The RIGSS Blog

Since the inception of the ‘Open Door’ policy in 1978, China’s economy has been growing at an unprecedented rate. With an average annual GDP growth rate of around nine per cent, China’s GDP totalled USD 17.9 trillion in 2022, second just to the United States’ GDP of USD 25.4 trillion. To achieve this remarkable economic transformation, the Communist Party of China (CPC) initiated various reforms in the country, including the establishment of Special Economic Zones (SEZs). According to a report by the World Bank on Building Engines For Growth and Competitiveness in China, SEZs were one of the crucial measures that significantly propelled the growth of China. SEZs are commercially delimited areas within a state administered by an independent legislation. With the primary objectives of attracting investments to generate employment and facilitate skill, knowledge and technology transfers, SEZs are governed by a more liberal economic policy. SEZs have emerged as one of the most sought-after mechanisms to improve and promote economic development in the world today.

To drive economic development by attracting foreign direct investments (FDI) and international trade ventures, CPC piloted four SEZs in Shenzhen, Zhuhai, Shantou and Xiamen during the early years of its reform period. Identifying four small yet strategic, least-developed places near the coastal areas as SEZs was a wise and farsighted decision of the CPC. The geographical proximity of the SEZs to Hong Kong, Macao and Taiwan ensured opportunities for skill and knowledge to overflow into the SEZs from the advanced tech-driven capitalistic markets. Moreover, they were also deliberately located far from the centre to reduce any potential economic risk and political influence (Zeng, 2012). The government set out four core principles for the SEZs: “(1) construction primarily relies on attracting and utilising foreign capital; (2) primary economic forms are Sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises; (3) products are primarily export-oriented; (4) economic activities are primarily driven by market forces” (Wang, 2013, p.136). In a way, the SEZs provided a ‘low-risk, high-reward’ testing ground for experimenting with pragmatic, open and innovative economic policies, which could be implemented elsewhere across the country if proven successful. The SEZs not only contributed significantly to the country’s GDP by attracting FDIs, increasing employment and expediting foreign trade, but they also played a crucial role in importing and innovating new technologies.

Officially established on 26th August 1980, the Shenzhen SEZ in Guangdong province is one of the most successful SEZs in the world today. Often referred to as ‘China’s window to the world’, Shenzhen was at the forefront of China’s opening up and reform policies. Characterised by its remarkable economic growth, the SEZ transformed from being a labour-intensive manufacturing economy to a leading innovation and financial centre of the world today. In a little over 50 years, the small fishing village with a population of 314,000 in 1979 grew into a high-tech metropolis economic hub with a population of more than 17.56 million in 2020. Consequently, its GDP grew from RMB 196 million (USD 28.3 million) in 1979 to over RMB 3.24 trillion (USD 450 billion), with a GDP per capita of RMB 183,274 (USD 27,248) in 2022. With an area of just around 396 sq. km, the SEZ originally comprised only four districts: Luhou, Futian, Nanshan and Yantian; in 2010, it expanded to include the rest of the city, covering a total area of 1997 sq. km. According to Jun (2021), Shenzhen was an “incubator for many of China’s fables firsts that at the time looked extraordinary or even outrageous, but are now standard across the country.” A report by the Commerce Bureau of Shenzhen Municipality asserts that Shenzhen’s biggest success was not the number of businesses attracted or the GDP growth but the practices generated that were replicated elsewhere and thus helped drive national development and growth.

Figure: Shenzhen in the 1980s and now

The SEZ proved to be an attractive location for FDIs, successfully driving the country’s economic development to new heights. Since its establishment, Shenzhen received over USD 300 billion in FDIs, hosting more than 100,000 foreign enterprises from over 160 countries, of which 300 are among the world’s top 500. Shenzhen is the largest exporting city in China, with its port ranking fourth-largest in the world with an annual throughput of 23.77 million two twenty-foot containers (TEU) in 2021. According to Santosdiaz (2022), the most important factor that contributed to Shenzhen’s success was its market-driven environment that fostered innovation and creativity based on fair competition and the rule of law. By embracing a free and open market concept, Shenzhen attracted numerous high-value and knowledge-intensive tech and financial industries from both home and abroad. In addition, Shenzhen’s geographical proximity to Hong Kong proved to be a great advantage. Situated at a 20-minute high-speed train ride away from Hong Kong, companies in Shenzhen not only have access to the main Chinese market but also to the rest of Southeast Asia through Hong Kong. Also known as the ‘Silicon Valley of China’, Shenzhen has over 3,813,500 commercial entities and 512 listed companies, with strategic emerging industries accounting for over 38 per cent of its total GDP. Shenzhen is home to some of the world’s largest electronic factories, such as Huawei (largest telecommunications manufacturer in the world), Tencent (most valuable Internet company in the world), DJI (largest consumer drone company in the world), BYD (biggest battery electric vehicle manufacturer in the world) and more, including the Shenzhen Stock Exchange (one of the main stock exchanges in the world). Today, Shenzhen has become one of the most sought-after destinations for innovators, start-ups, and large high-tech corporations from around the world (Shepard, 2016). According to Inc., an American business magazine, Shenzhen produces more than 90 per cent of the world’s consumer electronics. In 2020, with 20,200 applications, Shenzhen ranked fourth in the total number of Patent Cooperation Treaties (PCT) filed in the world.

