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-*** -MASTER THESIS

CHINA’S SPECIAL ECONOMICS ZONES AND

LESSONS FOR VIETNAM

PHAM HOANG NGOC HUYEN

Ha Noi - 2023

-*** -MASTER THESIS MINISTRY OF EDUCATION AND TRAINING

FOREIGN TRADE UNIVERSITY

-*** -MASTER THESIS

CHINA’S SPECIAL ECONOMICS ZONES AND

LESSONS FOR VIETNAM

MAJOR: INTERNATIONAL ECONOMICS

Code: 8310106

PHAM HOANG NGOC HUYEN Supervisor: Dr Dinh Thi Thanh Binh

Ha Noi - 2023

First of all, I would like to sincerely thank the attentive care and enthusiasm

of the Board of Directors and teachers of Foreign Trade University, as well as someguest lecturers and especially the guidance of my dedicated instructor – Dr DinhThi Thanh Binh She gave me useful and neccessary advices to help me completethis thesis well All of them have created favorable conditions for me to complete

my duties well during my time studying at the school

Secondly, I would also like to thank all the teachers, friends, and library whohave helped and shared experiences with each other during the past time Everyone

is eager to help Through this thesis, I have not only gained a lot of experience butalso have a research purpose to serve my work in the future

However, because of my limited professional knowledge and my lack ofpractical experience, the content of the thesis cannot avoid shortcomings

Once again, I would like to send my sincere and best thanks to teachers andfriends!

Thank you so much for your great support!

I hereby declare that the thesis "China’s Special Economics Zones andlessons for Vietnam" is my own work and based on the research learned theory,practice survey and guidance from Dr Dinh Thi Thanh Binh

The research results stated in the thesis are honest and have never beenpublished in any research work All documents and references from previousstudies are fully cited in accordance with regulations

I take full responsibility for the truthfulness of the thesis

Author

Pham Hoang Ngoc Huyen

ii

TABLE OF CONTENT Error! Hyperlink reference not valid.ACKNOWLEDGEMENTS ii

Error! Hyperlink reference not valid.DECLARATION iiii

LIST OF FIGURES AND TABLES ii

FIGURES ii

TABLES ii

INTRODUCTION 11

Error! Hyperlink reference not valid.1 .The rationale of the study 11

Error! Hyperlink reference not valid.2 Literature review 22

Error! Hyperlink reference not valid.3 .Objective of the study 55

Error! Hyperlink reference not valid.4 Research scope 55

Error! Hyperlink reference not valid.5 Methodology and data 66

Error! Hyperlink reference not valid.6 The thesis’s structure 66

Error! Hyperlink reference not valid.- Chapter 2: The Special Economic Zone model of China .66

CHAPTER 1: OVERVIEW ON THE SPECIAL ECONOMIC ZONE IN THE WORLD 77

1.1 Overview of the Special Economic Zone 77

1.1.1 History of special economic zones in the world 77

1.1.2 Concept of Special Economic Zone 99

1.1.3 Characteristics of the Special Economic Zone 1010

1.2 The role of the Special Economic Zone 1212

1.2.1 The role of the Special Economic Zone in the national economy 1212

1.2.2 The role of the Special Economic Zone in import and export activities 1414

1.3 Classification of the Special Economic Zone 1616

1.3.1 Free port and free trade zone 1616

Error! Hyperlink reference not valid.The most prevalent SEZ are freeports They can contain or overlap political and administrative units, comprising both rural and urban areas, as well as entire economic regions and populations They frequently include substantial transportation infrastructure, such ports and airports Additionally, freeports allow for on-site habitation and accommodate all forms of economic activities, such as tourism and retail sales They typically offer a wide range of rewards and incentives (Farole (2011); FIAS (2008); and UNIDO (2009)) 1616

Error! Hyperlink reference not valid.The oldest and most popular type of SEZ are free trade zones (FTZs), commonly referred to as free zones or commercial free zones In addition to providing trade-related services including warehousing, storage, distribution, sales, re-export, and exhibitions, they are often situated at or close to most ports of entry across the world They also frequently do light processing tasks like packaging, labeling, quality checking, and sorting FTZs are relatively small regions that are typically physically separated from the main part of the port where they are located since they are outside the host country's customs territory and permit the importation of some products duty- and tax-free (Farole (2011); FIAS (2008); and UNIDO (2009))

1616

1.3.2 Tax-free zone 1617

1.3.3 Export processing zone 1717

iv

1.3.4 Technology industrial zone 1717

1.3.5 Free border zone and transit zone 1818

CHAPTER 2: THE SPECIAL ECONOMIC ZONE MODEL OF CHINA 2020

2.1 Overview of China's Special Economic Zone 2020

2.1.1 Formation context of the Special Economic Zone 2020

2.1.2 Development of the Special Economic Zone in China 2727

2.1.3 State management in the Special Economic Zone 4545

2.1.4 Preferential policies in the Special Economic Zone 4949

2.2 Activities in the Special Economic zone in China 5960

2.2.1 Investment activities in the Special Economic Zones 6060

2.2.2 Import and export activities in the Special Economic Zones 6262

2.2.3 Industrial activities in the Special Economic Zones 6465

2.2.4 Service activities in the Special Economic Zones 6666

2.3 Evaluation on the Special Economic Zone in China 7575

2.3.1 Success of Special Economic Zones 7575

2.3.2 Remaining problems 7878

CHAPTER 3 PRECONDITIONS AND REALITY OF CONSTRUCTION AND DEVELOPMENT SPECIAL ECONOMIC ZONE IN VIETNAM 8080

3.1 Preconditions for the formation and development of economic zone models 8080

3.1.2 For economic zones 8080

3.1.3 For border economic zones 8181

3.1.4 For the high-tech park 8181

3.2 Current status of development of economic zone models in Vietnam 8181

3.2.1 Achievements in the development of industrial parks and export

processing zones 8181

3.2.2 Achievements in economic zone development 8383

3.2.3 Achievements in the development of border gate economic zones8383 3.2.4 Achievements in the development of high-tech zones 8484

