Special Economic Zones 經濟特區

As usual when focusing on business, this week I would like to keep my post short and leave to you to re-read few short articles that I posted here:

This week, I will share few ideas starting from a 2010 document published by the World Bank, “China’s Investment in African Special Economic Zones: Prospects, Challenges, and Opportunities”.

It is actually part of my research for something else that I am writing- initially as part of a “challenge” on (re)thinking about development aid, then evolving into a catalyst for other ideas: so, what was to be 5,000 words essay for a contest, became yet another book idea (and the article, in a shorter version, will go online after the delivery time for the contest expires).

Why did I select this article, instead of more recent material? Because I like, once in a while, to see what happened to predictions.

In this case, the point of reference is an older article, “China’s Special Economic Zones: Five Years After An Introduction”

I have also collected other material- look for eventual reviews on http://www.librarything.com/catalog/aleph123.

Two weeks ago I shared few ideas on mutual influences in a global economy- and the “Special Economic Zones” are acknowledged to have played a significant role in fostering the development of China.

Obviously, there are always those who look for a “big bang” approach, where everybody gets the same level of affluence instantly: but it never happened in the past (except in models built by academics).

Probably, because we all don’t share the same appetite for risk.

Therefore, usually there are those who initiate a change, influence others through their success, and attract more to do the same, and to who sit and watch.

That the initial successes are supported by connections or not, is not really that relevant, as in the end it works only if it is self-sustainable, not if it requires continuous injections of capital.

The success of an idea and its implementation by an organizational structure is also shown by the number of those who, inspired by the first examples, copy the concept, or make it their own.

With Special Economic Zones, those inspired are legions (see on Wikipedia, and a list of SEZs in China).

I found and selected few more books and articles, but I think that some of the lessons learned within the first five years of life of the Special Economic Zones in China have been useful when working on the other side of the table in Africa.

Obviously, switching sides of the table requires at least a shift of perspective (sometimes even a paradigm shift)- and few more lessons have been derived.

“Walking on the shoulders of giants” applies also to business- it is something that I could call “smart benchmarking”.

I think that it is better to give now voice to those two essays that I referred to above- so that you can make up your own mind (and maybe get inspired to actually look at the source, and then follow through their extended bibliographies).

About the past, when China was the one setting up Special Economic Zones:

  • the leadership had stipulated the “Sanweizhu” (the three principles) of chiefly using foreign investment, establishing industrial development and promoting export-orientation, as guides for the development of the SEZs. Further, during an inspection tour in early 1984, Deng characterized the chief roles of the SEZs as “windows” for new technology, knowledge, management experience and the policy of openness. These statements are rather cryptic for the purposes of policy analysis.

    the goals and objectives of establishing the SEZs can be grouped into three sets. The first set stresses what China desires to absorb from abroad: foreign technology, management methods, foreign exchange and foreign capital. The second set stresses the expected impact on individual Chinese: the provision of employment and the training effects. The third set is that of its demonstration effects on Hong Kong and Taiwan.

    The goals of creating maximum impact on the rest of the domestic economy, promoting export-oriented industries and encouraging import substitution will involve complex trade-offs.

About the experience in helping other countries to set up new SEZs:

  • the effort to establish the zones in Africa is part of an important Chinese government initiative, the aim of which is as much political as it is economic. In 2006, the Chinese government announced that it would establish as many as 50 overseas “economic and trade cooperation zones.” These serve several economic objectives as part of China’s “going out” (zou chuqu) strategy: increasing demand for Chinese-made machinery, reducing trade frictions and formal barriers imposed on Chinese exports to Europe or North America, assisting China’s domestic restructuring by sending mature industries offshore, and creating economies of scale for overseas investment.

    China is also offering increasingly preferential trade terms for African countries: at the 2007 Forum for China-Africa Cooperation, China extended duty-free access to 440 products for African least-developed countries; at the 2009 forum, it announced an extension of this access to 95 percent of products.

    despite the substantial government incentives, the Chinese zones in Africa are profit-driven initiatives, led by private sector consortia (although many of the lead firms are national or provincial state-owned enterprises). The Chinese government designed the program to ensure that developers have a profit motive because they view this as critical to ensure sustainability. This is in line with international experience, which suggests that private sector SEZs tend to operate more effectively than government-led zones

But the most interesting element from the 2010 article is the identification of some key elements that contribute to the viability of a SEZ:

  1. High-level commitment and active engagement from host governments
  2. Phasing-in local control
  3. Ensuring the provision of good-quality off-site infrastructure
  4. Communicating and enforcing standards
  5. Implementing programs to promote links with domestic markets
  6. Transparency and community relations —When contracts and agreements for these important zones are not made public, suspicion can fester. For the zones to be sustainable, they need to have buy-in from local communities. These communities need to understand the nature of the agreements. In the Lekki project, for example, transferring 5 percent of the shares of the Nigerian consortium to the local community was one way to address some of the local concerns.

The keyword? Sustainability.

For the time being… have a nice week!

PS Please read the introduction to understand how to use this website 🙂

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