Do Mergers and Acquisitions Fulfil Desired Objective?

Do Mergers and Acquisitions Fulfil Desired Objective? Do Mergers And Acquisitions Fulfil Their Desired Objective? And How People Are Affected By the Result of These Mergers? Dissertation Table of Contents CHAPTER ONE: INTRODUCTION 1.1 BACKGROUND Restructuring of a firm has become a major area in the financial and economic environment all over the world. A company may grow internally, or externally. The aim of the management is to maximize the profit. Most firms grow through internally which take place when firm’s existing divisions grow through normal capital budgeting activities.(S.Vanitha 2007) The industrial restructuring has raised important issues both for the business and for public moreover merger and acquisitions may be critical to the strong expansion of business firms as they evolve through successive stages of growth and development and most important for new product markets by a firm may require M and As at some stages in the firm’s development . The successful competition in international markets may depend on capabilities obtained in a timely and competent fashion through M As. (M Selvam 2007) Merger and acquisitions continues to experience dramatic growth. Record breaking mega mergers have become popular in the world. In the last ten years and onwards some of the largest mergers and acquisitions took place in Europe. This was underscore by the fact that the largest deal of all time was a hostile acquisition of a German company by a British firm.(Beena P.L 2000) Since the start of twenty first century the nature of merger and acquisition even more common in the economical growth. It becomes even more global especially in Asia, Latin and South America. Over the past quarter of the century we have noticed that merger waves have become longer and more frequent in between shrunken as well when these trends combined with the fact that MA has rapidly spread across the modern world, we see that the field is increasingly becoming as ever more important part of the worlds of corporate finance and corporate strategy. (Canagavally , R.2000) Merger and acquisitions are plays very important part in corporate strategy. They are the interesting and controversial tools if the firm do not want to grow internally by capital investment and it can affect the shareholders wealth of both the firms (Legare.1998). The management of the target companies is worried about their jobs that can be affected; the cost reduction strategies consists of reduction in labour force (Gould, 1998) the strategies at both local and national levels are important and concerned at transactions in their industries. e.g (defence utilities etc.) Customers and suppliers are interested , as they want to know who they will be dealing with in the future (Buono. 2003). All the big deals are therefore reported in the media, receive a large coverage, and get the attention of the public as well. People are very important part of any organization but due to the increasing numbers of mergers between the companies they are largely affected and most of them get caught up in a merger or acquisition-by chance, Many of the people after working four –to five years period are losing their jobs and facing severe reductions in status and responsibility and, in general, being confronted with major questions about their careers, As a result , at times we are unsure whether our own feelings about what is happening to these individuals are biasing our interpretation of what is going on. In this project the writer going to research on mergers between the professional services firms. According to Steven et al (2000) mergers and acquisitions decisions that are undertaken based on financial analysis, influence and legal positions , However , it has been proved by a number of researchers that factors like informal power, low productivity , poor quality , reduced commitment , hidden costs and voluntary turnover prevent the combined banks from reaching expected performance levels (Legare 1998). This is the reason that many companies face difficulties then they pass through their post-integration processes (Buono 2003) According to Catwright Cary (1995) that mergers and acquisitions should be seen like marriages where both parties will is very important for the success of new entity. At the time two different companies decide to come together as a result of MA activity, then the levels of instability in the macro and micro environment of both companies is challenged. So it is therefore been recommended that companies should chose the most appropriate merger and acquisition process and strategy. However Buono (2003) has suggest that each possibility has its own strengths and weaknesses and therefore context of MS and its main objectives play important role. Cartwright and Cooper has pointed out that MA depends upon combination of related functions like integration of people, systems, practices and culture. The critical review of the literature has recommended that most of research has been focused at studying single characteristics of MA in isolation. Moreover the dynamics of MA variables that impact on success and failures ratio has not been undertaken in the literature and there is a gap for research. This study will be focus to explore the major drivers and variables and their effect on the success of merger and acquisitions across industries from a corporate strategic perspective. 1.2 Rationale behind Research: Mergers and acquisitions is one of the common strategies in today’s business world. Gould (1998) has conducted a survey involving 12000 managers from different countries and according to the result of his survey more then 1000 companies were involved in acquisitions or a merger in two years between 1995 and 1997.moreover merger and acquisitions has become the leading strategic options. However, the performance of the combined companies has been lower than expected. According to Buono (2003) the basic drivers of MA only involved in financial, operational and strategic aims and objectives. So therefore my main area of focus of this research is to explore the major drivers and variables and their effect on the success of merger and acquisitions across industries from a corporate strategic perspective. 1.3 Aims and Objectives: The basic aim of this project is to understand whether mergers and acquisitions always fulfil desired objective. The aims specific areas are as follows. To explore the major variables that impact on the success of merger and acquisition different industries from a corporate strategic perspective To explore the corporate strategy in achieving desired results from MA activities To evaluate the impact of the mergers on an employees and examining the programmes for dealing with separation anxiety for employees. 1.4 Dissertation Structure: The official Structure of the dissertations is being applied which is provided by the university and analysis has been done which suit the theme and the objectives of the research. The structure of this report is summarized as follows: Chapter 1 Introduction of the research topic and lays the basis for the rationale of selection of the theme under scrutiny. It introduces the effect of MA on business and effects that they expected. The chapter also summarizes the rationale for selection of topic and states the aim and objectives of this research. Chapter 2 Consists of review of the literature that has been produced in the domain of mergers and acquisitions and their desired effects for companies. It has highlighted some of the highly respected literature in the field of aims and objectives of this research. Chapter 3 Provide the methodology and strategy adopted by the researcher to undertake this research. It points out the strength and weaknesses of using different data collection mechanisms and has shown how they fit in the larger context of aims and objectives of this research. Chapter 4 very important chapter consists of analysis and findings regarding the importance of strategic alignment within a merger or an acquisition activity with the help of a range of case studies. The chapter developed recommendations for companies under the light of macro indicators, theories and qualitative data gathered through this research. Chapter 5 provides a comprehensive conclusion from this research and gives a list of recommendations for companies that can be drawn from this focused research. Chapter 2: Literature Review In this chapter an attempt has been made to briefly review the research already undertaken and methodology employed moreover the study has been produced in the domain of aims and objective of the project and it has been divided into number of different sections so that reader understand with ease. 2.1 Overview: Concept of Merger and Acquisition: Over the last few years different companies have engaged in domestic and international mergers and acquisitions to match the macroeconomic trends operating on a worldwide scale in the market place. Up till now the ultimate success of a company’s global strategy may depend on how well it manages the dangerous human resource â€Å"fit† issue associated with strategic customer cantered decisions and strategies. The literature presents the understanding and resolving interpersonal management issues that result from organization, team, and individual misalignments. An actual merger and acquisition integration project is used to discuss the application of this approach (Thomas L. Legare in his paper â€Å"Understanding and Managing Human Resource Integration Issue†) M A defined by Arnold (2002) as â€Å"combination of two firms of roughly equal size on roughly equal terms and in which the shareholders remain as joint owners† M A activities in late 20th century: In 1960’s Mergers and acquisitions first became an important topic within the organization management meetings. It is usual to consider merger and acquisition in terms of the extent to which the activities of the acquired organization are related to those of the acquirer. The most common classification proposes four main types (Walter 1985; Hovers, 1973; Kitching ,1967). These being: 1- Vertical The process in which two organizations combined within the same industry. 2- Horizontal The process in which two similar organizations combined within the same industry 3- Conglomerate In this process acquired organization is in completely different field of business activity 4 Concentric In this process the acquired organization is in a different but related field in to which the acquiring company merge its business. According to Schweiger and Ivancevice, 1987 mergers and acquisitions can be considered to differ in terms of Motive and transactional type The envisaged degree of integration Common objectives behind M Activity According to Napier (1989), in a review of the literature, draws the distinction between financial or value maximizing motives, and managerial or non value maximizing motives. Mergers known as financial or value maximizing motives when the main objective is to increase the profit and decrease the risk involved in business moreover non value maximizing motives relate to merges which occur primarily for other strategic reasons ( Halpern, 1983). Moreover according to handy (1993) creation of shareholder’s value is the underlying aim behind any MA activity. However , there is a range of strategies involve to improve financial performances and consequently increase shareholder’s value. According to Marks, (1988b). There is lots of risk involved in activity like Mergers and acquisitions involving the collective annual investment of billions of pounds and affecting the working lives of millions of employees. It has been recommended in future that 50 to 80 percent of all mergers are considered to be financially unsuccessful (Marks 1988b), most probably in financial return, represent ‘at best an each way bet’ (Lorenz, 1986) The popularity of Merger and acquisitions is still strong despite of the fact that it has been frequently fail to achieve the financial growth (Hovers 1973 Farrent 1970; Jemison and Sitkin, 1986). Indeed there is lots of evidence that Britain and the USA are currently experiencing an unprecedented wave of merger activity (Morgan, 1988; Hughes, 1989). In the last 10 years , there have been over 23000 registered acquisitions in the USA , and before the end of this decade one in four of the Us workforce will have been affected by merger activity ( Fulmer, 1986) with the approach of 1992 , a similar trend is predicted for Europe. The Merger and acquisition is facilitated by number of factors. Market Conditions Market conditions are changing day by day and in this environment there is a need to consolidate or capture new market so strategic mergers and acquisitions become more attractive and expedient alternative response to the setting up new outlets, and at the same time provide a tool to finish the competition ( Meeks , 1977) Increasing Availability of Capital Mergers and