The Chinese local administrative measures for building up the 'Headquarter Economy': A comparison between Pudong and Shenzhen

Journal of Contemporary China

Volumn 21, Issue 73, 2012, Pages 149-167

  Che Po, Chan ^a   Wai Kit, Poon ^a  

^a LINGNAN UNIVERSITY   (Hong Kong)

Author keywords

[No Author keywords available]

Indexed keywords

ADMINISTRATIVE FRAMEWORK; ADMINISTRATIVE REFORM; INVESTMENT; LOCAL GOVERNMENT; MULTINATIONAL ENTERPRISE;

CHINA; GUANGDONG; PUDONG; SHANGHAI; SHENZHEN;

EID: 84858978943     PISSN: 10670564     EISSN: 14699400     Source Type: Journal    
DOI: 10.1080/10670564.2012.627671     Document Type: Article

References (86)

1. The term 'headquarter economy' first appeared in Zhao Hong, 'Lun "zongbu jingji" yu zhenxing Beijing xiandai zhizaoye' ['Discussion on "headquarter economy" and revitalization of Beijing's modern industrial production'], Shoudu Jingji [Capital Economy] 3, (2003), pp. 13-16.
2. Zhao Hong, Zongbu jingji ji qi zai woguo de fazhan' ['"Headquarter economy" and its development in China'], Jianghai Xuekan [Jianghai Academic Journal] 1, (2005), pp. 61-64.
3. Qin Jingyun, "Zongbu jingji: gainian yu xianzhuang' ['Headquarter economy: conception and condition'], Shanghai Zonghe Jingji [Shanghai Economic Forum] (Shanghai) 11, (November 2003), p. 57.
4. David A. Heenan, 'The regional headquarters decision: a comparative analysis', Academy of Management Journal 22(2), (June 1979), pp. 410-415.
5. Shah Tarzi, 'Foreign direct investment flows into developing countries: impact of location and government policy', The Journal of Social, Political, and Economic Studies 30(4), (Winter 2005), pp. 497-515.
6. Robert J. Rolfe et al., 'Determinants of FDI incentive preferences of MNEs', Journal of International Business Studies 24(2), (2nd Quarter 1993), pp. 335-355.
7. Dean A. Yoost and John E. Fisher, 'Choosing regional HQs in Asia', International Tax Review 7(3), (March 1996), pp. 35-39
8. And Michael E. Porter, 'Clusters and the new economics of competition', Harvard Business Review 76(6), (November/December 1998), pp. 77-90.
9. Zhao Simon X. B. et al., 'Asymmetric information as a key determinant for locational choice of MNC headquarters and the development of financial centers: a case for China', China Economic Review 16(3), (2005), pp. 308-331.
10. Michael J. Enright, 'Regional clusters and multinational enterprises: independence, dependence, or interdependence?', International Studies of Management & Organization 30(2), (Summer 2000), pp. 114-138.
11. Thomas Klier and William Testa, 'Location trends of large company headquarters during the 1990s', Economic Perspectives 2Q, (2002), pp. 12-26.
12. John H. Dunning and George Norman, 'The theory of the multinational enterprises: an application to multinational office location', Environment and Planning A 15, (1983), pp. 675-692.
13. John Holt et al., 'Decision factors influencing MNEs regional headquarters location selection strategies', in Arie Y. Lewin et al., eds, Thought Leadership in Advancing International Business Research (Basingstoke: Palgrave Macmillan, 2008), pp. 104-133.
14. Klier and Testa, "Location trends of large company headquarters during the 1990s', pp. 12-26
15. James C. Davis and J. Vernon Henderson, 'The agglomeration of headquarters', Regional Sciences and Urban Economics 38(5), (2008), pp. 445-460
16. and Michael E. Porter, Competitive Advantage of Nations (New York: The Free Press, 1990), pp. 26-27.
17. J. P. A. Sagaram and J. Wickramanayake, 'Financial centers in the Asia-Pacific region: an empirical study on Australia, Hong Kong, Japan and Singapore', Banca Nazionale del Lavoro Quarterly Review 58(232), (March 2005), pp. 21-51
18. and Enright, "Regional clusters and multinational enterprises', pp. 114-138.