Various fiscal and monetary policies were adopted during the early days to incentivise companies from both home and abroad to set bases in the city. To encourage foreigners and overseas Chinese, especially from Hong Kong and Macau, to move to Shenzhen, the SEZ provided protection of private property rights, which was a key step taken by the government since the constitutional protection of private property rights outside the SEZ was included only in 2004. Compared to the 33 per cent corporate income tax levied on domestic firms, foreign investors were promised reduced rates at 15-24 per cent; they also enjoyed tax breaks on custom duties and duty-free allowances for production materials. Foreign workers in the SEZ were also exempted from paying income tax. Foreign investors were given lawful land development rights in the SEZs, which they could further lease, transfer or mortgage as per the terms of use. Additionally, to encourage foreign investment, projects with operational terms of more than 15 years were exempted from paying the land-use fees for the first five years and were granted a 50 per cent discount for the next five. Guaranteed land-use rights were also given to high-tech projects and those with an investment value of more than USD 10 million (Wang, 2013). Shenzhen adopted decentralised governance whereby an independent committee managed the administration of the SEZ, from overseeing socio-economic developments to approving projects and FDIs.

Shenzhen embraced a culture of openness, tolerance and creativity, which developed it into the largest migrant city with the youngest population in China, with an average age of 30.8. In fact, the government’s concerted efforts to develop Shenzhen into the world’s leading technological, innovation and knowledge hub significantly contributed to Shenzhen’s remarkable growth. With over two million professional technical workers, Shenzhen is home to more than one-fifth of the country’s PhDs and has produced the highest number of billionaires in China. Shenzhen offered fertile ground for higher-education institutes and talents to thrive by instilling efficient services and regulations to ease the establishment of research institutions, providing R&D subsidies and implementing venture capital mechanisms. To address the lack of advanced research organisations in the city, the government introduced various Sibuxiang institutes. Sibuxiang was a new type of scientific research incubator where intellectuals from universities, research institutes, enterprises and governments work together to conduct market-based research (Wang & Wang, 2017). Furthermore, as a measure to increase brain circulation and address the city’s fast-paced needs, the government designed a talent attraction programme termed the Peacock Talent Policy. Through this, international talents of both Chinese and non-Chinese origin were scouted and incentivised to work in Shenzhen. International celebrities and award-winners such as Nobel Prize winners, Olympic gold medalists and CEOs of Fortune 500 companies were offered an initial fund of around RMB 3 million (USD 423,000) to resettle in Shenzhen. Similarly, professors who worked in world-renowned universities for more than five years were offered RMB 2 million (USD 828,000) and associate professors RMB 1.6 million (USD 225,600) (Wang, 2021).

Shenzhen championed environmental protection and preservation by pursuing green and low-carbon innovation-driven initiatives to develop into an eco-city. Shenzhen was the first city in China to introduce concepts such as carbon trading, carbon bonds, and pollution liability insurance. Another notable practice is the carbon coin system, which was implemented to encourage citizens to adopt environmentally friendly lifestyles by reducing their carbon footprints. Residents can earn carbon coins by opting for low-carbon activities such as riding a bicycle or saving on electricity usage, which can then be exchanged for cash or other goods. With around 1000 national and outdoor parks, more than 50 per cent of the city has been protected as ecological space. Shenzhen has a forest coverage rate of 40 per cent, a sewage treatment rate of more than 96 per cent, and 2,400 kilometres of greenways and green buildings spanning over 53.2 million square metres. Moreover, Shenzhen was one of the pioneers in electrifying all its public transport; over 16,000 electric buses were launched in 2017, and in 2018, around 22,000 taxis, ride-hailing services and ambulances were made electric. The government of Shenzhen has also been actively promoting the production and consumption of clean energy by instituting production centres for natural gas, solar, wind, nuclear and biomass energy. By 2017, over 90 per cent of Shenzhen’s primary energy consumption was sourced from clean energy.

