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MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY *** - MASTER THESIS CHINA’S SPECIAL ECONOMIC ZONES AND LESSONS FOR VIETNAM PHAM HOANG NGOC HUYEN Ha Noi - 2023 MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY *** - MASTER THESIS CHINA’S SPECIAL ECONOMIC ZONES AND LESSONS FOR VIETNAM MAJOR: INTERNATIONAL ECONOMICS Code: 8310106 PHAM HOANG NGOC HUYEN Supervisor: Dr Dinh Thi Thanh Binh Ha Noi - 2023 ACKNOWLEDGEMENTS First of all, I would like to sincerely thank the attentive care and enthusiasm of the Board of Directors and teachers of Foreign Trade University, as well as some guest lecturers and especially the guidance of my dedicated instructor – Dr Dinh Thi Thanh Binh She gave me useful and neccessary advices to help me complete this thesis well All of them have created favorable conditions for me to complete my duties well during my time studying at the school Secondly, I would also like to thank all the teachers, friends, and library who have helped and shared experiences with each other during the past time Everyone is eager to help Through this thesis, I have not only gained a lot of experience but also have a research purpose to serve my work in the future However, because of my limited professional knowledge and my lack of practical experience, the content of the thesis cannot avoid shortcomings Once again, I would like to send my sincere and best thanks to teachers and friends! Thank you so much for your great support! DECLARATION I hereby declare that the thesis "China’s Special Economic Zones and lessons for Vietnam" is my own work and based on the research learned theory, practice survey and guidance from Dr Dinh Thi Thanh Binh The research results stated in the thesis are honest and have never been published in any research work All documents and references from previous studies are fully cited in accordance with regulations I take full responsibility for the truthfulness of the thesis Author Pham Hoang Ngoc Huyen TABLE OF CONTENTS LIST OF FIGURES AND TABLES i FIGURES i TABLES i INTRODUCTION .1 CHAPTER 1: OVERVIEW ON THE SPECIAL ECONOMIC ZONE IN THE WORLD .7 1.1 Overview of the Special Economic Zone .7 1.1.1 History of special economic zones in the world 1.1.2 Concept of Special Economic Zone 1.1.3 Characteristics of the Special Economic Zone 10 1.2 The role of the Special Economic Zone 12 1.2.1 The role of the Special Economic Zone in the national economy 12 1.2.2 The role of the Special Economic Zone in import and export activities 14 1.3 Classification of the Special Economic Zone 16 1.3.1 Free port and free trade zone 16 1.3.2 Tax-free zone 16 1.3.3 Export processing zone 17 1.3.4 Technology industrial zone 17 1.3.5 Free border zone and transit zone 18 CHAPTER 2: THE SPECIAL ECONOMIC ZONE MODEL OF CHINA 20 2.1 Overview of China's Special Economic Zone 20 2.1.1 Formation context of the Special Economic Zone 20 2.1.2 Development of the Special Economic Zone in China 27 2.1.3 State management in the Special Economic Zone 45 2.1.4 Preferential policies in the Special Economic Zone 49 2.2 Activities in the Special Economic zone in China 59 2.2.1 Investment activities in the Special Economic Zones .60 2.2.2 Import and export activities in the Special Economic Zones 62 2.2.3 Industrial activities in the Special Economic Zones 64 2.2.4 Service activities in the Special Economic Zones 66 2.3 Evaluation on the Special Economic Zone in China 75 2.3.1 Success of Special Economic Zones 75 2.3.2 Remaining problems 78 CHAPTER PRECONDITIONS AND REALITY OF CONSTRUCTION AND DEVELOPMENT SPECIAL ECONOMIC ZONE IN VIETNAM 80 3.1 Preconditions for the formation and development of economic zone models 80 3.1.2 For economic zones 80 3.1.3 For border economic zones 81 3.1.4 For the high-tech park 81 3.2 Current status of development of economic zone models in Vietnam .81 3.2.1 Achievements in the development of industrial parks and export processing zones 81 3.2.2 Achievements in economic zone development .83 3.2.3 Achievements in the development of border gate economic zones 83 3.2.4 Achievements in the development of high-tech zones 84 3.3 Assess the development of economic models over time 84 CHAPTER 4: RECOMMENDATIONS TO DEVELOP A SPECIALECONOMIC ZONE IN VIETNAM BASED ON EXPERIENCE OF CHINA 87 4.1 Lessons from building the Special Economic Zones of China 87 4.2 Some recommendations for Vietnam 92 4.2.1 Strategy and vision for the development of the Special Economic Zone in Vietnam 92 4.2.2 Recommendations at the State level 94 4.2.3 Recommendation at the Enterprise level 97 CONCLUSION 100 LIST OF REFERENCES .101 i LIST OF FIGURES AND TABLES FIGURES Figure Regional setting of the five Special Economic Zones 28 TABLES Table Potential benefits delivered from Special Economic Zones .11 Table Special Roles and Innovation in the Special Economic Zones 30 Table Statistics on the scale and growth rate of deposits and loans in local and foreign currencies in the traditional Special Economic Zones from 2014 to 201866 Table Statistics of changes in net profit of A-share listed banks in the Special Economic Zones from 2014 to 2018 68 Table Statistics of changes in the amount of non-performing loans of listed banks from 2014 to 2018 .69 Table Statistics on the non-performing loan ratios of A-share listed banks in the Special Economic Zones from 2013 to 2018 70 Table Statistics of changes in capital adequacy ratios of A-share listed banks in the Special Economic Zones from 2017 to 2018 70 Table Statistics of asset scale changes of