acquisitions activities has been increased because the organization and financial institution may need of capital from outside countries because of low interest rate. More companies for sale. There are lots of companies come in to the market because of number of reasons like successful entrepreneurs of the post war years reach retirement age , because of families issues and there is not natural successor within the family. The Easing of Regulations. According to McManus Hergert, 1988. Gartrell Yantek suggested that acquisition activity is related to political climate in that right of centre administration stimulate activity. The Need to share Risk Mergers and acquisitions is very important if u need to share risk like new product development often results in the formation of joint ventures , mergers and other types of strategic alliance. The existence of complex Indivisible Problems All of these can be considered to be logical economic and marketing factors, which make possible the decisions to acquire, These conditions , particularly the need to share risk and problems solving, have also contributing to the increasing trend towards the formation of joint ventures and Mergers (Harrigan, 1988) (vii) Unrecognized Psychological Motives According to Levinson (1970) suggests one such motive to be fear of risk McManus and Hergest (1988) suggest that the decisions happens when ‘CEO is bored and wants to find a new game to play’ or to create some excitement amongst senior managers (Hunt, 1988) 2.2 Impact of Mergers and Acquisitions Merger and Acquisitions have the prime aim to maximise the firm’s profit and shareholders wealth like any other strategic growth option, but there has been a risk of failure so the debate in the literature among theorists and practitioners as to the real strength of the strategy in creating shareholder’s value worth the risk of failure. The review literature that surrounds different prospects like shareholders, acquirer , targets has been studied on short , medium and long term value creation through the MA activity . The following different categories of studies can be highlighted. Affect of MA Activities on People The Human Side of Mergers and Acquisitions is about to impact that mergers and acquisitions have on people in the workplace: the psychological difficulties that people experience, the culture clashes that can emerge in organizations that can emerge in organizations during the post –merger integration period, and the ways in which these problems can manifest themselves –such as communication breakdowns a â€Å"We-they† mentality between the component organizations in a merger, lowered commitment , drops in productivity , organizational power struggles and office politicking , and loss of key organizational members. We adopt primarily and organization development (OD) perspective on mergers and acquisitions: given the myriad problems (Thomas L Legare) The Existing evidence on the effects of mergers and acquisitions on efficiency or value comes from two basic types of large sample studies: event studies and performance studies Event studies consider the returns to the shareholders of targets and acquirers in the days before and after an acquisition announcement .These studies consistently find that the combined returns to acquirer and target stockholders are unequivocally positive .These positive returns imply that the market anticipates that acquisitions on average will create value. These studies and reactions do not, however, provide insight into the sources of the value changes in mergers or whether the expectations of value changes are ultimately realized. Furthermore, the combined returns cover a broad range of responses from very positive to very negative. Cross sectional analyses of event period returns provide some evidence that the broad range of combined announcement period returns reflects the market’s ability to forecast an acquisitions success. For example both Mitchell and Lehn (1990) and Kaplan and weisbach (1992) find the there is a relation between (1) acquirer and combined returns and (2) the ultimate outcome of the acquisition. Other studies examine a number of different determinants of the cross-sectional variation in returns associated with acquisitions. (see e.g Lang , Stulz, and Walkling 1991 . Maloney , McCormick , and Mitchell 1993; morock, Shliefer , and Vishny 1990)These Cross-Sectional analyses of event –period returns provide some understanding of the nature of the market reaction to acquisition announcements.They do not , however , examine whether the anticipated value creation or improved productivity materializes, Nor do they have a great deal to say about the organizational mechanisms and manage ment practices that drive acquisition success or failure. Studies of post merger performance attempt to measure the longer-term implications of mergers and acquisitions using both accounting and stock return data. Studies of accounting data fail to find consistent evidence of improved performance or productivity gains. (see e.g, Healy , Palepu, and Ruback 1992 and Ravenscraft and Scherer 1987) similarly , studies that focus on acquirers long term stock performance find mixed results abnormally negative stock returns after the acquisition ( agraqwal , Jaffe, and Mandelker 1992), no abnormal returns (franks , Harris , and Titman 1991) and negative abnormal returns only for stock mergers (Mitchell and Stafford 1996) Like the announcement period event studies, longer term performance and event studies document substantial cross sectional variation in performance , but do not study the sources of value changes in mergers and acquisitions. In sum , there are a number of questions that the existing economics and finance literature on mergers and acquisitions leaves unanswered , Existing work provides mixed results on the average impact of mergers and acquisitions More importantly , existing work offers little insight into the determinants of an acquisitions success or failures. Research on the basis of Capital Market Capital market is one of the research category used as central information point. According to Healey (1992), the stock market data reflects the effects of MA as it reflects future profits and dividends expected by the post integration entity moreover these researchers believe that the result has been found swayed by the researcher’s personal orientation an hypothesis. It is been analyse that majority among studies that have been covered lower then desired effects created through analyses based on capital market data. Event Study Methodology According to data et al (1992) have indicated that these studies are based on the hypothesis that markets across the industrialized world are highly well-organized and therefore soon after the MAn announcement moreover it depends on the future financial benefits or losses. The result of such studies have highlighted the majority of MA activities do create affects that can range from significant to normal (Sudarsanam 2003) but the people working along with the field and many other critics have argued that the methodology is only affective for small projects to obtain the desired affects and does not represent long term desired affects in the medium to long term. Short Run Objectives: A large number of organizations plan for financial gains within a short period of time when the merger date is finalized they are looking to achieve this objective, 30% and 10% abnormal returns have been found for the target shareholders Sudarsanam et al (1996) Long Run Objectives According to Agarwar (1992) the organizations long term desired affect through MA activity that has gained an increasing interests among researchers after the data is available for the last wave of MA in the 1990’s. There has been a mixture of results as- 10% abnormal returns over 5 years MA periods; Fama French (1993) showed positive 9% abnormal returns for the acquired and negative -4% abnormal returns for the acquirer; and sudarsanam Mahate 2003 showed a range of negative -18% to positive+1% abnormal returns in MA situation. Although it has been found out that many of these studies have used different models, benchmarks and organizational data, but there is a general consensus that MA abnormal desired affects in the long term. Operational Planning Research: The best way to analyse the affect of MA activity is to study the operational performance of the firms involved. The operational data consists of accounting data like cash flow and profit and loss statement are used by such studies (Healey 1992) Herman and Lowenstein (1988) used these technique on data gathered during 1975 to 1983 and found that no significant improvements in the performance of post MA entities. Healey et al (1992) found a meagre 3% operational performance among companies analyzed. However the same data was later analyzed under improved methods and found no operational performance. The results show large number of failures in creating substantial desired affects through operational analysis. Recent Merger and Acquisitions trends In the above table shows the recent trends in the field, let us being with our full dissertation of the subject of MA. This will be begin with a discussion of the basic terminology used in the field. 2.3 MAJOR STRATEGIC ISSUES: According to Cartwright and Cooper (1995) in order to get the desired objective during the MA activity the internal environment of firms should be synchronized. It can therefore recommend that integration of people, their systems, procedures, practice and organizational culture is extremely important in order to get the desired objective. Mr David (2007) suggest that the internal aspects of firms that are going to merge can be divided into two core competencies that can help to minimize the factors involved the failure of MA strategies. These core competencies lie in the field of corporate strategy which usually lack coordination during MA activities. The main limiting aspects of MA in terms of strategic importance that can play a vital role by using their core competencies have been highlighted as follows Organizational culture The cultural differences is the single largest cause of lack of proposed performance, achieving the desired target and objective and time consuming issues in the running of successful business ( Bijilsma frankema , 2001) according to him culture plays a important part in employees motivation in the development to new business he says that cultural clash is the most dangerous factors when two companies decide to combine moreover the things like styles , values and missions is the part of factor influencing the MA. According to (Covin et al, 1997) the employees required five to seven years after the merger to feel truly incorporated. Due to the multitude of these changes many problems arises like loss of job, also financial debt and fears of jobless.(Mirvis and Marks 1992) moreover he says that after merger the new team is also distressing and anxiety for the people other fear include the loss of effective and close team members, as well as the uncertainty about the new team members and supervisors to be inherited the employees when forced to deal with new team members and managers they may develop fears of taking risks and raising sensitive subject. This may adopt us verses them thinking, where trust for the new team members will be minimal (Mirvis and Marks, 1992).Management facing this kind of behaviour may have to pay the high price of loss of coordination and initiative among the employees of the new business combination. Moreover the issues and disagreement will be more difficult to resolve, so the time after the merger is the most difficult time for the management and new team members to move forward as a whole. Appelbaum etal, (2000) Stress According to (Datta et al , 1992) the process of merger and acquisitions consists of biggest change at the individual and organizational level in the history of organizations because of this the process is stressful. When one culture combines with another the employees feel as through they have lost control over important aspects of their loves, and in an attempt to regain control, they often withdraw. So it creates stress within individual , i.e reduced performance and job satisfaction . ( Berger and Ofec 1996) According to Schweiger Denisi (1991) the employees after the MA go through a time of increased anxiety uncertainty and stress. They are concerned about their new position it will create more stress in them so communication plays the vital role during the merger so that employees know what is going on and how they might be affected during and after the post integration period. Thus it can be suggested that while negotiations have been compared to flirting before marriages , and the closing of the deals to forming a new family , employees reaction can be associated with â€Å"bereavement† (Katinka , 2004) Organizational change and resistance Changes after merger announcement like stress, symptoms, work