The People’s Republic of China (PRC) weaponizes economic development zones to undermine Taiwan’s national sovereignty by placing Special Economic Zones (SEZs) in or near the last remaining bastions of Taiwanese support overseas to sway public opinion away from the nation.
Of the 6,500 SEZs worldwide, 2,500 are within China. What most people do not realize is that there are an additional 500 such zones outside of China.
As of this year, Nicaragua tenuously continues to diplomatically recognize the Republic of China (ROC). This is perhaps why PRC state enterprises are investing so much money into Nicaraguan economic development projects.
Chinese billionaire Wang Jing (王靖), chief executive officer of Beijing Xinwei Group, is raising US$50 billion to create a canal to compete with the Panama canal. The project’s price tag is three times higher than the entire GDP of Nicaragua — US$13 billion.
A second canal is inherently good — it would create thousands of jobs, boost Nicaragua’s economy and improve the efficiency of global trade.
However, one of the reasons behind the project should be clear — to sway Nicaragua away from the ROC and toward the PRC.
A major component of the canal would likely include the creation of dozens of SEZs along it to stimulate economic growth. The PRC often creates the zones to accompany its maritime infrastructure megaprojects, as can be seen with the Port of Colombo in Sri Lanka, the Port of Mombasa in Kenya and the Chancay Multipurpose Port Terminal in Peru. SEZs allow Chinese companies to partially exempt themselves from local laws. Chinese SEZs along the Nicaragua canal would also compete with Panama’s Colon Free Zone.
Neighboring Honduras is in a similar situation. It also recognizes the ROC, making it a target for Chinese economic development programs.
For years, Honduras faced significant problems with its power grid, despite having abundant water resources. The PRC stepped in, giving the Honduran government a US$300 million loan in 2015 on favorable terms to finance the creation of the Patuca III hydroelectric dam. Honduras then, in turn, hired Sinohydro, a Chinese state-run hydroelectric company, to build the dam. Patuca III became operational in December last year.
Honduran sources have revealed to the Adrianople Group, a US-based business intelligence firm that studies SEZs, that there are plans to construct Chinese SEZs in Honduras.
The Chinese zones would be incorporated under Honduras’ Organic Law of Employment and Economic Development Zones, or ZEDE, which allows private businesses to establish cities with nearly complete legal autonomy. ZEDE’s were created to help US businesses avoid problems associated with bureaucracy and corruption.
Chinese ZEDEs in Honduras would generate many much-needed jobs and investment. They would also sway public opinion in favor of the PRC and away from Taiwan.
Perhaps the future of Nicaragua and Honduras can be seen in El Salvador, which for decades had recognized the ROC.
However, in August 2018, El Salvador officially switched its support from the ROC to the PRC.
In the years leading up to the switch, China announced that it would invest hundreds of millions of dollars of development aid, including a US$40 million national library, a US$85 million water treatment plant and a brand new national stadium.
Only weeks after El Salvador’s official recognition of the PRC, the Chinese government announced the creation of six new SEZs — massive in scale — covering nearly 14 percent of El Salvador’s territory. Chinese state-run companies would have funneled hundreds of millions of dollars of foreign direct investment to Nicaragua through these zones.
However, the move has faced delays due to perceptions of a Chinese land grab.
Are the PRC’s zones good or bad? It entirely depends on perspective.
From the perspective of the people in the zones, they are often life-changing gifts of economic development. From the perspective of the PRC, they are cynical tools of foreign policy. From the ROC’s perspective, they are time bombs.
The PRC’s most powerful weapon is its ability to generate meaningful economic development. Chinese development projects positively impact the lives of the people in the regions where they occur — which is what makes them so threatening to the ROC.
While the PRC has significantly more money to offer than the ROC, it is far less subtle and agile.
The only way for the ROC to compete is through low-cost, high-impact investments.
Thibault Serlet is a special economic zones analyst.
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