Chinese Special Economic Zones (SEZ): Powering the Economic Miracle
David TranvikLearn Chinese in China or on Zoom and gain fluency in Chinese!
Join CLI and learn Chinese with your personal team of Mandarin teachers online or in person at the CLI Center in Guilin, China.
In the past 40 years, China has seen unparalleled economic success. The establishment of Chinese Special Economic Zones (SEZs) has been a major factor in China’s decades-long boom.
Find out how the creation of SEZs transformed China into an economic powerhouse and how their success in China has led to SEZ adoption around the world.
History
Economists (经济学家 jīngjìxuéjiā) throughout the world have marveled at modern China’s impressive economic growth. China’s economic might is especially noteworthy considering the mess that the country’s economy was in as recently as the 1960s.
What are Chinese Special Economic Zones?
Special Economic Zones (SEZs) are designated areas in China where market-oriented economic policies were first tested under state supervision.
Among the many economic reforms introduced during this period was the establishment of Chinese Special Economic Zones (经济特区 jīngjìtèqū). These are unique areas in which business and trade laws differ from those found in the rest of the country.
How “reform and opening-up” created the conditions for SEZs
While there are many contributing factors to China’s recent growth, a chain of events in the late 1970s is largely considered to have provided the impetus for China’s economic miracle.
After the founding of the People's Republic in 1949, Chairman Mao (毛泽东 Máo Zédōng) led the country to follow a Soviet-style economic model that centered on agricultural collectivization. This system failed to industrialize China and resulted in 25 years of stagnant economic growth.
Following Mao’s death in 1976, the Chinese government decided to break with its Soviet-style economic policies and developed a model known as “reform and opening-up” (改革开放 gǎigé-kāifàng).
Deng Xiaoping (邓小平 Dèng Xiǎopíng), who led China during the 1980s, believed in gradually reforming the economy according to free-market principles combined with only moderate central government control.
This dramatic shift in economic policy was legitimized by the Chinese Communist Party and came to be represented by the phrase, “Socialism with Chinese Characteristics” (中国特色社会主义 Zhōngguó tèsè shèhuìzhǔyì).
These Special Economic Zones, commonly referred to as SEZs, served as China’s first window into the global economy and brought about immense changes to Chinese society.
These SEZs marked China's shift from a stagnant Soviet-style model to "Socialism with Chinese Characteristics," acting as experimental hubs that launched the nation’s rapid global economic growth.
Characteristics of Chinese Special Economic Zones
Initially, the Chinese government created SEZs along the coast for the purpose of attracting foreign investment (外资 wàizī), boosting exports, and importing science and technology (科技kējì) products.
However, after experiencing the success of the SEZ model, China not only expanded the SEZs into different locations but also continued to refine their functionality and purpose.
The Original Chinese SEZs
By the end of 1978, Xi Zhongxun (习仲勋 Xí Zhòngxūn), the father of current Chinese leader Xi Jinping (习近平 Xí Jìnpíng), had been appointed as the Party Secretary of Guangdong Province and tasked with developing the Guangdong economy.
Guangdong had long been struggling to compete with the booming global market in neighboring Hong Kong and had seen an exodus of its best and brightest to that city.
This was understandable considering the fact that daily wages in Guangdong at the time averaged only 0.70 yuan (元 yuán), about 1/100 of wages in Hong Kong!
In 1979, Xi Zhongxun and other Guangdong officials traveled to Beijing to convince China’s paramount leader, Deng Xiaoping, of the policy changes that Guangdong desperately needed in order to be competitive in the global economy.
Deng viewed economic liberation favorably but informed Xi that the central government had limited resources. Deng signaled his willingness to provide favorable policies to jump-start Guangdong’s new economic direction.
Soon after, China’s first SEZs were created in four cities: Shenzhen, Zhuhai, and Shantou in Guangdong Province and Xiamen in Fujian Province.
The success of the new SEZ policies was immediately apparent. Shenzhen’s GDP reached 3.9 billion yuan in 1985, 14 times what it was in 1980.
Deng Xiaoping (1904–1997) championed bold economic reforms in 1978 that established China’s first Special Economic Zones, turning cities like Shenzhen into engines of growth.
Expansion of the SEZs
Building on the success of the early SEZs, in 1984, China incorporated 14 “Open Coastal Cities” (沿海开放城市 Yánhǎi Kāifàng Chéngshì) into the SEZ model.
