China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.China’s Shenzhen Special Economic Zone model and recommendations for Vietnam.
Rationales for the research
The term “special economic zone” (SEZ) is a general term encompassing various types of SEZs, and to some extent, specific names such as border economic zones and coastal economic zones in Vietnam, which may have the potential to develop into economic and technological development zones Nowadays, modern economic zones are established with the aim of promoting trade and are primarily formed in coastal areas along international trade routes The fundamental objectives of SEZs are to create high-growth areas with new and stable management methods over the long term, to establish modern, green, clean, and safe living environments, to generate new and high added value within a short period of time to keep up with developed economies, to increase per capita income and contribute to the state budget.
Additionally, SEZs will create a favorable investment and business environment, particularly for innovative startups, research and development, emerging and high-tech industries, education, healthcare, high-end tourism and resort services, cultural industries, and the development of port and airport logistics services, as well as trade and finance. Theoretically, SEZs are considered important economic tools for promoting growth and economic integration on an international scale International economic integration reflects the inherent laws of global economic development, including continuous expansion of economic activities, the free flow of goods worldwide, production factors, and the consolidation of this process through a common mechanism—the market mechanism.
On the other hand, due to the different levels of economic development around the world, there is still a long way to go to transition from a national economy to a global economy It is necessary to carry out a transitional phase or a smaller scale and select a small area with favorable conditions to implement this process Some economists believe that as a form of outward-oriented integration, SEZs engage in economic cooperation and integration with the global economy to achieve free trade, implement free economic policies, and exercise administrative privileges within and between the zones and the global economy SEZs serve as prerequisites, foundations, and demonstrations of a country's potential for global economic integration This can be explained as follows: (1)
The integration of SEZs with the global economy begins with trade liberalization and transitions to financial internationalization and production integration (2) SEZs create conditions for the integration of core functions within the zone and between the zone and the global economy, to some extent reflecting comprehensive integration with the national economy and the global economy (3) The preferential policies of SEZs, such as free trade, free economic policies, and administrative privileges for successful governance structures, will be replicated and ultimately transformed into general principles, or conversely, the general principles of the world will become the special policies of SEZs.
The practice has demonstrated the success of the operational model and contributions to the national economic development of many SEZ model Some countries have shown numerous successful lessons in developing SEZ model, such as the Shenzhen SEZ model in China This model emerged in China in the late 1970s, at a time when the national economy was experiencing a downturn and new economic trends were emerging worldwide The Chinese government quickly recognized the need to reevaluate its development path, understanding the international movement trends They formulated an open-door strategy with various measures Among them, the Chinese government employed a completely new economic model that combined domestic potential with international trends, known as the SEZ model By 1992, Shenzhen attracted 14% of China's total foreign investment (USD 4.3 billion) [World Bank, 2008] Currently, Shenzhen has become one of the major import and export centers with an advanced production platform According to Shenzhen Special Zone Daily, with a market capitalization of listed companies of about USD 2.285 trillion in 2015, Shenzhen Stock Exchange ranked as the 8th largest stock exchange in the world and the 4th largest in East Asia and Asia.
Based on the achievements of the Shenzhen SEZ model, the Vietnamese government has decided to develop certain SEZs that are appropriate for the requirements of restructuring the economy and closely linked to the new growth model However, in reality, there are still many difficulties in implementing this model in Vietnam.Recognizing the aforementioned issues, the author has chosen the topic “China’s
Shenzhen Special Economic Zone model and recommendations for Vietnam” for the master's thesis.
Literature review
Extensive research has been conducted on China's SEZs, and numerous renowned works have explored their development models, policies, and outcomes Scholars and experts have analyzed the factors contributing to the success of these zones, such as favorable business environments, preferential policies, infrastructure development, and effective governance The experiences gained from China's SEZs have provided valuable insights and lessons for other countries, including Vietnam Vietnam has also shown a keen interest in establishing SEZs to enhance its economic development and attract foreign direct investment Researchers and policymakers have extensively studied China's SEZs and drawn lessons from their experiences to inform Vietnam's own strategies and policies. Notable works have examined the applicability of China's SEZ models in the Vietnamese context, identifying potential challenges and proposing tailored approaches.
Notable research works in this field include:
Nguyen Quang Tung (2021), “Building SEZs in Vietnam,” Ph.D dissertation, National University of Hanoi, Vietnam The dissertation systematizes the theoretical frameworks and research studies on SEZs; constructs and classifies various types of SEZs worldwide; shapes the evaluation criteria for different types of SEZs globally It provides perspectives, directions, objectives, and solutions for the construction of specific types of SEZs in the near future In terms of practical aspects, the dissertation presents the following results: Based on the practical development of SEZs in countries worldwide, especially in developing countries, it identifies the decisive factors for the success or failure of SEZs globally and draws lessons and experiences for Vietnam It analyzes the current development status of SEZs in Vietnam, evaluates their strengths, weaknesses, limitations,and shortcomings It determines the type of economic zone that Vietnam will form, build,and develop in the upcoming stage, as the country increasingly integrates deeply and widely and faces the strong impact of the Fourth Industrial Revolution.
Nguyen, Ngoc Dung (2008), “Development of SEZs in China and Lessons for Vietnam,” Master's thesis, National University of Hanoi, Vietnam The thesis provides an overview of the formation, development, and role of SEZs in general and specific SEZs in developing economies It analyzes and evaluates the development practices of SEZs in China, such as Shenzhen, Zhuhai, Xiamen, Shanghai Pudong, and Hainan, in terms of geographical location, policy mechanisms, economic achievements, and existing issues It extracts lessons from China's strategies in constructing SEZs It analyzes the conditions and capabilities of Vietnam and identifies similarities and differences between Vietnam and China as a basis for Vietnam to apply China's lessons and experiences in building and developing SEZs in Vietnam.
Dao Nhat Dao (2014), in his work titled “Historical Contributions and Lessons from the Shenzhen Special Economic Zone in China's Reform and Opening-Up Campaign” analyzed the successful lessons in constructing and implementing the Shenzhen Special Economic Zone model specifically The study also examined the institutional framework for China's special economic zones in general, drawing lessons applicable to Vietnam and Quang Ninh This research highlights historically significant outcomes, such as the establishment of an entirely new economic system, contributing to China's socio-economic development This system, known as the market-oriented socialist economy, laid the groundwork for reform It propelled a revolutionary shift in perspectives affecting billions of people, promoting the development of ideologies compatible with the market-oriented socialist economy and fostering innovative cultural reforms The limitations identified include government investment direction and state funding deficiencies, income distribution imbalances, slow institutional reforms, and an unsustainable growth model Policy recommendations encompass approaches and choices related to investment and economic zone development, a new orientation emphasizing green growth as a technological and technical revolution for existing economic sectors, eliminating infrastructure bottlenecks, and transforming international border crossings into not just bilateral gateways but international trade transit hubs and merchandise consolidation centers for regional and global commerce.
Furthermore, there have been several foreign studies on this topic, such as:
Shenzhen University (2014), Successful Development Experience of China's Special Economic Zone Model – Innovation in Shenzhen Financial Reform, mainly addresses three major issues: providing a basic overview of the 30-year development of the financial industry in the Shenzhen Special Economic Zone; the experience of innovative development in the reform of Shenzhen's financial industry; and the future trends in innovation in the reform of China's financial industry The study delves deep into the characteristics of various stages of the development of the financial industry in the Shenzhen Special Economic Zone: the structural framework and financial enterprises contributing to rapid growth; large-scale deposits and foreign and domestic currency lending; the establishment of a multi-tiered stock market system with primary, small and medium-sized enterprise boards, representative share transfer systems, and startup boards; and the volume of successful transactions in the financial market The research asserts that alongside China's capital development, the reforms in interest rate liberalization, the establishment of a unified stock market, and the creation of an international financial center abroad are all being accelerated These initiatives collectively signify a robust financial system for both Shenzhen and the entire Hong Kong region This presents an opportunity for Shenzhen to soar, motivating it to explore and innovate further while enhancing its position as an international financial center.
Farole, T and G Akinci, in their 2011 publication "Special Economic Zones:Progress, Emerging Challenges, and Future Directions" [63], addressed issues related to investment attraction and job creation They discussed both traditional models and new challenges, drawing lessons from experiences in Bangladesh, Honduras, the Americas,China, Singapore, among others The study examined the potential for restructuring special economic zone development, emphasizing sustainable social and environmental development Simultaneously, the research presented analyses of institutional reforms,promoting economic development through special economic zone activities, and addressing emerging concerns related to social development and environmental protection.Three critical policy-making questions emerged: how to make special economic zones successful in attracting businesses and generating employment, how to ensure their economic sustainability and positive impact, facilitating structural transformation and economic reform, and how to guarantee their sustainability in terms of governance, social factors, and the environment.
Research objectives
The research aims to explore the theory and practice of SEZ development in Shenzhen, China, and draw lessons for Vietnam It also aims to summarize the diverse development of SEZs in Vietnam in recent years Based on this, in the context of globalization and deepening integration, the study will analyze the underlying patterns to propose recommendations for institutional arrangements, policy mechanisms, management, and prerequisite conditions for constructing SEZs in Vietnam in the future.
To achieve the aforementioned research objectives, the author identifies specific targets that this thesis aims to pursue, as follows:
Addressing theoretical issues: Systematize and clarify the fundamental theoretical issues related to SEZs, as well as the contribution of such zones The thesis needs to elucidate the underlying patterns to provide a foundation for studying practical issues.
Addressing practical issues: Investigate and summarize the practical experiences in constructing and developing the Shenzhen SEZ model and draw lessons for Vietnam regarding the factors and mechanisms impacting the establishment of SEZs in Vietnam.Analyze and evaluate the current conditions and prerequisites for building and developing different types of SEZs in Vietnam in recent times, identify barriers and limitations, and propose solutions to promote the development of various types of SEZs Assess the feasibility of constructing SEZs in Vietnam in the near future.
Research questions
The objectives of the research are obtained from the research questions as follows:
Question 1: What is the theoritical basic of SEZ?
Question 2: How is the current situation of Shenzhen SEZ?
Question 3: What are the prominent policies of Shenzhen SEZ?
Question 4: What are recommendations for policy for SEZs in Vietnam?
What is the theoritical basic of SEZ?How is the current situation of Shenzhen SEZ?5.
The author's thesis focuses on studying the following subjects:
Firstly, the object of study in this thesis is the SEZ model In reality, there are various types of economic zones such as industrial parks, coastal economic zones, export processing zones, and many other forms However, in this thesis, the author concentrates solely on investigating the special economic zone model, which is one of the limited geographical types of economic zones that enjoy special benefits from preferential policies regarding taxes, investments, and other incentives.
Secondly, in China, there are a total of 7 SEZs, but this research specifically examines and analyzes the distinctive features of the Shenzhen special economic zone - the first special economic zone established in China.
