There are now six special economic zones — with one added in Shanghai.

Why has Shenzhen been so successful? Some of it is due to chance, some of it is due to its unique geography. Shenzhen (literal name “deep drains”) is blessed with natural, deep water ports. This, in itself, is a huge advantage. Secondly, it is located right next to Hong Kong. Many import/export companies call Shenzhen come because they can take advantage of Shenzhen and Hong Kong ports. Shenzhen has also benefited from Hong Kong companies and their investments.

Look at Tencent. Pony Ma is from neighboring Shantou. He graduated from Shenzhen University. Where is Tencent’s HQ? 深大 in Nanshan — right next to the place he graduated from. What if Pony Ma had been schooled elsewhere? Shenzhen is home to many rags to riches stories. Most people who live there have emigrated from other parts of China to find a better life. Entrepreneurs naturally gravitate to that city.

Beijing is the political capital. Shanghai is the financial capital. Guangzhou is the manufacturing capital. Shenzhen? It’s the technology capital of China. Who has the most eager technology consumers and most vibrant tech scene? China.

Tencent, DJI (leading drone maker), Huawei, ZTE, Skyworth, Tp-Link, Coolpad — among many other tech firms — all call Shenzhen home.

That’s not to say the other special economic zones aren’t successful. Zhuhai, Shantou, Xiamen, and Hainan are all pretty prosperous — when you consider them to the rest of China as a whole.

Zhuhai benefits from its proximity to Macau. It hosts an annual airshow. It’s also home to companies like Kingsoft. For the small city that it is, property prices are pretty high — and the standard of living there is well above other Chinese cities of the same size.

Xiamen’s economy is strong. It’s housing prices have risen rapidly in recent years. It’s home to companies like Meitu — which went from a simple app with filters to the world’s most popular “beauty” app. Meitu has their own phones that automatically “beautify” people. They took “selfies” and brought them to a whole new level.

Hainan is a very popular vacation destination for Chinese people. It’s littered with beaches, expensive 5 star hotels, and plenty of golf courses for vacationers and the country’s elite.

Shantou is the biggest and most prosperous city in the Chaoshan region.

So yeah, Shenzhen is the most impressive story of those zones. It went from a humble Hakka fishing village in the 1970’s to rivaling Silicon Valley in renown and clout. The other places designated as SEZs haven’t done badly for themselves, either.

For one thing, before the reform and opening up, the Luo Hu railway Bridge was the only bridge linking Mainland China and Hong Kong. With the rapid development of Hong Kong's economy and taking the need of Hong Kong’s sooner return to China into consideration, Shenzhen was designated as the first special economic zone. Furthermore, there are several advantages of setting Shenzhen as a special economic zone. Geographically, Shenzhen is close to Hong Kong, Macao and Taiwan, which contributes its role as opening up to the outside world. Strengthening economic relations with these areas, and enhancing mutual understanding through such relations, to some extent, could build foundation for reaching consensus in the future. Also, it is much more convenient for Shenzhen as a harbor city to develop its water transportation. Last but not least, the establishment of special economic zone in Guangdong province has a special attraction for overseas Chinese to return home for development, since many overseas Chinese came from Guangdong Province.

Special economic zones in China are areas where the Chinese government can experiment with differing legislation before deciding it such legislation can be applied to the nation.

Now you’re wondering: why should economic experiments be contained in one region? Well, such experiments are often costly in terms of money and political power, so it’s best to keep it to a small region. Furthermore, some economic experiments and reforms fail miserably.

Remember the Great Leap Forward? That was also an economic experiment, that utterly failed. Millions died.

Remember how the USSR suddenly introduced capitalism and sold off everything it owned? The economy collapsed, inflation was extreme, and oligarchs looted state-owned enterprises for pennies on the dollar. Millions of livelihoods were ruined.

If the Great Leap Forward and Russia’s shock therapy were confined to a small area, millions of lives could have been saved.

In 1978, nobody had any idea how successful Deng’s economic reforms would be; even Deng himself would be stunned by how prosperous China would end up just 40 years later. Better to contain such experimenting to some small regions, in case the experiment fails. Next, the CCP was filled with many hardcore communists at the time, that genuinely distrusted free markets. It was politically easier to only open up a small area of China.

