Special Economic Zones: How one city helped propel its country’s economic development

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Special Economic Zones (SEZs) have been around since the 1950s. Shannon Airport in Ireland, Dubai South in the United Arab Emirates (UAE) and Xiamen in China are just some examples. However, through pro-globalization work, their importance can be truly felt.

According to PriceWaterhouseCoopers (PwC), there were 845 SEZs in 93 markets worldwide in 1997, growing to 5,400 zones in 147 markets in 2018. States have used these areas, which have special economic regulations separate from the rest of the country, to help bolster economic development. China has been one of its main proponents.

The country has grown from being a closed economy with little interaction beyond its borders to ranking as the second-largest economy after the United States with such growth due to economic development spread across different verticals. 

If done well, SEZs are a great vehicle for international trade and foreign direct investment (FDI) to drive economic development. They reassure investors and those exploring business in a particular jurisdiction that the mitigation of risk can be reduced or eliminated in a market. From the proper infrastructure (i.e. seaports and airports) to legal exemptions provided by the host country or alignment with Western models, SEZs have been used as a bridge to encourage and accelerate the development of trade and investment.

Few may remember when Shenzhen wasn’t China’s largest city – 17 million people in 2020 – but a humble fishing village of 30,000 over 40 years ago. In 1979, it became one of China’s first SEZs and began attracting increasing numbers of people searching for employment, leading to overpopulation. While most Chinese cities were still developing their manufacturing base, Shenzhen had developed a strategy to transition its economy. 

Between 2012–2016, the cultural and creative industries grew on average 14% annually; in 2016, they represented 10% of Shenzhen’s GDP. The former humble fishing village has received nearly $300 billion in FDI and over 90,000 foreign enterprises have been established since economic reforms began in China. 

Shipping and logistics arguably played a large part in its success, benefiting from a good location and proximity to the British colony Hong Kong, a source of most of its investments, high technology and financial services. Shenzhen initially attracted significant manufacturing, its location enabling it to export to the rest of the world and become a major manufacturing hub. It spurred its economic development by attracting high-value and knowledge-intensive sectors like high technology and financial services and is home to world-renowned Chinese innovative brands such as Huawei and Tencent. 

China is the world’s largest country by population – at present, over 1.4 billion people, according to the UN. In 1978, when economic reforms were introduced, there were over 975 million people living there, with 250 million belonging to the rural poor. However, after reforms were introduced, the population classed as poor decreased to 32 million by 2000, according to some measures. In 2021, Chinese President Xi Jinping announced that China had eradicated extreme poverty. China and Shenzhen are success stories when implementing SEZs that promote economic development. 

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