Thirdly, building upon the research conducted on the Shenzhen special economic zone model, the thesis will also compare and contrast it with the special economic zone model in Vietnam Through this comparison, the author will have a foundation to propose necessary innovations and recommendations for Vietnam.
Spatial scope: The thesis concentrates on studying the Shenzhen SEZ model in China and comparing it with different types of SEZs in Vietnam.
Time scope: The research topic covers the period from approximately the 1970s to the present day.
Content scope: Within the framework of the thesis, the prominent features of theShenzhen SEZ model will be studied to identify the factors for establishing and constructing SEZs in Vietnam At the same time, the thesis also examines and evaluates the experiences of Shenzhen in the process of forming and developing the SEZ model,thereby providing recommendations and proposals for the development of SEZ inVietnam.6 Research methodology
To achieve the research objectives mentioned above, the author applies and combines the following research method: Qualitative method will focus on collecting and analyzing domestic and international documents related to economic zones and the Shenzhen SEZ Documents such as government summary reports and research works by other scholars will be carefully studied This will help to gain a deeper understanding of the characteristics, roles of economic zone models, their development processes, prominent features, as well as the successes and limitations of the Shenzhen SEZ Additionally, the author employs the comparative method to contrast the Shenzhen SEZ with the economic zone model in Vietnam This helps to grasp profound similarities between the two models, thereby proposing necessary innovations and improvements for the development of the economic zone model in Vietnam.
By employing these research methods, the author aims to provide a comprehensive and insightful examination of the economic zone model and the Shenzhen SEZ This research also seeks to identify potential improvements and adaptations that are necessary for the successful development of the economic zone model in Vietnam.
In addition to the introduction, conclusion, and references, the thesis consists of three separate parts in the corresponding chapters:
Chapter 1: Theoritical framework of Special Economic Zone
Chapter 2: Overview of Shenzhen Special Economic Zone model.
Chapter 3: Recommendations for policy-making in Vietnam.
THEORITICAL BASIC FOR SPECIAL ECONOMIC ZONE 1.1 Concept of Special Economic Zone
SEZs are known by various names and encompass different types However, some scholars and countries use the terms based on specific areas (e.g., science park, regional development zone), which are brought into policy discussions This study proposes the concept of SEZs based on (i) specialization and (ii) design and governance characteristics The terminology used varies greatly among countries, with the most common terms being free zone, SEZ, free trade zone, economic free zone, and free port This study adopts the terminology of UNCTAD: (1) A geographically delineated area; (2) A distinct regulatory regime from the rest of the economy (typically including customs and fiscal rules, but potentially encompassing other relevant regulations, such as foreign ownership rules, land access rights, or employment regulations); (3) Infrastructure support [UNCTAD, 2015]
SEZs are defined as areas with a distinct economic space and a specially favorable investment and business environment for investors, with defined geographical boundaries established by the relevant authorities The SEZs studied in this dissertation differ from the concepts of “industrial park” or “export processing zone” in that they are primarily formed and serve as comprehensive economic entities, housing projects and core infrastructure that are of significant importance to the nation across multiple sectors such as industry, tourism, trade, duty-free areas, and urban areas They play a dynamic role in promoting the growth and export of regions and provinces The development of SEZs is ensured through specific mechanisms and incentive policies established by the relevant authorities.
The concept of SEZs gained global recognition through the success of this model in China in 1980, with the first four zones being Shenzhen, Zhuhai, Shantou, and Xiamen, among which Shenzhen was the leading zone Although SEZs are widely known in China, this model actually emerged much earlier in the form of free economic zones, known by various names such as free ports and free trade zones The first free port was established in 1547 in Genoa, Italy, while the Hamburg free trade zone in Germany, established in
1888, was the earliest free trade zone in the world As of 2008, there were 3,000 similar models of free economic zones worldwide, including SEZ in 135 countries, contributing to the direct employment of over 68 million workers and generating $500 billion in revenue from trade activities in these areas These are economic zones with policy orientations that closely align with the essence of SEZs [Hien & Oanh, 2019]
Currently, the concept of an economic zone has various definitions According to the Institute of Economics (under the National Center for Social Sciences and Humanities), “an economic zone is a geographically defined area where foreign laws and investment policies with preferential benefits are applied to attract foreign investment.” [Tram, 2014] This definition by the Institute of Economics is based on studies of SEZs in China, where SEZs play a role in attracting foreign investment through exceptional advantages On the other hand, according to the Foreign Investment Advisory Service (FIAS) of the World Bank, “an economic zone is a clearly defined geographical area managed by a single authority, with a separate customs system, and offers exceptional benefits (such as import duty exemptions and streamlined customs procedures) for businesses operating within the zone [World Bank, 2018] This definition by FIAS is broader in scope and not solely based on the role of SEZs; rather, it provides a more comprehensive definition According to this definition, an economic zone is a distinct area with a management structure and a system of specific policies and incentives for investment and business entities within the zone.
According to UNCTAD, SEZs are geographically demarcated areas with distinct regulatory regimes compared to the rest of the economy These regimes often include customs and fiscal regulations, but may also involve other regulations related to foreign ownership, land access, or employment [UNCTAD, 2019] SEZs are supported by the development of infrastructure The United Nations Economic and Social Commission for Western Asia (ESCWA) argues that SEZs are areas where customs duties and import controls are not applied to create an attractive environment for investment, technology transfer, export promotion, and employment opportunities The ILO defines SEZs as industrial zones with special incentives to attract FDI, where imported raw materials undergo certain processing stages before being re-exported.
According to the Cambridge Dictionary, SEZs are regions within a country that have more economic advantages than the rest of the country in order to promote development SEZs can be designed and constructed alongside an airport to attract investors According to Wikipedia, SEZs are areas where business and trade laws differ from the rest of the country They are located within a country's borders and aim to increase trade, attract investment, create employment, and manage efficiently To encourage businesses to establish within SEZs, various financial policies are implemented These policies typically involve investment, taxation, business regulations, quotas, customs, and labor regulations.
According to the Chinese perspective, an SEZ is a geographical area separated from the outside world by two management barriers: the first barrier manages the relationship between the economic zone and the global market, while the second barrier serves as a physical separation Additionally, the economic zone interacts with the domestic market through strict customs control [Xiangming Chen, 2013]
In the SEZs Law of the Philippines, an economic zone is defined as follows: “The SEZs under this law shall be referred to as areas selected and designated as centers of industry, agriculture, tourism, recreation, commerce, banking, investment, and finance An economic zone may consist of one or more of the following components: industrial parks, export processing zones, free trade zones, tourism centers, and entertainment zones.” [SEZ Act, 1994]
Research structure
In addition to the introduction, conclusion, and references, the thesis consists of three separate parts in the corresponding chapters:
Chapter 1: Theoritical framework of Special Economic Zone
Chapter 2: Overview of Shenzhen Special Economic Zone model.
Chapter 3: Recommendations for policy-making in Vietnam.
THEORITICAL BASIC FOR SPECIAL ECONOMIC ZONE
Concept of Special Economic Zone
SEZs are known by various names and encompass different types However, some scholars and countries use the terms based on specific areas (e.g., science park, regional development zone), which are brought into policy discussions This study proposes the concept of SEZs based on (i) specialization and (ii) design and governance characteristics The terminology used varies greatly among countries, with the most common terms being free zone, SEZ, free trade zone, economic free zone, and free port This study adopts the terminology of UNCTAD: (1) A geographically delineated area; (2) A distinct regulatory regime from the rest of the economy (typically including customs and fiscal rules, but potentially encompassing other relevant regulations, such as foreign ownership rules, land access rights, or employment regulations); (3) Infrastructure support [UNCTAD, 2015]
SEZs are defined as areas with a distinct economic space and a specially favorable investment and business environment for investors, with defined geographical boundaries established by the relevant authorities The SEZs studied in this dissertation differ from the concepts of “industrial park” or “export processing zone” in that they are primarily formed and serve as comprehensive economic entities, housing projects and core infrastructure that are of significant importance to the nation across multiple sectors such as industry, tourism, trade, duty-free areas, and urban areas They play a dynamic role in promoting the growth and export of regions and provinces The development of SEZs is ensured through specific mechanisms and incentive policies established by the relevant authorities.
The concept of SEZs gained global recognition through the success of this model in China in 1980, with the first four zones being Shenzhen, Zhuhai, Shantou, and Xiamen, among which Shenzhen was the leading zone Although SEZs are widely known in China, this model actually emerged much earlier in the form of free economic zones, known by various names such as free ports and free trade zones The first free port was established in 1547 in Genoa, Italy, while the Hamburg free trade zone in Germany, established in
1888, was the earliest free trade zone in the world As of 2008, there were 3,000 similar models of free economic zones worldwide, including SEZ in 135 countries, contributing to the direct employment of over 68 million workers and generating $500 billion in revenue from trade activities in these areas These are economic zones with policy orientations that closely align with the essence of SEZs [Hien & Oanh, 2019]
Currently, the concept of an economic zone has various definitions According to the Institute of Economics (under the National Center for Social Sciences and Humanities), “an economic zone is a geographically defined area where foreign laws and investment policies with preferential benefits are applied to attract foreign investment.” [Tram, 2014] This definition by the Institute of Economics is based on studies of SEZs in China, where SEZs play a role in attracting foreign investment through exceptional advantages On the other hand, according to the Foreign Investment Advisory Service (FIAS) of the World Bank, “an economic zone is a clearly defined geographical area managed by a single authority, with a separate customs system, and offers exceptional benefits (such as import duty exemptions and streamlined customs procedures) for businesses operating within the zone [World Bank, 2018] This definition by FIAS is broader in scope and not solely based on the role of SEZs; rather, it provides a more comprehensive definition According to this definition, an economic zone is a distinct area with a management structure and a system of specific policies and incentives for investment and business entities within the zone.
According to UNCTAD, SEZs are geographically demarcated areas with distinct regulatory regimes compared to the rest of the economy These regimes often include customs and fiscal regulations, but may also involve other regulations related to foreign ownership, land access, or employment [UNCTAD, 2019] SEZs are supported by the development of infrastructure The United Nations Economic and Social Commission for Western Asia (ESCWA) argues that SEZs are areas where customs duties and import controls are not applied to create an attractive environment for investment, technology transfer, export promotion, and employment opportunities The ILO defines SEZs as industrial zones with special incentives to attract FDI, where imported raw materials undergo certain processing stages before being re-exported.
According to the Cambridge Dictionary, SEZs are regions within a country that have more economic advantages than the rest of the country in order to promote development SEZs can be designed and constructed alongside an airport to attract investors According to Wikipedia, SEZs are areas where business and trade laws differ from the rest of the country They are located within a country's borders and aim to increase trade, attract investment, create employment, and manage efficiently To encourage businesses to establish within SEZs, various financial policies are implemented These policies typically involve investment, taxation, business regulations, quotas, customs, and labor regulations.