19. Beijing Municipal People's Government, 'Provisions of Beijing Municipality on encouraging multinational corporations to establish regional headquarters', Beijing Municipal Commission of Commerce, (5 September 2004), available at: http://www.bjmbc.gov.cn/web2/fcsArticleDetail.jsp?article_id1/410944470000001.
20. The term 'regional headquarters', used in the Chinese literature, could mean China headquarters, Greater China headquarters, Northeast Asia region headquarters or Asian-Pacific region headquarters.
21. See Hu Xuefeng et al, 'Beijingshi diyici quanguo jingji pucha zongbu jingji fazhan fenxi' ['Analysis of the development of Beijing's headquarters economy in the first national economic census'], in Zhao Hong, ed., 2006-2007 nian: Zhongguo Zongbu Jingji Fazhan Baogao [The Development Report of China's Headquarter Economy: 2006-2007] (Beijing: Shehui Kexue Wenxian Chubanshe [Social Sciences Academic Press], 2006), pp. 227-242. Occasionally, the term 'regional headquarters' is used to describe headquarters governing different regions of China.
22. For the difference between 'corporate headquarters' and 'business unit headquarters
23. See Julian Birkinshaw et al., "Why do some multinational corporations relocate their headquarters overseas?', Strategic Management Journal 27(7), (2006), pp. 681-700.
24. Zhang Yuting and Zhang Tonggong, 'Wo guo zhongxin chengshi xiyin kuaguo gongsi zongbu fazhan zongbu jingji de duice yanjiu' ['Research on strategies of our major cities in their attraction of headquarters of the MNCs and in their development of the "headquarter economy"'], Tequ Jingji [Special Zone Economy], (March 2008), p. 209.
25. Other kinds of taxation include, among others, value-add tax, consumption tax, business tax, urban real estate tax, vehicle and vessel acquisition tax and license plate tax, stamp tax, custom duties and deed tax.
26. See Gu Kang et al., 'Zongbu jingji, diqujian shuishou jingzheng yu shuishou zhuanyi' ['Headquarter-based economy, regional tax competition and revenue transfer'], Shuiwu Yanjiu [Taxation Studies] 2(261), (2007), pp. 12-17.
27. Zhao Hong, "Kuaguo gongsi ruzhu moshi jieding yu xingcheng jili' ["The definition and mechanism of formation of establishment pattern of multinational corporations' headquarters'], Shanghai Zhaoshang Wang, (3 June 2006), available at: http://hq.zhaoshang-sh.com/zbjj/cgal/200606/20060630112205.html.
28. Zhao Hong, Zongbu Jingji [Headquarter Economy] (Beijing: Social Sciences Academic Press, 2005).
29. 22. Huang Qingshan and Guan Yadong, "Chanye shengji zhuanxing, zongbu jingji chengwei Shenzhen xiaoyi Futian xin yinqing' ["Industrial upgrading and transformation; headquarter economy brings economic benefits to Shenzhen and new driving force to Futian'], Shenzhen Shangbao, (18 November 2006), available at: http://office.focus.cn/newshtml/247513.html.
30. Thirty-five cities include the municipalities, provincial capitals and cities of Special Economic Zones.
31. See Beijingshi shehui kexueyuan Zhongguo zongbu jingji yanjiu zhongxin [Research Center on China's Headquarter Economy, Beijing Municipal Social Sciences Academic Institute] (hereafter RCCHE), 'Zhongguo 35 ge zhuyao chengshi zongbu jingji fazhan nengli pingjia', ['The evaluation of the capability to develop headquarters economy of China's 35 major cities'], in Zhao Hong, ed., 2005-2006 nian: Zhongguo Zongbu Jingji Fazhan Baogao [The Development Report of China's Headquarters Economy: 2005-2006] (Beijing: Shehui Kexue Wenxian Chubanshe [Social Sciences Academic Press], 2005), pp. 45-106. (This 'development report' has been published annually since 2005 by RCCHE. In what follows, we would quote this report for the different years as RCCHE followed by the year of publication).
32. Pudong, as a county of Shanghai, is here included as part of Shanghai in the comparisons.