the financial leasing companies in the Special Economic Zones shortlisted among the top 10 national financial leasing companies from 2017 to 2018 71 Table Statistics on the quality of the development of the financial leasing companies that were shortlisted in the top 10 national financial leasing companies in the Special Economic Zones in 2018 72 Table 10 Statistics on the main indicators of the development of the insurance industry in the Special Economic Zones from 2014 to 2018 73 INTRODUCTION The rationale of the study Special Economic Zones (SEZs) have been effectively used by China to develop its economy Before reforms were broadly implemented, SEZs were initially used to test market-oriented economic reforms and gain experience Today, a variety of SEZs have been created to benefit from regional characteristics In addition to others at the national and regional levels, these include big, national zones (whose goal is to promote broad-based, comprehensive economic growth), high tech industrial development zones, free trade zones, and export processing zones There is no one blueprint for successful Chinese SEZs, but all of them are supported by favorable government promises and policies SEZs have significantly aided China's economic development They are thought to have contributed 22% of the nation's GDP, 46% of FDI, 60% of exports, and more over 30 million jobs in recent years Industrial parks may be responsible for 80–90% of GDP growth in some areas Farmers' incomes clearly benefit from national industrial parks, particularly agro-tech parks and agricultural demonstration zones The average agricultural income in these parks is more than 30% more than the average income in the nearby villages Vietnam is also in the process of integrating into the regional and world economy In order to achieve the economic goals as set out to basically turn our country into a modern industrial country by 2030, we must continue to innovate in all fields, strengthen international cooperation and accelerate the process of industrialization and modernization towards export However, the industrialization and modernization in our country currently requires a very large amount of investment capital, while Vietnam's ability to be proactive in capital is limited All these factors require us to find appropriate forms to attract investment in capital, technology, and management experience from abroad, in order to develop the country's economy China is a country with many similarities with Vietnam in terms of economic, political and social regimes Through studying the development strategy of China's special economic zone, we will partly draw the necessary lessons for the reform, opening-up, and industrialization - modernization in Vietnam today From the above meaning, the topic: "China special economic zones and lessons for Vietnam" aims at the following objectives: Firstly, learning the history of formation and development of the special economic zone in the world; secondly, studying on China's special economic zones, thereby drawing lessons from successful construction of Special Economic Zones in China; thirdly, making some recommendations with practical value for building a model of special economic zone in Vietnam in the future Literature review In the history of world economic development, Special Economic Zones (SEZs) have been formed since ancient times, originating from ancient free trade zones that existed 2500 years ago in a number of prosperous countries such as: Rome, Greece, China… These areas are often located in the border areas or the busiest trading centers in the world The success of the SEZ model quickly developed, popular and applied in many countries With the support of the World Bank (WB), a series of SEZs have been established in Southeast Asia, Asia-Pacific, Central and South America Looking at an overview of the development of SEZs in the world, it can be seen that the number of SEZs is increasing, the growth rate is rapid, from Western Europe, it has spread all over the world At first, the function of SEZs was only commercial, then developed into a combination of industry and commerce The business sector also moved from barter to commodity production, and then to commodity research and manufacturing The production structure was also adjusted from labor-intensive industries to capitalintensive, technical and knowledge-intensive industries The general trend is from the primary form to develop to the advanced form 90 open its doors to the world, ready to give the most advantages to those who make contributions to China's construction Not only has China set forth the policy of "borrowing chickens to lay eggs" in general, but China also has been very specific in specifying who needs to attract investment capital, and on that basis, to have appropriate countermeasures in accordance with reality This has been the key to China's success over the past two decades Most SEZs in China start from scratch in terms of infrastructure Infrastructure such as electricity and water supply systems, roads, airports, ports, post and telecommunications… require completely new construction and take a huge investment The Chinese government has boldly invested in infrastructure, accepting the costs and risks Between 1980 and 1983, China invested about 1.9 billion yuan (about 980 million USD) in the construction of buildings in Shenzhen In order to speed up the process of building SEZs in the early stages of establishment, the authorities of the special zones have devised many ways to mobilize capital