According to the Chinese perspective, an SEZ is a geographical area separated from the outside world by two management barriers: the first barrier manages the relationship between the economic zone and the global market, while the second barrier serves as a physical separation Additionally, the economic zone interacts with the domestic market through strict customs control [Xiangming Chen, 2013]
In the SEZs Law of the Philippines, an economic zone is defined as follows: “The SEZs under this law shall be referred to as areas selected and designated as centers of industry, agriculture, tourism, recreation, commerce, banking, investment, and finance An economic zone may consist of one or more of the following components: industrial parks, export processing zones, free trade zones, tourism centers, and entertainment zones.” [SEZ Act, 1994]
In Vietnam, apart from the Legal Dictionary and some research articles on SEZ, there is currently no legal document that provides an official definition of an economic zone, despite the policy to establish this model being initiated over 20 years ago At the beginning of 2017, in the Proposal of the Ministry of Planning and Investment to the Government, it was suggested to develop the Law on Special Administrative-Economic Unit (SAEU) as a supplement to the legislative program of the National Assembly in 2017 The ministry presented a draft outline of the Law on SEAU According to this draft outline, an economic zone is generally defined as a “special administrative-economic unit,” which is described as follows: “A geographically defined area established by the National Assembly, which applies special mechanisms and policies regarding the economy and society, with a locally organized government appropriate to the characteristics, requirements, and socioeconomic development goals of that special administrative-economic unit.” In Vietnam, an economic zone is also part of a special administrative-economic unit The regulations of the law regarding SEAU also apply to SEZs Therefore, based on the above definition, the explanation of an economic zone in Vietnam bears similarities to the definition provided by FIAS.
Based on the aforementioned analysis, the following definition of an economic zone can be proposed: it is an area with defined borders, larger in size than industrial parks and export processing zones, within the national territory Specifically, this area applies incentives in terms of customs, foreign exchange, taxes, and immigration procedures to both domestic and foreign investors.
Characteristics of Special Economic Zone
Firstly, SEZs are built in areas that have relatively favorable geographical and natural conditions, convenient transportation, abundant and easily exploitable natural resources, mild climates, and beautiful landscapes These natural advantages provide a solid foundation for the operation of SEZs In fact, countries around the world that have implemented the SEZs have chosen locations for building SEZs that have strong development advantages for the country, favorable natural conditions, and potential for promoting the economy For example, the Clark Economic Zone in the Philippines was built in a strategically important location that was previously used by the United States as a military base (Subic military base) The Philippine government has capitalized on the geographical advantages of this port area to establish a SEZs Another example is the Shenzhen SEZ in China, which was built in the southern region with a mild climate and is located across from the rapidly developing “Asian dragon,” Hong Kong As a result, this economic zone achieved significant success shortly after its establishment.
Secondly, SEZs are established in countries with economies undergoing transition They serve as a buffer between a protected economy and a free market economy, acting as a harmonious blend of national and international elements for the purpose of common development Consequently, SEZs have a dual task of
“extension” through expanding foreign investment and “intension” by establishing relationships with domestic enterprises This means that advanced techniques and management experiences imported from foreign countries, through digestion, absorption, and transmission, are transferred domestically to foster domestic economic development based on an outward-oriented model In other words, SEZs are “windows” to the world, acting as a “bridge” between the national market and the international market.
Thirdly, the primary purpose of establishing a SEZs is to expand exports, develop the economy, enhance technical capabilities, and increase foreign exchange earnings To achieve this goal, countries place special emphasis on developing export-oriented manufacturing industries, attracting foreign investment and advanced technical equipment, thereby promoting the regional economy and neighboring areas, and enhancing the technical capabilities of domestic production Additionally, to develop a diversified economic structure, SEZs also encourage foreign investment in other sectors such as industry, agriculture, and services.
Fourthly, SEZs have an investor-friendly investment environment Here, the government implements preferential policies and special measures to support foreign investors and businesses, simplifies administrative procedures, and creates optimal conditions for all business and production activities within the SEZs Therefore, SEZs are always the most attractive destinations for investment in the country.
Fifthly, SEZs have relatively complete and modern technical infrastructure, including electricity, water supply, bridges, sewage systems, transportation networks, factories, warehouses, hospitals, schools,communication systems, postal services, and other social and cultural facilities These infrastructure facilities may have already existed before the establishment of the economic zone or could be developed after its establishment.
The historical emergence of Special Economic Zone
Socioeconomic Development based on Trade: The oldest SEZs are free ports, with the origins of free ports traced back to the Leghorn Free Port established in 1547 in the Gulf of Genoa, Northwestern Italy [Amar Maruti Dhere, 2012] In the early 17th century, free harbors emerged in several European cities and gradually transformed into “free trade zones.” Free trade zones are small, enclosed areas with no tariffs, providing storage facilities and distribution centers for commercial activities, transshipment, and re-exporting They are located in most major seaports worldwide The theoretical foundation for the establishment of these zones is to facilitate transit trade Therefore, international trade is not linked to domestic production but relies on the expansion of
Socioeconomic Development based on Production: In the late 1920s, a series of new SEZs appeared in the city of Cadiz, Spain These SEZs were established with the aim of increasing exports by value-adding to the available raw materials in the country In 1950, the Foreign Trade Zone Act of 1934 in the United States was amended to allow manufacturing activities within free trade zones The first production-oriented SEZ in a developing country was established by Puerto Rico in the Caribbean Sea during the period from 1947 to 1951. However, the origins of SEZs with a focus on production can be traced to the Shannon Free Export Zone in Ireland, established in 1958 This zone became the first global model of an Export Processing Zone [Bolin, 2004].
Comprehensive Industrial Parks: Towards the end of the 1970s, China designed its own model of
“Comprehensive Industrial Parks” (CIPs) Unlike export processing zones, which encompass closed industrial areas, CIPs are large industrial towns spread over several square kilometers CIPs, in general, are a broad concept and often encompass larger areas These types of CIPs are suitable for various types of activities, including tourism and retail, allowing people to reside on-site and providing a range of broader benefits and amenities It can be observed that these comprehensive CIPs draw inspiration from the industrial district concept by Becattini in 1990.
Newly named forms of parks: The concept of CIPs has been supplemented with additional functions by incorporating innovative provincial elements into the basic design to harness their potential and gain a competitive advantage over international counterparts This has led to a variety of different types of parks These include parks with names like high-tech (scientific) industrial park, specialized park, service park, specialized national CIPs, and mixed-use parks.
Coastal CIPs: During the 1990s, many coastal CIPs were formed The objective of these parks is to capitalize on the advantages of maritime trade.
Cross-border economic zones: Similar to coastal economic zones, in the 1990s, cross-border economic zones emerged as a growth strategy for transnational regions The objective of these zones is to leverage the advantages of border locations and promote economic cooperation and trade within the region.These zones are upgraded versions of traditional border industries developed in Mexico and South Africa In the early 1990s, the growth triangle was formed and proposed as a growth strategy for transnational regions[Kudo, 2009] The expanded countries of the Mekong Subregion seized this opportunity to develop industrial clusters in the border area This is referred to as cross-border economic zones.
Roles of Special Economic Zone
Starting from the macroeconomic theory, research on SEZs has clarified and evaluated their contributions to the economic development process Theories such as investment and economic growth have provided a detailed perspective on the impact of investing in these zones, supporting economic development and increasing the GDP growth of the country.
According to research conducted by the World Bank, SEZ normally operates under more liberal economic laws than those typically prevailing in the country [World Bank, 2012] As a result, these SEZs often benefit from policies that offer more advantages and priorities SEZs confer two main types of benefit, which explain in part their popularity: “direct” economic benefits such as employment generation and foreign exchange earnings; and the more elusive “indirect” economic benefits (View Table 1)
Table 1 Potential Benefits Derived from SEZs
Foreign Exchange earnings Skills upgrading
FDI Testing field for wider economic reform
Enhancing trade efficiency of domestic firms
With the aforementioned benefits, the SEZs model can be observed to fulfill specific roles as follows:
According to Farole & Akinci, the development of SEZs serves four main objectives: (1) Attracting FDI; (2) Creating employment opportunities; (3) Acting as a platform for broader reforms; (4) Testing new policies and approaches to economic development However, for developing countries, the objectives of developing SEZs are more diverse because they have a broader impact on various stakeholders, including multinational corporations and domestic and foreign investors [Farole & Akinci, 2011]
For developing countries, the development of SEZs aims to: (1) Export goods; (2) Earn foreign exchange; (3) Address employment issues; (4) Attract FDI; (5) Exploit resources; (6) Industrialize; (7) Develop regions; (8) Experiment with policies; (9) Achieve political goals; (10) Technological innovation; (11) Generate tax revenue; (12) Specialize.
For multinational corporations, SEZs provide an economic model that aims to: (1) Access low-cost labor; (2) Enjoy duty-free imports; (3) Access markets; (4) Gain a competitive advantage in the market; (5) Vertical integration; (6) Expand product life cycles.
For domestic investors, the SEZ model serves as a mechanism to benefit from: (1) Tax exemptions;
(2) Special incentive policies; (3) Enhancing international competitiveness; (4) Engaging in dual economic activities.
1.4.2 Regarding the sustainable development process
There are very few systematic studies on the impact of SEZ, and very few countries have comprehensive procedures to monitor and evaluate the effectiveness of SEZ In general, SEZs have direct and indirect economic contributions, financial and fiscal sustainability, technological and skill contributions, social and environmental impacts, regional integration support, and policy experimentation and learning opportunities Empirical research provides evidence of the potential contributions to economic growth and development Some SEZs are expected to have economic contributions from both direct and indirect regional development The direct benefits include attracting FDI, job creation and income generation, and export growth and diversification Some of these benefits may be particularly important in less developed countries, where employment and foreign exchange income are scarce.
Indirect economic benefits are more difficult to determine and measure However, indirect economic benefits are an essential component of the sustainable development impact of the zones The benefits here include linkages with external suppliers and the indirect employment they create, as well as income and employment, as well as wages, stimulating expenditure in the surrounding area.
The combination of direct and indirect economic contributions will lead to higher economic growth. The establishment and early development of the regions provide a temporary boost to GDP growth However, with the continuous benefits and incentives provided to investors in the SEZs, they should also provide sustainable stimulus for growth In other words, the economic activities within the zones should surpass the overall economic growth after the early development stage of the zone.
Furthermore, reducing the economic, social, and environmental impacts of SEZs presents potential for comprehensive reforms On one hand, as different regulations apply, the zones can alleviate the pressure on governments pursuing challenging nationwide structural reforms On the other hand, the zones can serve as testing grounds for regulations by allowing countries to experiment with different policies and new approaches, with successful experiments acting as catalysts for national policies.