related factors, health status, and lifestyle. Personal characteristics were composed of age, sex, height, weight, and marital status in both surveys. Moreover stress related symptoms like anxiety, impatience and depression were dichotomized by either having a complaint or not so following a MA , a complex set of organizational , managerial and personal changes or inevitable. Jensen Rubock (1983) claim that in order to cope with the changes and resist with the changes there is a way to select a strategy and a set of specific approaches for implementing an organizational change effort. It is very important for managers to implement changes successfully in order to cope with the changes. The researchers have introduced six different strategies in order resist the changes after the merger and four major reasons why peoples resist changes. Image, Identity and confidence According to (Ravenscraft and Scherer 1988) image , identity and confidence of the human resource may reduced after the combination process it has been send that most of the employees will feel uncertain and will need some relaxation environment . It can be recommended that the peoples effected by this process can prove dangerous for the management they can change the ownership moreover the employees who are affected by the process tend to protect their identity and confidence through tolerance and humble and hence they try to maintain their status and confidence with experience that they are the part of new entity, if the cultural factor is not adequately taken into account at this stage of the merger , there will be so less time to contain it after the merger. Weston et al (2001) discuss the fear and stress associated with a merger. Schwert (1996) argue that when the objectives after the merger are not met , the managing teams of both companies are the employees of the acquired company enter a â€Å"cycle of escalating and distrust†. In other words, managers of the acquiring company press for increased control, while employees of the acquired company resist and demand their autonomy. Others view mergers and acquisitions as power games , which create some excitement fro bored CEOs. Communication Tompkins (1984) defined organizational communication as â€Å"the study of sending and receiving messages that create and maintain a system of deliberately corresponding activities or forces of two or more persons† Organizational communication is the exchange of messages through collective creation maintenance and transformation of organizational meaning. Members develop commonly understood patterns of expectations of organizational action through communication. Moreover communication with the employees is a very important factor throughout the entire MA process and creates a positive effect on employees through the trying time. According to John et al (1999) that communication plays a vital role in the combination of different and various cultures. The cultures can be at conflicting ends and therefore should be understood by the top management during integration period moreover according to Richard et al (1999) the human resource department should plan for the change in organization and they should know before this process that what going to happen with the company when two cultures combine as the result of merger. So in the process of merger only decision is not enough but the proper communication of these decisions among the company is very important moreover management works horizontally and vertically through leadership, control and organization.(Sudarsanam and Mahate, 2003) FLOW OF CASH Despite of the fact that many people loss their job in the process but the same time high rate of voluntary turnover linked with the process moreover it includes substantial outflow of talent and expertise. According to Ravenscraft and scherer, 1988) report executive turnover rates as high as 75% in the first three years of post acquisition period. Unplanned personnel losses are not necessarily confined to the more senior levels of the organization. Typically, acquired or merged organizations experience on overall rate of staff turnover of at lest 30% in the first two years post merger period (Cartwright and Cooper 1995) 2.4 Success and Failures A large number of mergers and acquisitions are unsuccessful .Over the last fifteen years, 23% of all merged firms worldwide reported lower profits than comparable non-merged firms (Gugler et al.(13)) Daimler Chrysler, the effect of the largest industrial merger ever, for example , has only posted low or negative profits since its birth in 1998-including the biggest loss in German business history in 2001. The disappointing results of mergers have been puzzling commentators and academics alike. In the management literature, poor merger performance has often been connected to unsuccessful addition of different corporate cultures. Cultural differences, however, are not enough to explain failures. First, firms seem to be aware of organisational difficulties when taking merger decisions. DaimlerChrysler, for example, anticipated post –merger Challenges. Second, mergers between partners with closer corporate cultures sometimes perform worse ( Morosini et

Atomic bomb Essay

Did the USA need to drop bombs on Hiroshima and Nagasaki in 1945? On the 6th of August 1945, the US dropped an atomic bomb on the Japanese city of Hiroshima,1ushering in the nuclear age. The bomb caused the deaths of over 100,000 people,2with the bulk of the destruction pertaining to innocent civilians. Three days later, the Americans repeated their action at Nagasaki. The aim of the US was not, however, to cause complete annihilation of the Japanese, but to seize the fierce nationalism within Japan, ending world war two. Arguably, this was achieved, with the Emperor Hirohito broadcasting their surrender on the 15th of August.3However, was the Americans use of nuclear warfare justified in their bid for world peace? President of the time Harry Truman stated, â€Å"I never lost any sleep over my decision (to drop the Atomic bomb)†, yet, Americans have since been subject to fierce revisionist denialism that there was not an over riding need to employ such a controversial tactic. By 1945 Japan was in ruins. America had continuously bombed strategic Japanese locations, and implemented a blockade that had dramatic effects on the nations civilians, suggesting that the Japanese were close to surrender without the implantation of the A bomb. Conversely, the US had witnessed the Japanese’s determination to fight to the bitter end , rather than surrender, and their failure to respond to the Potsdam declaration clearly illustrated this. Through analyzing the historical context in which this dramatic act of war occurred it is difficult to come to a sound judgment on the necessity of America’s actions. Due to the consequences that would have triggered if the war had continued, i believe that the US did need to drop the bomb on Hiroshima, however, it was not necessary to drop the following bomb on Nagasaki. With the break out of World War two, Hitlers initial victories captured the imagination of the Japanese militarists, showing what could be achieved through a program of territorial expansionism. Due to the war, changes occurred in Europe’s colonial powers, which created a power vacuum in South East Asia, and a perfect stage for Japan to expand their influence; as Edwin P Hoyt stated â€Å"Japans ambition at the lowest level was to replace the Europeans and the Americans as the colonial powers†¦establishing an Asian  Federation†. This shift in power however was not supported by the US , creating a poisonous relationship between the two nations that would end in catosptrophy. The US implemented harsh economic sanctions, resulting in an ultimatum for Japan. Japan could either give into the pressure from the US and retreat from South East Asia, or , they could advance to take over the resources of Malaya and the oil fields of the Netherlands East Indies, which would indefinitely lead to war with the US. Historian Hugh brogan affirms Roosevelt was â€Å" convinced US would enter the war†¦yet refused to fire the first shot†. The Japanese planned to adopt a dual approach were upon they would enter into negotiations with the US and prepare for war at the same time. The Japanese believed that war might be avoided if the 1  L.Morton, Decision to use the Atomic bomb, Foreign Affairs, 1956. US dropped the sanctions in return for their withdrawal from Indochina; however, on the 26th of November Cordell Hull made an unacceptable demand, claiming that the Japanese were required to withdraw from not just Indo China, but also China. Japan deemed this unacceptable, and at the Imperial Conference 1st December 1941 a final decision was made to go to war with the US, and orders were made to carry out a surprise attack on the US naval base of Pearl Harbour. On the 7th of December 1941 the Japanese attacked the American fleet at Pearl Harbour, killing 2388 soldiers 9, in the hopes of knocking the United States out of a Pacific war, allowing them to pursue their strategic and imperialistic goals. However, Japans failure to achieve total victory meant that the Japanese unified a nation against them, which then mobilised its mighty economy into a war machine that eventually defeated Japan. The importance in understanding the context which resulted in Japan and US warfare is vital in evaluating whether the US needed to drop the Atomic bomb. This being as it is evident that since the emergence of Japan as world power, the US have been present, and determined to minimise the Japanese’s influence. This relationship of dominance , whereby the US hands Japan harsh ultimatums is arguably one of the reasons why Japan refused to surrender in 1945, and will be discussed in depth as the essay progresses. As the conflict between the US and Japan developed the Japanese initially stunned the United States with their success, ending the period of European colonial rule in Asia within just 6 months, bringing to fruition the Japanese dream of a Greater East Asia Co Prosperity Sphere. The Japanese demolished the creed of European and white superiority that had been the bastion of European colonialism in Asia, completely reshaping the political dynamics of Asia. However, intoxicated by their success, rather than consolidating their gains, they still searched for new opportunities. The Allies began their counter attack, however, became aware of the determination that defined Japanese militarism, whereby their soldiers were willing to fight to death, rather than surrender. During December and January 1944 and 1945 the Americans regularly bombed the islands of Iwo Jima, launched 334 B’29s on the capital Tokyo killing 83000 people in March, and attacked Okinawa, the site of a major military base10. Thus by July 1945, Japan had few ships and planes to defend itself, and was met with leaflets from the US announcing in advance where the next attack would take place, urging people to surrender. Furthermore, the blockade implemented by the allies was severely impacting the Japanese, solidifying that defeat was inevitable, yet the Allies heard no news of surrender from the Emperor. Consequently the US began to evaluate the implementation of the A bomb as a necessary method in order to bring the war to a conclusion. President Truman described the Atomic project as the ‘greatest scientific gamble in history’ and believes his decision to drop it was unquestionably the right decision, bringing the war to a quick. end, and saving the lives of thousands of Allies. Prior to its use, the Potsdam Declaration was released, informing the Japanese that they must surrender unconditionally or face ‘prompt and utter destruction’. (Unknown to the Japanese this was a reference to the A-Bomb). The allies hoped that an invasion of Japan could be avoided if the declaration was accepted, however, with the Japanese’ failure to reply, the count down to the first  use of an atomic bomb moved onward. On the 6th of August 1945, the Enola Gay was released over the city of Hiroshima12, an unprecedented attack resulting in mass scale destruction. President Truman announced following that ‘If Japan does not now accept our terms they may expect a rain of ruin from the air, the like of which has never been seen on this earth’. 