besides funding from the State budget Banks are maximally encouraged in mobilizing capital sources inside and outside the SEZ, and at the same time making loans within the SEZ Construction companies also try to mobilize capital through the form of credit to finance projects or ask people who need to use infrastructure to advance part of the capital for construction And the final results of infrastructure construction in the SEZ have been evaluated by investors as of good quality, meeting the investment and transaction needs of the SEZ In order to attract foreign investment into the special zone, China has launched a series of preferential policies to attract investors, in order to create an open and favorable business environment The preferential policies here are understood in a broad sense, not only at tax incentives, but also in the priorities of the product consumption market, the policy of hiring local labor and the regulation of salary levels, incentives on land use, distribution of financial income, simplification of administrative procedures for entry and exit of foreign investors By perfecting the system of laws and policies, China 91 has created confidence for investors The empowerment of the authorities of the special zones so that these management levels can be proactive and flexible in management, promptly make policies in line with actual requirements, has contributed to great success of the SEZs In the special zones, the Central Government has abandoned direct intervention in local economic affairs, but only unified management at the macro level On the basis of respecting the principle of not violating the general policy and not in conflict with the global interests, the government of the special zone is empowered with great powers, sometimes even equal to or higher than the provincial government level, including: legislative and executive power, the right to issue investment permits, the right to plan and sell land use rights, the right to have its own budget and to make financial plans directly with the Central Government The government of the special zone is also the place to receive, manage and solve the problems of investors during the project implementation under the "one-stop service" model Therefore, the management capacity of the SEZs is improved, contributing to the regulation of the economy of the SEZ in accordance with the market mechanism Recognizing the importance of the special zone, with the high determination of the central and local governments, China has put all its efforts into the construction and development of the special zone in the shortest time Not only has a standard infrastructure system built, but the management staff and direct production workers are also carefully selected During the working process, the staffs are constantly fostered, improve their professional qualifications, and are given favorable conditions to acquire new management experiences Competent cadres are also sent to study at universities in the country and abroad Production workers are also always organized to improve their skills It is the human factor that has largely determined the success of the SEZs When the SEZ model is successful, proving that the open economic development path is correct, China will continue to build free trade zones and economic and technological development exploitation zones 92 Although the land is large (9.6 million km2), the people are crowded (1.2 billion with nearly 400 large cities), but due to careful decision-making, the number of SEZs and their expansion forms in China is quite few, even very few, but its success is very high Expansion models are only allowed to be established in places where infrastructure and investment environment conditions are met and there are many traditional strengths in industrial and commercial activities Only after carrying out the feasibility studies seriously and thoroughly, with objective survey results, and ensuring success, will the establishment decision be made On the other hand, China resolutely canceled the wrong establishment decisions to avoid waste, so it got rid of the situation of "burning torches to work as special zones" of localities That shows a cautious, firm stance, in line with the reality of the country, and creates conditions for SEZs to really promote their role as economic drivers and quickly bring desired results Reality proves that China's open economic development path is correct and consistent with the trend of economic globalization, meeting the aspirations of foreign investors as well as the requirements of international and regional area of China Until now, as more and more Chinese people go abroad and foreigners want to invest in China, especially the more and more complete the two-way information system about China, the role of "window" of SEZs are considered to have completed their historical mission It can be said that today China no longer uses a "window" to look abroad, but in fact the whole country of China is acting 4.2 Some recommendations for Vietnam 4.2.1 Strategy and vision for the development of the Special Economic Zone in Vietnam The experience of the SEZ model in China has left some valuable lessons learned from practice More than 40 years of application in a country transitioning from a centralized planning mechanism to implementing the economic management according to the socialist market mechanism, has provided us with favorable 93 conditions for the next generation to study, apply this economic model into the current Vietnamese economy According to