On January 31, 1979, in Beijing’s walled government compound Zhongnanhai, the then head of China Merchants Group Yuan Geng asked central government leaders to allocate him a piece of land in Shenzhen for industrial use. A circle was drawn on a map that gave him nearly 80 square metres of land from the current Bao’an District to the OCT area. Yuan didn’t accept the offer, instead taking only 2.14 square metres of land on Nantou Peninsula in southeast Shenzhen. It later became the first development zone in China: the Shekou Industrial Zone.

If we think the ‘first shot’ in the rural economic reforms in China was fired in 1978 when 18 malnourished farmers in Xiaogang Village, Fengyang County, Anhui Province risked their lives to contract the farmland of each household in secret, the emergence of development zones would be equivalent to the opening of a window to the outside world and the establishment of a new model for industrial development in China. Take the example of Shekou. It was the first to operate following international practice and the newly-born socialist market economy mechanism; the first to redefine concepts for value, time and talent; the first to successfully establish brand-new systems on employment of labour, cadre appointments, payment distribution, housing, social security, project bidding and holding enterprises. Shekou was therefore regarded as ‘the window of hope’ and ‘the test tube’ for economic reform in China.

To date, development zones have played a leading role in China’s economic growth. From being the ‘experimental fields’ during the implementation of economic restructuring and opening-up policy in the 1980s, to ‘the central high grounds’ in the export-oriented economy in the 1990s, to ‘the boosters’ for the current technology upgrade and industrial structure adjustment, all sorts of development zones have generated the highest output in their areas and become the economic engines for various cities.

In 2006, 68% of the GDP and 87% of the exports in China came from development zones at different levels. In an area smaller than one thousandth of the Chinese territory, the GDP and the industrial added value created by the 54 national development zones accounted for 4.84% and 8.21% respectively in overall national figures.

All signs indicate, however, that development zones in China-especially those early ones in the Yangtze River Delta and Pearl River Delta-are facing unprecedented pressure and challenges at the moment. In the context of tax standardization for both domestic and foreign enterprises, RMB appreciation, tight monetary policy, and strict land policy etc., development zones are facing incessant new microeconomic policies which will have direct impacts on their principle components, i.e. the fate of those big and small enterprises in the zones.

In the face of the consistent increase of the labour cost, which was long undervalued, especially after the issuing of the new Labour Law, the previous low-cost strategy is no longer sustainable. Favourable financial policies for the special economic zones soon expired following the implementation of the commitments that China made to join the WTO, and the export-oriented economic model is also becoming lethargic as the profit margins for international trade keep shrinking.

Simultaneously, when the land-the core resource in those relatively mature coastal development zones-is going to be used up after 30 years of development and the land cost continues to grow, the growth model of acquiring cheap land during the start-up stage by expropriation and managing in an extensive manner is now close to an end. A new solution must be found.

Many development zones have achieved their first milestones in resource concentration and scale expansion in their business development during the past thirty years, but this kind of extensive development and management model has completed its historical mission by now. Development zones in China must embark on industrial upgrading and migration and in fact have already done so. This is not only pushed by government policies but also by civil economic power. In this process, whether coastal or inland, development zones will have to consider how to adapt to the change and seize new opportunities.