13However, despite, the destruction of Hiroshima, the American Government received no communications from the Japanese government in Tokyo, resulting in a secon d bomb launched on Nagasaki. Consequently, on the 14th of August, after failed attempts of safeguarding his position, the Emperor accepted the Allied terms. Hirohito made an official radio broadcast to the nation, stating ‘should we continue to fight†¦it would lead to the total extinction of human civilisation’, 14and on the 2nd of September, aboard the Missouri, the main surrender occurred, ending the conflict in the pacific. The atomic bomb, although causing mass scale disaster, finished the cruel and drawn out conflict, however, does that mean that it was necessary, and can be justified? Perhaps the biggest debate which argues that the bomb was not needed was that fact Japan was in fact already defeated. Dennis Wainstock, author of ‘The decision to drop the bomb’ believes that the blockade, in conjunction with the B’29s attack destroyed Japan, broadening the realisation of defeat. Rear Admiral Tochitane Takata said ‘The b29’s were the greatest single factor in forcing the Japanese to surrender’ with Lieutenant General Kawabe believing ‘it is my opinion our loss in the air lost us the war’.16 Furthermore, Japan was economically dependant on foreign sources, thus the blockade favoured the conviction that defeat was inevitable as the Japanese population was starving to death. Additionally, there is significant evidence to support the argument that Japan would have surrended without use of the Atomic bomb, had the US been willing to safe guard the position of the Emperor. The Soviet Union received world from high-level Japanese sources confirming this, which, although many deny American knew about, Secretary of War Henry Stimson wrote ‘It was known to us that she had gone so far as to make tentative proposals to the soviet Government†¦not considered seriously’. However despite the aforementioned evidence suggesting that the Japanese were already defeated, it is arguable that that did not mean that they would surrender. throughout the war that, despite severe loss, they would rather die, than surrender. The invasion of Iwo Jima and Okinawa resulted in severe casualties, yet the Allies heard no talk of negotiations. Joseph C.Grew, who was the former Ambassador to Japan believed, through ‘intimate experience with the Japanese thinking and psychology over an extensive period’18 that regardless of military defeat, it would be highly unlikely that Japan would of their own initiative surrender. Additionally, Historian Barton Bernstein wrote ‘ no one who looks at intransigence of the Japanese militarists should have full confidence in any other strategy (apart from the A bomb), 19which affirms Truman’s decision that it was necessary in order to bring the war to a quick end. Furthermore, The American public was overwhelmingly behind the atomic bombing of Japan, with the bomb receiving an 85% approval 20rating, proving that within the context of the disaster, it was not considered to be as controversial as it is with the power of hindsight. From analysing the arguments for and against the US decision to drop the A bomb on Hiroshima it is clear that this controversial act of war is not easily declared right or wrong. However, arguably it is harder to argue on the side of the Allies when it comes to determining the necessity of the second bomb on Nagasaki. After the dropping of the first bomb, the Soviets declared war on Japan, which many historians believe would have been more than enough to convince the Japanese to surrender. As John W. Downer affirms in ‘Unconditional surrender at the Smithsonian’, ‘most Japanese accounts then and since weigh the soviet declaration of war as being at least as shocking as the Hiroshima bombing’. Further supported by Historian Gar Alperovitz, who believes that the shock of a soviet declaration of war would force Japan to realise defeat was inevitable and then clarification of surrender terms (assurance of the Emperor) would produce the surrender before an invasion took place. However, the US failed to hear a response in the delegated amount of time, and thusly, launched a second bomb on Nagasaki, resulting in the eventual surrender of Ja pan. When the US made their decision to drop the atomic bomb on Japan, initiating the nuclear arms race, it was inevitable that Truman’s decision would be analysed, causing controversy for years to come. There is a plethora of published work that strongly believes that the US decision to  employ the A bomb was a mistake, and was blatantly not necessary as Japan was so weak indicating that surrender was not far off. Additionally, it cannot be forgotten that the victims of the bomb were primarily innocent civilians, thus from a moral point of view, the action cannot be justified. However, Japans militaristic attitude throughout the war consistently affirmed the US belief that Japan would never surrender of their own accord, and the A bomb was a necessary action in order to conclude the war. From analysing both sides of the argument i believe that the US did need to drop the first bomb in order to display to Japan that they did not have any other option but to surrender, however, the dropping of the second bomb was definitely not needed. The bombing of Hiroshima, in conjunction with the entry of the Soviet Union was more than enough to force Japan to surrender, and thusly, the bombing of Nagasaki cannot be justified. Bibliography Books 1. A.Pollock, D.McKinlay, J.Cantwell, Conflict in the Pacific 1937-195, McGraw Hill Publications, Australia 2003. 2. H.Truman, Memoir: Year of Decisions, Garden City 1955 3. H.L.Stimson, M.Bundy, On Active Service in peace and War, Harper and Brothers, New York 1948 4. D.Eisenhower, The white house years: Mandate for change 1953-1956, Garden City 1963 5. W.D.Leahy, I was there, Whittlesey House, New York 1950 6. J.C.Grew, Turbulent Era: A diplomatic Record of forty years 1904-1945, Hougton Mifflin Company 1952 7. H.L.Stimson, The decision to use the Atomic Bomb, week 13 reading 8. K.Doak, Nationalism in Modern Japan, Koninklike 2007, 9. E.Cannizzaro, The Law of Treaties beyond the Vienna Convention, Oxford 10. E.P.Hoyt, University Press 2011,Japans war: The Great Pacific Conflic, Random House 1971 11. D.D.Wainstock, The Decision to drop the Atomic Bomb, Prager Publishers, 1996 12. G. Alperovitz, The Decision to drop the Bomb, Vintage Books 1996 Articles 1. Barton J. Bernstein, A post war myth, 50000 U.S lives saved, Bulliten of Atomic Scientists, vol 3 no.9 2. John W. Dower, Unconditional Surrender at the Smithsonian, Week 13 Reading 3. L.Morton, Decision to use the Atomic bomb, Foreign Affairs, 1956 Website 1.The project of the Nuclear Age Peace foundation.org http://www.nuclearfiles.org/menu/library/ correspondence/stimson-henry/corr_stimson_1945-07-31.htm

Sez in China

Especial economic zone: A  Special Economic Zone  (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. â€Å"Nationwide† laws may be suspended inside a special economic zone. The category SEZ covers, including  free trade zones  (FTZ), export processing Zones (EPZ), free Zones (FZ),  industrial parks  or industrial estates (IE),  free ports,  free economic zones,  urban enterprise zones  and others.Usually the goal of a structure is to increase  foreign direct investment  by foreign investors, typically an  international business  or a  multinational corporation  (MNC), development of  infrastructureand to increase the employment. Currently, the most prominent SEZs in the country are  Shenzhen,  Xiamen,  Shantou, and  Zhuhai. It is notable that Shenzhen, Shantou, and Zhuhai are all in  Guangdong province, and all are on the southern coast of Chin a where sea is very accessible for transportation of goods.An analysis of the performance of these SEZs in China versus those in India in liberalizing the Chinese and Indian economies and their impact on economic growth was conducted by  Leong (2012). This paper investigates the role of special economic zones (SEZs) . The policy change to a more liberalized economy is identified using SEZ variables as instrumental variables. The results indicate that export and FDI growth have positive and statistically significant effects on economic growth in these countries. The presence of SEZs increases regional growth but increasing the number of SEZs has negligible effect on growth.The key to faster economic growth appears to be a greater pace of liberalization. Special economic zones of the people’s republic of china Special Economic Zones of the People's Republic of China  (SEZs) are  special economic zones  located in  mainland China. The  government of the People's Repu blic of China  gives SEZs special (more  free market-oriented) economic policies and flexible governmental measures. This allows SEZs to utilize an economic management system that is especially conducive to doing business that does not exist in the rest of mainland China.History Since the late 1970s, and especially since the 3rd Plenary Session of the 11th CPC Central Committee in 1978, the PRC government has decided toreform the national economic setup. The basic state policy has focused on the formulation and implementation of overall reform and opening to the outside world. During the 1980s, the PRC passed several stages, ranging from the establishment of special economic zones and open coastal cities and areas, and designating open inland and coastal economic and technology development zones.Since 1980, the PRC has established special economic zones in  Shenzhen,  Zhuhai  and  Shantou  in  Guangdong Province  and  Xiamen  in  Fujian Province, and designat ed the entire province ofHainan  a special economic zone. In August 1980, the  National People's Congress  (NPC) passed â€Å"Regulations for The Special Economy Zone of  Guangdong  Province† and officially designated a portion of  Shenzhen  as the Shenzhen Special Economy Zone (SSEZ).In 1984, the PRC further opened 14 coastal cities to overseas investment:  Dalian,  Qinhuangdao,  Tianjin,  Yantai,  Qingdao,  Lianyungang,  Nantong,  Shanghai,  Ningbo,  Wenzhou,  Fuzhou,Guangzhou,  Zhanjiang  and  Beihai. Since 1988, mainland China's opening to the outside world has been extended to its border areas, areas along the Yangtze River and inland areas. First, the state decided to turn Hainan Island into mainland China's biggest special economic zone (approved by the 1st session of the 7th NPC in 1988) and to enlarge the other four special economic zones.Shortly afterwards, the  State Council  expanded the open coastal areas, extending i nto an open coastal belt the open economic zones of the  Yangtze River Delta,  Pearl River Delta, Xiamen-Zhangzhou-Quanzhou  Triangle in south Fujian,  Shandong Peninsula,  Liaodong Peninsula  (Liaoning  Province),  Hebei  and  Guangxi. In June 1990 the PRC government opened the  Pudong  New Area in Shanghai to overseas investment, and additional cities along the Yangtze River valley, with Shanghai's Pudong New Area as its â€Å"dragon head. Since 1992, the  State Council  has opened a number of border cities, and in addition, opened all the capital cities of inland provinces and autonomous regions. In addition, 15 free trade zones, 32 state-level economic and technological development zones, and 53 new and  high-tech  industrial development zones have been established in large and medium-sized cities. As these open areas adopt different preferential policies, they play the dual roles of â€Å"windows† in developing the foreign-oriented econom y, generating foreign exchanges through exporting products and importing advanced echnologies and of â€Å"radiators† in accelerating inland economic development. Primarily geared to exporting processed goods, the five special economic zones are foreign-oriented areas which integrate science and industry with trade, and benefit from preferential policies and special managerial systems. In 1999, Shenzhen's new-and high-tech industry became one with best prospects, and the output value of new-and high-tech products reached 81. 98 billion yuan, making up 40. 5% of the city's total industrial output value.Since its founding in 1992, the Shanghai Pudong New Zone has made great progress in both absorbing foreign capital and accelerating the economic development of the Yangtze River valley. The state has extended special preferential policies to the Pudong New Zone that are not yet enjoyed by the special economic zones. For instance, in addition to the preferential policies of reduc ing or eliminating Customs duties and income tax common to the economic and technological development zones, the state also permits the zone to allow foreign business people to open financial institutions and run tertiary industries.In addition, the state has given Shanghai permission to set up a  stock exchange, expand its examination and approval authority over investments and allow foreign-funded banks to engage in  RMB  business. In 1999, the  GDP  of the Pudong New Zone came to 80 billion yuan, and the total industrial output value, 145 billion yuan. In May 2010, the PRC designated the city of  Kashgar  in  Xinjiang  a SEZ. Kashgar's annual growth rate was 17. 