3.3 Assess the development of economic models over time 8484

CHAPTER 4: RECOMMENDATIONS TO DEVELOP A SPECIAL ECONOMIC ZONE IN VIETNAM BASED ON EXPERIENCE OF CHINA 8787

4.1 Lessons from building the Special Economic Zones of China 8787

4.2 Some recommendations for Vietnam 9292

4.2.1 Strategy and vision for the development of the Special Economic Zone in Vietnam 9292

4.2.2 Recommendations at the State level 9494

4.2.3 Recommendation at the Enterprise level 9798

CONCLUSION 100100

LIST OF REFERENCES 101101

TABLE OF CONTENTS ACKNOWLEDGEMENTS .ii

DECLARATION iiii

vi

TABLE OF CONTENTS iiiiii

LIST OF FIGURES AND TABLES iv

FIGURES .iv

TABLES .iv

INTRODUCTION 1

CHAPTER 1: OVERVIEW ON THE SPECIAL ECONOMIC ZONE IN THE WORLD 7

1.1 Overview of the Special Economic Zone .7

1.1.1 History of Sspecial Eeconomic Zzones in the world .7

1.1.2 Concept of Special Economic Zone .9

1.1.3 Characteristics of the Special Economic Zone .10

1.2.1 The role of the Special Economic Zone in the national economy 12

1.2.2 The role of the Special Economic Zone in import and export activities .14

1.3 Classification of the Special Economic Zone 16

1.3.1 Free port and free trade zone 16

1.3.2 Tax-free zone .17

1.3.3 Export processing zone .17

1.3.4 Technology industrial zone 17

1.3.5 Free border zone and transit zone .18

CHAPTER 2: THE SPECIAL ECONOMIC ZONE MODEL OF CHINA 2021

2.1 Overview of China's Special Economic Zone 2021

2.1.1 Formation context of the Special Economic Zone 2021

2.1.2 Development of the Special Economic Zone in China .2728

2.1.3 State management in the Special Economic Zone 4546

2.1.4 Preferential policies in the Special Economic Zone 4951

2.2 Activities in the Special Economic Zzone in China .6062

2.2.1 Investment activities in the Special Economic Zones .6062

2.2.2 Import and export activities in the Special Economic Zones 6264

2.2.3 Industrial activities in the Special Economic Zones .6567

2.2.4 Service activities in the Special Economic Zones .6668

2.3 Evaluation on the Special Economic Zone in China .7577

2.3.1 Success of Special Economic Zones .7577

2.3.2 Remaining problems .7880 CHAPTER 3 PRECONDITIONS AND REALITY OF CONSTRUCTION AND DEVELOPMENT SPECIAL ECONOMIC ZONE IN VIETNAM

3.1 Preconditions for the formation and development of economic zone models 3.1.1 For industrial parks, export processing zones

3.1.2 For economic zones

3.1.3 For border economic zones

3.1.4 For the high-tech park

3.2 Current status of development of economic zone models in Vietnam

3.2.1 Achievements in the development of industrial parks and export

processing zones

3.2.2 Achievements in economic zone development

3.2.3 Achievements in the development of border gate economic zones

3.2.4 Achievements in the development of high-tech zones

3.3 Assess the development of economic models over time

viii

CHAPTER 43: RECOMMENDATIONS TO DEVELOP A SPECIALICAL ECONOMIC ZONE IN VIETNAM BASED ON EXPERIENCE OF CHINA

8082

43.1 Lessons from building the Special Economic Zones of China 8082

43.2 Some recommendations for Vietnam .8588

43.2.1 Strategy and vision for the development of the Special Economic Zone in Vietnam .8588

43.2.2 Recommendations at the State level 8789

43.2.3 Recommendation at the Enterprise level 9193

CONCLUSION .9396

LIST OF REFERENCES : 9497

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LIST OF FIGURES AND TABLES

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Table 3 Statistics on the scale and growth rate of deposits and loans in local andforeign currencies in the 5 traditional Special Economics Zones from 2014 to

2018 (unit: 100 million yuan; %) .68Table 4 Statistics of changes in net profit of A-share listed banks in the 5Special Economics Zones from 2014 to 2018 (unit: 100 million yuan; %) .70Table 5 Statistics of changes in the amount of non-performing loans of listedbanks from 2014 to 2018 (unit: 100 million yuan; %) .71Table 6 Statistics on the non-performing loan ratios of 5 A-share listed banks inthe Special Economics Zones from 2013 to 2018 (unit: %) .72Table 7 Statistics of changes in capital adequacy ratios of 5 A-share listedbanks in the Special Economics Zones from 2017 to 2018 (unit: %) .72Table 8 Statistics of asset scale changes of the financial leasing companies inthe Special Economics Zones shortlisted among the top 10 national financialleasing companies from 2017 to 2018 (unit: 100 million yuan; %) .73Table 9 Statistics on the quality of the development of the financial leasingcompanies that were shortlisted in the top 10 national financial leasingcompanies in the Special Economics Zones in 2018 (unit: 100 million yuan; %) 74Table 10 Statistics on the main indicators of the development of the insuranceindustry in the special economic zones from 2014 to 2018 (unit: 100 millionyuan; %) .75

1 The rationale of the study

Special Economic Zones (SEZs) have been effectively used by China todevelop its economy Before reforms were broadly implemented, SEZs wereinitially used to test market-oriented economic reforms and gain experience Today,

a variety of SEZs have been created to benefit from regional characteristics Inaddition to others at the national and regional levels, these include big, nationalzones (whose goal is to promote broad-based, comprehensive economic growth),high tech industrial development zones, free trade zones, and export processingzones There is no one blueprint for successful Chinese SEZs, but all of them aresupported by favorable government promises and policies

SEZs have significantly aided China's economic development They arethought to have contributed 22% of the nation's GDP, 46% of FDI, 60% of exports,and more over 30 million jobs in recent years Industrial parks may be responsiblefor 80–90% of GDP growth in some areas Farmers' incomes clearly benefit fromnational industrial parks, particularly agro-tech parks and agricultural demonstrationzones The average agricultural income in these parks is more than 30% more thanthe average income in the nearby villages

Vietnam is also in the process of integrating into the regional and worldeconomy In order to achieve the economic goals as set out to basically turn ourcountry into a modern industrial country by 2030, we must continue to innovate inall fields, strengthen international cooperation and accelerate the process ofindustrialization and modernization towards export However, the industrializationand modernization in our country currently requires a very large amount ofinvestment capital, while Vietnam's ability to be proactive in capital is limited Allthese factors require us to find appropriate forms to attract investment in capital,technology, and management experience from abroad, in order to develop thecountry's economy

1

China is a country with many similarities with Vietnam in terms of economic,political and social regimes Through studying the development strategy of China'sspecial economic zone, we will partly draw the necessary lessons for the reform,opening-up, and industrialization - modernization in Vietnam today.

