Chinas Economic Zones: Design, Implementation and Impact

The Role of Special Economic Zones in African Countries. Development and the Chinese FDI
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According to the International Labour Organization ILO , since the mids, the number of new zones has increased rapidly, particularly in developing countries.

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If in there were only such zones recorded in 46 countries, today more than 3, SEZs are known to exist in some countries. Their popularity is not surprising. Among this audience, there is no need for me to restate the significant potential benefits that SEZs can bring in terms of: increasing foreign direct investment FDI , generating employment opportunities, enhancing foreign exchange earnings, developing export-oriented industries, and boosting export growth, as well as expanding government revenue and economic growth.

As we all know, SEZs can also support the emergence of industrial clusters, which are particularly beneficial in fostering technology transfer and innovation. And the potential role of SEZs has been further enhanced by the spread of global value chains. In today's highly segmented value chains, success in world markets often depends as much on the capacity to import high-quality inputs, as on the capacity to export.

Thus, efficient SEZs can facilitate the participation of developing countries in such global value chains, giving access to new markets. It is to promote these significant benefits that now more than countries have chosen to establish SEZs, providing special economic and regulatory concessions for companies operating inside them. The incentives offered by SEZs include tax exemptions, removal of import and export duties, absence of foreign exchange controls, facilitated licensing and other regulatory processes, enhanced infrastructure, and sometimes less stringent labour legislation.

However, while SEZs clearly hold great potential, in practice, the record has been more mixed. Of course, there have been successes.

Special economic zone

In particular, SEZs have been credited with underpinning the dramatic export-oriented growth of China and other East Asian countries. In the s, China set up its first zones to promote and attract FDI and technology transfer. SEZs helped China develop industries to upgrade exports, and this later had a trickle-down effect on other domestic industries. Indeed, the "miracle of Shenzhen", in which a fishing village was transformed into a city of over 14 million inhabitants within 30 years of the establishment of a free zone, with GDP growing a hundredfold, is on everyone's mind.

However, the successes of some East Asian and Latin American countries in attracting and benefitting from FDI into their zones have been difficult to replicate everywhere, particularly in Africa. Indeed, many zones have failed, or have simply contributed to a relocation of existing business activities to facilities inside the zone, at the cost of public indebtedness because building the zones and offering incentives is not cheap.

The overall record of the impact of export processing zones on attraction of FDI is quite mixed: whereas in China, export processing zones or similar preferential zones account for some 80 per cent of total FDI inflows, in many other countries zones have played only a marginal role in FDI attraction and most investment is of domestic origin. The record on employment creation is similarly mixed. W h a t should host countries do? First, while African governments are providing an elaborate set of incentives to Chinese investors in the zones, few are actually subsidising local investors, and even fewer have put in place a regulatory framework to encourage local investors to set up in the zones, or local suppliers to provide inputs and services to SEZ firms.

This requires that the zones be fully integrated into the country's development strategy and be seen as platforms for learning and technology transfer beyond their short-term impact on jobs. Second, local ownership will be fostered if the host-country government has an equity stake in the zones. This can be justified against the numerous concessions made to the Chinese developers, including leases of land, provision of offsite infrastructure and offers of a whole range of alluring fiscal incentives at high opportunity cost to the host-country government. The Nigerian government successfully negotiated a stake in the two zones; this experience should guide future zone development elsewhere in Africa. However, excessive participation by national governments - as in Egypt's Suez zone - should be avoided, since this might lead to interference and inefficiencies in zone management.

Third, since local participation in the zones is critical to realising productivity spillovers, African governments must set up an incentive scheme - complementary to the USD 1 billion SME fund proposed by the Chinese government - to support local firms' investment in the zones. In addition, they must play a proactive role in selecting and promoting potential "winners" as was the case in East Asia. Fourth, the industry focus of the SEZs should be negotiated between the host-country government and the Chinese stakeholders, rather than being "imposed" by the latter. This will ensure that the zones' activities are aligned with the country's needs in terms of industrial development and that any resulting technology spillover is more readily absorbed.

Industries that are highly capital- or skill-intensive might contribute little to industrial upgrading in economies that are endowed with low-skilled labour and have had little experience with industry. In Mauritius, on the other hand, the industry focus is misplaced for the opposite reason. Mauritius needs high-tech industries, but the Jin Fei zone will serve mainly as a residential and commercial base for Chinese operations in the African region.

The systemic constraints to industrial development will take longer to tackle, but they must not be neglected. The SEZ host countries, both existing and potential, must invest in making local firms and the economy technology-ready.

This calls for substantial investment in local universities and research institutions and the provision of incentives for firms to train their workers, adopt best management practices and to restructure and innovate. Finally, the government should make greater efforts to address administrative and regulatory constraints to local supply-side capacity and provide a platform for Chinese companies and domestic firms to come together to learn about win-win partnerships or commercial opportunities.

These measures will help strengthen potential linkages with the local economy. Skip to main content. Toggle navigation. International Centre for Trade and Sustainable Development.

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Bridges Africa. Analysis and news on African trade and sustainable development. Overview News archive Issue archive About. Vinaye Ancharaz. T h e state of industrialisation in Africa Africa's poor state of industrialisation is well known and widely documented, as are the reasons for it. E n t e r C hi n a China has dented Africa's efforts at industrialisation in several ways.

I n v e s t m e n t Zone developers are struggling to attract Chinese firms in the industries proposed, and the economic crisis has made matters worse. Do m e s t ic l i nk a g es Prospects for the SEZs to build backward linkages within the local economy are rather weak both because the raw materials and intermediates needed in assembly-type operations may not be available locally and because of the known propensity of Chinese companies to source inputs through their own networks. H igher value-added ac t i vities The SEZs promised to bring new industrial activities as well as opportunities for higher value-added processing and upgrading to Africa.

Table of Contents

China's Economic Zones: Design, Implementation and Impact (Economic History in China) [Tao Yitao, Lu Zhiguo] on *FREE* shipping on. The establishment of Special Economic Zones (SEZ) marked a major milestone in China's gradual market-oriented reform process, and the developmental.

This article is published under. Further complicating the business landscape, EDZs can have accreditation at the national, provincial, municipal, and district levels. Accreditation at a higher level generally means larger tax exemptions and better infrastructure. However, smaller companies are often better off locating in zones with a lower level of accreditation because they may not be eligible for incentives in zones with higher-level accreditation.

Among many other factors, businesses need to take into account the location of suppliers and resources, the quality of the surrounding transport network, the cost of land, and which tax exemptions they are eligible for. To ensure their investment pays off, businesses should consult experienced experts who understand the regulatory and business environment, and work with them throughout the investment process.

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Doing Business in China is designed to introduce the fundamentals of investing in China. Compiled by the China introduced the biggest changes to its individual income tax IIT system since at least with the pa Faced with heightened geopolitical risks, and rising labor and land and labor costs, many foreign investors ar Your email address will not be published. Notify me of follow-up comments by email.

Types of EDZs in China

Notify me of new posts by email. Stay Ahead of the curve in Emerging Asia. Our subscription service offers regular regulatory updates, including the most recent legal, tax and accounting changes that affect your business. Where to invest in China There are over 2, EDZs, each with unique investment incentives and accreditation at different levels of government.

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