4 percent from 2009, and Kashgar's designation has since increased  tourism  andreal estate prices  in the city.Kashgar is close to China's border with the independent states of former  Soviet Central Asia  and the SEZ seeks to capitalize on international trade links between China and those sta tes. List of SEZs As part of its economic reforms and policy of opening to the world, between 1980 and 1984 China established  special economic zones  (SEZs) in  Shantou,  Shenzhen, and  Zhuhai  in  Guangdong  Province and  Xiamen  in  Fujian  Province and designated the entire island province of  Hainan  a special economic zone.In 1984 China opened 14 other coastal cities to overseas investment (listed north to south):  Dalian,  Qinhuangdao,  Tianjin,  Yantai,Qingdao,  Lianyungang,  Nantong,  S hanghai,  Ningbo,  Wenzhou,  Fuzhou,  Guangzhou,  Zhanjiang, and  Beihai. Then, beginning in 1985, the central government expanded the coastal area by establishing the following open economic zones (listed north to south):  Liaodong Peninsula,  Hebei  Province (which surrounds  Beijing  and  Tianjin),  Shandong  Peninsula,  Yangtze River Delta,Xiamen-Zhangzhou-Quanzhou  Triangle in southern Fujian Province,  Pearl Ri ver Delta, and  Guangxi.In 1990 the Chinese government decided to open the  Pudong  New Zone in  Shanghai  to overseas investment, as well as more cities in the Yangzi River Valley. Since 1992 the  State Council  has opened a number of border cities and all the capital cities of inland provinces and autonomous regions. In addition, 15 free-trade zones, 32 state-level economic and technological development zones, and 53 new and high-tech industrial development zones have been established in large and medium-sized cities. As a result, a multilevel diversified pattern of opening and integrating coastal areas with river, border, and inland areas has been formed in China.Type| City| Province| Special Economic Zone, City| Shenzhen| Guangdong| | Zhuhai| Guangdong| | Shantou| Guangdong| | Xiamen| Fujian| | Kashgar| Xinjiang| Special Economic Zone, Province| No city| Hainan| Coastal Development Areas| Dalian| Liaoning| | Qinhuangdao| Hebei| | Tianjin| Tianjin| | Yantai| Shandon g| | Qingdao| Shandong| | Lianyungang| Jiangsu| | Nantong| Jiangsu| | Shanghai| Shanghai| | Ningbo| Zhejiang| | Wenzhou| Zhejiang| | Fuzhou| Fujian| | Guangzhou| Guangdong| | Zhanjiang| Guangdong| | Beihai| Guangxi| ————————————————- Hainan Special Economic ZoneHainan became a special economic zone in 1988 after the other 4 zones had already established themselves as being successful and scalable. For current foreign investment regulations for the Hainan zone please see  Hainan Special Economic Zone, Foreign Investment Regulations ————————————————- Economic policies of SEZs 1. Special tax incentives for foreign investments in the SEZs. 2. Greater independence on international trade activities. 3. Economic characteristics are represented as â€Å"4 principlesâ € : 1. Construction primarily relies on attracting and utilizing foreign capital 2.Primary economic forms are Sino-foreign  joint ventures  and partnerships as well as wholly foreign-owned enterprises 3. Products are primarily export-oriented 4. Economic activities are primarily driven by market forces SEZs are listed separately in the national planning (including financial planning) and have province-level authority on economic administration. SEZs local congress and government have legislation authority. Leong (2012) investigates the role of special economic zones (SEZs) in liberalizing the Chinese and Indian economies and their impact on economic growth.The policy change to a more liberalized economy is identified using SEZ variables as instrumental variables. The results indicate that export and FDI growth have positive and statistically significant effects on economic growth in these countries. The presence of SEZs increases regional growth but increasing the number of S EZs has negligible effect on growth. The key to faster economic growth appears to be a greater pace of liberalization. China's Special Economic Zones Xu Dixin The Chinese Government has set up four special economic zones.They are located in the cities of Shenzhen, Zhuhai and Shantou of Guangdong Province and the city of Xiamen of Fujian Province . Politically, the special economic zones are based on assurance of China's state sovereignty and governing authority is entirely in China's hands. Economically, they are essentially based on state capitalism. APPROXIMATELY 300 special economic zones have been established in about 75 countries and regions in the world today (some are called free trading zones, some processing-exporting zones and some tax-free trading zones).Practices vary between countries. Special economic zones are set up when a country delimits a special area where, through exemption of customs duty, it formulates various preferential conditions and provides public facili ties so as to attract foreign investors to set up factories whose finished products are mainly for export. Insofar as capitalist social systems are concerned, few problems arise for those countries which set up special economic zones because the characteristics of such zones are essentially compatible with the development of capitalism.Some people wonder why China, a socialist country, has set up special zones which permit the manoeuvre of foreign capital. They ask: Concessions were eliminated a long time ago, why are a few areas with foreign investment being operated in the manner of concessions? They also want to know whether the four special economic zones represent a revival of the former concessions. Although important, such concerns are oversimplified and superficial. The situation can be best understood within context of the past and the nation's present state of development.At the end of the 19th century, foreign capital poured into China. This was a result of invasion by im perialist powers which used â€Å"gunboat diplomacy† to impose unequal treaties on China and infringed upon its state sovereignty. The foreign capital presently being invested in China is not based on â€Å"unequal treaties,† but on the assurance of China's state sovereignty. The special economic zones do not represent the revival of former concessions because authority over them is entirely in China's hands.Be they joint ventures with Chinese and foreign investments set up in the special zones or enterprises run exclusively by foreign or overseas Chinese capital, they must observe the Chinese Government's decrees and regulations, pay business and income taxes according to provisions and abide by China's labour laws. Although they represent a minor change in state economic policy, the special economic zones are not in basic conflict with China's socialist economic system. The economy in the special zones encompasses the socialist state economy, the collective economy a nd the individual economy, but state capitalism has the lion's share.Processing materials for foreign countries, compensatory trade, co-operative enterprises and joint ventures are all state capitalist economic activities. Strictly speaking, the enterprises run by foreign or overseas Chinese capital constitute a kind of capitalist economy, but the activities of such enterprises are subject to control and regulation by the governments of the special zones. As a result, they are special kinds of capitalist enterprises. Lenin clearly said: â€Å"State capitalism is capitalism which we shall be able to restrict, the limits of which we shall be able to fix. This provides us with a theoretical explanation of the nature of the enterprises financed individually in the special zones. Some people worry that the capitalists will exploit the surplus value of the labourers. It should be admitted that some exploitation does exist in the joint ventures or individually financed enterprises in the special zones. According to China's regulations, joint ventures or enterprises individually financed by foreign capital or overseas Chinese capital can remit their share of profits abroad after they have paid their income tax according to relevant provisions and with the approval of the authorities concerned.The profits remitted abroad and the profits retained for reinvestment in the special zones obviously represent the surplus value of the labourers. But allowing foreign or overseas Chinese capital to gain profits is, in a sense, a policy of redemption (that is, a policy of gradually nationalizing the means of production of the exploiting classes at a certain price). Shortly after the founding of the People's Republic, the government adopted a redemption policy towards the national bourgeoisie in order to win its co-operation.Now we are employing a redemption policy to win the co-operation of foreign and overseas Chinese capital. This is necessary for the development of the econom ies of the special zones. One of the characteristics of special zone economies is the fact that they open the door to foreign countries. Take Shenzhen and Zhuhai for example, their economic ties with Xianggang (Hongkong) and Aomen (Macao) are much closer than with the interior. This situation may result in the close relationship and mutual-effect between the role of regulating production according to market demands and the market fluctuations of Xianggang and Aomen.Within the special zones, it cannot be said that the regulation of production by state planning does not exist or does not function. However, if regulation of production by planning is made to cover too large an area, if it becomes the main body of the economy of the special zones, then it will be disadvantageous to absorbing foreign capital and developing the economies of the special zones. Newly built harbour in the Shekou industrial area managed by a Xianggang (Hongkong) company. Special Zones' FunctionsBecause the spe cial economic zones in Guangdong and Fujian Provinces have only been established for a short period of time, their role has not been brought into full play. The following points address the concerns most frequently expressed regarding their operation: They serve as bridges for introducing foreign capital, advanced technology and equipment and as classrooms for training personnel capable of mastering advanced technology. Both in the process of production and circulation, and in the joint ventures with Chinese and foreign investments in the special zones, we can learn the latest techniques and scientific methods of management.To develop the national economy and expedite China's enterprise production and management, it is imperative to promote competition between regions, between trades and with-in a certain trade. In the development of the economies of the special zones -and during their competition with Xianggang and Aomen – it is possible to win in the competition by learning how to make comparisons regarding the regulation of production according to market demands. improve the quality of goods, develop new products and reduce production costs. It is possible to absorb considerable amounts. of foreign exchange.It is also possible to transfer part of the foreign capital, technology and equipment through the special zones to other regions concerned and set up new enterprises there. The country's special zones can serve as experimental units in economic structural reform and as schools for learning the law of value and the regulation of production according to market demands. By developing the economies of the special zones, it is possible to employ many young people waiting for jobs. Some people wonder why it is necessary, more than 30 years since the founding of the People's Republic, to set up special economic zones.They also wonder whether the special zones signify that China is seeking help from capitalist countries. Such concerns are understandable, but unwarranted. Since its establishment, New China has scored brilliant achievements in many fields of work, including economic construction. But it has also traversed a tortuous path. Compared with the world's most advanced nations. China's level of production is still rather low. Its funds and technology are incompatible with the requirements of the modernization drive.Furthermore,† while implementing its policy of self-reliance in economic construction, China does not exclude co-operation with capitalism. Facts will prove that through developing the economies of the special zones, we will be able to make use of foreign and overseas Chinese capital, as well as state capitalism, to develop China's socialist economy. Economic construction in the special zones will possibly become a special form of supplement to the development of China's socialist economy. The total economies of the special zones will only constitute a very small portion of the national economy.Although the s ocialist economy will continue to dominate, the role of the special zones must not be overlooked. Japanese technician passing on technical know-how to a Chinese worker at a joint Sino-Japanese TV company. Policies and Measures 1. The development of the special economic zones requires emphasis on the word â€Å"special. † For instance, in opening the door to foreign countries, it is necessary to simplify procedures for entry and exit and make things easy for visitors. In tax rate, it is essential to give preferential treatment to imported goods in customs duties. Tax exemptions for some goods are needed.A portion of the profits gained by foreign financed enterprises is allowed to be remitted abroad. 