ProLogis Research Bulletin
Spring 2008
Leonard Sahling
First Vice President
ProLogis Research Group
303-576-2766
lsahling@prologis.com
Based on information compiled by
researchers from Shanghai Jiao Tong
University, Antai College of Economics
and Management.
Inside this Issue…
China’s Special Economic Zones and
National Industrial Parks —
Door Openers to Economic Reform
C
hina launched its “Open Door” reforms in 1978 as a social experiment
— one that was designed to test the efficacy of market-oriented economic
reforms, but to do so within a controlled environment.
Beginning in 1978, China’s central government instituted a series of bold
reforms designed to “open” its economy to direct foreign investment from
abroad in order to improve its citizens’ standard of living.
Not knowing what to expect from economic reform, Chinese authorities
decided not to open the entire economy all at once, but just certain
segments. Hence, Chinese authorities designated four coastal cities as
Special Economic Zones (SEZs) — the precursors of its national industrial
park system.
Several years later, Chinese authorities then created 14 national industrial
parks, officially designated Economic and Technological Development Zones,
or ETDZs. Subsequently, authorities expanded the number of ETDZs to
54, created other kinds of industrial parks, and authorized municipal and
provincial governments to sponsor their own industrial parks.
Foreign enterprises that established operations in these zones
were granted tax breaks, the ability to repatriate profits and capital
investments, duty-free imports of raw materials and intermediate goods
destined to be incorporated into exported products, no export taxes, and a
limited license to sell into the domestic marketplace.
SEZs and ETDZs themselves were given greater political and economic
autonomy. For example, they were also permitted to cut special deals with
foreign enterprises in terms of cheap, or below-market, lease rates for
land or production facilities.
As China’s market-based economic reforms took hold and flourished, SEZs
and ETDZs have come to play lesser roles, and the formal boundaries
previously separating them from the surrounding communities have been
abolished.
This year marks the thirtieth anniversary of the Open Door reforms.
China’s current economic miracle is testimony to the efficacy of its
economic reforms and the industrial zones created first to test and then to
propagate those reforms.
Oases of Reform and Modernity.............. 2
China’s “Open Door” Widens................... 2
Economic Performance of the State-Level
Industrial Zones...................................... 3
Policies and Regulations......................... 5
Management Structure of the
Industrial Parks....................................... 8
What’s So Special about National
Industrial Parks?..................................... 9
Other Types of Development Zones.........10
Shanghai — Spearheading Development
in the Yangtze River Delta......................12
Concluding Remarks..............................12
From the Editor......................................15
About ProLogis.......................................16
ProLogis Corporate Headquarters • 4545 Airport Way, Denver, CO 80239 • 303-567-5000 • 800-566-2706 • www.prologis.com
ProLogis Research Bulletin
into Special Economic Zones (SEZs), all of
which were granted special financial, investment, and trade privileges. The two primary
objectives were to attract foreign direct investment into these four zones and to jumpstart an export-led national growth strategy.
These experimental reforms proved to be
immensely successful, and the State Council
subsequently opened up additional cities and
established national industrial parks.
The ETDZs are master-planned industrial parks featuring modern streets, sewer lines, water lines, power plants, and residential housing. Pictured here is the Qinhuangdao ETDZ,
located in Bohai Bay Region in Northeast China.
Oases of Reform and Modernity
Thirty years ago, China was a struggling,
third-world country. Beginning in 1978,
China’s central government instituted a
series of bold reforms designed to “open” its
economy to direct foreign investment from
abroad and improve the standard of living of
its citizens. Its economy has grown nearly
fifteen-fold since then. Today, it is a manufacturing powerhouse, the fourth largest
industrial nation, the third-largest exporter,
and a world-class economic player.
China’s economic transformation has been
based on the classic prescription for growth
— thrift, investment, industriousness, foreign
trade, shifting from agriculture to manufacturing, and a willingness to adopt the best
practices employed by the world’s industrial
leaders. The four Asian “tigers” — South
Korea, Hong Kong, Taiwan, and Singapore
— have all used variations of this recipe to
create their own economic successes. The
People’s Republic of China (PRC) has designed and implemented its own export-led
growth strategy, with special emphases on
open cities and industrial parks.
