From Follower to Leader: China’s Development of Special Economic Zones and Its Global Impact and Lessons

By Xiangming Chen

A Preamble

I published my first article “China and Latin America” in The European Financial Review in 2012 to launch this magazine’s “China & the World Series”. Since its official inauguration in 2013, the Belt and Road Initiative (BRI) has turned “China and the World” into a globally significant topic of public attention, academic research and policy debate. The topic has stayed constantly and prominently in the headlines, only magnified by the US-China trade war over the past year and a half, and generated a large and growing body of published scholarship and media commentary. Through 13 articles published in this series thus far with a variety of co-authors, including a number of undergraduate students at Trinity College in Connecticut, I have taken the reader to see China’s presence and influence in all regions of the world. More importantly, I have attempted to shed light on “China and the World” by drawing meaningful connections between local and regional development and transformation deep inside China and their echoes and extensions across varied places and boundaries around the world. The article below takes the trans-local dimension of “China and the World” further by tracing how China has evolved from a follower to a leader in building special economic zones (SEZs) within its boundaries earlier on and extending this experience and expertise to other developing countries more recently.


Special economic zones (SEZs) have been used as an important national development instrument around the world for the past several decades. China stands out not only in having created the largest number and variety of SEZs but also in building some SEZs in other developing countries. In this article, I first trace the evolution of SEZs into both distinctive and overlapped types over the past four decades, showing how SEZs have changed and continued in their own existence and in roles in fostering development. Second, I focus on China’s transition from a national follower to a global leader in creating the world’s largest number of SEZs, diversifying its SEZs domestically and extending them internationally. Finally, I draw critical lessons from China’s development experience with SEZs for developing countries.


An Age-old Story Through the 21st Century

The Economist (4 April 2015) dated the first free trade zone (FTZ) to ancient Phoenicia about 3,000 years ago. Keller Easterling (2012) traced it to the Roman port of Delos in the Aegean Sea, which flourished in the first century B.C. From the FTZ-like Hanseatic League during the 13th to 17th centuries, we could fast-forward to find the first modern zone, created at Shannon airport in Ireland in 1959. This was followed by South Korea and Taiwan using export processing zones (EPZs) in the 1960s and early 1970s to jump-start their export-oriented industrialization. China raised the SEZ approach to development to a new level in 1980 when it established four SEZs (Shenzhen, Zhuhai, Shantou, Xiamen) along its southeast coast which were much larger than the earlier EPZs and sited in or near existing cities.

From an estimated 500 in 1995, the number of SEZs has risen to 5,400 zones operating in 147 countries (UNCTAD, 2019). Given the large numbers and varied types of SEZs, their success varies widely. China is a global leader in SEZ development having operated the largest number and most varied types of SEZs with overall success. By comparison, SEZs in India and Africa have generally not done as well, for various reasons such as weak infrastructure connections, excessive bureaucracy, and resistance to land acquisition (ADB, 2015; UNDP, 2015). Timing of establishment and governance structure loom among other determining or facilitating factors that shape the differential performance of SEZs. I update my early typology of SEZs (Chen, 1995) to a dynamic view on the new SEZ landscape today.

Table 1 shows four types of SEZs over three broad stages. Free manufacturing zones (FMZs) mark industrial upgrading from the takeoff of labour-intensive and export-oriented manufacturing to knowledge-intensive innovative manufacturing. Since hosting much earlier services such as warehousing for duty-free goods in FTZs, free service zones (FSZs) have diversified over time into broader coverage of more modern and high-end services such as logistics. While overlapping somewhat with FSZs, sector-specific zones (SSZs) have a shorter history and feature more specialized economic functions and activities that increasingly herald the future. Cross-border and extra-territorial SEZs are the newest type, of the largest geographical scope, and truly border-intensive and transnational in function. This table aims to remap SEZs as subnational units of economic development with varied roles onto the development ladder of climbing or sliding national economies based on shifting comparative advantages.


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About the Author

Xiangming Chen served as the founding Dean and Director of the Center for Urban and Global Studies at Trinity College in Connecticut from 2007 to 2019. He has been Paul E. Raether Distinguished Professor of Global Urban Studies and Sociology at Trinity College and a distinguished guest professor at Fudan University, Shanghai. He has published extensively on urbanization and globalization with a focus on China and Asia and conducted policy research for the World Bank, the Asian Development Bank, UNCTAD and OECD.

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.