Finally, China is big, and the Chinese government did not have anywhere near the funds to develop the whole nation at once. Neither did foreign investors. Furthermore, industries work best when there are other manufacturing plants nearby. If you owned a nail-making factory, for example, it would be nice to have a steel mill nearby. Manufacturing needs intensive capital investment and clustering to be the most efficient. The Chinese government facilitated this by only providing a few cities to invest in.

Money made from SEZs could be used to invest in other enterprises that are not in China.

The most obvious benefit is the rapid development of the special economic zones.

Do you know Shenzhen? Shenzhen is the epitome of China’s SEZ economy.

In 1979, Shenzhen was a sleepy fishing village with only 314,000 residents; its GDP was a mere RMB190 million, averaging about RMB600 per person; it had no industry, trade, or shipping industry to speak of despite bordering Hong Kong and being a major ancestral home for overseas Chinese.

Shenzhen in the 1970s

In May 1979, the Chinese government sent a work team to Guangdong and Fujian to conduct surveys. Shortly afterward, the Chinese government approved the establishment of “special export zones” in Shenzhen and Zhuhai, to be followed by Shantou and Xiamen. In May 1980, the “special export zones” were renamed “special economic zones (SEZs)”.

In January 1984, Deng Xiaoping visited Shenzhen and Zhuhai SEZs for the first time, amazed by the booming development of the two cities. In a speech after returning to Beijing, he said: “I’ve heard that public security in Shenzhen is better than in the past, and people who went to Hong Kong are beginning to come back, in part because there are more jobs, incomes have increased, and material conditions are much better. It shows that cultural attraction comes from material civilization.”

Shenzhen in the 1990s

Today, Shenzhen is a dynamic and vibrant modernized metropolis with gleaming skyscrapers and dazzling shopping malls. The city has created a brand-new mix of industries, with four pillar industries (high technology, finance, logistics, and culture), seven strategic emerging industries, and five futuristic industries.

Shenzhen in 2021

China first established five SEZs in Shenzhen, Shantou, Zhuhai, Xiamen, and Hainan (with Kashi added in 2010), and designated 14 open coastal cities, namely, Shanghai, Tianjin, Beihai, Zhanjiang, Guangzhou, Fuzhou, Ningbo, Nantong, Lianyungang, Qingdao, Weihai, Yantai, Dalian, and Qinhuangdao.

Shanghai

This was followed by the establishment of a number of open coastal economic zones, including the Yangtze and Pearl River Deltas, the South Fujian Triangle, the Liaodong and Shandong Peninsulas, and the Bohai Rim.

Moreover, in recent years, 11 pilot free trade zones have been set up in Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, and Shaanxi.

In addition, China also set up state-level new areas, pilot zones for comprehensive reforms, and development zones. All having special relaxed policies towards foreign investment have helped increase China’s trade with the rest of the world, enabling the nation to rapidly integrate itself into the global economy.

The special zones are the bridgeheads of China’s reform and opening up drive, spearheading the nation’s modernization drive under different situations. The SEZ economy has drawn worldwide attention as an archetype of the Chinese experience, and many emerging economies, developing countries, and even some developed countries have sent delegations to China to find out more about the SEZs so that they can set up similar zones in their own countries.

Well if your definition of “successful” means “one of the greatest cities in the world” as the only standard, than that’s a pretty darn high bar isn’t it.

I’ll note that when my father in the late 70s was stationed in Kinmen, which can see Xiamen clearly, he noted that the “city” of Xiamen looked less developed than the town of Kinmen, which was one of the least developed towns under the ROC due to it’s warzone status.

Kinmen is still mostly that town (though it has since been lifted from warzone status and normalized quite a bit. ) but Lo and behold this is what Xiamen look like now

If this is failure, I’d take that everyday.

As for why Xiamen isn’t as successful as Shenzheng relatively speaking, there’s several major factor.

1. Time : Shenzheng had a considerable head start.
2. Capital : Shenzheng had access to Hong Kong’s capital and through it the world’s capital. Xiamen was largely built by Taiwanese merchants in the first stages of it’s free trade zone, Taiwan as a financial center was nowhere near that of Hong Kong.
3. Land : this is a major issue. People don’t seem to realize that XIAMEN IS AN ISLAND.