The PRC launched its economic reforms on a
small scale. Its State Council designated four
coastal cities as “open” cities and made them
• www.prologisresearch.com
China’s SEZs and national industrial parks
were oases of reform and modernity. They
occupy large tracts of land; are dedicated to
the export of manufactured products; and
are master-planned with modern streets,
bridges, sewer lines, water lines, power
stations, and residential housing. China’s
national industrial parks are, in effect, small
cities designed to accommodate hundreds
of companies and tens, or even hundreds, of
thousands of their employees.
China’s SEZs and national industrial parks
have also proven to be powerful engines of
growth and deserve much of the credit for
China’s economic transformation.
China’s “Open Door” Widens
The People’s Republic of China (PRC) unveiled
its wide-ranging reforms in 1979 under Mr.
Deng Xiaoping. These bold reforms launched
China’s Open Door Policy.
Having studied the economic successes
of South Korea, Hong Kong, Taiwan, and
Singapore, China targeted direct foreign
investment and manufactured exports as the
catalysts for jumpstarting its industrialization
process. Its Open Door Policy offered foreign
companies tax concessions and other incentives to build manufacturing plants that would
be used for exports. The aims were to create
jobs, improve the standard of living, and promote the transfer of technical knowledge.
Not knowing what to expect from economic
reform, Chinese authorities decided to test
the water by opening only certain small
segments of the economy. Hence, the PRC
established Special Economic Zones (SEZs)
— the precursors of its national industrial
parks. These SEZs were patterned after the
ProLogis Research Bulletin
Export Processing Zones that the four Asian
“tigers” had employed so successfully in their
export-led growth strategies.
In 1980, the PRC created four SEZs — one
each in the cities of Shenzhen, Zhuhai, and
Shantou in Guangdong Province; and a
fourth in the city of Xiamen in the neighboring Fujian Province. They were designated as
“Open Coastal Cities” and chosen because
of their proximity to the major world trading
hubs of Hong Kong, Macao, and Taiwan. Four
years later, the entire province of Hainan was
designated as the fifth SEZ.
China’s controlled experiment with SEZs was
hugely successful, and in 1984 the central
authorities created a variant of SEZs, which
they dubbed Economic and Technological
Development Zones (ETDZs). The difference
between SEZs and ETDZs is one of scale. An
SEZ consists either of a whole city or province
that is granted special financial, investment,
and trade privileges. In contrast, an ETDZ is
situated on a smaller plot of land earmarked
for industry and export-trade development
— but also granted special tax and other privileges. Informally, the ETDZs have come to
known as China’s national industrial parks.
From 1984 until 1988, Chinese authorities
established ETDZs in 14 additional coastal
cities — Dalian, Qinhuangdao, Tianjin, Yantai,
Qingdao, Lianyungang, Nantong, Shanghai,
Ningbo, Fuzhou, Wenzhou, Guangzhou,
Zhangjiang, and Beihei. Shortly afterwards,
the State Council broadened these narrowly
defined ETDZs to encompass much wider
regions, including the Yangtze River Delta,
the Pearl River Delta, the Xiamen-ZhanghouQuanzhou Triangle in south Fujian Province,
the Shandong Peninsula, the Liaodong
Peninsula, Hebei and Guangxi. Together,
these open regions constituted China’s Open
Coastal Belt.
Subsequently, in 1992, the State Council
created another 35 ETDZs. In doing so,
they sought (a) to extend the ETDZs from
the coastline to inland middle and Western
regions and (b) to focus less on fundamental
industries and more on high-tech industries.
Today, there are 54 state-level ETDZs or
national industrial parks — 14 in the Yangtze
River Delta, nine in the Pearl River Delta,
eight in the Central Region, nine in the Bohai
Bay Region, two in the Northeast Region, and
12 in the Western Region. (See map.)
