A Chinese Province As A Reform Experiment

This study reviews the context of and prospects for China's only Special Economic Zone (SEZs) that covers an entire province. When Hainan became a province in 1988, the central government wanted to make it a special zone that would go far beyond even the other (SEZs in system reform. It was to have a small government and large society, implying very little state-operated enterprise and minimal government. Despite its essential backwardness, pockets of absolute poverty, inadequate infrastructure and other difficulties, Hainan has made progress in economic development, attracting investment from both the mainland and overseas. Its economy, previously dominated by state-owned rubber and iron ore industries, has diversified through substantial growth in services and small-scale enterprise, including export-oriented joint ventures. However, the pace of reform and investment slowed during the national austerity program from early 1989 to late 1991, calling into question the ambitiousness of some of Hainan's plans to lead the way in reform experiments in agriculture, industry and human resource development. Recently, though, the reform agenda seems to have regained momentum, as Hainan deals in greater depth with the trade, investment and fiscal modernization that could propel it into prosperity. This study also suggests ways in which the province's reform agenda might be accelerated as the next key steps are identified and opportunities seized by both Beijing and Haikou.