administration will earn a lot of 
money from local taxes. If the GDP of the region rises, so does the incomes for that 
region. Now the local administration has money to invest in the infrastructure (roads, 
highways,  electricity,  airports,  bridges,  optical  fiber,  railways,  hospitals,  schools,  and 
universities). All these measures connect themselves, developing that region, enhancing 
its competitiveness. 
 
Table 3: GDP of Special Economic Zones, 1978–2008, billion current RMB 
Year  Shenzhen  Zhuhai  Shantou  Hainan 
1978  0.196  0.209  1.079  2.886 
1990  17.167  4.143  7.245  10.242 
2000  218.745  33.143  45.016  52.672 
2006  581.356  74.77  73.738  105.285 
2007  680.157  89.59  85.01  122.96 
2008  561.176  70.041  72.083  106.275 
Source: SBHN 2007, SBST 1994, SBST 2007, SBSZ 2007, SBSZ 2008, SBZH 2007 
 
Everybody wins from this chain of events. The companies receive tax breaks, and in time 
they will be able to search from a pool of better educated workforce. That workforce, in 
the beginning, it will be composed of “blue colored” jobs, meaning the workers on the 
production line. After a while, when investments will be made in the education sector, 
“white colored” jobs will become more and more demanding, and better paid. Table 4 
illustrates that path, in 2007 a worker receiving more than 10 times it did in 1990, in 
almost every region. 
 
Table 4: Per capita GDP of Special Economic Zones, 1978–2008, current RMB 
Year  Shenzhen  Zhuhai  Shantou  Hainan 
1978  6.6  579  366  510 
1990  8.724  6.678  2.029  1.562 
2000  32.8  27.693  9.741  6.798 
2006  69.45  52.185  14.872  12.654 
2007  79.645  61.693  17.048  14.631 
Source: SBHN 2007, SBST 1994, SBST 2007, SBSZ 2007, SBSZ 2008, SBZH 2007 106 
 
These figures make us think, for how long are we going to be able to call China a cheap 
country. If the level of income will rise in the same manner, we will see how part of the 
production of these zones will be diverted from exports, to internal demand. 
 
Present situation on the home front 
The Chinese case can be a good case practice, in order to imitate and try to implement in 
our own way. We also should pose the same question that Deng Xiaoping did in late 
1980s, when he asked himself: what fiscal measures are needed in order to boost the FDI 
inflow. 
In  order  to  answer  that  question  first  we  have  to  analyze  the  balance  sheet  of  one 
municipality, let’s say Oradea. In Table 5 are stated the main indicators that compose the 
municipality balance sheet. 
It is known that due to the “color” of the government, some municipalities that have 
mayors from the ruling party receive larger subsidies, and those who don’t receive less. In 
this case, Oradea has the color “yellow” and the ruling government is “orange”. 
I  have  omitted  those  subsidies  because  they  can  vary  from  time  to  time,  as  the 
government does, and try to stress those factors that have a more stable component. 
 
 
Table 5: Brief balance sheet of the city of Oradea in 2010 
No.  Explanation  Code  Plan thousand Lei 
A  Incomes    246.018 
1  Split shares from the income tax  04.02.01  111.020 
2  Taxes on corporate buildings  07.02.01.02  25.500 
3  Taxes  on  corporate  motor 
vehicles 
16.02.02.02  6.900 
4  Revenues from concessions 
and rentals 
30.02.05  5.800 
Source: Local Council approved balance sheet on 2010 
 