Economic Performance of the
State-Level Industrial Zones
The PRC launched its “Open Door” economic
reforms in 1978 as a social experiment. It was
designed to test the efficacy of market-oriented economic reforms, but to do so within a
contained, controlled environment. This year marks the thirtieth anniversary of
the Open Door reforms. China’s economic
miracle testifies to the efficacy of those
economic reforms and of the industrial zones
created first to test and then to propagate
these reforms. During the past three decades, China’s merchandise exports have
increased 125-fold and its real gross domestic product (GDP) has grown nearly 15-fold.
(See Exhibits 1 and 2.) In just the last year,
China’s incremental growth in real GDP actually exceeded its entire real GDP in 1979.
These are truly stunning results.
As China’s market-based economic reforms
have taken hold and flourished, the distinct
boundaries that used to separate SEZs and
national ETDZs from their surrounding communities have faded, and so have the starring
roles played by SEZs and national industrial
parks. Nonetheless, the five SEZs and 54
ETDZs still account for substantial shares of
China’s overall economic activity.
•
In 2006, the five SEZs accounted for 5%
of China’s total real GDP, 22% of its total
merchandise exports, and 9% of its total
DFI inflows.
•
At the same time, the 54 national ETDZs
accounted for 5% of total GDP, 15% of
exports, and 22% of total DFI inflows.
Inasmuch as total employment at these five
SEZs and 54 ETDZs represents only about
2.5% of China’s total employment, it is clear
that these economic and industrial zones are
exerting a disproportionately large impact on
China’s overall economy. (See Exhibit 3.)
www.prologisresearch.com • ProLogis Research Bulletin
Exhibit 1: China’s Real GDP, 1978-2006
Constant 2000 Prices and Exchange Rate
1500.0
1300.0
Indexed: 1978=100.0
1100.0
900.0
700.0
500.0
300.0
100.0
78 979 980 981 982 983 984 985 986 987 988 989 990 991 992 993 994 995 996 997 998 999 000 001 02 003 004 005 006
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
20 2
19
Source: National Statistics Bureau.
Exhibit 2: China’s Merchandise Exports, 1975-2007
(Billions of U.S. Dollars)
1,400
1,200
Billions of U.S. Dollars
1,000
800
600
400
200
0
1975
1977
1979
1981
1983
1985
1987
Sources: China Customs, Haver Analytics, and ProLogis.
• www.prologisresearch.com
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
ProLogis Research Bulletin
Policies and Regulations
When China first cracked its “Open Door” in
1980, it lacked virtually all of the basics (not
to mention amenities) that modern business
enterprises simply take for granted. Absent
were such basics as a transparent legal system, the concept of private property, labor
markets, banks, foreign exchange markets,
and modern infrastructure — including highways, telecommunication facilities, water,
waste management, comfortable living quarters, and energy-supply systems. Only the
most intrepid foreign enterprises were willing
to venture into this uninviting setting.
Members of the State Council knew that
they would have to repair these deficiencies
if they were going to persuade foreign
enterprises to invest in China. Faced with
the enormous challenge of revitalizing the
Chinese economy, authorities settled on
the idea of creating SEZs and ETDZs as
oases of reform and modernity. Various
preferential policies were granted to these
new development zones, including tax
breaks, the ability to repatriate profits and
capital investments, duty-free imports of raw
materials and intermediate goods destined to
be incorporated into exported products, no
export taxes, and a limited license to sell into
the domestic marketplace.1
In addition, SEZs and ETDZs themselves
were given greater political and economic
autonomy. They were permitted, for example,
to develop municipal laws and regulations,
including local tax rates and structures, and
to govern and administer these development
zones. They were also permitted to cut special
deals with foreign enterprises offering cheap,
or “below-market,” lease rates for land or
production facilities.2
Critical to the success of the “Open Door”
policy was the establishment of labor markets within SEZs and ETDZs. Companies
operating inside those zones were allowed to
enter into enforceable labor contracts with
specific term limits, to dismiss unqualified or
under-performing employees, and to adjust wage and compensation rates to reflect
such market forces as worker productivity
and business performance. With the ensuing
The city of Shenzhen is one of the original four SEZs and the “poster child” of China’s
economic transformation. Its current population numbers 8.5 million people, versus
333,000 residents in 1980.