33. Although Pudong is a county of Shanghai and is administratively affiliated with Shanghai, they have separate local governments and have undergone different administrative reforms. Pudong has become more and more autonomous from the direct administration of Shanghai. For the Shanghai administrative reform in the last decade, see Che-po Chan and Ren Xiao, 'The Shanghai administrative reform in the last decade: more rationalisation and marketisation?', China Report 44(3), (2008), pp. 233-249.
34. For the increasing autonomy of the Pudong government, see Che-po Chan and Wai-kit Poon, 'Evolution of the Pudong government: Chinese local administrative reform in adapting to an expanding market economy', China Information 20(2), (2006), pp. 237-274.
35. Under the index of 'degree of opening', the sub-index 'opening to other Chinese regions' emphasizes the flows of passengers, cargos and degree of information with other Chinese localities. The sub-index 'opening to international market', emphasizes the amounts of international trade and FDI and number of MNCs' headquarters and R&D institutes. See RCCHE, (2005, pp. 94-96).
36. Pudong: dao 2010 nian jinrong jigou huo chao 600 jia' ["Pudong may have more than 600 financial institutions by 2010'], Shanghai Pudong New Area Investment Projects Administration Office, (11 October 2007), available at: http://www.bizpro.gov.cn/website/common/content.jsp?ct_id1/422778&sj_id1/4282&sj_name1/4&sj_dir1/4Imp-News&sj_parentid1/4271.
37. RCCHE, (2006, p. 44).
38. Some financial institutions, such as China Merchants Bank, Shenzhen Development Bank and China Ping An Insurance, have their financial businesses based in Shenzhen.
39. See Zha Zhenxiang, "Shenzhenshi zongbu jingji fazhan yanjiu' ["Research on the development of headquarters economy of Shenzhen'], in Le Zheng, ed., 2007 Nian: Zhongguo Shenzhen Fazhan Baogao [2007: The Report on the Development of China's Shenzhen] (Beijing: Social Sciences Academic Press, 2007), pp. 393-407 at p. 400.
40. Li Xiaoting, "Shen jinrongye zongbu jingji ju youshi' ["Shenzhen has advantage in the development of "headquarter economy" for the financial sector'], Takungpao (Hong Kong), (6 August 2007), p. A18.
41. Li Wensheng et al., "Gang Shen jinrong "tongchenghua" bingfei mengxiang' ["It is not a dream to have Hong Kong and Shenzhen to become one financial center'], Shenzhen Tequ Bao [Shenzhen Special Zone Daily], (12 March 2007), available at: http://paper.sznews.com/tqb/20070312/ca2605782.htm.
42. Diyi Zixun [The First Consultant], Kuoguo gongsi diqu zongbu yichu xiaoying fenxi [Analysis on the Beneficial Effects After the MNCs have Established Regional Headquarters], (9 August 2007), available at: http://www.firstconsultant.cn/index.php?&action1/4newsinf&onw_id1/41396.
43. Multinationals favor Pudong for regional HQs', People's Daily Online, (16 October 2001), available at: http://english.people.com.cn/english/200110/16/eng20011016_82377.html.
44. Examples of information and technology industry in Shenzhen which have registered headquarter status include IBM, OMRON, Panasonic, Philip and Sanyo. See Ministry of Commerce of the Special Commissioner's Office in Shenzhen, Shenzhen dali fazhan zongbu jingji, kaichuang quyu jingji hezuo xin tujing [Shenzhen Develops Headquarter Economy with Great Efforts and Initiates New Approach to Foster Regional Economic Cooperation], (23 May 2007), available at: http://sztb.mofcom.gov.cn/aarticle/zhuantdy/200705/20070504698520.html.
45. Shenzhen zongbu jingji zhankai dongren huajuan' ['The Shenzhen "headquarter economy" has a good start'], Luohu E-Government, (8 October 2008), available at: http://www.szlh.gov.cn/main/zfjg/qzsdw/wlyq/008/69039.shtml.
46. Youhui zhengce xiaoshi zongbu fenfen qianxi, Shenzhen zongbu jingji zaoyu pingjing' ["Vanishing preferential policies lead to the relocation of headquarters, Shenzhen's "headquarter economy" has problems'], Zhonghua Gongshang Shibao [China Business Times], (20 April 2006), available at: http://news.xinhuanet.com/fortune/2006-04/20/content_4451378.htm.
