The 49 State-level development zones are being hampered by limited growing room caused by insufficient land sources.

Growth of contracted foreign investment in these zones was 26.15 percentage points lower than the country's level of 42.66 percent in the first six months. The contracted FDI to 16 zones located in middle and western parts plunged by 38.15 percent year-on-year.

An unnamed official from the China Association of Development Zones said related policy-makers should pay attention to the slowdown in the attraction of contracted FDI, an indicator of future trends.

After two decades' development, State-level development zones are pressed for new land, the official said.

Recent moves to check land abuse also make it difficult to get new land, he said.

An unprecedented nationwide probe by the Ministry of Land and Resources since last July into rampant land abuses has resulted in 2,426 development zones being shut down.

Though the zones targeted by the move were mostly approved by local government, State-level ones are also influenced and could not add new land since the probe started, the official said.

"Many foreign investors intend to enter the zones, but they can not find enough land to host their investment," he said.

The future of State-level development zones has already been shadowed, he said.

"Besides cracking down on the land abuse, the government should move to give more lands to State-level zones," he said.

An unnamed official from the Tianjin Economic and Technological Development Area (TEDA) said expansion there has been barred.

The central government suspended the approval of new development zones and new land uses since July 18 last year.

"TEDA works with many investors in the automobile industry, which ask for big use of land. Many new projects will be stopped if we can not get approval for new land use," he said.

But the official from the association said the crackdown will not impact on the State-level zones in general.

In the first six months, actual FDI to the 49 development zones surged by 48.45 percent to US$5.4 billion. The total industrial output by State-level zones reached 669.3 billion yuan (US$80.86 billion), up 42.44 percent. Exports and imports amounted to US$25 billion and US$26.6 billion, rising 57.4 and 61.2 percent respectively.

These development zones are still the priority choices for foreign investment with accumulated foreign capital invested in them accounting for one-10th of the country's total.

The country's latest move to rectify land abuses in development zones will sharpen the competitiveness of State-level development zones, the official said.

The rectification will help State-level and other qualified development zones out of malicious competitions with illegal ones," he said.

Before the rectification, qualified zones were busy in battles with illegal ones chasing after development.

In many ways, illegal zones had the upper hand since the land was acquired at lower cost.

Some local governments have been zealous in setting up and expanding the scale of development zones which, in their view, are a mark of achievement.

State-level development zones have a promising future even though many are worried they may take a hit from China's entry into the World Trade Organization (WTO).

The Chinese Government has said it will continue to support the development zones. The preferential policies currently enjoyed by State-level development zones will not change in the next three to five years.

The most important preferential policy granted to State-level development zones is a 15 percent income tax rate for industrial projects, compared with 33 percent for enterprises that locate outside the zones and China's five special economic zones.

But the preferential policy will not be the major element attracting foreign investment in the future, he said.

They have to sharpen their advantage in overall investment environment including infrastructure, policies, regulations and services, he said.

(China Daily August 11, 2004)