By Kyle Kessler
On October 20th, Dr. Douglas Zhihua Zeng joined our Case Study of Chinese Diplomatic Practices course to discuss the emergence of Special Economic Zones (SEZs), industrial clusters, and a case study he wrote detailing the success of one SEZ– The Suzhou Industrial Park. Dr. Douglas Zhihua Zeng is currently a senior economist for the World Bank with a focus on innovation, special economic zones, clusters, competitiveness, skills, and knowledge economy.
SEZs, as a driver of economic development, were not at the forefront of development research, or even the public consciousness, until recently. In many ways, the growth and success of SEZs challenge the traditional policies for driving economic growth. To Dr. Zeng, the 2008 financial crisis challenged the ‘Reaganomics’ method of achieving growth and made the traditional model more difficult to apply to other areas. Counter to traditional growth policies, SEZs/industrial clusters are a combination of market and government intervention, and the success of these SEZs and industrial clusters present a different model for the rest of the world.
According to the World Bank’s definition, the term SEZ refers to a wide-size, multifunctional and comprehensive area offering preferential policies to companies within the zone. In a broad sense, the term not only refers to the dozens of comprehensive SEZs, but also the Economic and Technological Development Zones (ETDZs), Free Trade Zones (FTZs), and Export Processing Zones (EPZs). These areas are characterized by their top-down approach – with significant planning, intervention, and orchestrated design from the central/local government - originally used as a testing ground for the market economy and new institutions. Originally instituted along the eastern coast of China, these new SEZs were meant to build and enhance the institutions of a market economy.
2015年10月20日，清华-霍普金斯双硕士项目的必修课程《中国外交案例分析》由曾智华博士（Dr. Douglas Zhihua Zeng）主讲。曾智华博士讨论了中国的经济特区和产业集群，并介绍了他所撰写的一个案例研究。该研究详述了苏州工业园区的成功经验。曾智华博士现任世界银行高级经济学家，他的研究兴趣为创新、经济特区、产业集群、竞争力、技能和知识型经济。
Nowhere has the success of the SEZ model been more pronounced than Shenzhen. Established in 1978, the Shenzhen SEZ has become the gold standard for the economic transformation these areas can initiate. By instituting land reform, streamlining the administrative management system to create ‘one stop shop services,' labor market reforms, a foreign exchange transaction center and securities market, a high-tech equity market, and a performance auditing system for public-invested projects, Shenzhen was able to move from $89 per capita GDP in 1978 to $24,336 in 2014 and become home to some of China’s biggest and most innovative companies. As a whole, the success of the SEZs in China have contributed to a phenomenon known simply as “The Chinese Miracle.” As of 2007, SEZs, including all types of industrial parks and zones, have accounted for about 22% of Chinese GDP, 46% of FDI, and 60% of exports.
As other developing nations look to SEZs for their own growth and development purposes, Dr. Zeng identified several potential problems. The ‘mushroom approach,’ as he explained, is characterized by local-level and high-level overlaps at the later stage, resulting in a lack of demand and over capacity. Moreover, the creation of new SEZs must follow a market approach and pass a cost vs. benefit test. Other pitfalls include environmental degradation and a lack of balance between industrial development and social dimensions. Furthermore, as the presence of SEZs increases across China and the world, Dr. Zeng identified a possible race to the bottom on the part of governments, as investors shop around for the best deal for their particular investment needs – thus illuminating the necessity of market approaches when deciding of the feasibility of a new SEZ.
Industrial clusters differ from SEZs in their bottom up approach, with many developing organically across China. According to Michael Porter, who introduced the idea, an industrial cluster is a collection of firms operating in related areas with horizontal and vertical linkages. Dr. Zeng then introduced his case study on the Suzhou Industrial Park. He explained the necessity of creating the narrative of your own case study, and separated the case study into key components. The first of these components, the situational profile, is followed by the impacts/success, challenges, lesson learned, and finally, recommendations.
As Dr. Zeng closed, he discussed the applicability in replicating these SEZs and industrial clusters to other developing nations. The keys to the continued success of these drivers of economic growth (SEZs and industrial clusters) will center on linkages FDI can make between foreign and local firms, a balanced incentive structure between foreign firms and their local counterparts, relationships between companies and governments, and an upgrading of education and training systems to better equip local workforces.