From the above meaning, the topic: "China special economic zones andlessons for Vietnam" aims at the following objectives: Firstly, learning the history

of formation and development of the special economic zone in the world; secondly,studying on China's sSpecial eEconomic zZones, thereby drawing lessons fromsuccessful construction of Special Economic Zones in China; thirdly, making somerecommendations with practical value for building a model of sSpecial eEconomiczZones in Vietnam in the future

2 Literature review

In the history of world economic development, Special Economic Zones(SEZs) have been formed since ancient times, originating from ancient free tradezones that existed 2500 years ago in a number of prosperous countries such as:Rome, Greece, China… These areas are often located in the border areas or thebusiest trading centers in the world

The success of the SEZ model quickly developed, popular and applied inmany countries With the support of the World Bank (WB), a series of SEZs havebeen established in Southeast Asia, Asia-Pacific, Central and South America.Looking at an overview of the development of SEZs in the world, it can be seen thatthe number of SEZs is increasing, the growth rate is rapid, from Western Europe, ithas spread all over the world At first, the function of SEZs was only commercial,then developed into a combination of industry and commerce The business sectoralso moved from barter to commodity production, and then to commodity researchand manufacturing The production structure was also adjusted from labor-intensiveindustries to capital-intensive, technical and knowledge-intensive industries Thegeneral trend is from the primary form to develop to the advanced form

Up to now, there are many different concepts and interpretations of SEZ In abroad sense, all certain geographical areas established within its scope by a country

or a region and where special economic policies are implemented can be calledSEZs However, in a narrow sense, the SEZ is a separate geographical area to attractforeign investment, advanced technology, and management techniques foreconomic development with a full industry structure of the national economy,including: industry, agriculture, finance, healthcare, tourism, services , in whichthe priority is given to export-oriented industrial development, but also not ignoringthe domestic market., the purpose is to make the economy of that area andsurrounding areas become prosperous, increase income and increase foreigncurrency revenue Therefore, building SEZ is an important policy of a country whenimplementing the policy of opening up to the outside and encouraging exportexpansion

The highly organized nature of the SEZ is also reflected in the model of "areawithin a zone", that is, the SEZ includes a combination of different types of freeeconomic zones such as Free Trade Zone, Free Port, Industrial park, Exportprocessing zone, Duty free storage area With such an organization, the completeassociation between these types has created a unified overall picture, promoting thedevelopment of the SEZ

The main purpose when building the SEZ is to expand exports, develop theeconomy, improve technical skills and increase foreign currency revenue Toachieve this goal, countries pay special attention to develop the export processingindustry, attract foreign investment and advanced technical equipment., T therebydeveloping the regional and neighboring economies, improving high technical level

of domestic production In addition, in order to synchronously develop a sector economic structure, the SEZ also encourages foreign investment inflows intoother fields such as industry, agriculture, and services…

multi-With SEZ model, after more than 40 years of construction and development,China has obtained unexpected achievements in attracting foreign investment,economic development and industrialization of the country According to the

3

evaluation of the United Nations Agency for Trade and Development (UNCTAD):

"Compared to other export processing zones in the world, China's SEZ has beenbuilt relatively successfully" Indeed, China built the SEZ model quite latecompared to many other countries, but with the advantage of the latecomers, thanks

to its experience, high determination and boldness, China has achieved manysuccesses, great results in turning the special zones from fishing villages or smallremote towns into modern cities with developed economies, rich lives, andlocomotives for the country's economic development The SEZs of China becamefamous because they brought the most things: the fastest economic growth, the mostconcentrated use of foreign capital, the densest joint venture enterprises, the ability

to export and earn foreign currency quickly, the widest range of domestic economiccontacts, the largest degree of market regulation

According to Chinese economic experts, the success of SEZs is not only thatthey are pioneers in the process of reform, opening up and implementing newgovernment policies, but they are also the driving force for other economic regions

to open up and develop With those successes, we can summarize the experience inbuilding and developing the SEZ model of this country during the past 40 years.The experience of the SEZ model in China has left some valuable lessonslearned from practice More than 40 years of application in a country transitioningfrom a centralized planning mechanism to implementing the economic managementaccording to the socialist market mechanism, has provided us with favorableconditions for the next generation to study, apply this economic model into thecurrent Vietnamese economy

In the context of diverse economic development and fierce competition today,cooperation and integration with the international environment is the trend of thetimes Therefore, economic development is not only limited to the centralizedindustrial park model, but our conditions also allow the establishment of a number

of new economic models with higher purposes and requirements, comprehensivedevelopment in certain regions, in order to promote the diversity and freedom ofcompetition in production and trade with foreign countries, that is the SEZ

In order to effectively apply China's SEZ model to Vietnam, we need to studythe successes and limitations of this model when developing in ouryour country,then apply it selectively to the situation specific situation of our country The SEZmodel in Vietnam may be different from China in terms of method and scale, butthe main features of the SEZ remain unchanged China is a country with an area andpopulation many times larger than ours The construction of 5 SEZs with a scale ofover 35,000 km2 accounts for only a small percentage of the national area.Vietnam's land is narrow, the population is many times smaller than China's, andthe socio-economic situation of Vietnam is not the same as that of China If we set

up a few Shenzhen, the country will shrink before the expansion of this kind oflong-term concession Therefore, it is necessary to learn from their experience, buthow to make this model suitable for our country's current and future conditions issomething to think about, requiring great efforts of the relevant ministries andbranches also require close coordination at macro and micro levels, from central tolocal, from local to individual enterprises

