In the last three decades, without well-protected property rights and credible commitments to protecting such rights, without a full-fledged market system, with a seemingly strong central state that is plagued by fragmented powers within the center and at the local levels, China has nevertheless maintained a good-looking GDP growth number. What, then, has made China’s miracle possible? 

I study China’s national policy of Special Economic Zones to look into this question. Development Zone, or Special Economic Zone, is a “geographically delimited area” designated by the government that provides special policies applicable only to the businesses within the zone. I chose Special Economic Zone as a case not only because of its significance in China’s growth—China has become the exemplar for zone development among international organizations--but also, more importantly, it allows a careful examination of the roles of the center and the local authorities and the relationships between the two. On the one hand, the establishment of SEZ is a national industrial policy that is closely overseen by the central state ministry. The establishment of each new zone is approved by the State Council and the State Council has implicitly participated in developing some of the zones by granting some more favorable tax policies or land quotas. On the other hand, Special Economic Zone is deemed especially associated with the process of decentralization and opening up local and regional economies to the market. But some local officials use the zone development program as a means to get a larger quota of land for real estate development or redundant infrastructure construction so as to inflate GDP numbers in order to get a promotion and advance their career. Such divergent local practices have created cause for increasing concern regarding China’s land financing crisis and local debt crisis. 

The significant difference among the zones under study is in how local authorities have adopted different strategies in bargaining with the center and how the center has strategically granted different support to zones’ development. Previous analyses have focused on how growth clusters were formed but neglected the politics that backed up such a fortuitous process. How has the Special Economic Zone policy, which originally was designed as an industrial development policy, eventually become a land bubble creating instrument? What roles did the local and the center play in promoting this transition? How do the conflicting interests of different levels of governments interplay in this process? How do the institutional arrangements, central-local relationships, and the local authority’s reaction contribute to the formation of different development paths of Special Economic Zones?

The answers to these questions will contribute to theories in development studies and policies. This dissertation also explores the phenomenon of ambiguity in policy making and implementation. I use the term governance elasticity to describe government’s tolerance of mistakes and misconducts. This elasticity has made an indispensable contribution to the numerical growth of China’s economy. Such ambiguity has created the room for implicit bargaining among different levels of governments.