Deregulated cities, however, seized the opportunity to link globally and quickly attracted both domestic and foreign investors. The success of these opened cities did not go unnoticed in other areas. Indeed, after Beijing announced in 1990 that it would invest RMB10 billion (about US$1.2 billion) in Shanghai's Pudong district - China's newest special zone - cities nationwide suddenly established their own zones and lobbied furiously to have them declared national-level export or high tech zones, with all the accoutrements of official preferential policies. By 1992 and Deng's southern tour, 'zone fever' was sweeping China. Within a year, over 8,000 zones of various kinds offered foreign and domestic investors exemptions from government taxes that they technically lacked the power to grant, but that nevertheless propelled the pace of internationalization.
Similarly, in 1987, then-premier Zhao Ziyang, hoping to use rural China's cheaper labor to promote his export-led growth strategy, opened rural industries to exports and foreign investors. The channels of global transactions were joint ventures (JVs), owned by both foreign and Chinese investors and supervised by local foreign trade officials. Joint ventures that exported the majority of their products (70 percent) had their revenues taxed at the preferential rate of 15 percent, as opposed to the standard 55 percent rate on domestic enterprises.
In the countryside, joint ventures allowed rural factories to circumvent the state's foreign trade monopoly and establish direct access to foreign markets. Also, foreign technology helped JVs create products that were in short supply domestically and could earn high profits. Local governments, which owned the rural enterprises, were also partner ...