SEZs can stimulate investment, exports, and employment However, they are not prerequisites nor guarantees for above-average performance in terms of FDI participation and global value chains The overall impact on economic growth tends to be temporary: after a construction period, most growth zones operate at a rate equivalent to the national economy.
Attracting investment: SEZs serve as important investment promotion tools and can play a significant role in attracting FDI Through comprehensive and advanced infrastructure, these zones can compensate for unfavorable investment environments to some extent Research in China has shown that SEZs can have a strong positive impact on FDI, including investments in new green technologies.
Expanding and diversifying exports: Another key objective of SEZs is to develop exports, not only in terms of export growth but also in terms of diversification This is particularly important for developing countries reliant on commodity exports and aims to add value to these export items.
Some countries have used SEZ as part of their export promotion strategies, supported by trade incentives SEZ play a crucial role in Kenya's export strategy by attracting foreign investors in the textile industry and directing them towards targeting exports to the United States.
SEZ programs have been a major component of export diversification efforts in many countries For example, countries in Central America and the Caribbean have utilized SEZ to reduce dependence on fruit and vegetable exports In Costa Rica, the share of SEZ exports increased from under 10% in 1990 to 55% in 2003 [FIAS, 2008; Gereffi, 2019] Additionally, SEZ have diversified production from textiles and garments to electronic components.
SEZ serve as tools for developing global value chains as policy instruments, promoting countries' participation in global value chains Trade costs such as tariffs, transportation, and insurance, as well as various customs duties and fees, accumulate when intermediate goods are imported, processed, and subsequently re- exported downstream in complex global value chains, undergoing different transformation steps in different countries By reducing transaction costs within global value chains, SEZ contribute to the profitability of multinational corporation activities, which largely explains the success of the region.
Assessment criteria for Special Economic Zone
The assessment criteria for a SEZ can vary depending on the objectives and policies of the government or entity establishing SEZ Generally, SEZs are designated geographical areas that offer specific incentives and benefits to attract foreign and domestic investment, promote economic growth, boost exports, and generate employment When evaluating the success and effectiveness of an SEZ, the following criteria are often considered:
Geographical location is a paramount criterion when evaluating the establishment of a SEZ SEZs are designated areas within a country that are subjected to specific economic regulations and incentives, aimed at attracting foreign investment, boosting exports, and driving economic growth The location of an SEZ plays a crucial role in determining its potential success and effectiveness in achieving these objectives Several key factors contribute to the significance of geographical location in evaluating an SEZ.
Firstly, proximity to major transportation hubs is vital for an SEZ's success Access to well-connected airports, seaports, railways, and highways facilitates the efficient movement of goods and people in and out of the zone A strategic location near international shipping routes can significantly reduce transportation costs, making exports more competitive in global markets Additionally, a well-connected SEZ ensures ease of access for investors, executives, and skilled workers, encouraging more foreign direct investment and enhancing the overall business environment.
Secondly, the geographical location influences the potential customer base and market access for businesses operating within the SEZ Being close to densely populated areas or emerging markets can provide an advantage in terms of a large consumer base, which is particularly attractive to companies engaged in manufacturing or services sectors Proximity to key markets also reduces distribution costs and allows businesses to respond quickly to changing consumer demands, making the SEZ an attractive investment destination.
Thirdly, natural resources and climate are significant considerations in evaluating an SEZ's geographical location Access to vital resources such as water, energy, raw materials, and fertile land can foster the growth of industries that heavily rely on these inputs Furthermore, a favorable climate can benefit industries such as agriculture and tourism, enabling them to operate efficiently and contribute to the economic development of the region.
Fourthly, geopolitical factors must also be taken into account when choosing the location of an SEZ.
Political stability and favorable relations with neighboring countries reduce the risk of disruptions in trade and business operations Moreover, a location situated in a region with a peaceful and conducive political environment attracts more investors, as they are more likely to feel secure in their investments.
Fifthly, the proximity to research and educational institutions can be a crucial determinant in the success of technology-based SEZs The availability of skilled labor and a culture of innovation in nearby universities and research centers can fuel technology transfer and foster an ecosystem of research and development, attracting high-tech industries and leading to sustainable growth.
Sixthly, the geographical location impacts the cost of land and real estate within the SEZ Lower land acquisition costs and affordable real estate can make the zone more appealing to potential investors, encouraging them to set up their businesses and operations within the area.
SEZs are designated areas within a country that are subject to unique policy and legal regulations aimed at promoting economic growth, attracting foreign direct investment, boosting exports, and creating employment opportunities These zones have gained significant traction in recent years, as governments seek to create business-friendly environments to compete in the global market and foster economic development. While various factors play a role in the evaluation of SEZs, policy and legal regulations emerge as the most critical criteria due to their direct influence on the success and sustainability of these economic enclaves.
The primary function of policy and legal regulations within SEZs is to establish a conducive and predictable business environment By designating SEZs, governments can provide targeted incentives, tax breaks, and streamlined bureaucratic processes that facilitate the establishment and operation of businesses. Transparent and consistent legal frameworks ensure that investors and entrepreneurs feel secure in their investments, minimizing the risks associated with doing business in a foreign country Moreover, a clear policy roadmap enables businesses to plan for the long term, allowing for better allocation of resources and strategic decision-making.
One of the most significant advantages of SEZs’ policy and legal regulations is their potential to attract FDI Investors are more likely to commit their capital when they can be confident in the stability and profitability of their ventures With the right policies in place, such as tax incentives, duty-free imports, and simplified customs procedures, SEZs become an attractive destination for both domestic and international businesses seeking to expand their operations Increased FDI brings not only financial capital but also technology transfer, expertise, and knowledge sharing, which can have a transformative impact on local industries and the overall economy.
Furthermore, policy and legal regulations in SEZs can be tailored to address specific regional development objectives Governments can use SEZs to target industries that align with their economic diversification goals and regional strengths For instance, a country aiming to boost its high-tech industries may create an SEZ with incentives specifically tailored to attract technology companies By focusing on targeted sectors, SEZs can become hubs of innovation and technological advancement, further enhancing their competitiveness in the global marketplace.
Employment generation is another crucial aspect where policy and legal regulations in SEZs play a pivotal role As businesses flourish within these designated zones, they create numerous job opportunities for the local population The establishment of manufacturing units, service industries, and other businesses generates direct employment, while the economic activities in SEZs also lead to indirect job creation in associated sectors Policy measures that encourage skill development and workforce training can further enhance the employability of the local population and ensure the availability of a skilled labor force within the SEZs.
Additionally, policy and legal regulations can address environmental sustainability and social responsibility concerns within SEZs By incorporating environmental standards, energy-efficient practices, and waste management policies, governments can ensure that the economic development in these zones occurs in an ecologically responsible manner Furthermore, SEZs can be designed to comply with labor laws and regulations, safeguarding workers' rights and ensuring fair working conditions.
Despite the undeniable benefits of policy and legal regulations in SEZs, challenges can arise if these regulations are not properly implemented or if they lack consistency over time Frequent changes in policies, ambiguity in legal frameworks, or failure to enforce regulations can lead to uncertainty among investors and businesses, thereby hindering the growth and stability of SEZs Therefore, governments must strike a balance between providing a business-friendly environment and maintaining regulatory certainty to attract sustained investment and growth.
Influenced factors to the development process of Special Economic Zone
1.6.1 Objective factors a) Integration and globalization trends
Globalization is an inevitable trend that is expanding rapidly The economic aspect is the most crucial aspect of globalization Economic globalization is strongly influencing political and social fields, while also experiencing multidirectional impacts that lead to differentiation and diversification of the global economy.
Currently, globalization is exerting a powerful influence on many countries, communities, and individuals Perspectives and attitudes towards globalization vary significantly While some developing countries enthusiastically embrace globalization, anti-globalization movements are widespread in many developed countries, attracting a large number of participants However, regardless of different attitudes, whether supportive or oppositional, globalization remains an inevitable trend that each country must confront.
In addition to opportunities, globalization poses significant challenges such as economic setbacks,unemployment and job shortages, wealth disparity, increasing social ills and crime rates, concerns about cultural homogenization, and the erosion of national cultural identity The path to overcome these challenges is not to close off and live in isolation from the world On the contrary, it requires proactive and active international integration, strengthening the economy, enhancing national competitiveness, being resilient to new risks, while nurturing and educating the domestic population to raise awareness, civic responsibility, and patriotism This approach aims to inspire and promote the national spirit, incorporating selectively chosen universal values to foster both economic and cultural development.
So how is the essential nature of globalization manifested? The essential nature of globalization is primarily expressed in its economic dimension It brings about fundamental changes in human economic activities, altering the nature and position of markets The process of globalization has attracted many countries and become an interdependent component of the global or regional economy In addition to the global nature of commodity and service markets, the fields of science and technology, finance and currency are also increasingly exhibiting globalization, with complex and multidimensional spillover effects of financial systems and currencies From the Asian financial crisis in 1997 to the global economic crisis in 2008, it has been evident that globalization has impacted every country No one can deny that globalization is an inevitable process and is creating opportunities for economically developing countries to integrate into the world economy, accelerating economic growth and technological innovation The reality of the past few decades has affirmed that many less-developed countries in Asia, by seizing the opportunities of globalization, have achieved record-breaking economic growth and become Asian “dragons.” However, there are also countries that, due to incorrect economic and social policies, not only fail to sustain high growth but also fall into crises and lag behind, such as the Philippines several decades ago.
Regarding the process of construction and development of SEZs, there are tax incentives to attract foreign investors The legal regulatory framework of countries must ensure compatibility with the trends of globalization and international integration to attract investors In the context of integration and globalization, legal regulations should not become barriers to the formation and development of SEZs Power delegation to these zones should be focused on achieving the development goals of the zones Long-term land use privileges, if not managed effectively, can lead to unhealthy competition and inefficiency, as well as potentially turning a country into a destination for outdated industries and environmental pollution Infrastructure and policy environment are also important factors The SEZs must become destinations for multinational corporations, banks, financial centers, securities markets, and ideal incubators for scientific and technological innovation In this regard, the mechanisms and specific policies that bring breakthroughs for the SEZs need to be comprehensively and scientifically evaluated in terms of economic, social, defense, and security impacts To establish and develop theSEZ model as a growth driver for a new phase, it is important to strategically plan sustainable investment,creating long-term competitive capabilities for domestic enterprises It is crucial to establish an investment framework and environment that can compete with other SEZs worldwide, while also ensuring national interests Building a qualified and competent workforce for the SEZs is necessary to ensure their efficient operation and contribute more to the socio-economic development of the country. b) Science, technology, innovation, and the fourth industrial revolution
Science, technology, innovation, along with the emergence of the Fourth Industrial Revolution, are fundamentally changing the lives of human beings, from work and living to social relationships The scale, scope of influence, complexity, and societal shifts resulting from this new industrial revolution are enormous, presenting both opportunities and numerous challenges for each nation The extent of the impact will depend on the adaptive capacity of each country to the technological wave brought about by this new industrial revolution The positive impact of the Fourth Industrial Revolution is significant in terms of individual and community labor productivity due to breakthroughs in new technologies that have emerged over the past decade, such as artificial intelligence, the Internet of Things, 3D printing, big data, cloud computing, and more. They have generated strong impact and dissemination In fact, the influence of the Fourth Industrial Revolution has contributed to changing the lifestyle of individuals and society.