Exhibit 3: Performance Metrics — 2006
Special Economic Zones and National ETDZs
Total Employment*
As % of China Total
Real GDP**
As % of China Total
Utilized FDI***
As % of China Total
Merchandise Exports***
As % of China Total
Total Population*
As % of China Total
Special
Economic Zones
National ETDZs
China
15
4
758
2.0%
0.5%
100.0%
9,101
8,195
183,085
5.0%
4.5%
100.0%
55
130
603
9.1%
21.6%
100.0%
1,686
1,138
7,620
22.1%
14.9%
100.0%
25
---
1,308
1.9%
---
100.0%
* Millions.
** RMB 100 Million.
*** USD 100 Million.
Source: National Statistics Bureau.
meteoric economic success of these development zones came more jobs, higher wages
and compensation rates for those jobs, and
a flood of people from the hinterlands hoping
to land one of the new, higher-paying jobs.
(See Exhibit 4.)
The city of Shenzhen, one of the four original
SEZs, has emerged as an economic powerhouse. In 1980, it was a sleepy backwater with
www.prologisresearch.com • China’s SEZ and NETDZ Economic Zones
LEGEND
NETDZ Economic Zones
Special Economic Zones
Main Logistics Corridor
Economic Zone – Western Region
Economic Zone – Northeast Region
Economic Zone – Baohai Bay Region
Economic Zone – Central Region
Economic Zone – Yangtze River Delta Region
Economic Zone – Pan-Pearl River Delta Region
ProLogis Research Bulletin
Exhibit 4: Performance Metrics — China’s SEZs
1980
Total
2.2
43.2
149
0.2
27.6
11.2
Zhuhai
365
199
0.3
10.7
13.1
2,973
1,336
1.1
4.9
251.0
934
482
0.6
0.0
140.3
Total
Zhuhai
415.6
5,525
2,315
---
0.1
0.0
11,569
5,524
13.5
354.4
1,018.9
882
326
3.9
179.9
563.4
412
254
1.0
52.6
33.4
Shantou
3,274
1,674
2.4
27.7
256.9
Xiamen
1,027
586
1.8
73.3
165.3
Hainan
5,975
2,684
4.3
20.9
0.0
13,648
7,085
44.5
762.8
10,732.8
1,678
1,092
17.2
389.9
8,151.6
641
393
4.1
69.1
488.6
3,698
1,875
7.2
130.8
839.6
781.5
Management Structure of the
Industrial Parks
Each national ETDZ is managed by a management committee, which is an arm of the local
municipal or provincial government. Each ETDZ
also has its own Development Co., Ltd., whose
main task is to attract foreign direct investment — that is, to convince foreign enterprises
to take up residence in its park.
Xiamen
1,119
679
5.7
72.4
Hainan
6,512
3,046
10.2
100.5
471.4
17,632
9,919
190.1
5,121.6
29,551.9
The management committees are responsible for managing the municipal affairs of
their respective industrial parks. Their main
duties include:
• Overseeing the delivery of municipal
services (e.g., police, fire, and garbage
collection) to the resident enterprises.
• Preparing and administering the budgets
and financial statements of their industrial
parks, to maintain the parks’ fiscal health.
4,492
2,985
84.2
1,309.9
20,527.4
•
890
633
18.3
539.3
2,115.3
Administering and managing the parks’
land, infrastructure improvements, planning, and construction permits.
•
Exercising labor administration to protect
the lawful rights and interests of both
workers and employers.