( The islands of Kinmen and Xiamen ) Xiamen’s actual administrative area is expanding to include a lot of the outer areas now. but this came later, and it’s population is also not nearly the same. )

Also, we should note that the war still matters for Xiamen, despite this not being 1977 anymore to say that here isn’t concern or tension between the ROC and PRC (where Xiamen is basically a front line.) is ludicrous. Ships had been sailing into Canton for centuries and was still sailing in Hong Kong even during the worst times of the Mao era, for decades even fishing near Kinmen would get you machine gunned (not an exaggeration at all. ) so it was basically a complete no go zone for ships until the early 90s.

You have to wait zero time. I have known people to exit Mainland China at the Hong Kong border, go out the door, turn round, and come back in to Mainland China, without even entering immigration at the Hong Kong side.

However, as with all entries to a country, your reasons for entering must be consistent with your visa. If you have an L visa, then you are supposed to be a tourist. If you are intending entering China for other reasons other than tourism, then you are breaking the law. If in fact you want to work, study, or do business in China, then you should get a visa consistent with those practices such as Z, X, F or M visa.

Historically, China has made several other “Special Economic Zones” with similar status to Shenzhen. As early as 1980, the Chinese government created 5 special economics zones. In addition to Shenzhen, they designated Shantou, Zhuhai, Xiamen, and Hainan island as special economic zones.

As the map below shows (which doesn’t seem to classify Hainan as an original SEZ—map source), China has since designated other areas for varying levels of special economic zone status.

With that being said, I don’t think that any will reach the level of success that Shenzhen has reached. Shenzhen was in a very unique position in that it was designated as a SEZ at the perfect intersection of several factors:

• Right time. China was just starting to open up around the time that Shenzhen was declared an SEZ, and this meant that investment could come in from abroad (which took many years), and that people could migrate there from inner China. As well, Shenzhen opened up when the global economy was wayyy less competitive than it is today. Cheap and reasonably capable labor + some infrastructure was an easy formula to bring in manufacturing from abroad, and Guangdong province absolutely nailed it doing so. It could not happen today, because so much labor is automated, that the value of cheap labor is comparatively far less.
• Right place. Proximity to Hong Kong was and continues to be a huge factor (albeit decreasing in importance) factor. As late as the early 1990s, Hong Kong’s GDP was over 25% of that of China’s. Today, it’s dropped to around 3%, but the point is that Shenzhen was right next to the wealthiest part of China, by a huge margin.

China is creating more special economic zones today, the most important probably being Xiongan New Area outside of Beijing. However, the relative success or failure of zones like Xiongan will be a lot more based on how much money the government is willing to plow into the place. Shenzhen, conversely, was quite remarkable in that it was a relatively small amount of governmental intervention, and a lot of innovation. For this reason, I find it unlikely that Xiongan will give rise to the Tencent’s, Huawei’s, and DJI’s of tomorrow.

Introduction

A Special Economic Zone(SEZ) is an economic region in a country which is created for the purpose of promoting manufacturing exports and economic development through a wide variety of special exemptions, relating to taxes, quotas, customs and even labor regulations in some cases. In other words, the economic laws in this zone vary from the laws of the country as a whole.

These special exemptions have gained a great deal of importance for several developing countries to attract more investments because many have very complicated procedures to do business otherwise. Modern SEZs appeared in about 1950s and gained prominence in Latin America and East Asia in 1970s as a means to attract MNCs to their countries.

Types of SEZ

1) Free Trade Zones/Free Port - Goods can be traded, handled, landed, manufactured without intervention of customs authority. They are usually located at entry ports. First started in Ireland in 1959 (Shannon Free Zone)

2) Export Processing Zones - These are set up specially by governments to promote industrial and commercial exports.

3) Industrial Parks - It is an area specially zoned for economic development and is usually located on the fringes of a city. The idea is to provide infrastructure all in one place with heavy access to transport facilities.

4) Bonded Logistic Park - It is a special zone where goods may be stored, manipulated and undergo manufacturing operations without payment of duty. These are similar to free trade zones, except they may or may not have port facilities.

5) Urban Enterprise Zone - A special area in urban locations, especially under-developed neighborhoods where companies can set-up with tax relief offered.

Many of the above terms are used under the broad umbrella of SEZs and often inter-changeably in some countries.

Countries where SEZs prevail today - India, China, Bangladesh, Russia, North Korea, South Korea, Iran, Jamaica, Greece etc to name a few.