However, alongside significant opportunities, the Fourth Industrial Revolution poses major challenges to socio-economic development:
(1) A major shift in the workforce towards enhancing the quality and skill level of human resources.
As a result, low-skilled or intermediate-skilled jobs are gradually being replaced by automation, resulting in surplus labor.
(2) Increasing income inequality between a small number of wealthy individuals and the majority of the workforce This trend places developing countries, including Vietnam, at great risk and challenges, requiring them to address both distribution and redistribution.
(3) The ubiquity of the Internet of Things, artificial intelligence, big data, cloud computing, 3D printing, brought about by the Fourth Industrial Revolution, will increase challenges in security and information safety, making it difficult to control information in cyberspace.
The formation, construction, and development of SEZs in the Fourth Industrial Revolution present both opportunities and challenges, requiring a more innovative approach The development of SEZs in this fourth industrial revolution offers breakthrough opportunities and addresses the economic backwardness of middle-income countries Based on practical experience, the high-level development of SEZs relies on three pillars: (1) Human resources, the ability to absorb technology, expertise, and soft skills to enhance productivity;
(2) Physical infrastructure, technical infrastructure, technological expertise, production tools, and smart products,with intelligent production processes and high flexibility based on autonomous processes, data sharing, and high reliability through cybersecurity mechanisms; (3) Above all, a modern territorial governance regime is necessary in national governance to foster breakthroughs, generate growth engines and spillover effects, without creating fragmentation, making the SEZs “isolated” in the economy.
However, developing SEZs at a simple level such as industrial parks or export processing zones to attract cheap labor and average production capacity is no longer an advantage for Vietnam The overall quality of human resources and human resources in the field of science and technology in some countries is still low, lagging behind some developing countries worldwide Labor productivity and competitive capacity are still low Therefore, it is not possible to establish SEZs to attract investors with low or average technological expertise and average services It is necessary to consider constructing one or more SEZs with modern infrastructure, attracting leading investors in technology, finance, banking combined with a healthy, safe, and world-class living environment, creating opportunities for SEZs to accelerate, breakthrough, and spread domestically and internationally, serving as the driving force for the country's growth.
The two objective factors mentioned above, namely globalization and the industrial revolution, can be seen as external factors influencing the formation and development of SEZs in the face of new competition.
1.6.2 Subjective factors a) Contemporary political thinking
The majority of countries aiming to develop SEZs always start with the goal of socio-economic development and other objectives such as finding momentum for national development, promoting integration, and implementing comprehensive reforms in various fields SEZs are always identified as
“experimental grounds” and entail potential risks Despite numerous studies on SEZs, there is no universal model for these zones across countries due to varying levels of development, cultural, social, religious, and ethnic characteristics Based on practical experience, each country must explore, learn, and establish appropriate scenarios and roadmaps for the formation, construction, and development of SEZs in their own country, suited to each stage of development Particularly in the new context of the Fourth Industrial Revolution and intense competition, modern development thinking that adapts to globalization and integration plays a crucial role and reflects the leadership's determination in the country most decisively.
On the other hand, under the pressure of reforming the system and institutional barriers that hinder development, political determination has become an extremely important factor Recognizing this, many countries have placed political determination at the top of their priorities in the formation, construction, and development of SEZs.
CURRENT SITUATION OF SHENZHEN SPECIAL ECONOMIC ZONE
Overview of formation and development of Shenzhen Special Economic Zone
2.1.1 The construction context of Shenzhen Special Economic Zone.
After the end of the ten-year-long "Great Cultural Revolution," Chinese leaders were constantly concerned about how to build a prosperous and powerful nation They all recognized the need to transform an outdated economy and change the chaotic management practices that characterized the "Great Cultural Revolution" era However, they were unsure about the methods and paths for these changes.
Under the leadership of Deng Xiaoping, starting from 1978, with the concept of "reform and opening up," he believed that the fundamental issue in China was the problem of the system itself The rigid and unreasonable conditions between the system and administrative management posed the greatest obstacle to the country's progress Deng Xiaoping believed that China had to undergo four modernizations: agriculture, industry, technology, and defense Simultaneously, China had to carry out reforms and open up to the outside world.
China's long history of a closed economy, along with policies like the "closed-door policy" ("bế quan toả cảng"), had plunged the country into stagnation in all economic, political, and social aspects It was time for China to wake up and keep up with the times The 3rd Plenary Session of the 11th Central Committee of the Communist Party of China (December 1978) marked the official adoption of the policy of reform and opening up This decision was a historic milestone and a prerequisite for the country's promising new direction.
China's opening strategy encompasses two main aspects: first, the import-export strategy, which completely departs from the previous foreign trade policy of import substitution; and second, the strategy of opening up and engaging with foreign countries to attract foreign investment To attract foreign investment to China, the establishment of "SEZs" immediately comes to mind These SEZs are intended to serve as windows for exchange and trade with the international community China's opening policy is very rational and timely, as it coincided with the period when capitalist countries had excess capital and technology, leading them to seek new markets for investment Meanwhile, socialist countries or developing nations lagged behind and were not ready to embrace this transfer of technology It was in this context that China emerged and was willing to open its doors to attract capital and technology from abroad This alignment of circumstances greatly multiplied China's opportunities.
Furthermore, China is a large market with a population of 1.3 billion people, abundant natural resources, and a plentiful labor force These are competitive advantages and attractive features for foreign countries However, for a vast country like China, everything becomes cumbersome and challenging when embarking on the path of reform and opening up.
Moreover, there are uneven levels of development across different geographic regions in China, which inevitably results in some areas being left behind and unable to receive capital and technological advancements from foreign countries Therefore, it is necessary to conduct research, deliberation, and careful selection that align with the actual weaknesses and limitations of China at that time.
Also at this time, the development of Hong Kong had astonished China Hong Kong was one of the industrial and service centers with international stature Deng Xiaoping hoped that China would be able to develop many Hong Kongs like that Meanwhile, in the late 1960s and the 1970s, the emergence and development of hundreds of free economic zones worldwide had a strong impact on the intentions of the Chinese authorities They sought to explore and establish SEZs that were suitable for the situation in China at that time [Xiangming Chen, 1987]
With all of these reasons, in April 1979, during a meeting of the Chinese Communist Party's Central Committee, it was decided to build several experimental development zones, which were the SEZs.
2.1.2 The development of Shenzhen Special Economic Zone
Firstly, from 1978 to 1985, the foundational stage for development was established
In July 1979, the Communist Party of China approved the reports from Fujian and Guangdong provinces on flexible measures in foreign economic activities and decided to establish the SEZs in Shenzhen,Zhuhai, Shantou, and Xiamen From that point on, the first SEZ, Shenzhen, embarked on a period of constructing both physical and soft infrastructure with a bold and experimental approach Key initiatives included the formulation of a comprehensive plan for socio-economic development, the establishment of basic institutional frameworks, price system reforms (1982), market-oriented orientation, and enterprise system reforms (1983) Additionally, deep-water port construction in Shekou (1979), the opening of the Shatoujiao area to attract foreign investment, the establishment of the Dayawan nuclear power joint venture betweenGuangdong and Hong Kong (the largest foreign joint venture at the time), financial sector liberalization, and the establishment of several foreign banks The main characteristic of this period was the step-by-step reforms and breakthroughs, as well as the opening-up to promote reforms These reforms broke the constraints of the traditional planned economic system and served as a model for nationwide economic reforms [Pu Hao, 2011]
Secondly, from 1986 to 1992, there was a period of significant transformation
The SEZs entered a new phase of development, characterized by vigorous efforts to reform the market-oriented economic system with a focus on external influence Shenzhen took the lead in the plan to shift the economic system, leveraging foreign capital and technology to construct the Chiwan port and establish
“Three Capital” enterprises (joint ventures with foreign capital, overseas Chinese, and enterprises with foreign investment) Simultaneously, there was active cooperation and integration with domestic entities to counterbalance joint ventures The persistent approach of prioritizing industry and combining commerce with technology aimed to become a knowledge-intensive and industrial-focused region with a focus on scientific and technological advancements and export orientation.
The special zones began implementing differentiation in state-owned enterprises (1986) by allowing foreign banks to engage in business activities (1986), establishing foreign exchange control centers (1988), and setting up stock exchanges (1990) to break away from traditional mechanisms and establish a real estate auction market (1987) Through these fundamental reforms, an institutional framework for regulating the operation of the market economy in Shenzhen gradually took shape The average annual GDP growth rate reached 30% In 1987, Shenzhen reversed the situation of trade deficits, and by 1992, it became the leading commercial trading city in China [Nature, 2017]
Thirdly, from 1993 to 2002, a period of “overcoming” and self-reliant innovation and creativity took place This was a period of surpassing the reliance on state benefits and transitioning towards relying on the development of individual innovative capabilities Firstly, the SEZs served as pioneering areas to establish the goals of the economic system, taking the lead in establishing a modern enterprise system, improving the market system, transforming the functions of the government, and building a legal system adaptable to a market- oriented socialist economy Secondly, preferential treatment was provided to foreign businessmen and overseasChinese investors Thirdly, an outward-oriented strategy was implemented to expand the market, with the primary focus being on attracting high-tech foreign enterprises Determined policies were implemented extensively, including: continued deepening of the reform of state-owned asset management systems (1992);strengthening the reform of state-owned enterprises to establish a modern enterprise system (1994); developing the science and technology market (1994); enhancing the construction of the credit system (2002) During this period, the Shenzhen SEZ achieved significant leaps in development, with the formation of high-tech industries GDP continuously experienced high growth, reaching 100 billion RMB in 1994, 200 billion RMB in 1998, and 300 billion RMB in 2002 [Nature, 2017]
Fourth, from 2003 to 2008, there was a period of challenges in facing the development of science and technology In 2003, the local authorities proposed the strategic goal of building an internationally-oriented city, such as the proposal to build “Hexis Shenzhen” (Harmonious Shenzhen) in 2005 They implemented the strategy of “Independent Innovation” by promoting comprehensive economic reproduction: improving ownership structure, promoting the development of private economy (2003), reforming the three distribution systems (2006), and proposing a welfare expenditure system (2006) for people's livelihood Regarding foreign investment, they actively promoted trade facilitation and diversified export markets, attracting multinational corporations with advanced technology to participate in core national projects They also promoted the international operations of domestic companies, aiming to enhance cooperation between Shenzhen and Hong Kong, such as the signing of the “1+8” Cooperation Agreement in 2004 and the “1+6” Agreement in 2007. [Anna, 2019]
So far, the development of China's SEZs has achieved significant accomplishments, creating the famous phenomenon known as the “Shenzhen speed” For instance, from 1979 to 2007, the GDP growth inShenzhen increased from 196 million Chinese yuan to 67,654.1 billion Chinese yuan, with an annual growth rate of 31.20% The per capita GDP rose from 606 Chinese yuan to 79,221 billion Chinese yuan (10,628USD), and the total trade exports increased from 17 million USD to 28,753.3 billion USD, with an average growth rate of 38.34%, the highest in the country In 2009, Shenzhen achieved an impressive GDP of 82,012.3 billion Chinese yuan, a staggering 979 times higher than in 1979 The per capita GDP reached 13,600 USD,ranking first in China [Nature, 2017]
Prominent features of Shenzhen Special Economic Zone
The Central Government and the Guangdong Provincial Government decided to select and develop the first SEZ in Shenzhen because Shenzhen possesses distinctive characteristics and advantages, along with favorable natural conditions for establishing an economic zone:
Firstly, Shenzhen has the advantage of its geographical location for economic expansion outward.
