From Follower to Leader: China’s Special Economic Zone Development and Its Global Implications and Lessons

My debut piece, “China and Latin America,” was published in 2012 in The European Financial Review as part of the magazine’s “China & the World Series.” Since its formal launch in 2013, the Belt and Road Initiative (BRI) has elevated the issue of “China and the World” to a worldwide center of public discourse, academic study, and policy discussion. The subject has been consistently and prominently in the news over the last year and a half, amplified by the US-China trade war, and has created a large and rising body of published studies and media commentary. I have taken the reader on a tour of China’s presence and effect in every corner of the globe via the 13 pieces published in this series so far with a variety of co-authors, including a number of undergraduate students from Trinity College in Connecticut. More significantly, I have endeavored to shed light on “China and the Globe” by establishing relevant links between local and regional growth and change occurring deep inside China and their echoes and expansions across diverse locations and borders around the world. The following article expands on the trans-local dimension of “China and the World” by examining how China evolved from a follower to a leader in the early stages of developing special economic zones (SEZs) within its borders and then extending this experience and expertise to other developing countries.

For numerous decades, special economic zones (SEZs) have been employed as a critical tool for national development around the globe.

China is unique not just in terms of the sheer quantity and type of SEZs it has constructed, but also in terms of the SEZs it has built in other developing nations. I begin this paper by tracing the history of SEZs into diverse and overlapping forms over the last four decades, demonstrating how SEZs have altered and continued to exist in their own right and as agents of growth. Second, I examine China’s evolution from a national follower to a worldwide leader in terms of establishing the world’s biggest number of SEZs, diversifying them domestically, and internationalizing them. Finally, I draw key lessons for developing nations from China’s development experience with SEZs.

A Thousand-Year-Old Story in the Twenty-First Century

The Economist (4 April 2015) dates the first free trade zone (FTZ) to around 3,000 years ago in ancient Phoenicia. Keller Easterling (2012) traced it back to the first-century B.C. Roman port of Delos in the Aegean Sea. From the FTZ-style Hanseatic League of the 13th to 17th centuries, we may fast-forward to the first contemporary zone, established in 1959 at Shannon airport in Ireland. South Korea and Taiwan followed suit in the 1960s and early 1970s, employing export processing zones (EPZs) to jump-start their export-oriented industrialisation. China took the SEZ method to growth to a new level in 1980, when it constructed four SEZs along its southeast coast (Shenzhen, Zhuhai, Shantou, and Xiamen) that were far bigger than the preceding EPZs and located inside or near existing cities.

From an estimated 500 in 1995, the number of special economic zones has increased to 5,400 in 147 countries (UNCTAD, 2019). Due to the huge number and diversity of SEZs, their performance varies significantly. China is the world leader in SEZ development, having successfully run the biggest number and most diverse kinds of SEZs. By contrast, SEZs in India and Africa have usually performed poorly, owing to a variety of factors such as inadequate infrastructural links, excessive bureaucracy, and reluctance to acquire property (ADB, 2015; UNDP, 2015). The timing of formation and governance structure are significant determinants or facilitators of SEZs’ uneven success. I revise my earlier typology of SEZs (Chen, 1995) to reflect today’s changing SEZ scene.

Table 1 illustrates four distinct kinds of SEZs throughout three major phases.

Free manufacturing zones (FMZs) denote the transition of production from labor-intensive and export-oriented to knowledge-intensive and innovative. Since they began hosting far earlier services such as duty-free products storage in FTZs, free service zones (FSZs) have evolved to include a larger range of more contemporary and high-end services such as logistics. While sector-specific zones (SSZs) and free trade zones (FSZs) have certain similarities, they have a shorter history and focus on more specialized economic tasks and activities that increasingly herald the future. Cross-border and extraterritorial SEZs are the most recent form, have the broadest geographic extent, and are really border-intensive and transnational in nature. This table seeks to remap SEZs as subnational units of economic development with a range of functions onto the development ladder of ascending or sliding national economies based on changing comparative advantages.