Total
Shenzhen
Zhuhai
Shantou
Total
Shenzhen
Zhuhai
Shantou
4,013
2,052
26.2
895.8
2,600.2
Xiamen
1,214
903
25.1
1,321.6
3,479.2
Hainan
7,024
3,345
36.3
1,055.0
830.0
22,497
11,994
402.5
4,409.8
47,488.0
Shenzhen
Total
7,012
4,750
218.7
1,961.5
34,563.3
Zhuhai
1,237
789
33.1
815.2
3,645.8
Shantou
4,588
2,071
47.7
170.9
2,596.1
Xiamen
2,050
1,038
50.2
1,031.5
5,879.8
Hainan
2006
Exports #
4,481
Shenzhen
2000
Utilized
FDI #
333
Hainan
1995
Real GDP**
10,131
Xiamen
1990
Total
Employment*
Shenzhen
Shantou
1985
Total
Population*
333,000 residents. Today, it has 8.5 million
residents, most of whom have relocated from
other parts of China. Its real GDP has soared
from RMB 200 million in 1980 to more than
RMB 600 billion today — a 300-fold increase.
Total
Shenzhen
7,609
3,346
52.7
430.8
802.9
25,274
14,863
910.1
5,465.7
168,640.0
8,464
6,475
581.4
3,268.5
136,095.6
10,770.7
Zhuhai
1,416
940
63.5
666.1
Shantou
4,954
2,228
74.1
139.6
3,483.0
Xiamen
2,250
1,395
100.7
707.5
17,268.2
Hainan
8,190
3,825
90.5
684.0
1,022.5
* In thousands.
** Billions of constant-RMB.
# Millions of US dollars.
Source: National Statistics Bureau.
• www.prologisresearch.com
The national ETDZs compete not only with
each other to attract new enterprises, but
also with the thousands of provincial and
municipal industrial parks. Hence, each management committee strives to distinguish
its park in terms of its municipal services,
the quality of its infrastructure, and its appearance and “curb appeal.” (See text box
— Provincial and Municipal Industrial Parks.)
In some cases, the industrial parks have
proved to be so successful that they have run
out of space. It then falls to the management
committees to spearhead efforts to expand
the parks. There are clear-cut rules governing
applications for expansion, and the applications must be approved first by the Ministries
of Commerce, Land and Resources, and
Construction and then by the State Council.
ProLogis Research Bulletin
What’s So Special about National
Industrial Parks?
China decided that it wanted to attract foreign direct investment (FDI) as a catalyst for
modernizing its economy. With other countries also competing for these FDI funds,
China needed to do something to distinguish
itself from the rest of the pack.
China’s solution was to create the national
ETDZs — or national industrial parks, as they
have come to be known. Granted, China’s huge
workforce and low wage rates were major
selling points in attracting foreign manufacturers, but Chinese authorities sought to devise
significant additional incentives to bolster their
competitive edge. Hence, foreign companies
were offered a wide array of incentives encouraging them to locate their new facilities in one
of China’s 54 national ETDZs.
First and foremost were their preferential tax
treatments. Foreign enterprises that locate
facilities in an industrial park are eligible for a
number of tax breaks:
•
Foreign enterprises that located within
these zones were subject to a lower
Enterprise Income Tax (EIT) — 0% for the
first two years and then half the normal
33% rate for the next three years.
•
After the first five years, foreign enterprises that export 70% or more of what they
produce are subject to a 15% EIT rate.
•
Foreign enterprises have a five-year net
operating loss carry-forward provision.
•
If a foreign enterprise re-invests the
profits from its China-based operations
either into an existing facility or into
another facility built within an industrial
park, then 40% of the income taxes paid
on the re-invested profits are returned to
the foreign enterprise.
•
Foreign enterprises are exempted from
customs duties and VAT on those imported raw materials, components, and
intermediate products that are used in
manufactured final goods for export.
These tax preferences created two effective
tax rates — 12% for foreign entities versus
25% for domestic companies.
The Suzhou Industrial Park is located in the Yangtze River Delta about 80 kilometers west
of Shanghai. It encompasses nearly 5,000 companies – including 1,800 foreign-owned
– and more than 330,000 workers.