Previously, Shenzhen was part of Bao'an County in the city of Haitan Located in the southern part of
Guangdong Province, Shenzhen is situated on the eastern bank of the Pearl River, bordering the Diaoye Bay and Dapeng Bay to the east, the Chu River estuary and the Lingding Sea to the west, the Tham Quyen River and Hong Kong to the south, and the cities of Dongguan and Huizhou to the north, with a vast inland area behind it Shenzhen indeed enjoys a favorable geographical position, thus historically referred to as the
"gateway, money-spending province of Guangdong" [Zhong Jian, 2008] Moreover, Shenzhen lies within the economic circle of the Pacific Rim, stretching from Japan, South Korea, and Taiwan to Hong Kong and Singapore, holding a strategically important position in international economic development and serving as a crucial gateway connecting China with the outside world Shenzhen is a tightly bound link and a bridge between Hong Kong and mainland China, a vital transportation hub in the coastal region of South China. Foreign investors coming to Shenzhen to establish factories will find it more convenient than other areas, as it reduces transportation costs, lowers production costs, and enhances the competitiveness of products in the market, while also serving as a stepping stone for deepening market penetration into mainland China. Furthermore, Shenzhen can utilize the international maritime transport route in the Western Pacific to transport goods to the Hong Kong market, Southeast Asia, and the world.
Secondly, due to its proximity to Hong Kong, the exchange between the ports of Shenzhen and Hong
Kong is extremely convenient While China was developing the Shenzhen SEZ, Hong Kong had already established a relatively advanced economy Therefore, Shenzhen has the ability to attract capital and advanced technology from Hong Kong Hong Kong is regarded as an international financial and transportation hub.Consequently, through Hong Kong, Shenzhen can access international partners and promote its image On the other hand, the establishment of the Shenzhen SEZ coincided with the transition of Hong Kong's economy from traditional industries to high-tech sectors This provided Shenzhen with an opportunity to be chosen byHong Kong as the location for this transition Shenzhen and Hong Kong share a contiguous mountainous and riverine landscape, making it the most convenient meeting point between Hong Kong and mainland China.The land border between the ports of Shenzhen and Hong Kong is 27.5 km, and the sea border is 209 km[Zhong Jian, 2008] The transportation of goods, passengers, and currency exchange between the two ports is highly convenient Although in the past, these two regions belonged to completely different political systems,the people on both sides drink from the same river, speak the same local language, share similar customs, and have common ancestry Their exchanges have never been severed Over the years, many farmers fromShenzhen have come to Hong Kong for agricultural work, selling their products directly to the Hong Kong market Since the establishment of the People's Republic of China, the border gateway of Shenzhen has maintained close exchanges with Hong Kong Therefore, when Shenzhen established the SEZ, it not only provided favorable conditions for Hong Kong businessmen to invest in factories and develop their careers in Shenzhen, but also attracted foreign capital, technology, and management experience Shenzhen is the convergence point between Hong Kong and Western civilization, and its advantageous geographical position and favorable environment make it an ideal land for the experimental revolution of reform and opening up to the outside world.
Thirdly, the natural resources in Tham Quyen are relatively abundant Located on the international sea route, Tham Quyen possesses a vast sea area connecting the East Vietnam Sea and the Pacific Ocean With three sides bordered by the sea, the western gateway is the Chu River Estuary, the southwest is the Linh Dinh Sea, the east is the Dai Nghiep Gulf, and the southeast is the Dai Bang Gulf The total coastline measures 229.96 km, providing a rich coastal resource base with numerous bays and the possibility of constructing deep- water ports in many locations, facilitating connections with the open sea These conditions are essential for the development of an export-oriented economic model and the construction of an international port city in Tham Quyen The land area of Tham Quyen is approximately 1,953 km², nearly twice that of Hong Kong, with a potential development area of 150 km² Tham Quyen enjoys a mild climate, with no severe cold in winter, no drought in summer, abundant sunshine, sufficient rainfall, and an average annual temperature of 22.4°C It falls within the subtropical marine climate zone and has a relatively abundant resource base, capable of supplying not only the local market but also exporting to Hong Kong, Macau, and Southeast Asia Additionally, Tham Quyen is an important homeland of the Guangdong provincial style In terms of population, there are nearly 400,000 people from Tham Quyen currently living in Hong Kong and Macau, along with approximately 300,000 people residing overseas [Zhong Jian, 2008]
2.2.2 Government's appropriate policies and legal regulations
The first SEZ established in China is the Shenzhen SEZ, which is considered an emblematic representation of the country's process of building and developing a modern market economy SubsequentSEZs established in China have adopted the institutional model of Shenzhen as a prototype While Shenzhen'sGDP was only 196 million Chinese yuan (CNY) in 1979, by 2017, it had surpassed 2.24 trillion C NY, an increase of 2,152 times, with an average annual growth rate of 22.4% In just over three decades, Shenzhen has transformed from a poor town into one of the wealthiest metropolises in the world, thanks to a system of breakthrough and innovative open-door policies, including:
Firstly, the high political determination of senior leadership is crucial In the late 1970s, when the national economy of China was in a state of recession after a long period of isolation from the outside world, the senior leadership of China, led by Deng Xiaoping, initiated and persisted in the path of reform and opening up. Deng Xiaoping courageously liberated ideological thinking, stating, “Improving scientific and technological levels naturally requires adhering to the principles of independence, self-reliance, and self-sufficiency However, independence does not mean closing oneself off defensively, and self-reliance does not mean blindly rejecting external assistance.” [Nguyen Thanh Nha, 2021] Based on this perspective, in April 1979, the Communist Party of China made a significant decision to establish SEZs, implement a market-oriented economy, and open up to foreign investment Initially, the establishment of SEZs faced opposition due to the prejudice that anything related to capitalism was contradictory to socialism However, in January 1984, during his first visit to Southern China, Deng Xiaoping personally witnessed the development of Shenzhen, where the overall value of agriculture increased tenfold compared to the pre-SEZ period Deng Xiaoping firmly affirmed two points: firstly, building SEZs was the right decision, and secondly, SEZs were an experiment that allowed for failures but not for a lack of reform Deng Xiaoping's political determination received widespread support from the people, putting an end to debates over the “Tu” or “Xia” factions Two months later, the Communist Party of China declared the opening of 14 coastal cities and Hainan Island China's foreign opening policy, from experimentation to a general approach, eventually formed a comprehensive framework for openness in coastal regions.
Secondly, daringly implementing the management hierarchy is crucial On January 1, 1992, during the 26th Conference of the Standing Committee of the Seventh National People's Congress, a decision was passed to delegate legislative power to Shenzhen This was considered a “liberation” factor that enabled theSEZ to avoid dependence and proactively determine its long-term direction Based on respect for the law,without conflicting with overall interests, the special zone's government was granted significant autonomy in various aspects, including legislative and administrative powers, investment licensing, and having its own budget that is completely independent of the central government They also have the authority to provide specific incentives to investors, and businesses have the autonomy to decide their business methods, manage their workforce, allocate capital, and take responsibility for profits and losses The special zone's government is also the entity responsible for receiving and resolving any issues or concerns raised by investors, following a transparent and streamlined “one-stop, one-seal, and on-site” mechanism In practice, Shenzhen has adhered to the principle of “legislation first, implementation first, and pilot testing first” when necessary By 2001,
Shenzhen had enacted approximately 300 legal documents, with 70% of them related to the economy and market opening [ Donglas Zhihua Zeng, 2015]
Thirdly, perfecting the system of preferential policies China's argument is quite simple: Foreign- invested enterprises established on Chinese soil, sooner or later, will belong to China In attracting investment, they prioritize fundamental and long-term benefits, never abandoning comprehensive objectives Therefore, the preferential policies are extensive, with consistent long-term commitments, fostering trust with investors The tax incentives in the SEZs can be summarized as follows:
Table 2 Tax incentives in the Shenzhen Special Economic Zone
Income tax for enterprises exporting over 70% of their production output 15% 10%
Income tax for enterprises without a presence in
The tax exemption/reduction period for foreign joint ventures is 5 years, while for wholly foreign- owned enterprises, it is 3 years For enterprises with a business term of 15 years or more, the general tax exemption period is 5 years, following the “2 plus 3” formula (exempt from taxes for the first 2 years from the start of profit-making and 50% tax reduction for the following 3 years) Service and trade enterprises have a tax exemption/reduction period of 3 years, following the “1 plus 2” formula In the specially encouraged investment sectors, enterprises are exempt from taxes for 5 years and receive a 50% tax reduction for the next 5 years.
In addition to tax incentives, in 1986, Shenzhen took the lead in allowing foreign banks to operate within the SEZ, in order to provide the most favorable conditions for investors [Jieming Zhu, 1996] Foreign banks are permitted to engage in lending, deposit-taking, fund transfers, granting credit for import-export activities, foreign exchange payments, and foreign currency bill discounting.
The investment guarantee policy is also a bright spot, as Shenzhen allows investors the right to choose an international arbitration court to resolve disputes instead of being obligated to use domestic courts.
Additionally, they are required to be compensated for any investment losses by a neutral financial arbitration agency.
