Many people might think that Hong Kong is such a unique and one-of-a-kind city in the world. The truth is, there are quite a few other “Hong Kongs” scattered across the globe. Among them is Ciudad del Este (or the Eastern City), the second-largest city in Paraguay, which I have recently visited.
As a relatively less-developed and landlocked country in South America, Paraguay is at a huge disadvantage when it comes to trade and economic development.
Back in the 1860s, a succession of leaders with burning military ambitions tried to improve their country’s geopolitical situation by waging war on its much more powerful neighbors, i.e., Brazil and Argentina, only to suffer a series of crushing and humiliating defeats.
As a result, Paraguay had to face the harsh reality and find another way out of its problems.
It is against this historical background that Ciudad del Este, an experimental special economic zone which lies in an area overlapping the territories of Paraguay, Brazil and Argentina, was founded.
Built in 1957, Ciudad del Este was intended by the military dictatorship in Asunción not only as a bridge to Brazil and Argentina, but also as a window to the rest of the world.
The economy of the “Eastern City” started to take off in the 1970s and ’80s, when the government embarked on the Itaipu Dam project,which is now often dubbed as one of the modern-day seven man-made wonders of the world, along the nearby Parana River.
After the dam was completed, many of the workers and engineers chose to settle in Ciudad del Este permanently, thereby providing the city with the necessary technology and human resources.
Since the Itaipu Dam has also brought substantial economic benefits for Brazil and other neighboring states, these countries are eager to recognize the special status of Ciudad del Este and offer the city special treatment.
In the meantime, over the years the Paraguayan government has also fully utilized the geographical advantage of Ciudad del Este by implementing its own “one country, two systems” in the city. Under this policy, free population flow is allowed and an “active non-intervention” economic policy is adopted by the local authorities.
Not only are there no income tax, sales tax and tariffs in the Eastern City; the use of foreign currencies such as the Brazilian real, the Argentine peso and the US dollar as mediums of exchange is also legal and very common.
Nevertheless, one of the unintended consequences of this free market policy is that it has given rise to a flourishing black market and a rough neighborhood, in which smuggling, trading of knockoffs, drugs and weapons, and even human trafficking have become as rampant as one can imagine.
Meanwhile, thanks to the absence of tariffs, the availability of virtually all sorts of goods at relatively low prices, as well as open borders, hundreds of thousands of Brazilians are flocking to Ciudad del Este every day to buy consumer products ranging from clothes and toys to electronic gadgets like mobile phones, computers and digital cameras.
The city’s booming economy has contributed nearly 60 percent of Paraguay’s gross domestic product. At one point, Forbes rated Ciudad del Este, Miami and Hong Kong as the world’s three largest entrepôts.
In recent years, apart from people from the neighboring South American states, the Eastern City has also seen the influx of foreigners from other parts of the world such as Lebanon, Iran, South Korea, China and Taiwan.
In the early days, Chinese people doing business in the city were predominantly Taiwanese, mainly because Paraguay, even to this day, still maintains official diplomatic ties with Taiwan.
Yet, with the rapid expansion of Beijing’s economic influence on the global scene, mainland Chinese now have a bigger presence than Taiwanese.
As far as the black market in Ciudad del Este is concerned, it is said that its size and sales volume have even surpassed those of the “regular” market.
It is also said that terrorist groups such as Hezbollah and Al Qaeda have established their footholds in the city.
Last but not least, Ciudad del Este is also a famous, or infamous, tax haven in South America, bringing in tens of billions of dollars in foreign income for the Paraguayan government every year.
Despite the United States’ global crackdown on terrorism financing, it has remained pretty much business as usual in the Eastern City, which has already become a highly effective financing tool for Asunción.
In a sense, the present-day Ciudad del Este is simply fulfilling the same role for Paraguay as that of Hong Kong for China in the past.
And crossing the Brazilian border into Ciudad del Este was just highly reminiscent of walking across the Lo Wu bridge between Hong Kong and the mainland back in the old days.
This article appeared in the Hong Kong Economic Journal on July 24
Translation by Alan Lee
[Chinese version 中文版]
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