recorded history, in Vietnam, a free trade zone with a primitive form (mainly for trading and exchanging goods between our country and other countries) was formed very early From the 12th century, Van Don trading port was established (1149) to trade with foreign countries, including China, Japan, the Philippines, Siam By the sixteenth century, the commercial port of Hoi An was opened life and quickly became a place of trade exchange with Portugal, the Netherlands, Japan, China Hoi An has become a large commercial center, a busy trading port in the central part of our country in the 19th century In the South, since the 17th century, large commercial centers have also been established to trade with foreign countries such as Cu Lao on the Dong Nai River, My Tho on the Tien River, Ha Tien on the shores of the Gulf of Thailand, etc Historically, before the 17th century, in Vietnam, there were also some centers of trade relations in the islands and border areas for economic exchange with a number of countries such as China, Malaysia, Xiem La, Nam Duong Thus, the special economic zone model has appeared and existed in Vietnam for a while Up to this point, Vietnam has just transformed from a centrally planned, bureaucratic, and subsidized system to a socialist-oriented market economy for more than 30 years However, in the past time, we have had a number of new economic models such as industrial parks (IZs), export processing zones (EPZs), and were built in all regions of the country Most of the IZs and EPZs have just come into operation and the initial results are very positive In the context of diverse economic development and fierce competition today, cooperation and integration with the international environment is the trend of the times Therefore, economic development is not only limited to the centralized industrial park model, but our conditions also allow the establishment of a number of new economic models with higher purposes and requirements, comprehensive development in certain regions, in order to promote the diversity and freedom of competition in production and trade with foreign countries, that is the SEZ 94 In order to effectively apply China's SEZ model to Vietnam, we need to study the success and limitations of this model when developing in your country, then apply selectively to the specific situation of our country The SEZ model in Vietnam may be different from China in terms of method and scale, but the main features of the SEZ remain unchanged China is a country with an area and population many times larger than ours The construction of SEZs with a scale of over 35,000 km2 accounts for only a small percentage of the national area Vietnam's land is narrow, the population is many times smaller than China's, and the socio-economic situation of Vietnam is not the same as that of China If we set up a few Shenzhen, the country will shrink before the expansion of this kind of long-term concession Therefore, it is necessary to learn from your country's experience, but how to make this model suitable for our country's current and future conditions is something to think about, requiring great efforts of the relevant ministries and branches also require close coordination at macro and micro levels, from central to local, from local to individual enterprises Here are some recommendations for the State, localities and businesses in applying the SEZ model in Vietnam: 4.2.2 Recommendations at the State level The birth of a new economic model in the form of SEZs needs to be carefully researched and prepared in many aspects Therefore, it is necessary to have a specialized agency as the focal point to coordinate with ministries and branches in researching and proposing related issues Currently, the government has a specialized agency to monitor and manage industrial zones, EPZs and hi-tech parks This is a great advantage for the formation of an agency dedicated to managing special zone issues The State may consider setting up a separate specialized department on the basis of separation from the management agencies of IZs and EPZs, or it can also arrange arrangements for these agencies to take charge of the special affairs area during the initial period of research establishment 95 Select an appropriate construction site on the basis of clearly identifying the economic status and natural conditions of each territory The fact of building SEZs in China shows that the role of location selection is extremely important, contributing a large part to the success of special zones China's SEZs are all built in areas with favorable geographical conditions, with both river and sea routes, smooth traffic, and especially, these areas have close relationships with economic and financial centers of the region such as Hong Kong and Macau through a large number of overseas Chinese It is these relationships that have become an important bridge, bringing the SEZs to quickly integrate with the vibrant economy of the region and the world Looking at the reality in Vietnam, IZs and EPZs have also been established in a number of areas with important positions for each large region and for the whole country (in the North is the Hanoi - Hai Phong - Quang Ninh area, the South is the area of Ho Chi Minh City - Ba Ria - Vung Tau - Con Dao, the Central is Da Nang and some other port cities) Areas that are planned to build industrial parks and export processing zones are places that need to attract domestic and foreign investment in order to strongly promote the role of economic, cultural, scientific and technical