Fourthly, enhancing investment in infrastructure When the construction of the Shenzhen SEZ began, with virtually no existing infrastructure, according to calculations by engineers, to meet international standards and achieve the required specifications in terms of electricity, water, roads, seaports, and factories, an investment of up to 100 million Yuan was needed However, according to the policy of “the government only provides policies, not funds,” Shenzhen was only granted a loan of 30 million Yuan from the state budget, and the rest had to be raised through various forms of capital mobilization [Bret Crane, 2015] The Shenzhen government flexibly used land as collateral to borrow money from commercial banks, and the borrowed amount was repaid through infrastructure fees Shenzhen also boldly experimented with equity participation with foreign partners In 1993, a joint-stock construction model was established for the Dian-Dien Port, one of the most modern container ports in China today, between Shenzhen and the Li & Fung Group (Hong Kong), with a total investment of Hong Kong Dollar 2.4 billion, of which Li & Fung Group held 73% of the total capital, and the remaining 27% was a joint venture between some domestic companies and the Shenzhen government. Foreign companies also invested 100% of the capital in major projects such as the Ngo Dong Tunnel, connecting the East-West Shenzhen Expressway, or the Guangzhou-Shenzhen high-speed rail line Allowing foreign investors to invest in infrastructure and collect tolls was a groundbreaking policy Nowadays, this is considered normal, but 30 years ago, it was described as a “revolutionary decision” due to political sensitivity.
Fifthly, there was a bold reform in land management Shenzhen has introduced numerous unprecedented incentives for land access and expanded the rights of land users in the SEZ In 1987, Shenzhen became the first place to publicly auction land-use rights, ending the state's ownership of land and initiating the era of land-use marketization Accordingly, land-use rights can be sold, leased, mortgaged, or transferred The allocation and leasing of land are determined based on the development plan of the SEZ, as well as the needs and practical capabilities of the entities involved Investors are required to pay a corresponding usage fee to theSEZ authority for the approved investment period The land-use term depends on the purpose of use but does not exceed 70 years Through these bold reforms, Shenzhen has created a vast land reserve to serve economic development On the other hand, according to a report by the World Bank, in the 1990s, 80% of Shenzhen government's budget came from the sale and leasing of public land, which constituted the main source of funding for infrastructure construction in Shenzhen [World Bank, 2012]
One of the other impressive policies in Shenzhen is the voluntary contribution of land by rural households to build industrial parks, where they contribute capital in the form of land value and their assets on the land to enjoy dividends from businesses, instead of receiving compensation in cash, which is the conventional approach China refers to this policy as “raising geese for their eggs without eating the geese.” The relocation and resettlement of residents encountered no difficulties because households were allowed to retain a portion of their land for living and conducting businesses directly within the industrial parks, either by opening shops or constructing housing for workers [Nguyen Minh Hang, 1996]
Evaluating Shenzhen Special Economic Zone
The establishment of SEZs in China is a significant initiative in building a socialist regime and an experiment in developing a prosperous Chinese economy Among them, the Shenzhen SEZ has achieved the following results:
Firstly, the population has been continuously increasing (View Firgue 1) The permanent population of the entire city has been steadily growing each year In 1979, the permanent population was 314,100 people, and by 2005, it reached 8,277,500 people, with an average annual growth rate of 13.4% The registered population increased from 312,600 people in 1979 to 1,819,300 people in 2005, with an average annual growth rate of 7.0% The non-registered population increased from 1,500 people in 1979 to 6,458,200 people in 2005, with an average annual growth rate of 38.0% The population density in 2005 was 4,239 people/km².
Based on the population structure mentioned above, it can be observed that the population in Shenzhen is mainly composed of people who have migrated from elsewhere for work and livelihood [China Statistics Press, 2006] (View Table 3)
Table 3 Population Growth in the City of Shenzhen SEZ 1979-2006
Growth in the Year (Million)
Share of Migration in Population Growth (%)
Figure 1 The population growth rate of the Shenzhen SEZ 1979 - 2009
Secondly, there is a strong attraction to foreign capital With an open-door policy encouraging investment, along with similarities in tradition and culture, and geographical proximity, Shenzhen has become an ideal location for the technology transfer process of Hong Kong businessmen In recent years, many documents have shown that Hong Kong investors have invested significantly in Shenzhen, and goods from Shenzhen have been exported to major markets (such as the US and the EU) through Hong Kong, as goods from China are not restricted from importation in these markets The development model of Shenzhen in the 1980s and early 1990s can be described as “Shenzhen as the factory, and Hong Kong as the store.” Until recent years, Hong Kong and Macau have remained the largest investors in Shenzhen According to the statistical yearbook of Shenzhen in 2006, the actual investment capital from Hong Kong and Macau accounted for 79% of total investment in Shenzhen in 1986, 62% in 2000, and 63% in 2003 In terms of attracting foreign capital, in 1979, Shenzhen actually attracted 15.37 billion USD, of which 5.48 million USD was foreign direct investment (in the form of capital contribution, 1.92 million USD; cooperative business, 3.56 million USD),and other forms accounted for 9.89 billion USD By 2005, Shenzhen actually attracted 404.7 billion USD,approximately 263.31 times the amount in 1979 Of this, foreign direct investment amounted to 296.8 billionUSD (investment in the form of capital contribution, 50.8 million USD; cooperative business, 82.99 million
USD; 100% foreign capital, 230.9 billion USD), and other forms of investment accounted for 104.8 billion USD (View Table 4) In general, compared to other SEZs in China, Shenzhen consistently leads in attracting foreign investment [China Statistics Press, 2006]
Table 4 FDI Inflows in Shenzhen SEZ and other SEZs in China 1978–2008
Year Shenzhen Zhuhai Shandou Xiamen Hainan
Thirdly, in terms of imports and exports, Hong Kong is the largest trading partner of Shenzhen In
2005, the total import and export volume between Hong Kong and Shenzhen reached 47.363 billion USD making it the second largest trading partner of Shenzhen after the United States, with a total import and export volume of 25.4 billion USD Japan is the third largest trading partner with a total import and export volume of 17.2 billion USD Shenzhen plays an important role in China's total import and export volume Over the past
17 consecutive years, the import and export volume of Shenzhen has always ranked first among the major cities in China [Duong, 2007] In general, in 1979, the total import and export volume of Shenzhen was 16.76 million USD, with an export surplus of 1.84 million USD In 2005, it reached 183 billion USD, an increase of about 109 times compared to 1979, and the export surplus was 20.2 billion USD, an increase of about 110 times compared to 1979 Shenzhen has trade relations with 71 countries and regions worldwide The export market of Shenzhen is also diverse (View Firgue 2) Export to Hong Kong accounted for 43.9% of the total export volume of the region In 2004, it increased by 29.5% compared to the previous year Exports to 15 EU countries increased by 12.4% (accounting for 11.1% of the total export volume) In addition, the export volume of goods to major countries such as Brazil, Russia, and India in 2004 increased by 55.6%, 56.1%, and 78.5% respectively [Duong, 2007].
Figure 2 Total import and export value in Hong Kong, Shenzhen, Shanghai and Ningbo, 1990- 2014
Fourthly, GDP growth After nearly 30 years of formation and development, the cyclical growth of
Shenzhen can be divided into the following stages:
- Stage 1980 - 1985: With policies to attract foreign investment, processing and manufacturing for export, and a focus on infrastructure construction, Shenzhen's GDP was 196 million Yuan (26 million USD), with an average annual GDP growth rate of 52.3%, industrial growth of 87%, and construction growth of 79.5% [China Statistics Press, 2006]
- Stage 1986 - 1996: The focus of investment was on building transportation infrastructure, ports, airports, financial services, and commercial service centers to shift the economic structure The average annual GDP growth rate during this period was 33.3% [China Statistics Press, 2006]
- Stage 1996 - 2001: Shenzhen implemented a new step in economic restructuring through policies to encourage and support high-tech industrial production, establish global logistics service centers, expand financial services, and develop the stock market, promoting the rapid development of the service economy. During this stage, the average annual GDP growth rate was about 17% [China Statistics Press, 2006]
- Stage 2002 - 2005: The average annual GDP growth rate was 16% [Duong, 2007] Looking throughout the journey since its establishment, the total GDP of the entire city increased from 196,380 million Yuan in 1979 to approximately 495.1 billion Yuan in 2005, with an average annual growth rate of 27.8% The total value of the agricultural sector was 72,730 million Yuan in 1979, rising to 973,850 million Yuan in 2005, with an average annual growth of 30% The total value of the industrial and construction sector increased from 40,170 million Yuan in 1979 to about 263,344 billion Yuan in 2005, with an average annual growth rate of 37.1% The total value of the service sector increased from 83,480 million Yuan to about 230,773 billion Yuan in 2005, with an average annual growth of 27.7% The average GDP per capita increased from 606 Yuan in
1979 to 60,801 Yuan in 2005 [China Statistics Press, 2006]
In 1979, the agricultural sector accounted for 37% of the total GDP, while the industrial and construction sector accounted for 20.5% (industry 11.8%, construction 8.7%), and the service sector accounted for 42.5% of the total GDP By 2005, the sectoral structure transformed, with agriculture accounting for 0.2%, the industrial and construction sector accounting for 53.2% (industry 50.2%, construction 3.0%), and the service sector accounting for 46.6% of the total GDP of Shenzhen [China Statistics Press, 2006] (View Firgue
Figure 3 Shenzhen’s GDP per capita and utilized FDI, 1979–2009
Fifthly, a significant influence Shenzhen is built according to the model of a comprehensive and diversified economic zone, including industries such as manufacturing, agriculture, commerce, and science and technology It has multidimensional linkages, both outward-oriented and cooperative with the underdeveloped regions in the interior So far, Shenzhen has not only become a typically modern and developed economic zone but also plays a crucial role in supporting the less-developed domestic economic regions It acts as a bridge for joint ventures and linkages between domestic and foreign enterprises Many cross-sectoral economic conglomerates have been established and are increasingly growing and effective in Shenzhen.
Moreover, Shenzhen is also the earliest place to establish a stock market, making a significant contribution to China's deep integration into the global economy It can be said that this is of great significance toChina's accession to the WTO According to statistics, the trading volume in the Shenzhen stock market reached 43.8 billion Yuan in 2000 (View Firgue 4), four times the value of retail goods in society, and the total value of urban residents' reserves accounted for 54% of the total domestic production value In the process of high-tech and emerging industry development, Shenzhen has utilized the stock market to allocate resources and actively assist many high-tech and emerging enterprises in listing their stocks Companies such as Kangjia Shenzhen, Shenzhen Science and Technology, Zhongheng Shenzhen, Tianma Shenzhen, and Duhaiwang - Tam Cuu Medicine Production have formed a group of high-tech and science-based stocks in Shenzhen's stock market Furthermore, many traditional industry companies have also listed their stocks on the stock market and applied the method of stock rights trading to transition into the high-tech and emerging industries or to transform and upgrade traditional industries through high-tech means [Nguyen Van Hong, 2003].
