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Special Economic Zones in the OIC Region:

Learning from Experience

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Box 4 - China and Economic Reform through SEZs

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2.6.5

Foreign Currency Accumulation

Some SEZs are established to assist in foreign currency accumulation due to their ability to

produce goods and services which are sold within foreign markets and paid for in foreign

currency. Foreign currency accumulation can therefore be a key objective of SEZ development

where there is a need for countries to manage inflation levels and respond to balances of

payment crises.

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Zeng, D (2011) China’s Special Economic Zones and Industrial Clusters: Success and Challenges.

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Zeng, D (2015) Global Experiences with Special Economic Zones – Focus on China and Africa. World Bank.

China is one of the most documented examples of successful economic reform in recent history.

Through the adoption of its Open Door policy in 1978, the country has managed to achieve rapid

economic growth and establish itself as the world’s second largest economy.

China’s SEZ programmes in particular have been noted as important drivers of this economic

growth and reform, allowing the Government to successfully test the market economy and acting

as demonstrator areas for the rest of country. The established SEZs have had notable success in

attracting new institutions, technology and management practices to China which has resulted in

significant contributions to national GDP, employment, exports and FDI in-flows.

The initial approach to SEZ development was incremental with four SEZs established in Shenzhen,

Zhuhai, Shantou and Xiamen. China used these zones to test market based economic policies and

reforms as well as experimental laws, regulations, land, tax, labour, finance, customs and

immigration policies prior to implementing them in the wider domestic economy.

Each of the SEZs comprised large areas which benefited from unique financial, investment and

trade conditions with the objective being to encourage innovative, pragmatic and open economic

policies which could potentially be rolled out to the rest of the country. These conditions were

found to have a dramatic economic effect on the performance of these zones with Shenzhen, for

example, achieving 58%annual growth in GDP, compared to a nationwide average of 10%between

1980 and 1984.

Following the success of the initial four SEZs, further programmes have been developed to open

up the economy further, including Economic and Technological Development Zones (ETDZ), High-

tech Industrial Development Zones (HIDZ), FTZs, EPZs amongst others.

It is noted that SEZs havemade a significant contribution to China’s success by providing successful

testbeds for new market economies and institutions as well as serving as role models for

nationwide reform.