For centuries, ports and trading posts, known as Entrepôts, have been used as places to import, store, and trade goods. It wasn’t until the 1950s that this inadvertently led to the creation of the first special economic zone in Clare, Ireland.
The term special economic zone (SEZ) refers to an area in which the business and trade laws differ from that of the rest of the country. They are essentially a modern development of the Entrepôts of centuries ago, aiming to increase trade, investment, and even job creation. SEZs have been popping up more and more around the world in recent years, there are more than 200 of them in India alone. However, one that has particularly flourished is in China’s Silicon Valley – Shenzhen.
Shenzhen was China’s first, and arguably most successful SEZ. Since Shenzhen’s implementation of an SEZ in 1980, Shenzhen has grown from a small village of 30,000 people to a booming city of 11 million. Although the city benefitted greatly from the leadership of Deng Xiaoping – as well as its luxurious geographical location – the critical reason for its financial success is the special, preferential reform policies. One favourable policy is related to the income taxes in Shenzhen. The income tax is capped much lower than it is in the rest of city, greatly encouraging new business to start up in the SEZ. This has proven to be a huge incentive for foreign investors.
Another policy which benefits Shenzhen is its land use policy. Land in Shenzhen is provided for foreign investors for long periods of times at very low fees. Additionally, foreign exchange policies help the Shenzhen economy because it allows foreign exchange from exports and the operational income of enterprises to be retained by firms. Entry and exit from Shenzhen is also simple, making it an ideal location for travellers going to and from Hong Kong.
While there are many reasons that the city of Shenzhen has prospered in recent years, its special economic zone policies have definitely contributed in turning it into a booming trade hub. With help from these policies, Shenzhen has attracted large part of China’s total foreign investment is both one of China’s main import/export hubs, and a leading manufacturing base.