Free Trade Zones

China’s tactics in economic zones

The People’s Republic of China (PRC) is arming economic development zones to undermine Taiwan’s national sovereignty by placing special economic zones (SEZs) in or near the last remaining strongholds of Taiwanese support abroad to distract opinion the nation’s public.

Of the 6,500 SEZs in the world, 2,500 are in China. What most people don’t realize is that there are 500 other such areas outside of China.

As of this year, Nicaragua continues to diplomatically recognize the Republic of China (ROC). Perhaps this is the reason why state enterprises in the PRC invest so much money in Nicaraguan economic development projects.

Chinese billionaire Wang Jing (王靖), CEO of the Beijing Xinwei group, is raising US $ 50 billion to create a canal competing with the Panama Canal. The price of the project is three times as much as Nicaragua’s entire GDP – $ 13 billion.

A second channel is inherently good – it would create thousands of jobs, boost Nicaraguan economy, and improve the efficiency of world trade.

However, one of the reasons behind the project should be clear: to move Nicaragua away from the Republic of China to the PRC.

A major element of the canal would likely include the creation of dozens of SEZs along it to stimulate economic growth. The PRC often creates the zones to accompany its mega-marine infrastructure projects, as evidenced by the Port of Colombo in Sri Lanka, the Port of Mombasa in Kenya or the Chancay Multipurpose Port Terminal in Peru. SEZs allow Chinese companies to partially exempt themselves from local laws. The Chinese SEZs along the Nicaraguan Canal would also compete with the Colon Free Zone of Panama.

Neighboring Honduras is in a similar situation. It also recognizes the ROC, making it a target for Chinese economic development programs.

For years, Honduras has faced significant problems with its electricity grid, despite abundant water resources. The PRC intervened by providing the Honduran government with a loan of $ 300 million in 2015 on favorable terms to finance the creation of the Patuca III hydroelectric dam. Honduras then, in turn, hired Sinohydro, a Chinese state-owned hydroelectric company, to build the dam. Patuca III became operational in December of last year.

Honduran sources have revealed to the Adrianople Group, a US-based economic intelligence firm that studies SEZs, that there are plans to build Chinese SEZs in Honduras.

The Chinese zones would be incorporated under the Organic Law of Honduras on Zones of Employment and Economic Development, or ZEDE, which allows private companies to establish cities with almost complete legal autonomy. ZEDEs were created to help American businesses avoid problems associated with bureaucracy and corruption.

Chinese ZEDEs in Honduras would generate many jobs and much-needed investments. They would also influence public opinion in favor of the PRC and move it away from Taiwan.

Perhaps the future of Nicaragua and Honduras can be seen in El Salvador, which for decades recognized the ROC.

However, in August 2018, El Salvador officially transferred its support from the Republic of China to the People’s Republic of China.

In the years leading up to the change, China announced it would invest hundreds of millions of dollars in development assistance, including a $ 40 million national library, an $ 85 million water treatment plant. and a brand new national stadium.

Only a few weeks after the official recognition of the PRC by El Salvador, the Chinese government announced the creation of six new SEZs – massive – covering nearly 14% of Salvadoran territory. Chinese state-owned companies have reportedly channeled hundreds of millions of dollars in foreign direct investment to Nicaragua through these areas.

However, this decision was delayed due to the perception of a land grab by China.

Are the areas of the PRC good or bad? It depends entirely on the point of view.

From the point of view of the inhabitants of the areas, these are often life changing gifts of economic development. From the perspective of the PRC, they are cynical tools of foreign policy. From the point of view of the ROC, these are time bombs.

The most powerful weapon of the PRC is its ability to generate significant economic development. Chinese development projects have a positive impact on the lives of people in the regions where they occur, which makes them so threatening to the Republic of China.

While RPC has a lot more money to offer than ROC, it is much less subtle and nimble.

The only way for ROC to be competitive is to invest at low cost and high impact.

Thibault Serlet is an analyst of special economic zones.

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