1. Introduction
1.1 Background
Despite its vast land area, western People’s Republic of China (PRC) is economically underdeveloped, far behind eastern PRC in terms of gross domestic product (GDP) and income per capita. To narrow the gap between eastern and western PRC, the Government of the PRC enacted policy measures for the development of Western PRC in 2000. The policy measures signaled the start of the Western Development Program.
Although much improvements have been made since the implementation of the program, the economic gap between eastern and western PRC is still large (Table 1). This situation is inconsistent with the central government’s objective of developing the PRC into a society in which the income gap is small and all citizens are prosperous and developing together.
Table 1 Comparison of the Economic Development between Eastern and Western People’s Republic of China
GDP = gross domestic product, PRC = People’s Republic of China.
Note: Eastern PRC covers the municipalities directly under the central government including Beijing, Tianjin, and Shanghai; and the provices of Hebei, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan; while western PRC includes the Autonomous Regions of Guangxi, Xinjiang, Tibet, and Inner Mongolia; and the provices of Yunnan, Guizhou, Sichuan, Qinghai, Gansu, Shănxi, and Shānxi, and Chongqing municipality directly under the central government.
Sources: National Bureau of Statistics (NBSC), 2001 and 2009. China Statistical Yearbook. China Statistics Press. Beijing, PRC.
In January 2010, the 10-year-anniversary of western PRC’s development program was observed. The Government of the PRC is now formulating new policies to promote the further development of western PRC. One of the priorities to facilitate its development is by opening up the border areas, increasing border trade, and encouraging economic and technical cooperation with circumjacent countries.
The opening up of the PRC’s border area has a sound foundation in international cooperation with neighboring countries, in particular with members of the Association of Southeast Asian Nations (ASEAN). Two important initiatives are the Greater Mekong Subregion (GMS) Economic Cooperation Program and the “10+3” (10 ASEAN member states and the PRC, Japan, and the Republic of Korea) cooperation mechanism.
The GMS Economic Cooperation Program was launched in 1992 by six countries that share the Mekong River—Cambodia, the PRC, the Lao People’s Democratic Republic (Lao PDR), Myanmar, Thailand, and Viet Nam—with the support of the Asian Development Bank (ADB). The GMS Program set out to promote economic and social development by strengthening economic ties among its members. The program seeks to facilitate (i) subregional trade and investment, (ii) subregional development opportunities, (iii) the resolution of transborder issues, and (iv) the fulfillment of common resources or other needs (ADB, 1999).
The ASEAN “10+3” mechanism was created to facilitate financial cooperation among member countries after the Asian financial crisis in 1997. To deal with the financial crisis, the finance ministers of the 13 countries reached the Chiang Mai Agreement in 2000. Although the mechanism initially targeted cooperation in finance, it has been expanded to cover political, economic, and technical cooperation.
The ASEAN–China Free Trade Area came into force on 1 January 2010. It is a landmark cooperation agreement between the PRC and ASEAN.
Bordering three ASEAN and GMS countries—the Lao PDR, Myanmar, and Viet Nam—Yunnan Province of the PRC has a geographic advantage for cooperation with neighboring countries on economic development, trade, and investment, especially against the background of the PRC’s policy for the development of western PRC, and the 10+3 and GMS cooperation mechanisms. However, like many other economies in the GMS, the economy of Yunnan Province is underdeveloped, and is characterized by low GDP and income per capita and a high rate of poverty.
To facilitate the development of the provincial economy in response to the central government’s policy, the Yunnan provincial government has planned to set up three cross-border economic zones (CBEZs) in cooperation with neighboring countries, based on its existing border economic zones (BEZs). The plan will be implemented in two steps: First, Hekou–Lao Cai CBEZ will be constructed on the PRC–Viet Nam border, Ruili–Muse CBEZ on the PRC–Myanmar border, and Mohan–Moding CBEZ on the PRC–Lao PDR border. Second, the three CBEZs will be expanded through cooperation of special economic zones (SEZs) in Yunnan Province with those in the border provinces of the Lao PDR, Myanmar, and Viet Nam. At the 15th GMS Ministerial Meeting held in Cha-Am, Thailand, on 19 June 2009, one of the key recommendations of the GMS North–South Economic Corridor Strategy and Action Plan was to create CBEZs along the economic corridors. The planned CBEZs will allow freer flows of capital, people, and cargo; and will play an important role in facilitating trade between pairs of countries traversed by the corridor, boosting economic ties and enhancing PRC–ASEAN cooperation. The application to set up the three CBEZs has been submitted to the State Council of the PRC for approval; and, on 8 June 2010, the Yunnan provincial government entered into an agreement—the Framework Agreement on the Further Construction of China Hekou–Viet Nam Lao Cai Cross-Border Economic Zone—with the provincial government of Lao Cai, Viet Nam.
It is the common aspiration of the governments of the PRC and its neighboring countries in Southeast Asia to introduce domestic capital and foreign direct investment (FDI) into the CBEZs to exploit the rich local resources, promote the development of trade and manufacturing, expand trade and job opportunities, and increase the revenues of the local government and the people. Thus, various forms of economic development and economic and trade cooperation zones have been established in border areas by the governments of the PRC and neighboring countries. With improvements in infrastructure, effective policies for introducing investments are also needed to attract FDI and domestic industrial capital to the border economic development zones.
Since the 1990s, the PRC has adjusted its investment incentive policies to attract FDI. Different investment incentive policies have come into force to speed up industrial development. In the process, the establishment of economic development zones in the border areas has played an important role in facilitating trade and the development of manufacturing. However, it is still far from achieving the goal of transforming the southwestern border areas of the PRC into a subregional industrial base centered on processing trade. The expected goal of developing industries based on local resources has not been met yet, and so far only few relatively small-scale industrial projects have been introduced into the economic development zone along the border of Yunnan Province.
It is necessary to assess the effects of current investment incentive policies in border areas. Although there are diverse and multilevel investment incentive policies, they play a limited role in attracting investments to the region. It is also generally the case that neither administrative authorities nor policy researchers assess the effects and, especially, the suitability of investment incentive policies. Thus, it is difficult to know how to improve these policies. The 2008 financial crisis has attached greater importance to subregional international economic cooperation; and the PRC government’s great efforts in building CBEZs, under the policy of opening up to border countries, further highlighting the strategic significance of studying and redesigning existing policies to stimulate investments.
A CBEZ is a transnational economic zone in a border area, supported with special policies on finance, taxation, investment, trade, customs regulation, and industrial development; and where the flows of persons, goods, funds, and technology are