Syndicate 8: Aldo Santalco Enrico D’Onofrio Claudia Bencini Korlan Rakhmetova Marco Cappiello Roberto Riga Filippo Berti

1. What is a Special Economic Zone (SEZ)

2. From Cluster to SEZ

3. SEZs’ Effects 4. Shenzhen SEZ, Pearl River Delta, PRD:

• History and Economic Policy • Features and Economic Results

5. Suzhou area, Yangtze River Delta, YRD:

• History and Economic Policy • Features and Economic Results

6. Shenzhen Vs Suzhou : PRD Vs YRD

7. Conclusions

Existing since 1704: • Gibraltar (1704); • Singapore (1819); • Hong Kong (China, 1848); • Hamburg (1888); • Copenhagen (1891);

Kyoto Convention of the World Customs Organization (WCO): “Free Zone means a part of the territory of a Contracting Party where any goods introduced are generally regarded, insofar as

import duties and taxes are concerned, as being outside the territory.”

Different Kinds of Free Zones: 1. Free trade zones; 2. Export processing zones; 3. Free-ports; 4. Single factory; 5. Specialized zones;

4 common characteristics: 1. Fenced-in; 2. Separate management; 3. Physical presence; 4. Duty-free benefits;

“4+2+1”: • “4”: the first group of SEZs that were authorized in 1980: Shenzhen, Zhuhai,

Xiamen, and Shantou;

• “2” : the new Pudong district in Shanghai and Hainan province, both authorized as SEZs in 1990;

• “1”: the Newly Developed Area of Tianjin Binhai, which was authorized in 2006.

The “Sanweizhu”: • The use of foreign investments; • The focus on industrial development; • The promotion of an export oriented industrial model; • Windows for the acquisition of new technology, knowledge

and management experience from the Occident;

China is characterized by the presence of different kinds of clusters:

- Self-Augmented Clusters

- Export-Oriented Clusters

- High-Tech Industrial Clusters

- Resource-Driven Clusters

- Market-Driven Clusters

Officially in China there are 4 City Special Economic Zones (Xiamen, Shantou, Shenzhen and Zhuhai) and 1 Province Special Economic Zone (Hainan)

Then there are some areas namely Coastal Development Areas. In 2009 the Shanghai CDA was changed in SEZ. Suzhou is within it. Its official name is Pudong New Zone, and regards all the Yangtze Delta.

Industrial clusters represent geographic concentration of interconnected enterprises in a particular industry. They can be characterized as being networks of production of strongly interdependent firms (including specialized supplier), knowledge producing agents (universities, research institutes, engineering companies), intermediaries (brokers, consultants) as well as distribution channels and customers, linked to each other in a value-adding production chain. Clusters are a natural process. SEZs instead were a created process.

SEZs Clusters

• A designed system of favorable conditions in a specific area.

• More clusters can be within it

• Establishment at a Government level

• Rely on a specific product, technology, industry or resources.

• High level of specialization

• Spontaneous concentration of complementary firms within a cluster.

Sources: Yeung Y., Lee J., Kee G., China’s Special Economic Zones at 30, Eurasian Geography and Economics, 2009, 50, No. 2, pp. 222–240. Gopalakrishnan S., Negative Aspects of Special Economic Zones in China, Economic and Political Weekly April 28, 2007.

PROS CONS

• Technological innovation and spill-overs between Chinese and Foreign firms

• Introduce competition thus fostering market economy

• Attract FDIs also towards poorer areas

• Increase in development programs

• Increase capital inflows

•“zone fever” real estate speculation •Tax evasion •Crimes increase •Less legal and social protection for workers

Name Population (2005 est.)

Area (km²)

Density (/km²)

Central Shenzhen (SEZ) 3,143,000 412 7,628

Futian District 1,166,000 79 14,759

Luohu District 860,000 79 10,886

Nanshan District 901,000 182 4,951

Yantian District 216,000 72 3,000

The Suburbs 5,140,000 1,577 3,259

Bao'an District 2,500,000 577 4,333

Longgang District 1,240,000 676 1,834

Guangming New Area 800,000 156 5,128

Pingshan New Area 600,000 168 3,571

Total 8,283,000 1,989 4,164

The Fourth biggest Chinese Economic Power with an average growth

rate by 25%!!!.