2. The essence of developing the special economic zones lies in the import of foreign capital; making foreign capital serve China's socialist modernization drive. Given this, the lives of the people residing in the special zones are bound to change. Capitalist ideology is bound to increase. This will require us to devote special attention to the ideological education of people in the special zones. Of course, education and training in science and technology should not be neglected, either. 3.The currency used in the special economic zones is mainly Renminbi (people's currency), the use of foreign currencies is limited to designated areas. Renminbi represents the currency of the People's Republic of China, but in view of the characteristics of special economic zones, it may prove necessary to issue different currency for them. This is a very complicated problem which calls for further study. 4. It would be impossible for the special zones to develop without the support of China's interior regions. Only when they operate in cooperation with the interior can the special zones gain necessary materials.Of course, such cooperation is based on mutual benefit. And it can be successful only when the special zones produce commodities needed by the interior. This co-ope ration must be carried out in a planned way. China’s capital controls The more special economic zone The landscape of capital-account liberalisation Jul 7th 2012 |  QIANHAI  | from the print edition * Where there’s muck ELSEWHERE in the developing world, towns grow before the infrastructure is quite ready to support them. Things are different in Shenzhen, China’s original Special Economic Zone (SEZ), a stone’s throw from Hong Kong.The subway station at Qianhai bay, on the city’s west coast, is spick and span, with a full complement of signs, announcements and billboards, including one for a performance by the BBC National Orchestra of Wales, sponsored by Classy Kiss milk. But only one exit is open. And it surfaces in the middle of a wasteland of dirt, scrub and puddles. It is, surely, the best connected nowhere anywhere. In this section * Powering down *  »The more special economic zone * Rollercoaster * Duncan dough notes * The Oracle of Bos ton * Move over Reprints Related topics * Hong Kong * China This empty spot is, however, full of big ambitions.It is one corner of a 15-square-kilometre zone earmarked for experimentation by China’s cabinet. The zone has licence to try policies that are â€Å"more special† than those prevailing even in an SEZ. It aims to attract â€Å"modern service industries† rather than big-box manufacturers. It will charge only 15% corporate-profit tax and levy no income taxes on the finance professionals, lawyers, accountants and creative people it hopes eventually to attract. These cosmopolitan folk will live in a â€Å"waterfront city†, says James Corner, whose firm won a competition two years ago to design the bay’s future landscape.Over the next couple of years, he explains, the city will build a system of â€Å"water fingers†, large parks that collect, retain and purify the streams that flow from the hinterland, allowing water to enter the bay clea n and clear. Water is not the only flow Qianhai aims to collect and retain. It also wants to attract some of the offshore yuan that have pooled outside mainland China’s borders. Over 550 billion yuan ($87 billion) now sits in Hong Kong deposit accounts; another 60 billion yuan sits in Singapore, and 35 billion more resides in customer deposits in London, according to an April study by Bourse Consult.These yuan cannot flow freely back into mainland China, however. Banks can invest a limited amount in the mainland’s inter-bank bond market. Companies that raise yuan outside China can seek permission to invest the money in their operations inside the country. But the money can easily become bogged down in China’s exchange controls, especially when the authorities are trying to tighten credit. Qianhai, however, will be permitted to broaden these channels. Its firms will be given help in raising yuan offshore. Hong Kong banks will be allowed to enter the zone more eas ily. The ground will also be laid for greater cross-border lending. Since the mainland is targeting the gradual achievement of full yuan convertibility, Qianhai should be a pioneer for progress,† said Zhang Xiaoqiang of the National Development and Reform Commission, China’s planning body. The plan poses some puzzles. If offshore yuan were to be lent freely to Qianhai firms, what would stop them lending the money on to the rest of the country? An easing of capital controls between Hong Kong and Qianhai would seem to require a tightening of controls between Qianhai and the rest of the mainland. Otherwise the stream of yuan inflows could become a flood.The answer to the puzzle may lie in the timing. The Qianhai zone is not scheduled for completion until 2020, by when China’s capital controls may already be far looser nationwide. It is therefore unlikely that Qianhai’s opening up will get too far ahead of the rest of the country’s. In finance, as well as infrastructure, China likes to lay down the tracks, platforms and ticket barriers before the throngs arrive. Definition of ‘Special Economic Zone – SEZ' 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. Investopedia explains ‘Special Economic Zone – SEZ' While many countries have set up special economic zones, China  has been the most successful  in  using  SEZ to attract foreign capital. In fact, China has even declared an entire province (Hainan) to be an SEZ, which is quite distinct, as most SEZs are cities. Read more:  http://www. investopedia. com/terms/s/sez. sp#ixzz29RnLw992 China's Special Economic Zones Keep Importance| China's speci al economic zones will still be â€Å"special† after the country's entry to the World Trade Organization (WTO) and can continue to boom because they are better prepared for its rules, officials and economists said on Wednesday. | | | PRINT|   DISCUSSION|   CHINESE|   SEND TO FRIEND| | | | Special zones better prepared for WTO rulesChina's special economic zones will still be â€Å"special† after the country's entry to the  World Trade Organization  (WTO) and can continue to boom because they are better prepared for its rules, officials and economists said on Wednesday.While thousands of Chinese businesses have yet to familiarize themselves with the WTO principles and practices, China's technological and economic areas are already ahead of the game, said Pi Qiansheng, chief official who oversees the  Tianjin  Economic Development Area (TEDA). Special Economic Zones| President Jiang on Special Economic ZonesChina will develop special economic zones (SEZs) a ll through the process of the country's reform, opening up and modernization drive, Chinese President  Jiang Zemin  said November 14 in Shenzhen, China's first SEZ.Feature : Economic Zones| Chief special economic zonesChina's chief special economic zones are Shenzhen, Zhuhai, Shantou, Xiamen cities and  Hainan  Province. But they encompass more than 100 national economic and technological development zones, 15 national bonded areas and 14 border trade and co-operation regions in the broadest sense, said Hu Ping, former director of the Special Economic Zone Office under the State Council.Years before China joined the global trade club, the special economic areas had begun operating in line with international practices, said Pi, director of the administrative commission of TEDA, the largest development zone in North China. â€Å"By implementing international practices – like simplified approval procedures and transparency – TEDA has actually been operating accor ding to WTO rules,† he said. Keep going wellBoth Pi and Hu denied allegations that the national treatment and non-discrimination principles of the WTO will undermine the development of the special economic and technological reas, which used to receive – and give – preferential policies. â€Å"The special zones in various sizes and forms in China have grown from their initial state when they needed policy support before they were able to rely on themselves for expansion,† Hu said. â€Å"I don't see much of a negative impact of WTO entry on their recruitment of experts and the overall investment environment. † The special zones can instead maintain their â€Å"special† status by maximizing their accumulated expertise and their advantages in geographic locations and export-orientated industrial structures.They can gain a head start in absorbing foreign funds, technology and developing modern logistic systems, Hu said. The bonded zones, export pr oduct processing quarters and high-tech parks in those special areas will open still wider, Pi said. â€Å"It is my understanding that the WTO rules obligate the government to shift its functions to serving businesses in a more efficient fashion,† Pi said. â€Å"In TEDA, for example, the authorities have already modified or removed all the regulations and operations that go against the WTO rules. â€Å"Within the framework of national treatment requirements of the WTO, TEDA will give more favourable policies to overseas investment to attract more transnationals, he said. | SEZs: Go the Chinese way S. Majumder SPECIAL Economic Zones (SEZs), first proposed in the Exim Policy 2000-01 by the erstwhile Commerce Minister, Mr Murasoli Maran, are now a reality. With Export Processing Zones (EPZs) failing to help achieve the export targets, sights are on SEZs to deliver the goods. Eight SEZs are already operational — seven EPZs were converted for this purpose — and ano ther nine have been approved and are to be located strategically.The Commerce Minister, Mr Arun Jaitley, overwhelmed by the success of China's SEZ experiments has reposed much faith in them not only for export growth but also to boost FDI, which has become imperative especially as domestic investments are sagging. It is heartening that Mr Jaitley seems to be aware of the fact that the objectives of SEZs are much wider than merely boosting exports. Can India replicate China's immensely successful SEZ model? The incentives offered in Indian SEZs are in no less than those in China.From duty-free imports and tax holidays to freedom from cumbersome Custom procedures, the SEZs' facilities match those in China. Hence, theoretically at least, India's SEZs should be no less attractive to foreign investors as the Chinese versions. But reality paints a different picture. The key to SEZ success lies not just handing out incentives. Conceptually, EPZs and SEZs are different — while the fo rmer is an industrial estate, the latter is an industrial township. Boosting incentives to SEZs does not necessarily mean greater investment flows. The scope of SEZs are much wider and their linkages with the domestic economy stronger.SEZs provide supportive infrastructure such as housing, ports, roads and telecommunication and, as a result, have a wider industrial base. Compared to EPZs, SEZs give more in terms of exports, industrial growth, investments, both domestic and foreign, and employment generation. Hence, merely switching from EPZs to SEZs, without undertaking the required structural changes, does not guarantee success. The China story There are five SEZs in China. Of these, four — Shenzhen, Xiamen, Shantou and Zhuhai — were founded 20 years back and the fifth, Hainan, was set up in 1988.There are eight distinguishing features which have contributed to the success of SEZs in China: Unique location, large size, investment friendly attitudes towards non-residen t Chinese, attractive incentive packages, liberal Custom procedures, flexible labour laws, a strong domestic market and decentralisation of power in favour of provinces and local authorities for administering the zones. Of the five SEZs, Shenzhen, Shantou and Zhuhai are in the Guangdong province, adjacent to Hong Kong — the gateway to China. The other SEZ, Xiamen, in the Fujian province, is nearer Taiwan. Setting up hese zones close to internationally reputed commercial destinations was basically for easier access to foreign investments, modern technology and managerial expertise. This move paid off. FDI spurted in China — with Hong Kong accounting for about 60 per cent of the total inflows — with foreign investors making a beeline for the SEZs. Initially, the majority of foreign investors were non-resident Chinese from Hong Kong who were engaged in trading. Later, MNCs started investing in technology-oriented sectors even as China liberalised its foreign invest ment policy further to attract modern technology.The Guangdong province, which has the largest number of SEZs, became the most attractive foreign investment destination. In 2001, over 25 per cent of China's FDI flowed into Guangdong. Size is another important factor for SEZ success in China. Each SEZ is well over 1,000 hectares, the minimum recommended area. In India, the EPZs converted into SEZs are not even a third of this. Among the converted SEZs, the one in Noida is the largest but extends only 310 hectares. The SEEPZ, the first SEZ in India, is only 93 hectares.In such small areas, the requisite infrastructure and services required of an SEZ cannot be created nor multiple economic activities undertaken. Strong domestic market is another important aspect for SEZ success. In China, about 50 per cent of SEZ sales are to the domestic market. Though India has a large domestic market, it has failed to project this to lure SEZ investors. The reason: Policy impediments to sales in the domestic market. While in China the thrust of SEZs has been to attract foreign investments and modern technology, in India the emphasis has been on exports.The policymakers seem to think that export success in the zones is difficult unless accompanied by a liberal FDI regime. In China, the contribution of SEZs to the total exports is not substantial even after 20 years of their existence. In 2001, the share of the five SEZs in the country's total exports was 10. 