If that’s the case, than any municipality needs to widens its share from the income tax. As 
we can see in Table 6, a large portion of the income tax comes back to the place where 
the contributor pays he’s taxes. We can observe the evolution, from 47% in 2006, to 44% 
in 2010, and perhaps in the future, even less. 
Usually these money are spent on infrastructure maintenance (roads, schools, hospitals), 
and  on  public  services.  If  this  is  the  case,  than  any  municipality  needs  to  widen  its 
colleting points by encouraging companies to invest in its zone, and to hire locally. From 
this point of view, if a town receives more, it can spend more. 
Table 6: Percentage of the revenue tax returned to the place of the taxpayer 
Revenue tax  Law no.273/2006  OUG 63/2010 
%  returned  to  municipalities  where 
the tax payers register their activities 
47%  44% 
%  returned  to  county  budget  where 
the tax payers register their activities 
13%  12% 
%  returned  to  a  distinct  account  to  22%  21% 107 
the tax collectors of each county, in 
order to stabilize the deficit 
We also have to take in consideration that a suffocating fiscal legislation opposes and 
diminishes  the  entrepreneurial  spirit,  suffering  modifications  almost  every  year  that 
doesn’t take into account mid or long term planning activities of local companies. There 
is no consistency of the fiscal policies, some of them entering in effect not from the 
beginning of the new fiscal year, but right away as the law passes the senate approval. 
The  other  disturbing  case  is  the  sum  of  taxes  that  an  employer  must  pay  for  one 
employee, sum that amounts almost 60% of its gross salary, so for example if somebody 
wins 1.000 LEI, the state takes 600 LEI.  
 
The need for a change 
Why do we need to adopt the Chinese model of Special Economic Zones?  
We should adopt that model in order to experiment how different policies interact with 
the economy. If we want to reduce the amount of taxes that an employer pays for one 
employee from 60% to 45% or less, or to reduce the amount of the income tax, than we 
need to observe this phenomenon on a small scale, not to implement it and observe it on 
the whole country. 
In this paper, four counties have been chosen, Satu Mare, Bihor, Arad, and Constan￿a, the 
first three counties being picked up based on their proximity to the Schengen area, and/or 
on their infrastructure, plain terrain, and a qualified and skilled labor force. Constan￿a, the 
only one that resembles with its Chinese counterparts, has been taken in consideration 
because of its capabilities of shipping products right away as they are manufactured. 
If we want to reduce the social contributions, the income tax, health tax, place a moderate 
tax on land and buildings, offer free terrain, or whatever measure that attracts FDI, we 
should do it first on a small scale, and then apply it on a bigger one. 
If these zones are created in these four counties, we should expect a surge in FDI as we 
have seen in the four Chinese counterparts. Production will grow, exports will surge, 
workers will be needed, salaries will increase, infrastructure spending will go up based on 
new income, and with this, the competitiveness of these regions will register the same 
effect. 
Lets not forget the demographic impact that these four regions will have, especially when 
we  talk  about  regional  migration.  Taking  in  consideration  that  large  areas  are 
interconnected,  being  not  that  far  away  one  of  another,  for  example  Cluj  Napoca  is 
situated only at 150 km from Oradea, having a proper highway between these two cities, 
a worker can make a trip of one hour onwards and backwards, not three hours like today. 
If some measures are viable, they should be adopted at national level, in order to decrease 
the disparities that exist among counties and regions. But I feel that once the counties feel 
independent from the state, they will search for more authority and power, transforming 
Romania from a republic, to a federation. 
Acknowledgements 
This paper is a result of/ resulted from the empirical research pursued by the authors in 
the project: “Study concerning the identification and the improvement of the Romanian 
companies developing external trade activities’ competitive advantages, for maximizing 
the  positive  effects  of  the  EU  accession”  (SVACEX),  financed  by  the  Romanian 108 
Authorities  (UEFISCDI)  with  over  200,000.00  Euros.  For  further  details,  see: 
http://steconomice.uoradea.ro/svacex.  
 
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SUSTENABLE DEVELOPMENT OF THE ROMANIAN ECONOMY BY ADOPTING THE CHINESE MODEL OF SPECIAL ECONOMIC ZONES

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SUSTENABLE DEVELOPMENT OF THE ROMANIAN ECONOMY BY ADOPTING THE CHINESE MODEL OF SPECIAL ECONOMIC ZONES

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