In 2009: • + 10.7% GDP growth

• + 15.4% Total retail sales for consumer

goods

• + 10.1% Local Revenues 88.082 bln ¥

Source: Yeung Y., Lee J., Kee G., China’s Special Economic Zones at 30, Eurasian Geography and Economics, 2009, 50, No. 2, pp. 222–240.

• The highest GDP per capita 92,771 ¥

• Fast growing GDP

• Increasing demand on consumer goods.

• Technological clusters presence within

• Technology industry is the dominant one.

• Strategic location for many MNE Headquarters

• Concentration in clusters

• Production factors higly present.

• Good level of infrastructure.

• FDIs

Factor

conditions

Firms strategy,

structure and

rivalry

Demand

conditions

Related and

supporting

industries

Source: Porter, M. 1990. The competitive advantage of nations, Harvard Business Review.

The Shenzhen SEZ was the first SEZ to be set up in the PRC. It has developed from being a small fishing village into China’s

most successful major industrial and financial center.

The area has been divided up into 3 parts, 5

sections and 18 districts.

Shenzhen gains its provincial status as the whole Guangdong province, achieving

therefore a lot of autonomy within China. So looking at Shenzhen SEZ could be

predicative of the future China as whole.

In 1980 the People’s Republic of China (PRC) decided for the very first time to establish a Special Economic Zone. This concept was brought out by Deng Xiao Ping after having realized the static current situation. He decided therefore to create a SEZ despite this was driven by a capitalistic approach instead of a socialist one. Deng Xiao Ping indeed, would create a system that works well and able to foster China’s economy.

The core areas within SEZ • Shenzhen Hi-Tech Industrial Park Founded : in 1996 Area: 11,5 km2 Industries: Biotechnology/Pharmaceuticals, Buildings/Constructions Materials, Chemicals Production and Processing, Computer Software, Electronics Assembly & Manufacturing, Instruments & Industrial Equipment Production, Medical Equipment and Supplies, Research and Development, Telecommunications Equipment. • Shenzhen Software Park Founded: in 2001 Area: 20.8 km It’s an important vehicle established by Shenzhen Municipal Government to support the development of software industry. • Shenzhen Stock Exchange Market participants: 540 listed companies; 35 mln. registered investors; 177 exchange members The Shenzhen Stock Exchange is a mutualized national stock exchange under the China Securities Regulatory Commission that provides a venue for securities trading.

Industrial Group Clusters

Electrical & Electronics Desktop computers clusters, Color TVs cluster, electrical goods clusters.

Textiles Weaving, knitting, towels.

Metal & Machinery Freezing equipment, air-conditioning equipment, metal tools, aluminum products.

Electronics represents the most flourishing industry with in particular the desktop

computers; moreover furniture, clock and watch, clothes, gold and jewelry, and printing and artistic gift manufacturers are in a leading position.

Shenzhen is the production and research base as well as the commodities trade center of high-tech products such as computer and software,

communication equipment, audio and visual products, optical electromechanical products, biomedical products and medical equipment.

Source: Chen X., Regionalizing the Global-Local Economic Nexus: A Tale of Two Regions in China, UIC Great Cities Institute ,March 2006.

Shenzhen Hi-Tech Industrial Park (SHIP) was founded in September 1996. It covers an area of 11.5 km². Shenzhen Software Park is integrated with Shenzhen Hi-Tech Industry Park, an important vehicle established in Nanshan District by Shenzhen Municipal Government to support the development of software industry. The Park was approved to be the base of software production of the National Plan in 2001.

HQ in Longgang District

manufactures its line of ThinkPad notebook computers

Manifacturing plant for IPod, IPhone, IPad

HQ in Nanshan District

HQ in Guandong

HQ in Nanshan District

In the financial sector, China Merchants Bank, one of the largest banks in China, has its headquarters in Shenzhen. Shenzhen City Commercial Bank, Ping An Insurance and Wal-Mart China are also based in the city.

Shenzhen has about 3,000 computer enterprises, producing almost all the computer components. Many of these foreign high-tech companies have their operations in the Science and Technology park in Nanshan District or outside the core districts where labor and land are much cheaper. IBM has a joint venture in Shenzhen manufacturing server products.

• 1st in China for color TV set (output)

• 3rd in China for Magnetic heads for Hard disks (output)

• 1st in China in software exports

• 30% of domestic brand mobile output in China

• 43% of copy machines output in China

• 1st in Asia for injection machines (output)

• 1st in the World for containers and digital multi-meters (output)

Source: Shenzhen Government, Statistics Department.

