By Andrew Moody

 2020-08-28

On August 28, Gao Feng Advisory’s CEO Dr. Edward Tse was quoted by China Daily on China's SEZs

Establishment 40 years ago was first tangible sign of nation's reform and opening-up policy

China's Special Economic Zones, which are marking the 40th anniversary of being established, have powered the country's economic transformation, according to experts.

The country's first four SEZs－in Shenzhen, Zhuhai and Shantou in coastal Guangdong province, and in Xiamen, Fujian province－opened in 1980 and were the first tangible sign of China's reform and openingup 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 being 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 with local companies as well as, in some cases, wholly owned entities.

The zones became magnets for foreign investment, particularly from Hong Kong, then under British rule, and from the Chinese diaspora from across Asia.

Wang Huiyao, president and founder of the Center for China and Globalization, the Beijing-based independent think tank, was a second-year student at Guangzhou University of International Studies at the time the zones were established and can remember the interest and excitement they caused.

"The whole mood in China was changing. The year before, in 1979, we had 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 an 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, which had been a fishing village, has become a leading technology-based megalopolis－the only city in the world with 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, owner of the WeChat social messaging app.

Its GDP has grown 10,000-fold, from 270 million yuan ($39.2 million) in 1980 to 2.69 trillion yuan last year.

Zhuhai, which has access to the Macao Special Administrative Region via the 55-kilometer Hong Kong-Zhuhai-Macao road bridge, Xiamen with its proximity to the economy of Taiwan, and Shantou have also seen exponential growth.

The Guangdong SEZs now form part of the new Guangdong-Hong Kong-Macao Greater Bay Area, which is set to be one of the most dynamic regions of China over the next decade.

Some have argued that with the SEZs, China was merely copying the model of the so-called four Asian tigers－Singapore, South Korea and the Chinese territories of Taiwan and Hong Kong.

However, Koh King Kee, president of the Centre for New Inclusive Asia, a Kuala Lumpur-based think tank, said this underplays the considerable achievement.

"Unlike China's SEZs, the Asian tigers in East and Southeast Asia 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 SEZ. 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 'cross the river by feeling the stones'," he said.

Vladimir Terzija, a professor of power system engineering at Manchester University in the United Kingdom as well as a distinguished professor at Shandong University who has witnessed China's development firsthand, said the SEZs set the tempo for the rest of China's development.

"They were extremely important. They set the role models for other cities to develop their economies and have provided useful lessons on how to succeed," he said.

Some believe the SEZs have demonstrated how government itself can be entrepreneurial when it sets its mind to it.

Jeffrey Towson, author with Jonathan Woetzel of The One Hour China Book and a former professor of investment at Peking University, said the SEZs were a demonstration of just that.

"It's about creating new economic models and then testing what works. Success depends on both the model and on the local management. You see the results, expand what works and end what doesn't," he said.

Towson also said that while the focus is usually on Shenzhen, it is important not to forget the achievements of the other three zones.

"Zhuhai has also been very successful. It is often ranked as one of the most livable cities in China, with more parks and green spaces than anywhere. Xiamen is also very successful."

Tse, who had just returned to Hong Kong after studying at the Massachusetts Institute of Technology in the US when the SEZs were formed, said nobody would have taken a bet then on them being the complete game changer they have become.

"In the US you have the Wall Street financial center on the east coast in New York and you have the technology center on the west coast with Silicon Valley," he said.

"What you see emerging in Shenzhen is a global tech center and an emerging financial center in the same city. It is quite phenomenal."

Koh at the Centre for New Inclusive Asia believes that with China planning to invest $1.4 trillion in new technology as part of its post-pandemic recovery plan, it is not impossible that Shenzhen will rival Silicon Valley as a technology center.

"With its large pool of talent in digital and artificial intelligence technology, it is not impossible it may emerge as the world's, and not just China's, innovation center," he said.

Following the establishment of the SEZs, China went on to open 14 other coastal cities to overseas investment, including Dalian, Tianjin and Ningbo, in 1984.

It has since set up national and local high-tech zones, as well as free trade areas, to foster development.

Wang at the CCG, who remembers going to Shenzhen in 1983 and buying some of the first goods produced there, such as tape recorders and electronic calculators, said it would be difficult to replicate elsewhere the success of the SEZs and what has happened since in China.

"What has made it work has been the commitment of government and the sophistication of that State support," he said. "What China had at the beginning also was a very willing and large workforce that wanted to make it all work."