centers and focal points for developing foreign relations and international trade, link to promote and attract other regions However, in reality, the results brought about by the favorable location are not great, even some areas not take advantage of those advantages Our experiences in building industrial zones and export processing zones have shown limitations in the research and implementation process From that, it can be seen that it is very important and necessary to consider and clearly identify the natural and socio-economic conditions of the regions before setting up a project to test the SEZ model In addition to tasks such as attracting modern technology and management experience, increasing exports and earning foreign currency, the SEZ also has another task, which is to act as a driving force for the surrounding areas to develop together, contributing to the development of the region, exploiting the inherent potential of the province or city where the special zone is built Therefore, in order to create a premise for the birth of a new economic zone model, the government needs to conduct a survey 96 of the specific situation, grasp the strengths of each locality, and then make a list of places that are eligible to apply the SEZ model Developing a unified legal framework and issuing a system of preferential policies to create an attractive and effective investment environment In Vietnam, the government of our country has issued a number of Decrees to encourage and ensure foreign investment activities in Vietnam with more open regulations, more incentives for foreign enterprises, creating favorable legal conditions for the process of investment and development of production and business Currently, the laws applied in industrial zones and export processing zones are mainly formulated according to the provisions of the Enterprise Law, the Law on Domestic Investment Promotion, the Law on Foreign Investment, and the Law on Land However, this legal system is still not synchronized, more importantly, there is a gap between the idea of the law and the actual implementation In fact, there are places where officials on duty have distorted the provisions of the law, causing troubles and harassment, discouraging investors, and stifling business opportunities of enterprises Regarding the state management mechanism in IZs and EPZs, starting from 1997, we have switched to a "one-stop shop, on-site" management mechanism through a mechanism of authorizing the Management Boards of IZs at the provincial level to implement some management functions The task of provincial IZ Management Boards is to perform one-stop management of IZs and EPZs, focusing first on investment mobilization, promotion, investment licensing and production management, business of industrial enterprises To carry out this task, the Industrial Park Management Boards have been authorized by the Ministry of Planning and Investment to grant investment licenses to foreign-invested projects; The Ministry of Trade authorizes the import and export management; The Ministry of Labor, War Invalids and Social Affairs authorizes labor management and issues work permits to foreigners; The Vietnam Chamber of Commerce and Industry authorizes the issuance of certificates of origin of goods, the Ministry of Construction guides the management of construction investment in industrial zones, the General Department of Customs guides customs activities in industrial zones and export processing zones Basically, 97 by the authorization mechanism, the provincial IZ Management Board has been given more decision-making power in the management of the IZ, contributing to improve the efficiency and effectiveness of the state management of the IZ, shortening the administrative procedures, partly psychologically freeing foreign investors about our State's policies towards the FDI sector in general and industrial zones in particular However, the actual implementation of this mechanism still has many layers, overlaps, and troublesome procedures: although it has been authorized, there are stages of work that still have to consult the central agency In addition, the coordination between the Management Board and provincial departments is not very smooth, sometimes even deliberately causing difficulties for each other, affecting work efficiency Besides, it must be mentioned that the working attitude of the licensing officers and the "undocumented" regulations have also created a bad impression on foreign investors In the face of the above situations, in order to create an open and favorable investment environment, a strict and unified legal system, the task posed to our legislators is very heavy The practice of the SEZ model in China shows that, during the construction process, the Chinese government always adheres to the principle of "Don't give money, just give policy", that is, the government does not invest capital to support for production and export activities, but only create favorable conditions for economic activities through preferential policies, such as tax incentives, land use fees, tax exemption and reduction periods, etc For the future of a special economic zone that will appear in Vietnam, from today the government must have a plan to comprehensively improve the legal system, create a favorable environment for investors in domestic and foreign in the short term to benefit the operation of IZs and EPZs; in the long term is to serve a model of economic registration with Vietnamese characteristics 4.2.3 Recommendation at the Enterprise level