To keep up with the emerging trends, Shenzhen is piloting numerous breakthrough concepts and enacting legislation to address misdemeanours in the field. Shenzhen is establishing statistical accounting of data elements and implementing a punitive compensation regime for intellectual property rights infringement. Similarly, Shenzhen’s Regulations on Personal Bankruptcy and Data are the first legislations on natural person bankruptcy and data in China, and its Administrative Regulations on Intelligent Connected Vehicles, the first bylaw on the management of intelligent connected vehicles in the country. Strategies to create several new intelligent economic and financial industries and a maritime university, including a national deep sea research centre and a maritime development bank, are also underway in the SEZ. During its 40th anniversary in 2018, the CPC announced a new vision of transforming Shenzhen into a pilot demonstration zone for ‘socialism with Chinese characteristics’ by exploring innovative mechanisms for building a prosperous modern social country. According to the road map, by 2025, Shenzhen is to become a leading city in the world in terms of its innovation, with a special focus on public service and sustainable green development. This will be achieved by improving the city’s soft power by increasing investment in research and development and its innovative capacity. By 2035, Shenzhen will develop into an innovation, entrepreneurship and creativity hub in the world and, thereby, a national model for high-quality development. By 2050, Shenzhen will become a model benchmark for competitiveness, innovation and influence and rank among the top cities in the world.

In 1984, highlighting the importance of SEZs, Deng Xiaoping, the then president of China, also known as the designer and architect of China’s opening up, conveyed the following, “The special zone is a window, a window of technology, a window of management, a window of knowledge, and a window of foreign policy. From the special zones, technologies can be introduced, knowledge acquired, management learned, and management is also knowledge. SEZs as an open base will not only benefit us in terms of economy and cultivating talents but will also expand our country’s external influence.” After the initial success of SEZs, Hanian, Kashgar and Horgos were later established as SEZs in 1988, 2010 and 2014, respectively. The establishment of SEZs significantly contributed to the economic growth of not just the provinces where the cities were located but also the whole of China. According to Zheng (2010), “strong commitment to reform and pragmatism from top leadership; preferential policies and institutional autonomy; strong support and proactive participation of governments; foreign direct investment and the Chinese diaspora; technology learning, innovation, upgrading and strong links with the domestic economy; innovative cultures, clear objectives, benchmarks and intense competition and location” were the key factors that contributed to the success of SEZs in China.

Like most developing nations, achieving sustainable economic growth is one of the key targets for Bhutan, especially now as the country is trying to recover and build back from the massive economic downturn caused by the COVID-19 pandemic. Additionally, guided by the farsighted leadership of His Majesty The King, Bhutan has also laid out the vision of becoming a developed economy by 2034. It is, therefore, undergoing major transformative reforms to propel and foster economic growth. Among the many projects, the biggest and the most promising is the establishment of the Gelephu Special Administrative Region (GeSAR). Officially unveiling the establishment of the GeSAR on the 116th National Day of Bhutan on 17th December 2023, His Majesty highlighted that GeSAR will be a “Mindfulness City” that will be anchored on the values and vision of GNH. His Majesty underscored that by tapping on our unique Bhutanese identity and strong spiritual heritage, GeSAR or the Gelephu Mindfulness City, will become a “gateway connecting Bhutan to the rest of the world and the future.”

Spanning 1000 sq. km in the country’s southern foothills, GeSAR will be a “showcase for sustainable development and value-driven urban development for future generations.” Grounded in the principles of mindfulness, sustainability and harmony, the city will be developed based on the four fundamental tenets of mindfulness and well-being, sustainability and nature, wisdom and values, and innovation and growth. The city aims to attract globally renowned companies, institutions, and creative talents from around the world who embody the values of self-reflection and community well-being. Nestled between two pristine biodiversity reserves of the country, the Royal Manas National Park and the Phibsoo Wildlife Sanctuary, GeSAR will function as a sustainable environment zone through the implementation of green and eco-friendly development measures. With special governance and policy frameworks to foster economic openness and growth, GeSAR is positioned to carry forward Bhutan’s legacy as a carbon-negative country while nurturing the profound principles of GNH and the fundamentals of Vajrayana Buddhist philosophy. Bjarke Ingles, the chief architect of the city, describes GeSAR as a “bridge between local and global, past and future, and nature and humanity.” On 10th February 2024, coinciding with the auspicious occasion of the 1st day of the 1st month of the Male Wood Dragon Year, His Royal Highness Gyalsey Jigme Namgyel Wangchuck received the Royal Charter for the establishment of the Gelephu Mindfulness City from the sacred Machen Lhakhang inside Punakha Dzong, marking a significant milestone in the establishment of the new city.

The story of Shenzhen underscores the pivotal role SEZs play in driving economic growth. By implementing favourable policies and fostering a culture of openness, creativity and sustainability, Shenzhen transformed from a small fishing village into a global economic powerhouse today. Shenzhen’s success foretells the exciting future that lies ahead for GeSAR and, ultimately, the rest of Bhutan. Likewise, there are many success stories of economic zones elsewhere in the world that drove their country’s economic progress to greater heights, such as those in South Korea, Saudi Arabia, and our southern neighbour, India. Hence, as Bhutan embarks on the journey of building a unique global city from scratch in our very first Special Administrative Region, experiences of well-established economic zones in the world offer invaluable insights and lessons to draw from to make ours truly successful and one of a kind as envisioned by His Majesty The King.

This article was originally submitted as a part of the end of programme report to the Peking University Dongfang Scholarships Programme which the author attended in 2023.