SEZ Situation in India -

India was one of the first Asian countries to recognize the effectiveness of the EPZ (export promoting zone) model. Asia's first EPZ was set up in Kandla in 1965. It became imperative to attract more foreign investment and increase global competitiveness by promoting infrastructure with minimum interference by Center and State. The SEZ policy in India first came to picture in 2000, post 9 years of trade liberalization. However, its drawback was the rigidity of labor reforms in SEZ areas. However, 19 SEZs had already been set up before the upcoming new Act to rectify these loopholes.

After a great deal of debate, finally in 2005, The Special Economic Zone Act was drafted. After extensive consultations, in february 2006, the Act along with SEZ rules was implemented for drastic simplification and single window clearance on matters relating to state as well as central government.

The SEZ Rules provide for a minimum land requirement for different classes of SEZs, which are divided into processing and non-processing zones (where supportive infrastructure is developed)

Setting up an SEZ -

Any public/joint/private sector or state government or its agencies or even a foreign agency can set up SEZs.

Indian procedure -

The developer approaches the state government with proposal and within 45 days, it has to be forwarded with recommendation to Board of Approval consisting of members of Central Government.

Once an SEZ has been approved, units are allowed to be set up in the SEZ area. All the procedures pertaining to this (such as clearances for import-export code number, change in the name of the company etc) are dealt by the Approval Committee at the Zone level with guidance from the respective Development Commissioner.

The SEZ is regularly monitored by the Approval Committee, State Government on a annual basis and is liable for penalty in event of violation of Foreign Trade (Development and Regulation) Act.

All statutory functions are controlled by the Government. Government also controls the operation and maintenance function in the 7 Central Government controlled SEZs. In rest of the operation and maintenance are privatised.

Today, there are 196 operational SEZs in India.

Srinivasa Fashions

Some Facilities of SEZs in India

1) Income Tax -

• 100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter
  
• Reinvestment allowance to the extend of 50% of ploughed back profits
  

2) Central Sales Tax Act :

• Exemption to sales made from Domestic Tariff Area to SEZ units.
  Income Tax Act:
  

3) Service Tax:

• Exemption from Service Tax to SEZ units
  

4) Customs and Excise :

• Duty free import/domestic procurement of goods for setting up of SEZ units.
  
• Goods imported/procured locally duty free could be utilised over the approval period of 5 years.
  
• Domestic sales by SEZ units will now be exempt from SAD.
  
• Domestic sale of finished products, by-products on payment of applicable Custom duty.
  

5) Foreign Direct Investment:

• 100% foreign direct investment is under the automatic route is allowed in manufacturing sector in SEZ units except arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes , cigars and manufactured tobacco substitutes.
  
• No cap on foreign investments for SSI reserved items.
  

6) Banking / Insurance/External Commercial Borrowings

• Setting up Off-shore Banking Units allowed in SEZs.
  OBU's allowed 100% Income Tax exemption on profit for 3 years and 50 % for next two years.
  
• External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictions.
  
• Freedom to bring in export proceeds without any time limit.
  

Issues of SEZ in India -

Despite the proactive efforts of the Indian Government, the actual impact of SEZ on the majority of Indians remains highly debatable despite the obvious investment and competitiveness advantages.

1) Revenue loss to the government from various exemptions offered

2) Problems of land acquisition and displacement of dwellers, land-holders, especially the one with marginal land-holdings of less than 1 acre to be severally impacted.

3) Environmental Concerns due to relaxed norms.

4) Declining trend of export earnings of SEZ since FY 2012 - 30% growth followed by 4% growth in FY 2013 and finally a decrease of -4.79% in FY 2014. Clearly, further investigation is required to understand why earnings are falling despite the emergence of more SEZs.

Work visa 2.0 Era

It is 1.0 Era before Nov. 2016, each regions' foreigners' visa are managed by each Foreign Experts Bureau(FEB) and Public Security Bureau(PSB). Both of them apply and manage by they own.

And after Apr.2017, it is 2.0 Era, the whole China only use one system. No more separate, all the FEB, PSB, Tax Bureau and Commercial Bureau are connected, they can provide information to each other, and band together to review the appliers.

To be specific:

1. New application: Check the position of the applicants, company’s scale, population, income and taxation situation.

2. Transfer: Position and salary in the new and the previous company. Income and the taxation situation of the new company.

