chapter  5
38 Pages

Retrenchment and Revision, 1985–1987

WithGeorge T. Crane

The exposure of serious Special Economic Zone (SEZ) problems in 1985 was closely linked to revelations of a massive foreign exchange scandal on Hainan island. In the latter half of 1984, Hainan party and government officials took advantage of relaxed foreign exchange and trade regulations and made windfall profits by illegally buying and selling foreign commodities, especially Japanese automobiles. The criticisms of spring and summer 1985 rekindled debate on zone strategy. SEZ proponents wasted little time in formulating a response. From April 4 to 7, at a seminar in Guangzhou on international economic policy hosted by the prozone newspaper Shijie jingji daobao, the critique of SEZs was rebutted. As the political environment changed, economic contraction continued. Trade controls increased. On April 1, 1986, SEZ customs regulations came into effect based on the general principle of “safeguarding national interests and protecting socialist construction.” All imports and exports would be subject to “formalities of registration,” multiplying compulsory paperwork.