Figure 4 Shenzhen Stock Exchange Component Index 2000-2022
As an important gateway for China's opening-up efforts and a pilot for economic institutional reforms,the achievements of Shenzhen not only symbolize a promising future for China's distinctive socialist market economy but also serve as a typical example of China's reform, innovation, and modernization endeavors.Moreover, it offers valuable insights into the development of a regional economic center as a city However,since the early 2000s, the sustainable development of Shenzhen has faced numerous limitation:
External limitations: SEZ in Shenzhen face development constraints due to the inhibitory effects of
ORIENTATIONS AND SOME RECOMMENDATIONS FOR VIETNAM
Overview of establishment of SEZ in Vietnam
Before the establishment of the SEZ in Vietnam, there were six existing models of industrial zones, including: (1) Export Processing Zones, (2) Industrial Zones, (3) High-Tech Industrial Zones, (4) Border-Gate Economic Zones, (5) Open Economic Zones, and (6) Coastal Economic Zones Over the course of more than
20 years of formation and development, these industrial and economic zones have made significant contributions to the industrialization and modernization process However, they have also revealed certain limitations, such as inflexibility, insufficiently competitive mechanisms and incentive policies on the international stage, inconsistent administrative authorities and cumbersome administrative procedures, inadequate infrastructure and a labor force that does not meet the requirements.
The development policy of SEZs emerged right after the economic reform (in 1986) and was mentioned in Resolution of the 8th Central Committee (in 1997) and the documents of the 10th National Congress in 2006 By 2017, based on the Announcement of Conclusion No 21-TB/TW, dated March 22,
2017, by the Politburo, the Draft Law on Special Administrative-Economic Units (SAEU), which had been prepared since 2014, was officially submitted by the Government to the 4th session of the 14th National Assembly (October and November 2017) for consideration According to the plan, the Draft Law was supposed to be discussed and reviewed for final approval during the 5th session of the 14th National Assembly (May and June 2018) However, in order to allow more time for research and improvement of the Draft Law, the National Assembly decided to postpone its approval to the 6th session (October and November 2018).
As of the present time, the three SEZs in Vietnam are proving to be attractive as they serve as experimental areas for expanding institutional reforms beyond the current domestic level These zones enable access to the most advanced business and management trends of the region and the international community. They also create a strong magnet for attracting investments, modern technologies, skilled human resources, innovative development ideas, and new business models Additionally, they promote the process of economic restructuring, improve state budget revenues, generate employment opportunities, expand domestic and international markets, protect the environment, and contribute to maintaining national sovereignty over the seas. Moreover, these zones serve as testing grounds for outstanding institutional arrangements and special incentive policies that have not been precedent to attract investment Each zone will have its own unique opportunities for socio-economic development Specifically:
Regarding the Van Don SEZ in Quang Ninh Province: Quang Ninh is a land full of potential in tourism, services, commerce, and industry In 2017, Quang Ninh emerged as a leader in local administrative reform and also topped the Provincial Competitiveness Index (PCI) Along with the completion of infrastructure projects such as the Hạ Long - Vân Đồn expressway and the deep-water port capable of accommodating 150,000-ton ships, the upcoming port will create a new position for Van Don Island The establishment of the Van Don SEZ will contribute to economic growth, economic restructuring, social development, and improving the quality of life for the people, transforming Van Don into a dynamic, modern area with comprehensive infrastructure and international standards It will become a high-quality tourist and resort destination in the Southeast Asia region, enhancing the value-added of the tourism industry, establishing a high-tech production center and supporting industries nationwide, promoting regional connectivity, and generating spillover development effects for the Red River Delta region and the whole country According to calculations, if the Law on SAEU is passed, during the period from 2021 to 2030, the accumulated GDP in the Van Don area is projected to reach between 8.81 billion USD and 15.53 billion USD This is two to three times higher than the estimated level if Van Don continues to develop as it currently is The per capita income is expected to range from 9,700 USD to over 16,500 USD by 2030 [Duy Anh, 2018] Additionally, the establishment of the Van Don SEZ will relieve employment pressure and facilitate the transition of labor from the agricultural sector to the non-agricultural sector It will also attract high-quality human resources from outside the region, create new employment opportunities for workers in Quang Ninh province and neighboring provinces, and enhance the skills and professions of the workforce This will contribute to the formation of a society with a civilized and modern living environment, the preservation of traditional culture, the assimilation of world culture, and the promotion of the image of the Vietnamese people to the world The establishment of high-quality healthcare and education centers with internationally recognized hospitals and schools will contribute to social welfare development, increase intellectual capacity, train the workforce, and strengthen community health.
Regarding the North Van Phong SEZ, Khanh Hoa Province The establishment of a framework of mechanisms and policies with exceptional incentives for the three special administrative zones in general, and specific policies for the North Van Phong SEZ Khanh Hoa Province in particular, will create a breakthrough for the development of the national seaport infrastructure and services in the coming period This will significantly contribute to the successful implementation of Vietnam's marine strategy, meeting the requirements of maritime freight transport, and actively serving the socio-economic development of the coastal areas in the Central region It will also provide motivation to attract and promote related economic and industrial sectors, fostering positive impacts on international commodity trade connectivity between the North VanPhong SEZ and the country as a whole with the world According to calculations by experts, during the period from 2021 to 2030, the total accumulated GDP of the North Van Phong SEZ is projected to reach between 8.3 billion USD and over 15 billion USD, compared to the baseline estimate of 4.15 billion USD if the current development of Van Phong remains unchanged The average per capita income is expected to range from over 9,300 USD to nearly 17,000 USD by 2030 [Duy Anh, 2018] This will serve as a bridge for the socio- economic development of the region.
Regarding Phu Quoc Special Administrative Zone, Kien Giang Province: In recent years, the landscape of Phu Quoc has undergone rapid changes Phu Quoc has become the most attractive tourist destination in the country and the region Many large domestic and international real estate corporations such as Vingroup, SunGroup, CEO Group, Novotel, Marriott have invested here, creating luxurious world-class resorts, hotels, and condotels Alongside these developments, there are internationally standard entertainment facilities such as the Safari Zoo, Marina cruise ships, cable cars, and in the future, there will be additional multi- billion-dollar casino zones [Khai & Hoa, 2018] Thus, on a national scale, Phu Quoc has taken a step ahead in the model of special development zones in Vietnam The establishment of the Phu Quoc Special Administrative Zone will create conditions to attract potential investors to the prioritized industries and professions for Phu Quoc's development, as well as the capital needed to construct essential infrastructure such as schools and hospitals in order to improve the living standards of the local residents Based on that, Phu Quoc's natural resources and its location will be leveraged to develop the combined tourism and service industry, focusing on eco-tourism and adventure tourism, contributing to the economic development of Phu Quoc Island and Kien Giang province According to calculations, during the period of 2021-2030, the accumulated total output in the region will reach from 53.63 billion USD to 72.39 billion USD, compared to the estimated figure of 46.14 billion USD if Phu Quoc develops as it currently does Phu Quoc's contribution to Kien Giang province is projected to reach from 32.83% to 44.23% by 2030 Increasing the average per capita income to 13,506.28 USD to 28,645.30 USD by 2030 [Duy Anh, 2018] Additionally, the establishment of the Phu Quoc SEZ will contribute to the preservation and utilization of the region's natural, historical, and cultural strengths.
However, SEZs in Vietnam have been established as part of a pilot model, lacking comprehensive policies and regulations As a result, their true potential and impact remain largely untapped These designated areas were intended to boost economic growth, attract foreign investment, and spur industrial development.However, due to the absence of a clear and robust framework, the SEZs have not fully fulfilled their envisioned role in the country's economic landscape The idea of creating SEZ emerged in Vietnam during the early 1990s when the government sought to embrace market-oriented policies and open its economy to the world With the aim of stimulating foreign investment, enhancing technology transfer, and promoting export-oriented industries, these zones were heralded as engines of growth that could potentially transform Vietnam into a regional economic powerhouse.
Unfortunately, the initial orientation of the SEZs has not been fully realized The pilot model approach, while providing some flexibility for experimentation and adaptation, has also resulted in a lack of standardized rules and guidelines The absence of detailed policies has led to ambiguities, leaving potential investors uncertain about the benefits and incentives they can expect within the zones This uncertainty has discouraged some from taking advantage of the opportunities these SEZs could offer Furthermore, the absence of clear regulations has also opened doors for bureaucratic obstacles and corruption Without well-defined guidelines, decisions regarding investment approvals, land allocation, and business permits can be subject to arbitrary interpretations, potentially hindering the growth and development of businesses within the SEZs This lack of transparency and consistency has hindered the confidence of both domestic and international investors, deterring them from committing substantial resources to the zones [Khai & Hoa, 2018]
To make matters more complex, the SEZs' focus on export-oriented industries has raised concerns about environmental sustainability and labor rights Some of these zones have seen rapid industrialization, leading to environmental degradation and poor working conditions The absence of stringent regulations and monitoring mechanisms has allowed certain companies to exploit lax standards, which has not only harmed the environment but also had negative social implications.
In contrast, successful examples of SEZs in other countries demonstrate the importance of having comprehensive policies and transparent regulations Countries like China and India have harnessed the potential of SEZs to attract foreign investment, boost industrial production, and enhance technological capabilities These countries have carefully crafted legal frameworks, offering investors clear incentives, tax benefits, and regulatory support, which have proven instrumental in driving economic growth and development.To unlock the full potential of SEZ in Vietnam, the government must take proactive measures to address the existing shortcomings This entails developing a comprehensive set of policies and regulations that foster a conducive business environment while safeguarding the environment and labor rights The government should seek insights from successful SEZs in other countries and adapt best practices to suit Vietnam's specific needs and challenges.
Moreover, enhancing transparency and accountability within the SEZ administration is vital to restore investor confidence By eliminating bureaucratic red tape and reducing corruption risks, the government can instill a sense of trust among potential investors and encourage them to explore the opportunities provided by these zones.
3.3 The context influencing the sstablishment of SEZ in Vietnam
Firstly, there is a shift in the production cycle The trend of production relocation from developed countries to developing and underdeveloped countries with cheap labor and combined resources is growing. This trend is reinforced when combined with the foreign direct investment (FDI) attraction policies of developing countries, offering incentives such as infrastructure and customs duties reduction Additionally, there is a clear separation in the production process in many industries, where stages with high knowledge content and high value-added are primarily carried out in developed countries, while stages with low knowledge content and low value-added are mainly conducted in developing and underdeveloped countries.
Secondly, protectionism is making a comeback The trend of globalization is reversing as certain limitations and challenges of globalization are exposed after the global financial crisis and economic recession. Unequal distribution of benefits in global trade has created conflicts between countries and even fractures within many global organizations Countries tend to adopt inward-looking policies and protect their domestic production, which is evident in Free Trade Agreements (FTAs) and participation in economic alliances.