3. Renew: Applicants' payroll tax, the operation situation of the company.

All the information above will directly affect the result of the visa application.

Below clients have already turn to seek our help:

1. Plenty Europeans holding business or family visa to work in China, have been canceled visa and deported.

2. Part of applicants renew with the salary lower than Chinese average, have been asked for tax inspection, payment of the overdue tax and fine.

3. Be asked to review the payroll tax prove of the salary which the applicants filled in his first application.

4. The applicant unit which has not complete the company's information and the employees record etc.

If you have above questions and concerns, please contact your consultants:

Special economic zone or SEZ refers to a totally commercial area specially established for the promotion of foreign trade. A Special Economic Zone (SEZ) is a geographical region that has economic laws more liberal than a country's typical economic laws.

The policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package both at the centre and the state level, with the minimum possible regulations.

SEZs are specifically delineated enclaves treated as foreign territory for the purpose of industrial, service and trade operations, with relaxation in customs duties and a more liberal regime in respect of other levies, foreign investments and other transactions.

These regions exist in many countries of the world and China perhaps the oldest to give reality to this concept.

Key differences between SEZ and EPZ:

• SEZ is much larger in geographical size than EPZ.
• SEZ has a larger scope of business than EPZ.
• SEZ is found in all the countries but EPZ is found in developing or developed countries.
• Infrastructure of SEZ consists of manufacturing units, townships, hospitals and schools and other services but EPZ is confined to manufacturing establishments.
• The benefits of SEZ are more towards the growth of domestic business where EPZ has the main objective of developing exports business.
• SEZ is open to all fields of businesses like manufacturing, trading and service but EPZ focuses more on manufacturing.

India’s special economic zones(SEZs), a key element of the country’s industrial and export promotion policy over the past couple of decades, are faced with numerous challenges,The Ministry of Commerce and Industry pointed out recently regarding SEZs.

Including over 25,000 hectares of land lying unutilised in these preferential treatment industrial enclaves, lack of flexibility to utilise land for different sectors, multiple models of operation, domestic sales by the SEZs facing a disadvantage due to payment of full custom duty and lack of support from state governments for an effective single-window system.

But positively the Ministry of Commerce and Industry data show that 230 out of the 373 Special Economic Zones (SEZs) in India are operational and have provided employment to as many as 20 lakh people.

Sanjeev/ Plutus IAS

The special economic zones implement the preferential policies granted by the state and cannot be called privilege. The main ones are the following: 1. The name of the subsidy program. The preferential income tax policy for foreign-invested enterprises in Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan Special Economic Zones 2. Notice Time covered 1984-present 3. Policy Objectives and/or the Purpose of Subsidies Promotion of Regional Development and Absorption of Foreign Investment 4. Background of the Subsidy and Competent Authorities The State Administration of Taxation and Local Tax Authorities 5. Legal basis for grants before 1991, Income Tax Law of the People's Republic of China for Sino-Foreign Joint Ventures and Income Tax Law of the People's Republic of China for Foreign Enterprises After 1991, the Income Tax Law of the People's Republic of China on Foreign-Funded Enterprises and Foreign Enterprises 6. The form of subsidies applies to preferential income tax rates, and exemption from income tax 7. Objects and methods for providing subsidies (1) For foreign-funded enterprises established in special economic zones and foreign enterprises engaged in production and business activities in special economic zones, a preferential income tax rate of 15% shall apply. (2) For foreign-funded production enterprises set up in the old urban areas of the cities where the special economic zones are located, 24% of the preferential income tax rate should be applied; for technology-intensive projects, projects with a foreign capital above 30 million U.S. dollars, and longer repayment periods, and For items in the departments encouraged by the State, such as energy and transportation, the income tax rate may be further reduced to 15%. (3) For enterprises with a foreign investment of more than US$5 million and an operating period of more than 10 years, the company shall be exempted from income tax in the first year and 50% in the second and third years, but shall apply to the local tax authority and Approved. The base period year is the first profitable year for such companies. 8. The unit subsidy amount, or if it is not possible to provide it, the applicable preferential income tax rate for the total amount of the subsidy or the annual budget amount is 24% or 15% 9. The duration of the subsidy and/or any other time limit attached thereto 1984 - 10 . Statistical data to assess the trade effects of subsidies