In addition to the efforts of the State and local authorities, in order to contribute to the formation of SEZs with Vietnamese colors, it is necessary to have a significant contribution from businesses 98 Enterprises need to focus on education and training, improve professional qualifications for managers, improve technical skills for workers Currently, the general level of qualifications in Vietnamese enterprises is still at an average level, nothing superior to that of other countries in the region The practice of operating in China's SEZs shows that most of the investors in the SEZ are from developed capitalist countries, where the level of management and expertise has reached excellent levels With the advantage of the latecomers, absorbing the experiences and quintessence of the previous countries, we recognize the importance of the "level" issue The gap in qualifications between domestic enterprises and foreign enterprises investing in Vietnam has also posed for businesses the problem of making their own efforts to shorten this gap There is nothing other than that each enterprise, apart from business focus, must have a plan to improve management skills and professional qualifications for its staff This has become a hot issue that needs to be resolved by businesses as soon as possible, but cannot rely on the support of the State or the locality The birth of the SEZ will be approved by the Central Government, with the help of provinces and cities, but the cells of the SEZ are enterprises No matter how far the gap in qualifications is, domestic and foreign enterprises will coexist in the same environment, business together and compete equally Therefore, in order not to be surprised, businesses have no choice but to improve the human factor themselves, constantly updating new knowledge about business, investment, partners, and markets to prepare for the future situations Businesses need to be dynamic and creative in finding new business methods, improving their reputation and promoting their brands In the face of the fierce competition of the current opening-up mechanism, only truly dynamic enterprises expect to survive for a long time A negative trend in recent years is that a number of state-owned enterprises, due to their inability to adapt to new business methods, have suffered losses leading to bankruptcy so it must close after a short time All these phenomena are due to the fact that these businesses themselves not brainstorm to find their own direction, they only know how to model what is already available Therefore, the inevitable result is that they will be eliminated from the market 99 In addition to the above sad situation, many of our businesses have learned to find new business methods, import raw materials from abroad, output products are exported to foreign countries, making profits for customers The State budget is a significant source of foreign currency In order to receive a model of SEZ, Vietnamese enterprises need to prepare carefully in many aspects, because along with the appearance of the SEZ, there are many foreign investors present A fierce competitive environment will be established, creating no small challenge for domestic enterprises If we not act before facing these difficulties directly, we will soon fail Although the SEZ is still only a paperbased model for the Vietnamese economy, and still needs a lot of research references from researchers on the country's development strategy, the competition and challenges set out with domestic enterprises, has existed since Vietnam opened its doors in 1986 Some businesses have chosen to business via the Internet, through this global information network to improve business reputation, promote product brands, find business partners It can be said that, so far, many of our products have found a place in the world market We absolutely have the right to believe in the dynamism and creativity of today's Vietnamese business team, who will contribute significantly to the success of the SEZ in the future 100 CONCLUSION The model of special economic zone in the world has a long history of development The special economic zone was established not only for its own benefit but also for the general development plan of the country The results from the special economic zones following the oil spill will affect the surrounding areas and the whole country Therefore, most countries that have established special economic zones consider this as a pilot model to develop the country's economy In China, special economic zones began to be established in the 1980s of the twentieth century Although born in a difficult economic situation, China's special economic zone model has achieved great success, making significant contributions to the country's industrialization However, besides the achievements, in the special economic zones, there are still many shortcomings that cannot be overcome Vietnam in the current opening-up period, in order to develop the economy, accelerate the process of industrialization and modernization of the country, we can completely build special economic zones However, the difference in natural conditions and socio-economic conditions makes it impossible for us to model China's special economic zone, but to study their experiences to find our own direction building a model of special economic zone with Vietnamese colors 101 LIST OF REFERENCES (1) Aggarwal, A, Performance of Export Process Zones: A Comparative Analysis of India, Sri Lanka and Bangladesh, 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