47. Wang Yujian et al., "Changsanjiao quyu jingji tengfei de yinqing' ["The engine of the rapid economic development of the Changjiang River Delta'], China Financial Online Co. Ltd, (21 May 2007), available at: http://finance.jrj.com.cn/news/2007-05-21/000002253810.html.
48. Pudong Almanac 2006 (Shanghai: Pudong Nianjian Chubanshe, 2006), pp. 58-64.
49. Wang Xiaoqing, "Shenzhen fazhan zongbu jingji jiqing pengpai' ["Shenzhen is enthusiastic in the development of its "headquarter economy"'], Shenzhen Special Zone Daily, (1 August 2008), p. A06.
50. Bentu zongbu qiye xiaoyi jinzeng' ["A great increase in the enterprise productivity among the local domestic enterprise headquarters in the Futian district'], Shenzhen Shangbao [Shenzhen Business Newspaper], (7 October 2006), available at: http://www.sz.gov.cn/szyw/200610/t20061007_144049.htm.
51. Details of the Provisions (26 November 2004) are available at: http://english.mofcom.gov.cn/aarticle/policyrelease/domesticpolicy/200411/20041100310912.html.
52. The Shanghai required amount is still one of the highest among Chinese localities. For details, see Shanghai Municipal People's Government, 'Notice of Shanghai Municipal People's Government on promulgating the " Provisions of Shanghai Municipality on Encouraging Transnational Corporations to Establish Regional Headquarters', SMPG G [2008] no. 28, (7 July 2008), available at: http://www.shanghai.gov.cn/shanghai/node17256/node17261/node18956/node22714/userobject26ai18066.html.
53. It is easier to meet the headquarter registration eligibility requirement on 'total assets' than on 'registered capital' with the same amount of money.
54. Refer to Shenzhen Municipal People's Government, 'Shenzhen Shi Renmin Zengfu Bangongting guanyu yinfa Shenzhen Shi zongbu qiye rending banfa (shixing) de tongzhi' ['Circular of the General Office of the People's Government of Shenzhen Municipality on printing and issuing the measure of Shenzhen for the identification of headquarters enterprises (for trial implementation)'], Shenfuban (The General Office of the Shenzhen Government) [2008] no. 95, (12 September 2008), available at: http://www.sz.gov.cn/zfgb/2008/gb620/200810/t20081019_93423.htm.
55. Xiaoqing W. Ibid.
56. Shenzhen also factors 'gross earnings' and 'local tax paid' into the formula of the requirements for the 'comprehensive headquarters' and 'functional headquarters' as a way to lower the threshold for headquarter registration.
57. Pudong is part of Shanghai. In this section, unless Pudong has formulated its own regulations and has carried out its own program of preferential policies, we then will particularly mention Pudong; otherwise, any Shanghai policies mentioned are also applicable to Pudong.
58. So far, Shenzhen has a joint policy for both foreign and domestic enterprises in the development of a HE while Shanghai (Pudong) has two separate policies, a 2004 one for domestic enterprises and a 2008 one for foreign MNCs. The 2004 one was issued by the Pudong government and, in short, the rewards and financial subsidies given to domestic enterprises are much smaller in amounts and are not attractive to enterprises. Refer to Pudong New Area Government, 'Guanyu guli guonei da qiye zai Pudong Xinqu sheli zongbu de zhanxing guiding' [' Tentative provisions on Pudong New Area on encouraging the larger scale domestic enterprises to establish headquarters'], Pudong Investment, (2 March 2007), available at: http://www.pdi.org.cn/cn/club/policy_show.do?id1/4PANW00000570. Here, we mainly compare the 2008 Shanghai policy with the Shenzhen one.
