PERSPECTIVE: THE EVOLUTION OF CHINA’S SEZS
Special economic zones were key to the development of many emerging markets, but how relevant are they in today's China?
Special economic zones are key to the development of many emerging markets, but how relevant are they in today’s China?
In recent years, SEZ (special economic zone) has become a buzzword in many developing countries and even in international and regional development agencies. In China, it has always been a focal point given the important role it has been playing in the country’s policy reform and economic development. The announcement of another mega- SEZ near Beijing earlier this year – the Xiongan New Area again stirred fresh debates both in China and overseas. Does the SEZ still have much relevance to China’s development? Haven’t they, to some extent, completed their task of introducing reform and boosting investment and growth? Given China’s development level today, there is no surprise for people to wonder about it.
Looking back to China’s development history, SEZS have played a very important role in China’s industrialization and structural transformation, and, to a large extent, they are the key to interpret China’s economic miracle. Throughout the globe, so far China might be the most successful country in terms of leveraging SEZS to achieve far-reaching economic transformations. It started with four zones at the initial stage to experiment with market-oriented economic reforms that involves laws, regulations, taxation, land, labor, finance, customs, immigration, etc. After the initial successes, the zone program and relevant reforms were gradually rolled out throughout the nation. Together with the numerous industrial clusters, the SEZS have contributed significantly to national GDP, employment, exports, and attraction of foreign investment. The SEZS have also played important roles in bringing new technologies to China and in adopting modern management practices.
After decades of central planning, China adopted the Open Door policy in 1978, and in July 1979, it decided that Guangdong and Fujian provinces should take the lead in opening up to the outside world and implement “special policies and flexible measures”. In 1980, Shenzhen, Zhuhai, and Shantou in Guangdong Province, and Xiamen in Fujian Province were designated as special economic zones. The four SEZS were quite similar in that they comprised large areas within which the objective was to facilitate broadly based, comprehensive economic development, and they all enjoyed special financial, investment, and trade privileges. They were encouraged to pursue pragmatic and open economic policies that would serve as a test for innovative policies that, if proven successful, would be implemented more widely across the country.
The combination of favourable policies and the right mixture of production factors in the SEZS resulted in unprecedented rates of growth in China. For example, against a national average annual GDP growth of roughly 10 per cent from 1980 to 1984, Shenzhen grew at a phenomenal 58 per cent annual rate. The initial opening to trade and investment having proved successful, China resolved to open its economy further. From 1984 to 1988, 14 economic and technological development zones (ETDZS, smaller SEZS or Chinese version of industrial parks) were established in additional coastal cities and in the following years in cities in the Pearl River Delta, the Yangtze River Delta, and the Min Delta in Fujian. In 1988, the entire province of Hainan was designated as the fifth comprehensive SEZ, and in 1989 and 2006, Shanghai Pudong New Area and Tianjin Binhai New Area were granted such status as well.
In addition to the SEZS mentioned above, there are many other types of SEZS in China at various levels, which include high-tech industrial development zones (HIDZS), free trade zones (FTZS), export-processing zones (EPZS), and others. Each has a different focus. By April 2017, China has seven mega-size comprehensive SEZS, 219 national-level ETDZS, 156 national-level HIDZS, and many other zones. Economically, SEZS have contributed significantly to national GDP, employment, exports, and attraction of foreign investment and new technologies. The latest figures are not available, but based on my estimation several years ago, SEZS (including all types of industrial parks and zones) at national levels accounted for about 22 per cent of national GDP, 46 per cent of FDIS, and 60 per cent of exports and generated in excess of 30 million jobs.
Senior Economist of the World Bank, Douglas Zhihua Zeng is a renowned global expert on spatial economy, technology innovation and competitiveness.
Besides economic development goals, China’s SEZS have been tasked with the grand mission of testing new reforms in the different stages of development. This may be the most important feature of Chinese SEZS, which distinguish them from those in many other countries, and are often called “reform zones” versus predominant “concession zones”. This helps explain why China’s SEZS have been always more or less relevant to the country’s development agenda rather than being completely regarded as “mission accomplished”. Globally, if we regard the first generation of zones as SEZ 1.0, which is mostly export-processing type, the second generation of zones (multi-functional but still mostly manufacturing-oriented) as SEZ 2.0, then today China is aiming for SEZ 3.0, which is a more service-oriented and eco-friendly type of zone, and also well-integrated with city development. This is represented by the Qianhai Shenzhen-hong Kong Modern Service Industry Cooperation Zone (“Qianhai SEZ”) and the Shanghai Free Trade Zone launched in 2013, and other free trade zones subsequently launched (now totally 11 FTZS) and ecoindustrial parks, which are oriented towards further management system reforms (such as the “negative list”), service sector reforms, high-tech areas and green growth. The main objective is to help with China’s industrial upgrading and transformation of the growth model, and ultimately avoid the middleincome trap. To my knowledge, the Xiongan New Area is also in line with this goal.
Towards this end, China’s SEZS are now being given new missions in the new context. The difference is they are no longer designed for short-term growth but for longer-term reforms and sustainable growth, and the market is being given a larger role, which is crucial for long-term sustainability. In other words, the former is more outward-oriented, especially targeting FDIS, and the latter is more comprehensive and long-term, focusing on the wide needs of the national economy.