The economic policies implemented in these cities were designed to stimulate economic growth by leveraging their geographic location and their already important place in the regional economy.
These cities served as experiments in market-oriented reform and acted as a magnet for the allocation of domestic and international resources.
Throughout the 1980s, the gradual experimentation that took place within the SEZs was described again and again by the use of one of Deng’s favorite metaphors: “crossing the river by feeling the stones” (摸着石头过河 mōzhe shítou guò hé).
Building on the momentum of each successful phase of SEZ expansion, central and provincial authorities set up new areas in border cities and on key river deltas, even going so far as to designate the entire province of Hainan as an SEZ.
Propelled by foreign investment and market forces, China’s network of SEZs and free trade zones transformed the nation into a globally integrated, export-oriented powerhouse.
Currently, there are five areas in China that are classified as SEZs: Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan Province.
In addition to these, China now boasts 21 free trade zones, 32 state-level economic and technological development zones, and 53 new and high-tech industrial development zones.
These additional areas have slightly different policies from the original SEZs, so they are referred to using different terminology.
Regardless, thanks to both the SEZs and the various other new economic zones, a multilevel, diversified pattern of opening and integrating coastal areas with river, border, and inland areas has been established throughout the country.
Key Economic Policies of Chinese SEZs
The governance and management of China’s SEZs can seem unique considering the historical context of socialism in China, but in reality, they share many similarities with other cities that participate in the global economy.
Below are some of the key policies of Chinese SEZs:
- SEZs primarily rely on attracting and utilizing foreign investment.
- Most businesses in SEZs are Sino-foreign joint ventures and partnerships or wholly foreign-owned enterprises.
- SEZ products are primarily export-oriented.
- SEZ economic activities are primarily driven by market forces.
These specialized zones established the multilevel trade patterns that today connect China's industrial heartland to the world's largest shipping ports.
Chinese Special Economic Zones: Two case studies
Let’s examine the experience of two different cities, Shenzhen and Kashgar (喀什 Kāshí), to better understand the diverse paths that China’s SEZs have taken.
Shenzhen
Many people are familiar with the meteoric rise of Shenzhen. In the 1970s, Shenzhen was just a cluster of small villages with less than 60,000 inhabitants near the border between mainland China (大陆 dàlù) and Hong Kong to the south.
Since its establishment as an SEZ in 1979, Shenzhen’s population has grown to 17 million, making it the third most populous city in China.
Initially, the Shenzhen SEZ was defined by a mix of foreign investment, manufacturing, and favorable trade policies, all of which helped to result in an economic boom.
Today, Shenzhen boasts a dynamic, diversified economy and has even been dubbed the “Silicon Valley of the East” due to its many innovative science and technology companies.
Kashgar
The city of Kashgar has served as a trading post and strategically important city on the Silk Road (丝绸之路 Sīchóuzhī Lù) between China, the Middle East and Europe for over 2,000 years. Kashgar is a city in China’s northwestern Xinjiang Province which borders Uzbekistan, Tajikistan and Pakistan.
It has a diverse population and roughly 85% of its residents are Uyghur (维吾尔族 Wéiwú'ěrzú), one of China’s ethnic minority groups.
In 2010, Kashgar was established as the sixth Chinese SEZ. Like other SEZs before it, the Kashgar SEZ seeks to capitalize on foreign investment and international trade links. One of the major economic functions of Kashgar is to serve as a commercial terminus in the China-Pakistan Economic Corridor, formed in 2013.
Garments represent a significant share of Kashgar’s exports, reflecting the region’s focus on labor-intensive manufacturing.
The jury is still out on the success of the Kashgar SEZ. Economic growth has been hindered by ethnic tensions in Xinjiang Province, a disjointed beginning to the China-Pakistan Economic Corridor, and more recently, the COVID-19 pandemic.
Whether it will take its place among the ranks of China’s SEZ success stories remains to be seen.
Kashgar, a historic Silk Road trading hub in Xinjiang with a predominantly Uyghur population, became China’s sixth Special Economic Zone in 2010, aiming to leverage cross-border trade and the China–Pakistan Economic Corridor—though its long-term success remains uncertain.
Analyzing China’s Special Economic Zones
The goal of SEZs is to spur economic growth and promote foreign investment. When governments initiate an SEZ, they generally believe the pros outweigh the cons, but sometimes, that is a matter of perspective. Below are some pros and cons of SEZs.