59. See the Shanghai Municipal People's Government, 'Guanyu "Shanghaishi guli kuaguo gongsi sheli diqu zongbu de guiding" ruogan shishi yijian' ['Suggestions on the implementation of regulations of Shanghai Municipality on encouraging transnational corporations to establish their regional headquarters"'], Part One, Item One, Shanghai Foreign Economic Relation and Trade Commission, (3 December 2008), available at: http://www.investment.gov.cn/2008-12-09/1228039040421.html.
60. The amount of the subsidy depends on whether the industry is under the category favored by Shenzhen's industrial development policy and also varies with different types of headquarters. See Shenzhen Municipal People's Government, 'Guanyu yinfa jiakuai zongbu jingji fazhan ruogan yijian shishi xize (shixing) de tongzi' ['Implementation details on accelerating the development of headquarter economy of the Shenzhen municipality (for trial implementation)'], Shenfuban (The General Office of the Shenzhen Government) [2008] no. 96, Article 10, Shenzhen Medium and Small-Scaled Enterprises Service Center, (14 October 2008), available at: http://www.szsmb.gov.cn/content.asp?id1/449322.
61. Xiaoqing W. Ibid., Articles 8 and 9.
62. Half of the reward (RMB5 million) would be given to those which have half of the yearly business turnover (RMB500 million).
63. See the Shanghai Municipal People's Government, "Suggestions on the implementation of "regulations of Shanghai Municipality on encouraging transnational corporations to establish their regional headquarters"', Part One, Item Three.
64. Xiaoqing W. Ibid., Part One, Item Two.
65. Refer to Shenzhen Municipal People's Government, 'Implementation details on accelerating the development of headquarter economy of the Shenzhen municipality (for trial implementation)', Articles 11 and 12.
66. Xiaoqing W. Ibid., Article 23.
67. See the Shanghai Municipal People's Government, "Suggestions on the implementation of "regulations of Shanghai Municipality on encouraging transnational corporations to establish their regional headquarters"', Part Three.
68. See Shenzhen Municipal People's Government, Shenzhenshi zhichi jinrongye fazhan ruogan guiding shishi xize [Implementation Details on the Regulation of Shenzhen Encouraging the Development of Financial Industry], (10 February 2009), available at: http://www.sz.gov.cn/jrb/zcfggfxwj/jrgl/200902/t20090210_814573.htm
69. and Pudong New Area Government, Pudong Xinqu zhichi jinrong jigou fazhan de shishi banfa [Rules of Implementation on Supporting the Development of Pudong New Area's Financial Institutions], (February 2009), available at: www.pudong.gov.cn/Website//UploadPath/2009-5-5/26625562991728.pdf.
70. Pudong New Area Government, Pudong Xinqu cujin xiandai fuwuye de caizheng fuchi yijian [Opinions on Giving Financial Support to and Advancing the Development of Pudong New Area's Modern Service Industry], (3 March 2006), available at: http://www.pudong.gov.cn/website/html/shpd/investInfo_PDZCFG/Info/Detail_68521.htm.
71. Pudong New Area Government, 'Pudong zonghe peito gaige shidian qude xin jinzhan' [The experiment on Pudong government's comprehensive and interlocking reform makes progress], Shanghai Foreign Investment Promotion Platform, (10 December 2008), available at: http://www.investment.gov.cn/2009-02-04/1232343775769.html
72. and Shenzhen Municipal People's Government, Shenzhenshi zonghe peitao gaige zongti fangan [The General Provisions of the Comprehensive and Interlocking Reform of the Shenzhen City], (26 May 2009), available at: http://www.shenzhen.gov.cn/cn/xxgk/xwfyr/wqhg/fbh_46/fbg/200905/t20090526_1111017.htm.
73. For the ten major components of the Pudong 'comprehensive reform
74. see Chan and Poon, "Evolution of the Pudong government', pp. 239-240.