• +3.2% FDI in Shenzhen (reached US$ 4.16 billion)

• 36.4% of 2009 FDI in Manufacturing

• 166 out of the Top 500 Companies have already invested in Shenzhen

• Total Output Value of high-tech products made in 2009 reached 850.881 billion ¥

• 2009 Trade volume US$270.155 billion • 234 items of scientific research results were registered in the city in 2009

• 42,279 patent applications were filed in 2009 (+16.6%)

• Patent authorizations reached 25,894 (+37.7%)

GDP Growth (mln euro) Source: Shenzhen Government, Statistics Department.

In 2009

•+ 11%GDP Growth •117200¥ GDP per

Capita

•Prefecture

Population:

6.332.900

•Urban Population:

2.402.100

•Prefecture Area:

8.488,42 sq km

•Urban Area:

1649,72

Name Population

Est2001 Area Km2 Density(/Km2)

Cangland District 310000 30 10333

Jinchang District 250000 35,7 7003

Pinghiang District 180000 25 7200

Suzhou Industrial Park 1200000 80 15000

Xiancheng District 380000 478 795

Wuzhong District 590000 770 766

• Export Orientation

• 11,7200¥ GDP per Capita

• Laptop computers and mobile devices

• Electrical machinery

• Information Technology cluster

• High degree of collaboration within

the same clusters

• Recent financing enable latest

technology to be implemented

• Formation through schools and academies

• Large Foreing Direct Investment

Factor

conditions

Firms strategy,

structure and

rivalry

Demand

conditions

Related and

supporting

industries

Source: Porter, M. 1990. The competitive advantage of nations, Harvard Business Review.

Lee Kuan Yew 李光耀

Prime Minister of the Republic of Singapore

The China-Singapore Suzhou Industrial Park (CS-SIP) was born on Feb. 26, 1994 when Chinese Vice Premier Li Lanqing and Singapore Senior Minister Lee Kuan Yew signed

the Agreement on the Joint Development of Suzhou Industrial Park in Shanghai.

Li Lanqing 李岚清

Vice Premier of the People’s Republic ofChina

Agreement Singapore - China

Suzhou Industrial Park (SIP) Jiangsu, China

•A significant cooperative project between China and Singapore governments, for technology and economic development. • A pivotal zone for reforms and opening-up policies; A successful model of international cooperation. •Top-ranking for many years in terms of comprehensive development among all the others national development zones Development Goals: - To develop a high-tech industrial park for international competitiveness - To develop a innovative eco-township, international, and modern.

The whole Suzhou area, including SIP, has become the to Japanese enterprises top choice for their overseas investment in manufacturing base.

GOALS AND RESULT

Special tax and other incentives attract FDIs During the past decade, SIP has shown a very fast development and the main

economic indicators all grew.

The investment in fixed assets in SIP exceeded 20.2 billion yuan The total output value reached 36.5 billion yuan The local budget revenue registered 2.05 billion The total value of import and export was 14.4 billion USD, exports account for 6 billion The newly contracted foreign investment reached 2.1 billion USD and the utilized investment reached 1.2 billion USD

an increase by 94% over

the previous year.

an increase by 45% over

2002.

up by 55.8%.

growing 150% and

134% respectively.

increasing 20% and

32% respectively.

The registered domestic investment reached 11.1 billion yuan. During the past decade, SIP has provided over 120, 000 new jobs. SIP is targeting at, by the year 2005, a GDP of 70 billion yuan, financial revenue of 10 billion yuan, import and export of 20 billion USD, rural per capita income of 12,000 yuan RMB Urban per capita income of 30,000 yuan.

0

200

400

600

800

1000

1200

1400

1600

1800

2002 2003 2004 2005 2006 2007

GDP (100milionsRMB)

Total IndustrialOutput (100millionsRMB)

Local fiscal Revenue(100milions RMB)

0

50

100

150

200

250

300

350

400

450

2002 2003 2004 2005 2006 2007

Net Export (100millions US$)

0

5

10

2004 2005 2006 2007

Paid-in foreign capital (100millions US$)

Overall positive economical trends

result from looking at the GDP growth as to FDI and Net Exchange

Source: www.snd.gov.cn

By the end of 2007, foreign-invested companies had a total registered capital worth of USD 13 billion, of which USD 6.8 billion was paid in.