3 Objective of the study

The objective of the research is to study the formation and development ofChina’s Special Economic Zone Thence, we propose some practicalrecommendations for building a Special Economic Zone in Vietnam

To accomplish this objective, the thesis needs to perform the following tasks:

- Learning the history of formation and development of the Special EconomicZone in the world

- Researching on China's Special Economic Zones, thereby drawing lessonsfrom successful construction of Special Economic Zones in China

- Providing some practical recommendations for building a Special EconomicZone in Vietnam in the future

4 Research scope

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- Spatial scope: China special economic zones From researching on all aboutaspects of China’s Special Economic Zones (including history, development period,success and remaining problems), we will get some recommendations for Vietnam

in developing Special Economic Zones

- Time range: 1980-2020

- Scope of content: Through the study of Special Economic Zones in China,thence proposing suggestions for building Special Economic Zones in Vienam

5 Methodology and data

Our core research question lies on the study of international and China’s SpecialEconomic Zones Thence, proposing suggestions for building Special EconomicZones in Vienam Therefore, we apply qualitative method for this research bycollecting data by official corpus on internet

6 The thesis’s structure

The thesis includes 3 chapters as following

- Chapter 1: Overview on the Special Economic Zzone in the world

- Chapter 2: The Special Economic Zzone model of China

- Chapter 3: Recommendations to develop a Special Economic Zone inVietnam base on experience of China

CHAPTER 1: OVERVIEW ON THE SPECIAL ECONOMIC ZONE IN THE

WORLD

1.1 Overview of the Special Economic Zone

1.1.1 History of special economic zones in the world

Despite the fact that citywide free zones along major trade routes have existedfor centuries, modern zones, and in particular EPZs, can be dated to the late 1950sand the creation of the Shannon Free Zone in Shannon, Ireland, which combined thecharacteristics of an FTZ and an industrial park Initially, EPZs based on theShannon model were largely formed in Western European industrialized nations,but starting in the middle of the 1960s, developing nations in East and SoutheastAsia, Latin America, and Sub-Saharan Africa (SSA) started to create their own EPZprograms (FIAS 2008, p.23)

Developing nations like Brazil, India, and Malaysia adopted economicprotection zones (EPZs) in the 1960s and 1970s as a strategy to address theunderperformance of their internally focused and heavily protected domesticeconomies (Baissac 2011, p.41) In these nations, EPZs evolved into export-focusedenclaves that offered a method to absorb surplus labor without having to change thestructure of a local capital base geared toward domestic production However, anumber of nations in East and Southeast Asia have implemented EPZ programs toassist their export-oriented growth goals and transition from conventional to non-traditional exports

Even though the political economy of the world underwent major change, thepace of zone growth accelerated in the 1980s In addition, the use of zonesexpanded to new areas like South Asia, Eastern and Central Europe, and NorthAfrica By the middle of the 1980s, EPZ programs had been created over the wholeworld The start of a noteworthy trend in zone development was also seen in the1980s From the 1980s onward, private-sector engagement in the establishment,ownership, and operation of SEZs became increasingly frequent Previously, the

7

vast majority of zones had been built, owned, and administered by the public sector.According to a 2008 study, 62% of zones in developing and transitioning economiesare created and run by the private sector, up from less than 25% in the 1980s In the1990s, formal public-private partnerships also became a well-liked choice.Realizing that zones may make money for their operators was a major driver of thismovement (FIAS 2008, p.2).

The range of facilities and services offered within zones has undergonesignificant changes as a result of the increased involvement of private-sector actors

in zone development and operation, as well as a "expansion and liberalization of thecore set of policies and privileges" associated with the conventional EPZ model.The creation of "next generation zones," which offer specialized facilities tailored tothe needs of higher value-added sectors and give a larger range of support services

to businesses operating in the zone, is becoming more and more popular.Additionally, the country as a whole is progressively allowing the development ofzones rather than just certain, often distant, places or regions

Over the past 35 years, SEZs have become increasingly popular as a means ofluring FDI, fostering export-oriented growth, and creating jobs There were 79documented zones functioning in 25 different countries in 1975 3,500 zones wereoperating in 130 countries in 2006, according to a database maintained by theInternational Labor Organization (ILO) According to a 2008 report, there are 119developing and transitional nations with an estimated 2,300 zones functioning intotal, with the majority of these located in Asia and the Pacific and Latin America

In recent decades, direct employment in SEZs has also grown dramatically SEZscollectively directly employ 63–68 million people While Chinese zones employabout 40 million people worldwide, SEZ employment in other emerging nations hasincreased significantly since the mid-1990s (Baissac, 2011)

Despite these staggering figures, many zones around the world struggle todraw in businesses and, in many cases, overly subsidize those that they do.Additionally, while zone programs in nations like China, Malaysia, Costa Rica,Morocco, and Mauritius have significantly contributed to export development and

structural reform, many more have fallen short of such lofty goals (Farole, 2011).1.1.2 Concept of Special Economic Zone

The term "special economic zones (SEZs)" has a wide range The term "SEZ"used in this context refers to a wide variety of zones, including free trade zones,export processing zones, industrial parks, high-tech zones, free ports (Zeng 2010).The fundamental idea behind special economic zones (SEZs) includes anumber of distinct characteristics, including the following: (a) it is a geographicallydelimited area that is typically physically secured; (b) it has a single management oradministration; (c) it offers benefits to investors who physically are inside the zone;and (d) it has a separate customs area (duty free benefits) and streamlinedprocedures (World Bank 2008; Farole 2011) Additionally, a SEZ often functionsunder more lenient economic restrictions than those that are generally in effectthroughout the nation There are two main categories of benefits that the SEZstypically provide: "static" economic benefits like job creation, export growth,government revenues, and foreign exchange earnings; and more "dynamic"economic benefits like skill development, technology transfer and innovation,economic diversification, local firm productivity improvement, etc (Zeng 2010).From China's point of view, the SEZ is a geographical area separated from theoutside by two management barriers: the first fence is to manage the relationshipbetween the SEZ and the world market, the second barrier is to separate the SEZfrom the domestic market through the strict control of the customs force

