Special Economic Zone

• Geographically delimited area • Offer benefit based on physical

location

• Single management or administration • Separate customs area (duty-free) and

streamlined procedures
 TYPE OF SEZs

1)Free Trade Zones/Free Port - Goods can be traded, handled, landed, manufactured
without intervention of customs authority. They are usually located at entry ports. First
started in Ireland in 1959 (Shannon Free Zone)
2)Export Processing Zones - These are set up specially by governments to promote
industrial and commercial exports.
3)Industrial Parks - It is an area specially zoned for economic development and is usually
located on the fringes of a city. The idea is to provide infrastructure all in one place with
heavy access to transport facilities.
4)Bonded Logistic Park - It is a special zone where goods may be stored, manipulated and
undergo manufacturing operations without payment of duty. These are similar to free
trade zones, except they may or may not have port facilities.
5)Urban Enterprise Zone - A special area in urban locations, especially under-developed
neighborhoods where companies can set-up with tax relief offered.
Many of the above terms are used under the broad umbrella of SEZs and often inter-
changeably in some countries. 
 Special Economic Zone Benefit
Direct Indirect

Foreign Testing
Foreign
Exchange Field
Direct
Earning Investment Skills
Upgrading

Technology
Government Transfer
Revenue
Demonstration
Employment Effect
Generation

Export Export
Growth Diversification Trade
Efficiency
 Industrial Clusters

Characteristics of Small and medium locally One or several large firms Medium and large branch Large public or nonprofit
member firms owned firms with numerous smaller plants entity, and related
supplier and service firms supplier and service firms
Intra-Cluster Substantial Inter-firm trade Cooperation between large Minimum inter-firm trade Restriction of purchase-
Inter-dependencies and collaboration firms and smaller suppliers and networking sale relationships
on terms of the large firms between public entity and
(hub firms) suppliers
Prospects for Dependent on synergies Dependent on growth Dependent on ability to Dependent on region’s
employment and economies provided by prospects of large firms recruit and retain branch ability to expand political
cluster plants support for public facility
 SEZs and Clusters : Top down vs bottom up
Top
Up
Down

Information & Communication Electronic &

Technology Biotech Software Optoelectronics
Bottom

Zhongguancun Shenzhen Pudong

(Beijing) Dalian Wuhan
(Shanghai)
 Special Economic Zones in China:
A Testing Lab for the Market Economy

1. The Establishment of SEZs in China

2. Contribution of SEZs to China’s Development
• To GDP
• To foreign investment
• To employment
• To high technology

3. Major Factors for Success and Lessons Learned

• Strong commitment to reform and pragmatism from top leadership
• Preferential policies and institutional autonomy
• Strong support and proactive participation of governments
• Foreign Direct Investment (FDI) and Chinese Diaspora
• Technology learning, innovation, upgrading, and strong links with the domestic economy
• Innovative cultures
• Clear objectives, benchmarks and intense competition
• Location advantages
 The Establishment of SEZs
in China

1978 Reform & Opening Up, Deng Xiaoping

Planned in Guangdong

1984
Guangdong =
1979 Shenzhen, Zhuhai, Shantou
Dalian
Qinghuangdao Fujian = Xiamen
Tianjin
Qingdao Yantai 1984 Dalian, Qinhuangdao, Tianjin, Yantai,
1990 Qingdao, Lianyungang, Nantong,
Lianyungang
Shanghai, Ningbo, Wenzhou, Fuzhou,
Nantong Guangzhou, Zhanjiang, Beihai
Shanghai
Ningbo 1988 Hainan Island = Biggest SEZ
1979 Wenzhou
1990 Shenzhen = Pudong (as dragon head)
1978 Fuzhou

1988 Guangzhou 15 FTZs,

1992 –
Beihai 32 State-level economic &
Present
technological development zones
Zhanjiang 53 HIDs
 The Establishment of SEZs in China (Zone Cluster)

HIDZs FTZs ETZs

High-tech Industrial Development Zones Free Trade Zones Export-processing Zones
1990  Waigaoqiao (Shanghai)
1980s – Zhongguan
• Export oriented industries
• Export processing
• Foreign trade • Enhance foreign exchange earnings
• Logistic & bonded warehousing

Z-Park

54 state-level HIDZs  25 coastal

15 FTZ  13 Coastal
Contribution of SEZs to China’s Development

Indicator SEZ ETDZs China

Total Employment
Millions 15 4 758
% of Total 2.0% 0.5% 100%

Real GDP
RMB 100 Millions 9,101 8,195 183,085
% of Total 5.0% 4.5% 100%

Utilized FDI
RMB 100 Millions 55 130 603
% of Total 9.1% 21.6% 100%

Merchandise exports
RMB 100 Millions 1,686 1,138 7,620
% of Total 22.1% 14.9% 100%

Total Population
Millions 25 - 1,308
% of Total 1.9% - 100%
 Cluster Formation (elements)
1. The open door policy and reform
2. Long history of production or business activities in a particular sector
3. Proximity to major local markets and infrastructures
4. Entrepreneurs with tacit knowledge and skills in production and trading
5. FDI and the diaspora
6. Natural and human endowment
7. Market pull
8. Government facilitations and industrial transfers
 How the Clusters Succeeded and Took Off

1. Efficiency gains and lowered entry barriers

2. Effective local government support
• Infrastructure building
• Regulations, quality assurance and standards setting
• Technology, skills and innovation support
• Preferential policies and financial support
3. Knowledge, technology and skill spillovers through inter-firm linkages
4. Entrepreneurial spirit and the social network
5. Innovation and technology support from knowledge and public institutions
6. Support from industrial associations and other intermediary organizations
 REFLECTIONS ON THE EXPERIENCES OF CHINA’S SEZS AND INDUSTRIAL
CLUSTERS
• Strong commitment from the top leadership and high-level pragmatism,
flexibility, and autonomy
• A gradualist approach toward reform
• Proper role of the government
• FDIs and the diaspora
• Public-private partnership approach
• Technology innovation, adaptation and learning
• Clear goals and vigorous benchmarking, monitoring, and competition
 CHALLENGE TO THE SUSTAINABLE DEVELOPMENT OF CHINA’S SEZ AND
INDUSTRIAL CLUSTERS

• Moving up the Global Value Chain

• The Sustainability of Export-Led Growth
• Environmental and Resource Constraints
• Institutional Challenge
• Lagging Social Development
• For specific to SEZs or clusters
• Diminishing of the preferential policies and privileged status
• Homogeneity problem
• For clusters
• Fragmentation and lack of horizontal linkages
• Lack of skilled technical and managerial personnel
 POLICY IMPLICATIONS
Gradually Moving toward a More
Knowledge and Technology-Based
Development Model
• Innovation and technological intensive to
complement low-cost labor & factor-based growth
model
Putting More Emphasis on Domestic
Markets and Consumption as a source
of Growth
• Export = Domestic
Implementing Strict Environmental
Standards
• Environment polluting sectors  Green technologies
• Tianjin eco-city
Upgrading the SEZs and Industrial
Clusters through Technology
Innovation and Learning
• Strengthening intellectual property rights
protection
• Providing the right incentives or pressure for
enterprise-led innovation
• Improving SME innovation capacity
• Strengthening university-industry linkages
• Strengthening the financial sector, especially the
ecosystem of venture capital industry
Further Deepening Institutional Reforms
• Deepen institutional reforms
• Better legal environment
• Efficient administrative & regulatory system
• Effective monitoring and supervisory system
• Let PPP play bigger role