33%

30%

27%

10%

Japan

North America andEurope

Hong Kong andTaiwan

South Korea andSoutheast Asiancountries

Source: www.snd.gov.cn

SND hosts now more than 1,500 foreign companies. Some forty Fortune 500 companies set up 67 projects in the district (shown in next slides).

45%

30%

15%

10% Electronics andTelecom cluster

Precision machine-building cluster

Fine chemicalscluster

others

The Suzhou Industry Park (SIP) is the largest cooperation project between China and Singapore Government. SIP, has a total jurisdiction area of 288 sq km, of which, the China-Singapore cooperation area covers 80 sq km with a planned residential population of 1.2 million. In April 2000 with a planning area of 2,9 sq km China and Singapore set up the SIP Export Processing Zone with all high standard infrastructure: customs declaration and other procedures can be handle on line through the information platform and electronic methods.

<<SHENZHEN fell behind a Jiangsu city to rank No. 4 in GDP growth in the three quarters this year, statistics showed, but its economic development was “more sustainable.”>>

Shenzhen’s GDP grew 11.8 percent in the past nine months, reaching 672.2 billion yuan. The growth rate was lower than Suzhou, Jiangsu Province, where GDP grew to 679.8 billion yuan during the same period, up 13.5 percent.

According to Guo Wanda, deputy director of the China Development Institute (Shenzhen), fixed assets investment accounted for a large part of Suzhou’s GDP growth, which wasn’t the case in Shenzhen.

Source: 12 November 2010 Shenzhen Daily

Six Pillar industries:

1. Information technology

2. Electronics in particular mobiles and laptop

3. Electrical machinery

4. Bio-technology and medicine

5. Chemicals

6. Household electrical appliances

The service sector has also increased its relative share in the gross domestic product in recent years. Financial services are developing rapidly, in particular, the insurance sector.

Foreign invested enterprises are now one of the major forces of the city's industrial output. Currently, there are more than 5,500 foreign enterprises operating in Suzhou.

www.klakogroup.com/en/china-invest-monthly-newsletter/suzhous-foreign-trade-and-investment-environment

The Ministry of Education approved in 2006 the first Sino-British University, the Xi’an Jiaotong-Liverpool University borned out of a partnership between the two Universities.

The students can attend courses of Electronics, Computer Science, Communication and Management.

Outside Suzhou: Science & Technology Tower of Nanjing University Jiangsu Sainty Research & Development Center Nanjing Research & Development Center of ZTE

Other leading University in the city:

University of Science and Technology of Suzhou Soochow University

Key success factor of development zones, as experience throughout the world teaches, is to actively develop technical manpower capabilities well

in advance in order to match those capabilities with the investors’ demands and needs to foster competitive advantages.

Specialties: Mechatronics Industrial Electronics Precision Engineering Communications Technology

By adapting the advanced "teaching factory" concept of

Nanyang Polytechnic of Singapore, the Institute of Vocational

Technology is committed in training and qualifying skilled workers to let them achieve continuous competiveness.

Learning: the Chinese government wanted with China-Singapore Suzhou Industrial Park to prove the business model and to

achieve the top management capabilities to have a long term

spillovers in other region within the mainland.

Leverage: not just financial resources for which Singapore

invest in the continental positioning, but also for their

managerial skills

Linkages: from the early beginning of the venture in the Venice of the East the

relationships with Singapore and its corporations were determinant for the dramatic socio-economic development

Shenzhen Suzhou

• 30 years old

• More than 8 million people

• Government driven establishment

• Spillovers from Hong Kong • Pearl River Delta

• Technology driven industries:

• Desktop computers cluster, machine tools.

• Leverage on technology, knowledge and management skills coming from foreign direct investors.

• 16 years old

• Around 2.5 million in the urban area

• China – Singapore Agreement

• Spillovers from Shanghai • Yangtze River Delta

• Technology driven industries:

• Laptop cluster, mobile phones.

• Early leverage on Singapore business model and it management skills.

Shenzhen, since it was the first established SEZ in China, it has attracted a lot of Foreign Direct Investments in technology sector in particular. Technological products such as desktop computers were therefore flourishing thanks to clusters presence. Later on, with the establishment of Suzhou Industrial Park, a lot of new FDIs were been attracted towards more sophisticated technologies such as the one for laptop computers. Finally, even if Shenzhen is continuing to show outstanding growth indicators, Suzhou is facing an even faster growth path especially on a higher level of technology.