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China’s special economic zones, which are marking the 40th anniversary of their establishment, have powered the country’s economic transformation over those four decades, according to experts.
The country’s first four SEZs, in Shenzhen, Zhuhai and Shantou in Guangdong province, and Xiamen in Fujian province, which opened in 1980, were the first tangible sign of China’s reform and opening-up policy, which had been initiated two years earlier.
Edward Tse, founder and CEO of Gao Feng Advisory, a management consultancy, said they were a “hugely significant step” in China’s journey from a largely agrarian society in the late 1970s to becoming the world’s second-largest economy. “Until then China had a largely top-down planned economy. Society was very poor and these zones became a hotbed of experimentation in terms of creating a vibrant private sector,” he said.
Companies were offered major tax incentives to locate in the zones, import tariffs were lowered and foreign companies were allowed to set up joint ventures, as well as in some cases wholly owned entities. The zones became magnets for overseas investment, particularly from Hong Kong and overseas Chinese across Asia.
Wang Huiyao, president and founder of the Center for China and Globalization, a Beijing-based think tank, was a second-year student at Guangzhou University of International Studies at the time and can remember the interest and excitement the zones caused. “The whole mood in China was changing. The year before, in 1979, we had the opening of diplomatic ties with the United States. The SEZs, however, were the real opening-up. They changed everything,” he said.”They were a n experimentation ground for all kinds of concepts, from the way companies were formed to private ownership of real estate.”
The success of the zones has been spectacular. Shenzhen has grown from a fishing village to one of the most technology-based cities, and the only one in the world that has full 5G access. It is home to some of China’s leading tech giants, including telecommunications companies Huawei and ZTE as well as Tencent Holdings, which owns the WeChat social messaging app.
Its GDP has grown 10,000-fold from 270 million yuan ($39.24 million) in 1980 to 2.69 trillion yuan last year. Zhuhai, which can now access Macao by the 55-kilometer Hong Kong-Zhuhai-Macao Bridge, Xiamen, with its proximity to the economy of Taiwan, and Shantou have also seen exponential growth.
The special economic zones in Guangdong now form part of the new Guangdong-Hong Kong-Macao Greater Bay Area, which is set to be one of the most dynamic regions in China over the coming decades. Some have argued that with the zones, China was merely copying the examples of highly successful East Asian and Southeast Asian economies.
But Koh King Kee, president of the Centre for New Inclusive Asia, a Kuala Lumpur-based think tank, insists this underplays the considerable achievement. “Unlike China’s SEZs, the East and Southeast Asian tigers just had basically industrial parks with special tax incentives or free trade zones with bonded warehouses to attract foreign direct investment,” he said.
“Shenzhen, in particular, is no ordinary special economic zone. It was China’s first test ground for a market economy while the rest of the country remained very much planned. It was the embodiment of Deng Xiaoping’s development strategy of ‘crossing the river by feeling the stones’,” he said.