In the Law on Special Economic Zones of the Philippines, SEZs are defined:

“Special Economic Zones in this law shall be referred to as economic zones, whichare selected territories, which have been or likely to become centers of industry,agriculture, tourism, entertainment, commerce, banking, investment and finance Aneconomic zone may include one or more of the following elements: an industrialpark, an export processing zone, a free trade zone, a tourist center, and anamusement park”

From the above definitions and through the actual operation of the SEZs, we

9

can draw the following general conclusions about the SEZ: “The SEZ is a specialnational territory with definite geographical boundaries There are people livingthere, special policies are applied, suitable for free economic developmentaccording to the market mechanism with an integrated economic structure amongindustries, agriculture, commerce, finance, banking, tourism, in order to achievecertain objectives of the country of establishment” (Zeng 2010).

1.1.3 Characteristics of the Special Economic Zone

SEZs are built in areas with relatively favorable geographical locations andnatural environment, convenient transportation, abundant and easy-to-exploitnatural resources, mild climate, and beautiful scenery It is the advantages of naturalconditions that will create a solid premise for the operation of the SEZ In fact, thecountries that apply the SEZ model in the world have chosen to build special zones

in key areas of the country, with favorable natural conditions and at the same timehave potential for economic development For example, the Clack SEZ of thePhilippines, this special zone is built in a very important strategic location whichpreviously used by the US as a military base (Subic military zone) The Philippinegovernment has taken advantage of the geographical location of this port toestablish the SEZ Or like China's Shenzhen SEZ, built in the southern land with atemperate climate and located opposite the "Asian dragon" - Hong Kong isdeveloping very fast, so this special zone has soon achieved much success rightafter its establishment (Farole, 2011)

The SEZ was established in countries with economies in transition, it is thebuffer between the protection economy and the free economy, where national andinternational factors are harmoniously combined for the economic development andcommon development goals Therefore, the SEZ has a dual task of "external"(bringing in foreign investment) and "internal" (establishing relationships withdomestic enterprises), which means advanced technologies and managementexperience imported from abroad, through digestion, absorption and transmission,will be transferred to the inland to develop the domestic economy according to theoutward-oriented model In other words, the SEZ is a "window" to the world, a

"bridge" between the national market and the international market (Farole, 2011).The main purpose when building the SEZ is to expand exports, develop theeconomy, improve technical skills and increase foreign currency revenue Toachieve this goal, countries pay special attention to develop the export processingindustry, attract foreign investment and advanced technical equipment., T therebydeveloping the regional and neighboring economies, improving high technical level

of domestic production In addition, in order to synchronously develop a sector economic structure, the SEZ also encourages foreign investment inflows intoother fields such as industry, agriculture, and services…

multi-SEZ has an open investment environment Herein, the State appliespreferential policies and special support measures for foreign investors and traders,simplifies administrative procedures, and creates optimal conditions for allproduction and business activities in the special zone is favorable Therefore, SEZ isalways the place where most investment capital is concentrated in the country(Farole, 2011)

Table 1 Potential benefits delivered from Special Economics Zones

Direct benefits Indirect benefits

Source: World Bank

The SEZ has relatively complete and modern physical and technical facilities,including: electricity, water, bridges, culverts, roads, factories, warehouses,

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hospitals, schools, and communication systems communications, post, andtelecommunications and other social and cultural works These infrastructures may

be available before the establishment of the SEZ, or may be built after theestablishment of the SEZ

1.2 The role of the Special Economic Zone

1.2.1 The role of the Special Economic Zone in the national economy

SEZs play an important role in the national economy They were established

to solve the immediate and long-term economic tasks of the country

1.2.1.1 Promoting accelerate the accumulation of capital and technology,contributing to the industrialization and modernization of the country's economy

The presence of the SEZ has a great effect in obtaining capital, technologyand management experience from foreign investors to expand production, improvethe country's export capacity, and increase foreign income For many countries, themain reason leading to the application of the SEZ model is the goal of increasingexports and foreign exchange earnings, improving the balance of payments on thebasis of solving the shortage of production resources through into foreigninvestment The large number and high capital concentration of foreign-investedexporting countries in the SEZs, combined with the open opening of the SEZs to theoutside world, makes it easier for domestic businesses to easy access to moderntechnology and advanced management skills of the world The SEZs are the bridgebetween the domestic market and the foreign market, the buffer between a protectedmarket and a free market (Zeng 2010)

1.2.1.2 Contributing to enhance economic activities for foreign country

With an integrated multi-sector economic structure like a miniature society,the SEZ is a place to test and develop new economic policies, especially foreigneconomic policies All commercial transactions of the special zone with outsidersare thus facilitated Therefore, the external economic activities of the SEZ were alsoenhanced Not only that, with the role of a "pathfinder" for the national economy,

the open policies on external economy implemented in the SEZ also show the trend

of external relations representing the entire economy (Zeng 2010)

1.2.1.3 Playing the role in enhancing the economic development of other regionsand the whole country

The SEZ is pervasive in all directions, so it acts as a locomotive for thedevelopment of the economy, promoteing the development of other economicregions in the country, and createing a driving force for the economic growth TheSEZ was built with the purpose of testing a new breakthrough economic model, inwhich the high economic development rate stands out Therefore, the importance ofthe SEZ is mainly not in total output or per capita income, but in the rate ofeconomic growth High economic growth in the SEZ will affect other economicregions in the form of an oil slick, first spreading to neighboring areas and then toall parts of the country, creating momentum for the development of the wholecountry (Zeng 2010)

