Guangdong Province’s Heritage as a Special Economic Zone

13 May

There are geographical aspects of Guangdong Province that have always made it attractive to trade, particularly from the west. The province is both costal and western, making it easily accessible to sea-borne trade. Additionally it is in Guangdong that the Pearl River flows into the sea, allowing inland access along the second longest river in China. Initial institutions and connections that developed became historical factors attracting even more commerce. In the eighteenth and nineteenth centuries this trade was controlled by the Canton system until it was forcibly removed and replaced by a foreign dictated system after the Opium Wars. Another system was implemented in the late twentieth century as a part of Deng Xiaoping’s policies. With the same objectives these two systems show similarities but also differ due to China’s situation at the differing time periods. After a brief description of the two systems the similarities and difference will be apparent.

At the end of the sixteen hundreds growing numbers of traders conducted their business through the pre-existing Portuguese presence in Macao. However this was unfavourable for both parties involved. The large-hulled ocean going European vessels needed deep waters to secure their vessels but the anchorage for Macau exposed the ships to the dangers of the open sea. The Chinese attempt at regulating foreign traders also faced difficulties, as ships laying anchor on the open sea could easily depart and therefore required extensive patrolling. In reaction to these issues trade moved up river to Canton, officially made the only port for foreign non-Japanese or Russian trade in 1757. A standardised system developed. Now ships were forced into the sheltered but unknown waters of the Pearl River Delta. While they were safer the crews had to rely on the navigation of licensed Chinese pilots to navigate for them. Power had been returned to the Chinese regulators of trade – the Hoppos of Canton appointed by the Qing Emperor. Foreign ships were then sailed through the fortified Bocca Tigris (‘Tiger gate’) to Whampoa Road, where port fees were calculated, but could progress no further. All good were transported to Canton for trade with the Chinese trading houses, known as Hongs, by local lighter boats. As they travelled up river these goods were closely monitored passing through three combination checkpoint-toll booths. Using these methods along with other regulations, such as requiring ships to bring cargo other than just silver and monitoring foreigner’s interactions, China maintained control over trade. (Paul Van Dyke: The Canton Trade)

However certain aspects of trade were beyond the regulator’s reach, including the importation of opium. With the rising problem of opium addiction it became a banned substance in 1799 but continued to be smuggled into the country. To resolve the issue the Qing government appointed Lin Zexu as a Special Commissioner in Canton in 1839. Upon his arrival he declared opium trading illegal and blockaded foreigners from their store houses until they signed bonds not to trade in opium, punishable by execution. After a six week stand-off a representative of the British Government arranged for the merchants to surrender 20,283 chests of Opium. The response from the British government led to the Opium Wars. The settlements made by China in the Unequal Treaties to end the conflict destroyed the Canton system. In addition to Canton further ports were opened up to British traders at first and then all foreigners (Hong Kong Yearbook 2006). Canton became overshadowed as the centre for trade on the Pearl River by Hong Kong, now a British Colony. China had utterly lost its control of foreign trade, which was to an extent dictated from abroad. Some academics argue that the Canton System’s downfall was inevitable, for example Paul Van Dyke shows that the system was hindered by its inflexibility (Paul Van Dyke: The Canton Trade). It is undeniably, though, that its demise was conducted by foreign forces acting to defend their own interests.

The next significant change in China’s foreign trade was when it was almost completely shut down after the country became communist in 1949, followed by a 1950 UN embargo and isolation from the western world. Shown by the forced industrialisation in Hong Kong, which could no longer survive as a conduit for trade between China’s and the rest of the world (Catherine Shenk: Economic History of Hong Kong). This situation remained until the economic reforms of Deng Xiaoping in late 1970s. Among his efforts to repair the damage done to the economy by isolation and the Cultural Revolution Deng sought to increase foreign trade. This began in Guangdong with the passing of the 1980s ‘Regulations for the Special Economic Zone of Guangdong Province’ and the creation of Special Economic Zones in Shenzhen, Zhuhai and Shantou. Douglas Zeng identifies how these SEZs attracted international commerce with tax breaks, increased access to labour and a reduction in the dues surrounding the import and export of certain products (Douglas Zeng: How do Special Economic Zones and Industrial Clusters Drive China’s Rapid Development). All of these are mechanisms which have a striking resemblance to the factors Catherine Schenk identifies as allowing Hong Kong’s economic growth (Catherine Shenk: Economic History of Hong Kong). Zeng also notes that the success of the SEZs was a significant drive behind China’s economic growth.

There are some similarities in both the SEZs’ methods and those of the Canton System. This can be seen in the reduction of import costs on goods; the SEZs removed the duties on raw materials and intermediary goods while traders in Canton were offered a 20% ‘Emperor’s Discount’ on port fees. But overall the systems have more differences. As mentioned Van Dyke identifies an underlying inflexibility in the Canton System. This doesn’t appear to exist in the SEZs, as revealed in the lowering of Guangdong’s economic growth target with the aim of maintaining future trade in 2011 (Song Jingli: Three Provinces lower GDP targets). In addition, beside the differences between past centuries trading practices and modern economic affairs, there is an intrinsic distinction. The Canton system was an attempt by the state to control the foreign trade already attracted to China’s produce. Trade was limited to Canton while the rest of the country remained closed. In contrast the SEZs represent a domestic attempt to attract foreign trade by opening up a closed system, partly as a forerunner for similar economic change across the rest of the country (Douglas Zeng: How do Special Economic Zones and Industrial Clusters Drive China’s Rapid Development). It is possible that this key point of divergence it a result of China’s international position at the time. At the end of the twentieth century China was coming in from the cold eager to attract trade whereas in the past traders were eager to obtain Chinese goods, such as tea which was monopolized by China.

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Douglas Zhihua Zeng, ‘How Do Special Economic Zones and Industrial Clusters Drive China’ Rapid Development’ in World Bank: Documents and Reports <; [accessed on 11/05/13]

G.B. Endacott, A History of Hong Kong (London; Oxford University Press, 1958)

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Song Jingli, ‘Three Provinces lower GDP targets’ in China Daily <; [accessed on 11/05/13]

Yun-Wing Sung and Kar-yiu Wong, ‘Growth of Hong Kong Before and After its Reversion to China: The China Factor’ in <; [accessed on 16/04/13]


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