If we are to seize opportunities to promote China’s all-round development, it is critical to expand the economy. — Deng Xiaoping

China’s economic development over the past 35 years is nothing short of remarkable. Its journey to becoming ‘the factory of the world’ holds several important lessons in industrial development, attracting foreign direct investment, and economic diversification. Although China’s journey is a complex one filled with a variety of policy prescriptions, one policy tool stands above the rest — special economic zones (SEZs).

The strategic and focused use of SEZs as a development tool holds a special — pun intended — place in China’s story. And as Jamaica embarks on its own journey using its modernised SEZ framework, China’s journey holds valuable insights into the remarkable transformational power of SEZs.

What makes SEZs special?

There are various definitions of SEZs; however, in the simplest of terms, they are “geographically designated trade areas that are used to attract foreign investors and boost industrialisation. They generally have trade laws that differ from the rest of the country, and companies are offered tax incentives to set up operations”. (‘What can Africa learn from China’s special economic zones?’ by Yejoo Kim, World Economic Forum)

SEZs come in a variety of forms, names and functions — free trade zones, free zones, export processing zones, enterprise zones, etc — that reflect a Government’s priorities and positioning of its economy. However, what unifies them all is that they are development tools used by governments to attract and facilitate investments that act as catalysts to diversify whole or targeted segments of their economies.

A journey of a thousand miles begins with a single step

For China its SEZ journey began in the late 1970s/early 1980s as part of Deng Xiaoping’s economic reform and opening up of China to the world. The first SEZs were set up on China’s southern coastal areas in 1980, and most famously in Shenzhen. SEZs became China’s windows to the world. The SEZs, especially Shenzhen, were an immediate success; attracting by 1981 over half of China’s total foreign direct investment. The success story of China’s SEZs continues today and will for the foreseeable future.

Jamaica has set itself an ambitious goal and programme through its national development plan to “make Jamaica the place of choice to live, work, raise families, and do business”. A critical element of Vision 2030 is transforming Jamaica into a global logistics hub, which includes bringing together Jamaica’s geographic and other advantages with land, sea, air, and technological infrastructure to support Jamaica’s modern industrial development. The ultimate aim of the global logistics hub is to increase the length, width and depth of Jamaica’s participation in global supply and value chains.

This increased participation or value addition may come in a variety of forms that would see Jamaica and her people expanding their skills and expertise in research and development, design, production, logistics, marketing or services, etc, in a range of industries. For Jamaica, much like China, SEZs are a special vehicle to increase its participation in the global economy.

It is certainly true that Jamaica can learn many important lessons from China and other countries in the use of SEZs as a tool for economic development; however, to my mind, here are seven of the most important:

1. SEZs are not a panacea

SEZs, while important, are not an economic magic bullet and are not a cure-all for a country’s entire economic woes. They do not stand by themselves, but form part of a larger economic reform programme for China that was Deng Xiaoping’s opening up of China to the world; and for Jamaica, it is Vision 2030 and the global logistics hub.

2. On- and off-site infrastructural integration

One of the most critical factors that contributes to the success or failure of zones is availability and integration of adequate and appropriate infrastructure inside and outside of a zone. This infrastructure — land, sea, air or technology — must not only be fit for purpose but must be networked together to create value for stakeholders (workers, government, investors, etc). Much like China, Jamaica, albeit on a smaller scale, has been developing and integrating its multi-modal logistics infrastructure.

3. ‘Soft’ infrastructure is as important as physical infrastructure

Having the right business environment is critical to attracting investors. The laws that the zones operate under, just like the physical infrastructure, have to be adequate and appropriate; fit for purpose. This is much more than just cutting red tape, but it’s about bureaucracies being facilitators and delivering government services as value additions. Investors must have confidence that it is easy to invest, their investment is safe, and the operations of their investment will not be compromised by excessive red tape. This, in part, is the very reason China, and now Jamaica, created the zones.

4. Incubation for larger economic reforms

Reforming an economy is no easy task and one that cannot be done overnight, no matter the size of the economy (Jamaica vs China). However, SEZs offer policymakers an opportunity to experiment with a variety of reforms with limited risk to the wider economy. SEZs, in this regard, act as incubators to test and refine reforms before rolling them out to the wider economy. The incubation of reforms gives policymakers policy room to create strong test cases done under as close to local conditions that may increase the opportunity for success when rolled out in the wider economy.

5. Efficient and effective administration

The efficient and effective administration of the SEZ regulatory environment is a self-evident, yet often understated, success factor for SEZs. This goes beyond attracting and facilitating investments — as important as that is — into due diligence, long-term assessment, planning, and ongoing monitoring of investors and their investments to ensure that they align to the country’s goals and policy priorities. In its SEZ authority, Jamaica, much like China, has created a mechanism to do just that.

6. Linkages

The expression “A rising tide lifts all boats” defiantly describes the economic benefits of China’s SEZ development. However, this rising tide was not incidental and was planned for. One of the great development effects of SEZs is their spillover effects into the rest of the economy. However, for these impacts to be meaningful and sustainable, forward and backward linkages have to be forged by deliberate policy direction and actions. Jamaica’s SEZ policy and law recognise this fact and have created several mechanisms, particularly aimed at small businesses, to accomplish this.

7. Developing a skilled labour pool

China realised early that it was not enough to have a cheap labour force, but it had to have an educated one as well. What is more, China also recognised that, in developing its skilled labour pool, it was important that it match its skills training with the needs of current and future industries. In fact, over time China’s skills training development became an integral part of its investor targeting, innovation, and overall economic growth strategies. For Jamaica, education and training are critical components of Vision 2030 and the global logistics hub.

Ainsley Brown is a policy analyst in the Ministry of Economic Growth and Job Creation.