1.2.1.4 Enhancing the ability to interact with the world

As a bridge between the domestic market and the foreign market, the SEZ has

a positive effect in expanding the understanding of domestic and international way information This is made easy by the implementation of open policies in thespecial zone (Zeng 2010)

two-1.2.1.5 Playing an active role in solving social issues

The SEZ contributes to reduce the unemployment rate by creating jobs forworkers Every year, in each country, the labor force is replenished by the numbers

up to thousands, millionstens of thousands, and along with that, the need for jobs iseven more urgent The development of SEZs is an important measure to address thisgrowing surplus of workers SEZ with a multi-sector and large-scale economicstructure will create a lot of jobs for domestic workers

In addition to solve unemployment, SEZs also play an important role inreducing environmental risks Because the concentration of industries in an area isnot as large as the SEZ, it has created favorable conditions for the Management

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Board of the special zone in managing and regularly monitoring the activities ofbusinesses, preventing and promptly handling when certain industries release toxicsubstances into the environment In addition, some SEZs also take advantage ofwaste from factories to recycle and develop the industrial waste processing industry,thus limiting negative impacts on the environment (Zeng 2010).

The general role of the SEZ in the development of the national economy isthrough the above roles to accelerate the process of participating in the internationaldivision of labor, integrating into the regional and world economy

Thus, the SEZ has the following major roles for the national economy:

- Domesticically: The SEZ is a place to test new economic policies beforebeing applied to other regions of the country SEZ is the locomotive of economicgrowth and a breakthrough in the modern and open economic policy

- Externallly: The SEZ is a window to the world, a bridge to acquire capital,advanced science, technology, and management experience, promote the process ofparticipating in the international division of labor

1.2.2 The role of the Special Economic Zone in import and export activities

In addition to the above positive effects on the entire national economy, theSEZ also has a very important meaning for the import and export activities of acountry in particular

1.2.2.1 Raising capital for enhancing the quality of export products

Any country that wants to develop the country's economy needs capital, butthe capital extracted from the State budget has always become too meager in theface of a huge demand that is constantly increasing For the SEZ, the need forcapital for the development of economic sectors in the SEZ also becomes an issuethat needs to be seriously studied when establishing the SEZ However, with thepolicy of wide opening to receive investment capital from outside, the SEZ has wellsolved the problem of capital sources, creating favorable conditions for domesticenterprises to import capital from foreign investors Abundant capital has helped

products and services to be invested more in depth, thereby improving the quality ofgoods bearing the SEZ mark, export activities have also become easier Exportedproducts are more competitive in the world market (Farole, 2011).

1.2.2.2 Playing an active role in enhancing export production experience

Simultaneously with the import of foreign investment capital, the SEZ alsobecomes a window to attract advanced techniques and technologies from developedcountries The SEZ is a "laboratory" for new production techniques and newindustries, so in the SEZ, the production of export goods is carried out according tothe world's advanced methods through modern technology lines (Farole, 2011) Thishas helped domestic enterprises to be exposed to new technologies, therebyimproving their ability and experience in producing export products

1.2.2.3 Increasing competitiveness for export by reducing export costs

Goods produced in the SEZ are mainly for export to foreign markets, so ithas to face stiff competition from many competitors in the market Measures forhealthy competition for products can be by quality or price Products manufactured

in SEZ use competitive measures in both quality and price That is thanks to thepreferential policies on input import and output export At inputs, capital andtechnology are easily imported to facilitate production As a result, product quality

is significantly improved, not inferior to competitors As for the output, the product

is entitled to export tax incentives In addition, export procedures are also veryquick and convenient, without wasting time and missing out on businessseasonality Therefore, it has reduced export costs and increased thecompetitiveness of products in the world market (Farole, 2011)

1.2.2.4 Helping export products improve the competitiveness penetrating intointernational market

SEZs play a very important role in shortening the time and cost to penetratethe world market, especially markets with large capacity The main reason is due tothe system of special economic incentives applied in the SEZ These policies createfavorable conditions for foreign investors when pouring capital into the special

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zone, while also creating a clear environment for goods from the special zone to goabroad The goods of the special zone are encouraged to be exported by not having

to pay export taxes, or if so, only very low taxes Besides, the cost of hiring lowlabor, the cost of raw materials on the spot is cheap (Farole, 2011) All theseadvantages have helped SEZ's exports to lower production and export costs, reducecosts and selling prices of goods, create high competitiveness, and thus easilypenetrate the world market

1.3 Classification of the Special Economic Zone

1.3.1 Free port and free trade zone

1.3.1.1 Free port

The most prevalent SEZ are freeports They can contain or overlap political and administrative units, comprising both rural and urban areas, as well as entire economic regions and populations They frequently include substantial transportation infrastructure, such ports and airports Additionally, freeports allow for on-site habitation and accommodate all forms of economic activities, such as tourism and retail sales TAdditionally, they typically offer a wide range

of rewards and incentives (Farole (2011); FIAS (2008); and UNIDO (2009)).

1.3.1.2 Free trade zone

The oldest and most popular type of SEZ are free trade zones (FTZs),commonly referred to as free zones or commercial free zones In addition toproviding trade-related services including warehousing, storage, distribution, sales,re-export, and exhibitions, they are often situated at or close to most ports of entryacross the world They also frequently do light processing tasks like packaging,labeling, quality checking, and sorting FTZs are relatively small regions that aretypically physically separated from the main part of the port where they are locatedsince they are outside the host country's customs territory and permit theimportation of some products duty- and tax-free (Farole (2011); FIAS (2008); andUNIDO (2009))

1.3.2 Tax-free zone

A duty-free zone, also known as a duty-free warehouse, is a special area andwarehouse established by the customs or authorized by the customs Goods fromabroad can be exported and imported into duty-free zones without paying tax Inaddition, traders can also carry out storage, repair, classification, exhibition,processing and fabrication of their goods right in the area However, when goodsenter the domestic market from the duty-free zone, they must also go throughcustoms procedures and pay import tax In capitalist countries such as Japan and theNetherlands, duty-free zones play a similar role to free ports and free trade zones,except that their geographical scope is relatively small (Farole (2011); FIAS (2008);and UNIDO (2009))