Pros
Employment
Businesses are incentivized to participate in SEZs, thus generating new employment opportunities for the local community.
Innovation
SEZs provide tax credits and technological subsidies and attract enterprises that promote innovation.
Foreign Investment
Inflows of foreign investment allow for the transfer of technology and expertise into developing markets.
Specialized Zones
Targeted at specific economic activities, like media or textiles, with infrastructure adapted accordingly, these zones can play a key role in the development of certain industries.
Cons
Economic Inequalities
Distinct socio-economic classes often emerge where businesses have tight control over earnings and employment.
Exploitation
Businesses have fewer incentives to protect workers’ rights and may favor policies that promote economic growth at all costs.
Regional Inequalities
Development of an SEZ can cause an influx of capital and investment into certain regions, while others lag behind.
Pollution
Unchecked development without appropriate research on environmental impacts can lead to extensive environmental damage that is hard to reverse.
Corruption
SEZs often lead to an influx in capital, trade, and investment which, when combined with less governmental oversight, can lead to an increase in corrupt practices.
While China's Special Economic Zones, like Shantou city, successfully drive employment, innovation, and foreign investment, they simultaneously risk fostering socioeconomic inequality, corruption, labor exploitation, and environmental damage due to rapid, unchecked development.
Special Economic Zones Around the World
Free trade zones have been used for centuries to guarantee free storage and exchange along trade routes. Although most people today tend to think of China’s Shenzhen when they think of SEZs, the modern SEZ was not invented in China.
In fact, Ireland created the first SEZ in 1959 with the establishment of the Shannon Free Trade Zone.
Since the establishment and subsequent success of the Chinese SEZs, their worldwide expansion has only grown as countries compete to push their economic growth as high as possible.
As of 2019, 147 countries had established some kind of SEZ, with the total number of SEZs worldwide nearing 5,400.
In 2013, China’s Belt and Road Initiative (一带一路 Yīdài Yīlù) sought to provide finance and engineering expertise to build infrastructure across Eurasia and Africa and Chinese-style SEZs have been one key export of this initiative.
While promoted as a viable option for developing markets, the jury is still out on whether Chinese-style SEZs can continue to promote impressive levels of growth without the help of central government planning and in the absence of the unique historical context in which they were developed in China.
As China’s flagship Pilot Free Trade Zone, Shanghai’s lightning-fast evolution from rural marshland to a world-leading maritime and financial hub serves as the ultimate symbol of the nation’s rapid industrial power.
Come to Guilin to Learn More!
While reading and learning about China’s economy, society and language in English is great, it’s more fun to do it in Chinese! We invite you to join CLI’s expert Chinese teachers either in Guilin or online for in-depth, individualized Chinese classes.
CLI instructors are friendly, patient and experienced in helping students of all levels navigate the challenges of learning Chinese. Whether you want to brush up on your existing Chinese skills or take your first steps into the world of the Chinese language, CLI is for you!
Chinese Economic Zones Vocabulary
| 汉字 | Pinyin | English |
|---|---|---|
| 经济特区 | jīngjì tèqū | Special Economic Zone (SEZ) |
| 经济学家 | jīngjìxuéjiā | economist |
| 改革开放 | gǎigé kāifàng | reform and opening-up |
| 中国特色社会主义 | Zhōngguó tèsè shèhuìzhǔyì | Socialism with Chinese Characteristics |
| 外资 | wàizī | foreign investment |
| 科技 | kējì | science and technology |
| 沿海开放城市 | yánhǎi kāifàng chéngshì | open coastal cities |
| 自由贸易区 | zìyóu màoyì qū | free trade zone |
| 市场经济 | shìchǎng jīngjì | market economy |
| 对外贸易 | duìwài màoyì | foreign trade |
| 国内生产总值 | guónèi shēngchǎn zǒngzhí | gross domestic product (GDP) |
| 丝绸之路 | Sīchóuzhī Lù | Silk Road |
| 维吾尔族 | Wéiwú’ěrzú | Uyghur ethnic group |
| 一带一路 | Yīdài Yīlù | Belt and Road Initiative |
David Tranvik holds an MA in Intellectual Disability and Autism from Teachers College, Columbia University, and a BA in History from Gustavus Adolphus College. He has lived and worked in China for several years, including three years as a primary school teacher in Shenzhen. Earlier, David served as a Peace Corps TEFL instructor in Guizhou, where he taught oral English at a polytechnic college and earned an HSK 5 certification.
