The Construction of Development Zones by Local Governments: A Looking-around Choice?

Abstract

Xi Jinping’s report to the 19th CPC National Congress profoundly expounded that ‘China’s economy has shifted from high speed growth stage to high quality development stage’, emphasizing the implementation of regional coordination development strategy. As an important carrier to promote local economic growth and national regional development strategy, the development zones have made important contributions to the rapid development of China’s economy, and also provide a unique perspective for understanding local governments’ behavior and China’s economic growth mode. The repeated construction and disordered expansion of development zones are the severe problem that has plagued the sustained and healthy development of China’s economy for a long time. Based on the data of 100 cities from 2004 to 2014, the spatial panel model is used to study the motivations for the establishment of the development zones by the local governments from the perspective of spatial strategy interaction. It arrives at the conclusions as follows: firstly, the local governments fully consider and refer to the decisions of their ‘neighbors’ when taking the construction of development zones into account; if the number of adjacent development zones increases, the number of local development zones increases accordingly, explaining the nature reason for repeated construction of development zones to a certain extent; secondly, after investigating the regional differences of strategic activities in the development zones, we find that the spatial strategy interaction of constructing development zones is stronger in the central and western cities than that in the eastern cities; the scattered distribution of the central and western development zones causes the waste of resources and reduces the factor allocation efficiency; thirdly, industrial structure, infrastructure, land prices and other factors have significant impacts on the establishment of development zones, and constitute important constraints on setting up development zones by local governments; the course of development zones is not a natural growth subjecting to resource constraints, but a result of regulation by the local government policy interaction and national policy control; fourthly, further empirical evidence shows that fiscal decentralization and the competition of attracting investment under the incentive of political promotion of local governments have strengthened local governments’ motivations for competitive strategies in the establishment of development zones. Consequently, effective reform measures should be taken in aspects of political performance appraisal system, fiscal and tax system, and local debt management system, so as to strictly control the blind competition of excessively constructing development zones among local governments. The central government should encourage local governments to shift from economic growth mode driven by preferential policies and factor input to new development mode driven by reform and innovation. Hence, local governments can promote the development and upgrading of development zones, and further play an important role in the construction of modern economic system.