The impact of public construction investment upon special economic zones: the Chinese experience

Since embarking on economic reforms and the open door policy in 1979, China has been achieving rapid economic growth and development. The Chinese government has made substantial construction investment, especially in establishing the Special Economic Zones (SEZs) as test beds for development policies and homes for foreign investors. From the viewpoint of China, most of these investments are regarded as public investment. It is, therefore, of interest to examine the extent to which the investment benefits society. This paper analyses this type of investment by using a cost-benefit technique to build up a social cost-benefit model. The results indicate that the Chinese public construction investment, particularly in the case of the SEZs, is a beneficial investment from the standpoint of China's economic welfare. Although considerable public expenditure has been incurred in establishing the areas, the benefits, such as employment, foreign-exchange earnings and technical training, which the development has brought to China, have exceeded the costs. The infrastructure will remain and will benefit China in the long term. This is the main reason for the government to extend this type of development to the whole country.