4 per cent. In contrast, the contribution of Indian SEZs in 2001-02 was a little over 4 per cent of the total exports. Decentralisation of power was also a major reason for SEZ success in China. Provincial and local authorities were made partners and stakeholders, by delegating to them powers to approve foreign investment.The SEZ authorities in China can approve foreign investment proposals up to $30 million. In India, only State governments are allowed to set up SEZs and the powers for foreign investment approvals are vest ed with the Development Commissioners, who are the representatives of the Central Government. The hire-and-fire policy in SEZs has been one of the biggest attractions for foreign investors in China. The new labour law consists of 107 articles, but none of these is more than one paragraph. All jobs are on labour contract basis, which stand terminated upon the expiry of the terms, which can be fixed/flexible or for a specific job.In contrast, the labour policy in India is worker, rather than investment, oriented. Merely declaring SEZs as public utilities under the Industrial Disputes Act may not suffice to quell the image of labour unrest in the country. In sum, the fundamental objectives for setting up SEZs and their role in the national economy are different in the two countries. In such a situation, multiple doses of incentives and unravelling the procedural hassles in India may not in themselves aid SEZs. The impending need is buoyancy in foreign investments, which would automatic ally catapult exports.For this, the primary need is to foster SEZs as investment-friendly areas. This job is not of the Commerce Ministry alone, which is empowered to tinker with the Exim Policy only. The Foreign Investment Promotion Board (FIPB) and the Foreign Investment Implementation Authority (FIIA) also have an equally important role to make SEZs a success. SPECIAL ECONOMIC ZONES (SEZS) ? Special economic zones (SEZs) 1 aim to overcome barriers that hinder investment in the wider economy, including restrictive policies, poor governance, inadequate infrastructure, and problematic access to land.SEZs tend to offer export-oriented investors three main advantages relative to the domestic investment environment: 1) they offer a special customs environment including efficient customs administration and (usually) access to imported inputs free of tariffs and duties; 2) they have historically offered a range of fiscal incentives including corporate tax holidays and reductions, along w ith an improved administrative environment; and 3) they provide infrastructure (including land, factory shells, and utilities) that are more accessible and reliable than would normally be available outside the zones. SEZs have a long-established role in international trade. Prior to the 1970s, most zones were clustered in industrialized countries; but since the 1980s, there has been massive growth in SEZs in developing countries, led at first by East Asia and Latin America and more recently by the development of new programs in Central and Eastern Europe, Central Asia, the Middle East, and North Africa. Recent estimates indicate that there currently are more than 3,000 SEZs established in some 135 countries.Overall SEZs are estimated to account for more than US$200 billion in global exports and employ directly at least 40 million workers. ? Most zones set up in the 1970s through the 1990s were designed to attract investment in labor-intensive assembly and manufacturing from multinat ionals. These export processing zones (EPZs) were a cornerstone of trade and investment policy in countries shifting away from import-substitution and in favour of integrating into global markets.Among the multiple objectives normally being sought as part of these policies were: job creation, growth in exports and foreign exchange earnings, facilitating economic diversification (often as a step in processes of industrialization and industrial upgrading) and access to foreign manufacturing technology and know-how. KEY ISSUES AND CHALLENGES ? In some countries, SEZs have been a powerful instrument for economic growth and structural transformation. For many of the initial zones in East Asia, zones proved played a critical role in facilitating the industrial development and upgrading the ‘tiger’ economies.Similarly, the later adoption of the model by China provided a platform for attracting FDI and not only supported the development of its export-oriented manufacturing sect or, but served as a catalyst for sweeping economic reforms that were extended throughout the country. In Latin America, countries like Dominican Republic, Honduras, and El Salvador used free zones to take advantage of preferential access to US markets, and have generated large-scale manufacturing sectors in economies that were previously reliant on agricultural commodities.Finally, in Africa, SEZs are credited with enabling Mauritius to move from dependence on sugar to become a manufacturing hub and eventually an innovative, middle income country. ? However, there are also many examples of failures of SEZs, where investments in zone infrastructure resulted in ‘white elephants’ or where zones have largely resulted in industry taking advantage of tax breaks without producing any substantial employment or export earnings.Moreover, many zones that appear to have been successful in the short term, have failed to remain sustainable once labor costs have risen or when preferen tial 1 The term â€Å"SEZ† is being used here in a generic sense to cover any one of a variety of similar regimes including „industrial free zones? , „special economic zones? , „maquiladoras? , „export processing zones? , „investment promotion zones? , „foreign trade zones? and „free zones? What are Special Economic Zones (SEZs)? What are the Key Issues and Challenges for SEZs?What is the World Bank Group doing on SEZs? TRADE ISSUES BRIEF: Special Economic ZonesWorld Bank Group – Poverty Reduction and Economic Management Network – International Trade Department trade access is no longer an advantage (e. g. following the end of the Multi-fiber Agreement). Zone failures can be attributed to a variety of causes. Too often, zones are plagued with the same problems – unstable electricity, lack of water, heavy bureaucracy, inefficient and corrupt customs – that hinder investment in the wider economy.In addition, broader competitiveness challenges, including policy instability, poor national governance, and low productivity often undermine the potential of zones. ? The traditional manufacturing-oriented processing zone (EPZ) is becoming increasingly anachronistic, despite the continued importance of global production networks. This is for three main reasons. First, by limiting activities to manufacturing only, EPZs restrict opportunities for investment and growth in the services sector, one of the most important opportunities for growth in middle income and even many low income countries.Second, the traditional EPZ tends to create an enclave that is separated from the national market, undermining its potential to create effective domestic linkages. Finally, the traditional EPZ model relies on unsustainable fiscal incentives to attract investment. As a result, there has been a gradual shift from traditional EPZs to special economic zones (SEZs), which normally cover larger land areas, offer g reater flexibility for services and other non-manufacturing activities (including residential and tourism development), and include a greater mix of export and domestic-market focused activities.THE WORLD BANK GROUP AND SEZS ? The World Bank Group has worked with client governments on export processing zones, free trade zones, and SEZs for decades. More than 40 SEZ related projects have been undertaken in the past ten years. This work has included Bank lending for on-site and off-site infrastructure, IFC investment, and technical assistance and knowledge products from various Bank units and the Investment Climate Department on SEZ-related policies, legal and regulatory frameworks, institutional design, and feasibility studies.OUR WORK ON SEZS ? During 2009 and 2010, the World Bank’s International Trade Department (PRMTR) has been leading a major global research study on SEZs – supported by a BNPP trust fund and in partnership with the SEZ team in the World Bank Groupâ €™s Investment Climate Department – with a primary emphasis on the experience SEZ programs in Sub-Saharan Africa. The main question addressed in this study is: why have SEZs worked well as engines of growth in some countries but not in many Sub-Saharan African ones? Based on knowledge developed as part of this research, PRMTR is also supporting the World Bank Group’s program looking at the potential role and impact of China’s investment in African industrial zones on the development prospects for the region. Our portfolio of SEZ knowledge products in 2010 includes: I. A book summarizing the results of PRMTR’s major research project: Special Economic Zones in Africa – assessing performance and learning from global experience (forthcoming); II.A set of case studies of SEZ programs in ten countries (Bangladesh, Dominican Republic, Ghana, Honduras, Kenya, Lesotho, Nigeria, Senegal, Tanzania, Vietnam); III. Results from surveys of investors in SEZs in the same ten countries as above; IV. A series of notes covering topical issues in SEZs, including: regional trade agreements and SEZs; WTO rules and SEZ fiscal incentives; gender aspects of SEZs; using SEZs as catalysts for economic reform; training and skills development in SEZs; etc. and V. Notes related to China’s investment in African industrial zones, including an overview of progress and challenges and a proposed framework for effective collaboration, as well as a note drawing lessons from China’s experience in establishing a knowledge-sharing partnership for SEZs with Singapore in China’s Suzhou Industrial Park. An investigation into the importance of special economic zones in developing economies by Raphael Monye on September 18, 2010Over the past decade, there has been a sea change in economic policies in  developing countries which are attempting to become more export- orientated,  they   have started setting   up free trade zones. These zon es are called â€Å"Special Economic Zones†(SEZ’s) and feature various   designed to encourage foreign investment. What is the significance of these zones? Have they really played an important role in the development of the economy of the developing countries? In this paper I first describe the background to the establishment of these zones, then I describe some of the aims and characteristics of the SEZ’s.Lastly, I attempt to assess the significance of the SEZ’s in the development of the wider   economy Historically, China for instance  has adopted an inward-looking strategy to its economic development. Successive Chinese governments thought that the economy could grow  purlythrough self-reliance. However, there are always limitations to what a country can do by itself, for example limitations in raw-materials, natural resources, technology, etc. These can hold back the growth of an economy and certainly China’s economic growth  lagged f ar behind much of the rest of the world up to the 1970? . The aims of the establishment of the sez’s were to earn foreign exchange, to  enhance  employment, to attract foreign investment and to accelerate the introduction of technology and managementexpertise The favourable impact of the SEZ’s on  an economy of   is fivefold: They attract foreign investment, they help the growth of the export industry, they earn foreign exchange, they provide employment opportunities and lastly they help the  indigenous  economy improve its level of technology.I would now like to look at some of these points in more detail Since the beginning of the open-door policy, small-scale private businesses have been allowed to coexist with state enterprises. This has