1.3.3 Export processing zone

Export processing zones (EPZs) first developed as a strategy to advanceindustrialization in developing nations in the late 1950s and early 1960s They aresizable, fenced-in industrial parks that, like FTZs, are outside the customs territory

of the host nation Industrial facilities are available in EPZs, along with additionalincentives including duty-free imports and streamlined administrative processes formanufacturing and related operations In the past, manufacturing for export marketswas the only activity permitted in EPZs and foreign capital was the only type ofinvestment allowed However, since the 1990s, EPZs have changed dramatically,and many of them are now open to a far larger range of businesses and haveloosened their investment and export criteria somewhat (Farole (2011); FIAS(2008); and UNIDO (2009))

1.3.4 Technology industrial zone

The Science Industrial Park is also known as the Scientific Industrial Park, theScientific Research Industrial Park or the Hi-Tech Park The purpose of theestablishment of this SEZ model is to accelerate the research of new technology andits application results, serving the cause of industrial modernization in the region or

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the country, and at the same time serving services for the purpose of exploiting andexpanding the international market Some high-tech parks with great influence inthe world are Cambridge Technology Park in the UK, Hsinchu Industrial Park inTaiwan.

The main feature of the hi-tech park is that it has adequate educational andtechnical facilities, its factories have advanced facilities, strong capital, use of manyhigh technologies, and preferential policies, encourage foreign traders to exploit andexpand industries with high technical content, attract and foster talents, research anddevelop key technologies and products Unlike the export processing zone, whichtends to expand the production and manufacture of products for export, thetechnical industrial park only aims to expand the export of technical andtechnological products and support for the country's science and technologydevelopment (Farole (2011); FIAS (2008); and UNIDO (2009))

1.3.5 Free border zone and transit zone

1.3.5.1 Free border zone

The Free bBorder zZone, also known as the fFree tTrade aArea, is built on anarea of land belonging to a certain city or province Based on the preferentialmeasures of the free trade zone and the export processing zone, in the free borderzone also has tax reduction or exemption for machinery, equipment, raw materialsand consumables used in the area to attract investment from both domestic andforeign Unlike export processing zones, foreign goods after being processed andmanufactured can be used right in the free border zone, only a small amount isexported Therefore, the purpose of building a free border zone is to attractinvestment in economic development of the border area However, there are anumber of countries that have set a period of preferential treatment or graduallywithdraw such incentives, even abolishing the free border zone after the productioncapacity in the border areas has developed It is thes for this reason that the form of

a free border zone is rarely applied in other countries (Farole (2011); FIAS (2008);and UNIDO (2009))

1.3.5.2 Transit zone

A transit zone, also known as a transshipment trade zone, is a number ofseaports, river ports or border cities built by a number of coastal countries on thebasis of bilateral agreements to serve as a free transit place for goods in transit., I inorder to create favorable conditions for the transport of import and export goodswith preferential regimes such as: simplifying customs procedures in transit, taxexemption or only collecting a transit fee very small A very clear differencebetween a transit zone and a free port is that: goods in transit in a transit zone can bestored there for a short time or repackaged but not processed Normally, in transitzones, there is a system of tax-exempt treasures In the world, there are a number oftransit zones that operate mainly as transshipment trade such as Calcutta in India,Buenot - Airet in Argentina (Farole (2011); FIAS (2008); and UNIDO (2009))

CHAPTER 2: THE SPECIAL ECONOMIC ZONE MODEL OF CHINA

2.1 Overview of China's Special Economic Zone

2.1.1 Formation context of the Special Economic Zone

2.1.1.1 Domestic context

China was in desperate need of structural reform in the late 1970s, followingthe decade-long disaster that was the Cultural Revolution, which left the economystagnant and the populace exhausted physically and mentally Deng Xiaoping, theprincipal designer of China's Open Door policy, initiated economic reform in 1978

as a radical response to this urgent request In November 1978, farmers inXiaogang, a small hamlet in Anhui Province, invented the "contract responsibilitysystem,", which was later acknowledged as the starting motivation for extensive andeventually successful rural reforms in China (South China Morning Post 2008) TheOpen Door policy was accepted by the central government the following month,and in July 1979 it was agreed that the provinces of Guangdong and Fujian shouldlead the way in implementing "special policies and flexible measures" to open up tothe outside world (Yeung, Lee, and Kee 2009)

Shenzhen, Zhuhai, and Shantou in Guangdong Province had special economiczone designations by August 1980, and Xiamen in Fujian Province had one byOctober 1980 The four Special Economic Zones (SEZs) were relatively similar inthat they all covered sizable territories with the goal of facilitating broad-based,comprehensive economic development and that Tthey all had exclusive trade,investment, and financial advantages To reduce both potential threats and politicalmeddling, they were purposefully placed outside of Beijing's political epicenter Theywere urged to promote sensible, open economic policies that would test novel ideasand, if successful, be adopted more widely throughout the nation The four SEZswere situated close to Hong Kong, Macao, and Taiwan, China, in coastal regions ofGuangdong and Fujian with a long history of communication with the outside world.Shenzhen was chosen because of its location across a small river from HongKong, which was the main region from which China could learn about capitalism's

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ways of economic growth and contemporary managerial techniques (Yeung, Lee,and Kee 2009).

