The country's latest move to rectify land abuses in development zones will sharpen the competitiveness of state-level development zones, say industry insiders.

An unprecedented nationwide probe by the Ministry of Land and Resources into rampant land abuses since last July cast a shadow over the fate of the country's development zones. The campaign resulted in 2,426 development zones being shut down.

However, an official from the China Association of Development Zones, shrugged off the negative impact saying the good will outweigh the bad.

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

Before the rectification, these qualified zones were busy in a battle with illegal ones to court development.

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

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.

Calling it the Chinese "enclosure movement," critics had pointed to the excessive establishment of development zones and industrial parks as a "staggering" waste of arable land that dampens the interest of investors, the official said.

At the beginning of the campaign, the ministry believed there were a total of 3,837 development zones and industrial parks, only 1,251 of which were approved by the State Council and provincial governments. That meant that the other 2,586 were illegal.

As it turned out, however, the number was 6,015 across the country. In total, they took up an area of 35,400 square kilometers.

"By closing the illegal ones, the State-level development zones will have more energy to improve their investment environment rather than just raking their brains to list more preferential policies," the official said.

They will sharpen their advantage in the overall investment environment including infrastructure, policies, regulations and services, he added.

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

China now has 49 State-level development zones. The accumulated foreign capital of the development zones accounts for one-tenth of the country's total.

He said 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).

He added that the Chinese Government will continue to approve the upgrading of some better-built provincial-level development zones to State-level ones.

The preferential policies currently enjoyed by state-level development zones will not change in the next three to five years, he said.

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.

Ma Xuelu, director of the Management Committee of the State High-Tech Development Zone in Baoding, north China's Hebei Province, applauded the crackdown.

"Without unfair competition from those small and illegal zones and parks, investors will have easier and safer choices," he said.

However, some zone authorities are worried. An unnamed official from the Tianjin Economic and Technological Development Area (TEDA) said an 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 a big use of land. Many of the new projects will be stopped if we can not get the approval for new land use," he said.

(China Daily March 31, 2004)