increased employment opportunities for local people and raised the level of economic activities in most developing countries. Also, many state workers sense that going into business on their own may provide greater inco me potential. Many prefer to work for joint-venture firms for higher wages.So the average income in SEZ’s   ranks as the highest in most of these economies. In theory advanced technology and know-how will also flow into the country as a result of foreign investment. In turn, with increasing exports the force of international competition may bring greater pressure on   firms to adopt more efficient work practices. It is perhaps questionable how much benefit the wider developing  economies has  reaped  from these investments. The technology, patents and know-how remain firmly the property of, and are controlled by the parent companies.It may however be the case that in the long run the work culture and practices adopted by foreign companies could have some washback effect over wider economic practices in the country In conclusion, the establishment of the SEZ’s has helped to increase the export trade which in turn has helped to improve the  developing economy . Preferential treaties  are been made in  SEZ’s to attract foreign investment. A large amount of foreign investment has occurred not only in the export trade, but also in infrastructure construction, commerce and tourism.Foreign companies have been encouraged to set up factories in the territories and the export industry has grown. Jobs opportunities have been provided for locals as factories need labour and the average income of the people has increased. In addition, advanced foreign technology has been brought in with the inflow of foreign investment. All these factors have contributed to the growth of the  developing economy. It remains to be seen if these  quantitative  advances, in which the SEZ’s have played an important role, are matched by  commensurate  advances in the quality of life for the majority of   people in theses countries.Special Economic Zones and tax exemption in China The key tax incentive for investing in China lies in the vario us options available for claiming tax concessions. The three main avenues are tax exemption, location-based concessions, and activity-based concessions. In theory, foreign-invested companies in China are subject to 30% corporation tax plus an additional 3% local corporation tax. In practice, however, foreign-invested companies rarely have to pay the full corporate tax rate. Tax exemption and 50% tax reductionManufacturing companies operating in China for at least ten years are granted a tax exemption period from the date of entering the profit zone. In the first two years they are fully exempt from corporation tax, and in the following three years they are granted a 50% reduction in the tax burden. The fiveyear period begins in the year in which an accumulated profit, after taking into account loss carryforwards, is recorded for the first time. However, the tax exemption period is not interrupted if at any time after commencement of the period a company once more records losses.Furt hermore, only taxable losses within a maximum carryforward period of five years are taken into account when determining the date on which an accumulated profit is recorded. Companies in the following sectors and areas are regarded as manufacturing companies and hence eligible for preferential taxation treatment: – Engineering and electronics industry; – Energy industry (excluding oil and natural gas extraction); – Metal industry, chemical industry, manufacture of construction materials; – Light industry, textile industry, manufacture of packaging materials; Medical and pharmaceutical industries; – Agriculture and forestry; – Construction industry; – Communications and transport industries (excluding passenger transport); – Scientific and technical development, geological studies, consulting services aimed at production improvements, maintenance services for production equipment and precision instruments. The above list is not e xhaustive and may be extended to other areas. In principle, exemption followed by a reduction in the tax burden is only granted if the company’s activities in China extend over at least ten years.If operations in China are discontinued before this ten-year horizon, Chinese tax law requires that the concessions be reimbursed. Special Economic Zones and Economic and Technological Development Zones After China opened up back in 1980, government-promoted Special Economic Zones (SEZs) were set up to attract foreign investors to the country. The main purpose of these Special Economic Zones with their many investment incentives was to strengthen China’s embattled economy with foreign capital and to modernise the country through foreign technology.Manufacturing companies are generally granted a reduced tax rate of 15% in these zones, with full tax exemption in the first two years and a 50% reduction in tax during the three following years. Foreigninvested service companies and banks can also benefit from tax concessions but are subject to special regulations in these zones. The Special Economic Zones are in: – Shenzen, Guangdong Province; – Zhuhai, Guangdong Province; – Shantou, Guangdong Province; – Xiamen, Fujian Province; – Hainan Island, Hainan Province. Moreover, Economic and Technological Development Zones ETDZs) were set up in 14 coastal cities of the People’s Republic of China in 1984. To date this number has been extended to more than 50. The aim of these development zones was the targeted opening of investment zones for foreign investors, as well as research and development in specific areas through the application of modern foreign technologies. In particular, foreign investors in these zones are offered a complete infrastructure that meets international standards. Economic and Technological Development Zones are to be found not only in booming metropolises such as Shanghai, Beijing nd Shenzen, but als o in all-important Chinese industrial cities as well as in cities of local economic importance in the interior. The Chinese accord these development zones the highest priority, which is why in recent years China’s booming major cities in particular have evolved to become the favourite locations for foreign investors, due to the many concessions and well-developed infrastructure on offer. Nevertheless, when deciding on a location it is important to take into account the cost of labour, which is significantly cheaper in the more rural development zones in the interior.Tax-wise, there is no difference between the Special Economic Zones and the other Economic and Technological Development Zones. Here, too, a reduced tax rate of 15% is generally applicable, with full tax exemption in the first two years and a 50% reduction in the following three years. Unlike the Special Economic Zones, however, the Economic and Technological Development Zones do not differentiate between manufact uring and service companies. Open coastal towns and old cities The 14 eastern ports of Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou,Fuzhou, Guangzhou, Zhanjiang and Beihai were also opened to foreign investors in 1984. Now there are more than 300 open coastal cities and old towns in China, offering similar concessions to the Special Economic Zones. If these cities also contain a Special Economic Zone or an Economic and Technological Development Zone, companies are also granted a reduced tax rate of 24% outside these zones. If necessary a tax rate of 15% can also be granted subject to the approval of the Chinese authorities, provided the company’s business falls into one of the following categories: Technological projects or projects requiring expertise; – Projects with a foreign investment volume of at least USD 300 million and a long repayment period; – Projects in the field of energy generation, communication o r port operations; – State-promoted projects. High-Tech Industrial Development Zones Only in recent years has the Chinese government created newer types of development zones called High-Tech Industrial Development Zones (HTIDZ) primarily aimed at promoting and further developing the scientific and economic potential inherent in China through foreign capital investment and the import of know-how.Currently there are more than 50 HighTech Industrial Development Zones where foreign high-tech companies are granted a reduced tax rate of 15%. Joint ventures with a foreign partner scheduled to operate for over ten years may also be granted tax exemption or a 50% reduction in tax, similar to the above-mentioned concessions, subject to approval by the Chinese authorities. Currently the best-known High-Tech Industrial Development Zone is the Zhongguancun Science and Technology Park in Beijing. Shanghai Pudong New Area By contrast, foreign companies operating in the financial, ndustrial and trade sectors have been enjoying numerous tax concessions in the Pudong district since 1992. Financial services providers in particular are becoming increasingly important in this context. While foreign financial institutes are prohibited from setting up offices in all other investment zones, this zone – which is also home to a stock exchange – is to be established as a financial centre. The applicable tax rate in this area is 15%. Moreover, in a bid to promote the infrastructure, the Shanghai Pudong New Area offers special tax incentives to foreign companies engaged in the construction of roads, railways, orts and airports as well as companies engaged in energy and transport projects. These companies are also offered a generally lower tax rate of 15%. If scheduled to operate for at least 15 years, these companies enjoy full exemption from taxes for the first five years and a 50% tax reduction for the following five years. Other regions In addition to the above-men tioned areas, a wide range of other regions grant foreign companies tax concessions with a view to attracting such businesses and promoting economic expansion in China’s structurally weak regions.These currently include 13 open border cities, remote and underdeveloped regions as well as numerous central and western regions of China. Particularly in the remote and underdeveloped areas of China, companies enjoy full tax exemption for the first two years and tax concessions for up to 15 years. In all, 19 central and western provinces offer companies in defined industrial sectors a wide range of additional concessions which are listed in a catalogue specially drawn up for this purpose. Concessions for special sectors and activitiesNevertheless, eligibility for tax concessions is dependent not only on the choice of location but also on the company’s business activities. For instance, special concessions are granted to export-oriented companies with an export ratio of more t han 70% which are scheduled to operate for more than ten years. Companies which qualify as  «technologically advanced » enterprises may request a three-year extension beyond the statutory five-year tax concession period. The requirements for eligibility in this respect are described in a special catalogue of criteria.Qualification for such additional concessions is subject to an on-site examination by the authorities of the information provided in the application. Special concessions may also be requested by companies in the software industry, with the aim of turning China into a world leader in the field of software products. These primarily concern VAT and customs duties, but additional concessions may be granted in the form of a reduction in corporation tax to 15%, shorter depreciation periods or higher expense deductions provided the defined criteria are met. Furthermore, in order to make China’s economic expansion nd infrastructure more attractive to foreign companie s, longterm projects relating to port construction as well as in the Special Economic Zones of Hainan and Pudong and in the field of airport and rail construction enjoy substantial concessions up to and including full tax exemption for the first five years as well as a tax reduction of 50% for the following five years if, as above, they meet the relevant criteria. Similar conditions also apply to agricultural projects. Research and Development (R&D) Centres can also enjoy tax concessions provided they meet a number of defined requirements.Specifically, these govern employee qualifications, investment volume, the quality of equipment used, exclusive use of invested capital for R&D purposes, etc. The concessions granted are related to the transfer of technology developed in-house and associated consulting and other services, the import of business equipment including the associated technologies, accessories and spare parts, and increased deductions on R&D expenditure. On t he other hand, companies in heavy industry and plant construction or companies engaged in the extraction of raw materials are expressly excluded from the statutory five-year tax concession