The impact of the SEZs was almost rapid because China had just recentlyresumed accepting foreign commerce and investment Shenzhen received themajority of foreign direct investment (50.6%) in China in 1981, accounting for 59.8percent of the country's total FDI The four SEZs continued to represent 26% ofChina's total FDI three years later By the end of 1985, realized FDI in the fourzones reached US$1.17 billion, or about 20% of the total for the country (Wong1987) China experienced growth rates never before seen before thanks to a winningcombination of favorable regulations and the ideal blend of production elements inthe SEZs Shenzhen experienced a fantastic 58% yearly growth rate between 1980and 1984, outpacing the national average annual GDP growth of around 10%.Shenzhen was followed by Zhuhai (32%), Xiamen (13%), and Shantou (9%).Shenzhen has already created basic markets for capital, labor, land, technology,communication, and other industrial inputs by 1986 (Yeung, Lee, and Kee 2009).After the initial phase of opening up to commerce and investment wassuccessful, China decided to further economic opening The central governmentestablished a type of SEZ in 1984 called economic and technology developmentzones, also referred to as China's national industrial parks The comprehensive SEZsand the ETDZs differ from one another in terms of magnitude A comprehensive SEZtypically encompasses a significantly bigger region (sometimes an entire city orprovince) 14 ETDZs were constructed in additional coastal cities between 1984 and

19883, and in the years that followed, in cities located in the Pearl River Delta, theYangtze River Delta, and the Min Delta in Fujian Hainan as a whole was named thefifth comprehensive SEZ in 1988, and Tianjin Binhai New Area and ShanghaiPudong New Area received respectively the same designation in 1989 and 2006,respectively

The State Council then added an additional 35 ETDZs in 1992 They did this

in an effort to expand the ETDZs from coastal to inland areas and place lessemphasis on traditional sectors and more on tech-heavy ones There were 54 ETDZs

at the state level by the end of 2008 By the end of April 2010, there were 69 ofthem, with 18 of them located in the Yangtze River Delta, 10 in the Pearl RiverDelta, 15 in the central region, 11 in the Bohai Bay region, 2 in the northeast region,and 13 in the western region ETDZs are often found in a big city's suburban areas.

An administrative committee, often chosen by the local government, is in charge ofmanaging the economic and social aspects of the ETDZ on behalf of the localgovernment (China Knowledge Online, 2009)

2.1.1.2 International context

Since World War II (1945), especially from the 60s to the 70s of the twentieth century, the world situation has changed significantly International relations have turned to a new situation, from confrontation to dialogue The competition between socialist countries and capitalist countries has no prospect

of continuing, moreover, the socialist revolution on a worldwide scale cannot be won in the near future This is the time when the practice of building socialism

in the world has clearly shown success and failure The economy of the socialist countries, with the basic feature of highly centralized planning following the Soviet model, began to show many weaknesses in the 1960s, and the prestige of the ruling parties declined seriously Therefore, some countries have reconsidered their views and carried out reforms and opening up to transform their economies from centrally planned to market economies Although these reforms of the Soviet Union and Eastern European countries have only been carried out in some sporadic and limited aspects, it is not a comprehensive and synchronous economic reform, in-depth and fully prepared theoretically, but it has shown a change in the thinking of the block of socialist countries.

Also in the 70s of the last century, the strong development of the scientific andtechnological revolution and along with it the sudden change in production powerbrought capitalist countries achievements in the field of economy Laborproductivity increased rapidly The structure of occupations has also changedmarkedly, the proportion of agricultural, industrial and mining sectors has decreasedwhile the proportion of industries requiring high technical and intellectual content

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such as biotechnology, electronics, informatics…increased rapidly Simultaneouslywith the process of economic restructuring in capitalist countries is an increasinglyextensive international division of labor, in order to take full advantage of the greatachievements that this revolution has brought Faced with the objective necessity tostrengthen mutual cooperation to keep pace with changes in the world economy,many developing countries have re-evaluated their foreign policies and considerparticipating in the common process of the world is an important national policythat should be prioritized.

The scientific and technical revolution with the consequent rapid development

of high-tech industries and the emergence of new productive forces has created anincreasingly widespread wave of globalization and regionalization History hasgradually proved that it is time to step into a new era - an era of peace, stability,coexistence, cooperation and development Not only developed countries havecaught up with this trend, but some developing countries in the Asia-Pacific region -countries with similar socio-economic conditions to China - also have sensitivepolicies to promptly adapt And as a result, a series of newly industrialized countrieswere born in the 1970s such as Singapore, Korea, and Taiwan These countries haveovercome the mindset of "fear" of dependence on other countries, soon opened theirdoors to attract foreign investment, got out of the closed state and quickly integratedinto the new world trend

Facing a very difficult domestic economic problem and an irresistible newinternational trend, China has no choice but to carry out reforms and open up itseconomy But the question is, where should China's economic reform begin? Aseries of urgent problems have been raised First of all, the problem of restoring anddeveloping the economy that is decades behind, and improving the technology that

is far behind the world Reviving China and shortening China's distance from theworld have become the top and pressing task of this country of more than 1 billionpeople after twenty years of chaos and poverty

To answer these questions, the Communist Party of China held many meetings to research and find the optimal reform model suitable to the country's

situation The mission and historical role of China's leaders is to set the right, shortest and most effective direction for the prosperous development of the nation With the return to politics of the talented politician Deng Xiaoping in

1978, China has made breakthrough changes in the way of economic development He said: “Enhancing our science and technology level, of course, must rely on our own efforts, it is necessary to develop our own creativity, it is necessary to persevere the motto: independence, self-reliance, self-reliance But, independence and self-reliance is not self-determination, self-reliance is not blind rejection We need to actively conduct academic exchanges with the world, strengthen friendly exchanges and scientific cooperation with scientific circles of countries around the world” Stemming from this point of view, the 3rd Plenum

of the 11th Central Committee (December 13, 1978) of the Communist Party of China decided to shift the focus of the country's work to economic construction with the slogan: "Open foreign affairs, domestic economic development".

China's policy of opening up the economy can be considered wise andopportunistic, because at the end of the 1970s, capitalist countries were in a state ofexcess capital and technology, while the Third world countries are not yet ready toreceive that capital flow China's opening up has made the most of this opportunity

to attract foreign investment in a market with cheap labor and abundant naturalresources However, with a large country with the third largest area in the world(about 9.6 million square kilometers of land), the massive opening is verydangerous, because there are different economic development between regions, it isnot possible to apply open-door policies in a uniform way, but it is necessary toselect and test on a narrow scale in some regions with specific natural and economicconditions, taking that as the basis to promote the development of other regions

At the same time, the successive successes of a series of free economic zones

in the world - economic zones established in the 1960s and 70s of the twentiethcentury - greatly influenced the idea of opening the door of China's leaders Specialeconomic zones are identified as an important part of the country's foreign policy ofopening up In April 1979, the Central Committee of the Communist Party of China

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