75. The major means for governmental intervention into enterprise affairs in China today is 'administrative examination and approval'. The procedures of examination and approval are long and bureaucratic and have reduced the incentives for foreign investment in China. To improve the investment environment, both the Pudong and Shenzhen governments have simplified the procedures by reducing the total time and number of items required for examination as well as government departments' involvement in the process of examination. See Tang Xiaoyang, 'Shenpi zhidu gaige shi zhengfu jigou gaige de yixiang zhongyao neirong' ['Reforming the "administrative examination and approval" is an important aspect of the government organizational reform'], Difang zhengfu guanli [Local Government and Management] 4, (2000), pp. 5-7.
76. For expectations on results of further administrative reforms in Shenzhen
77. See Shenzhen Municipal People's Government, Shenzhenshi zhengfu jigou gaige ji bumen sanding gongzuo qingkuang jieshao xinwen fabuhui [The Press Conference on Organizational Reform and the Work of the "Three Designations' of the Shenzhen Municipal People's Government'], (8 September 2009), available at: http:www.shenzhen.gov.cn/cn/xxgk/xwfyr/wqhg/fbh_51/wzzb/200909/t20090908_1189892.htm.
78. Pudong New Area Government, 'Pudong zonghe peito gaige shidian qude xin jinzhan'.
79. Quanguo shou jia jinrong shenpan ting zai Pudong chengli' ['The first financial tribunal in this country was set up in Pudong'], Shanghai Shang Bao [Shanghai Business Daily], (17 November 2008), available at: http://cnstock.xinhuanet.com/08school/2008-11/17/content_3845205.htm.
80. Refer to the China Banking Regulatory Commission, "Measures for the administration of enterprise group finance companies', Invest in China, (18 September 2006), available at: http://fdi.gov.cn/pub/FDI_EN/Laws/FinancialManagement/P020060918368385468285.pdf.
81. State Administration of Foreign Exchange, 'Guojia waihui guanliju guanyu kuaguo gongsi waihui zijin neibu yunying guanli youguan wenti de tongzhi' ['Circular from the SAFE to multinational companies on issues of internal transfer and management of foreign exchange funds'], Shenfuban (The General Office of the Shenzhen Government) [2004] no. 104, (18 October 2004), available at: http://www.safe.gov.cn/model_safe/laws/law_detail.jsp?ID1/480401000000000000,11&i.
82. Pudong New Area Government, Guanyu Pudong Xinqu kuaguo gongsi waihui zijin guanli fangshi gaige shidian youguan wenti de tongzhi [Nine experimental policies on foreign exchange administration carried out in Pudong, Shanghai] ('Nine Experimental Policies' hereafter), (February 2009), available at:www.pudong.gov.cn/Website//UploadPath/2009-5-5/26625562991728.pdf
83. also see Pudong New Area Government, 'Guanyu Pudong Xinqu kuaguo gongsi waihui zijin guanli fangshi gaige shidian' ['The pilot reform on multinational companies' system of foreign exchange administration in the Pudong New Area'], Sina Finance, (12 April 2006), available at: http://finance.sina.com.cn/g/20060412/1032645187.shtml.
84. After Pudong introduced the new 'offshore account' system, it has been successful and welcomed by the MNCs. The central government thus allowed the system's practice nationwide a year later. See the Ministry of Commerce, Supplementary Provisions to the Provisions on the Establishment of Investment Companies by Foreign Investors (2006), (26 May 2006), available at: http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/MinisterialRulings/t20060713_54580.jsp.
85. Diyi Zixun [The First Consultant], Xinqu kuaguo gongsi diqu zongbu qingkuang fenxi [Analysis of the Development of Regional Headquarters of Multinational Companies in the (Pudong) New Area], (9 July 2008), available at: http://www.firstconsultant.cn/UploadFiles/200872322418742.pdf.
86. Dapi zhizao qiye zongbu cheli Shanghai, san sixian chengshi cheng bifenggang' ['Many manufacturing corporations evacuated from Shanghai, the third and fourth rank cities became the harbor of refuge'], Sohu, (28 April 2009), available at: http://business.sohu.com/20090428/n263660436.shtml