China amended its corporate
tax regime on March 16,
2007, and the new tax regime took effect on January
1, 2008.3 The main purpose
of this new regime is to
introduce neutrality into the
tax system — to level the
playing field — as it applies
to foreign or domestic enterprises. China’s 2007 Tax
Law establishes a common
effective tax rate of 25% for
both foreign and domestic
companies. However, some
of the former tax preferences have been retained, and
the 2007 Tax Law provides
transitional rules.
Provincial and Municipal
Industrial Parks
In addition to the national ETDZs,
various provincial and municipal
governments have also sponsored
industrial parks — thousands of
them, in fact. However, in 2003
several PRC ministries conducted
a nationwide inquiry into rampant
land abuses at these local-level
industrial parks. As a result, more
than 4,700 development zones
were shut down, leaving only about
2,000 in operation (including about
230 national development zones).
Foreign investors are well advised to be cautious about choosing factory locations in provincial
or municipal industrial parks. In
particular, investors should ensure
that a zone’s sponsoring authorities
have appropriate central government permission for all the incentives being offered.
Non-tax incentives are also
commonly used to encourage foreign companies to
locate within specific industrial parks. They include
government-financed hiring
and training programs, government-financed employee
housing, and subsidies or outright gifts of
land for production facilities. (Land in China,
however, is owned by the state. Foreign
www.prologisresearch.com • ProLogis Research Bulletin
entities are permitted only to enter into
long-term leaseholds for land.)
All such non-tax incentives must be negotiated directly between the local governments
and the foreign enterprises. Of course, with
the 54 national ETDZs all competing against
each other (and also competing against a
plethora of provincial and municipal industrial
parks), foreign enterprises often become the
beneficiaries of having multiple options from
which to choose.
Another incentive encouraging foreign enterprises to locate in China’s industrial parks are
the physical layouts of the parks. They have
been built mostly on greenfield development
zones located just outside of major cities and
encompass generally 2,500 to 10,000 acres.
They are usually master-planned sites fitted
out with new infrastructure — new roads, new
bridges new water lines, new sewer lines, and
new electrical plants. Additionally, the central
government has developed an extensive network of high-speed motorways that link the
national ETDZs to local cities, nearby ports,
outlying regions, and other ETDZs.
Foreign enterprises lease building pads within
a given national ETDZ directly from its management committee. The latter also acts as
the company’s agent in securing the necessary construction and operating permits. It is
in the management committee’s best interest
to get new construction projects up and running as quickly as possible.
Other Types of Development Zones
China’s central government has created
several other kinds of economic development
zones besides ETDZs. The two most important ones are free trade zones and export
processing zones.4 Free Trade Zones (FTZs): Chinese authorities established FTZs to promote export trading and bolster China’s role as a major transshipment point for international trade. The
Waigaoqiao FTZ in Shanghai was China’s first
and was established in June 1990. During the
next six years, the State Council approved
another 14 free trade zones throughout
China, all situated at or near major ports.
10 • www.prologisresearch.com
China’s FTZs are focused on bonded services and a few trading functions, including
warehousing, foreign exchange transactions,
marketing, and export processing. No manufacturing is permitted, except for light processing such as packaging or labeling. They
are the only place in China where foreign
companies are allowed to trade and operate
in their own currencies. Hence, all FTZs must
be approved by the State Council.
China’s so-called Free Trade Zones would
more aptly be translated from Chinese as
“Bonded Zones.” These Bonded Zones have
more circumscribed functions than the Free
Trade Zones found elsewhere in the world.
The foremost distinction is that China’s
Bonded Zones are “inside the boundary and
under Custom’s direct supervision,” whereas
FTZs elsewhere are generally outside of
Custom’s direct supervision.
This distinction underpins three major differences between China’s FTZs and those in
other countries. First, China’s Bonded Zones
are supervised and administered directly by
its Customs office, and all inbound and outbound goods must be declared and recorded
with this office. Elsewhere, FTZs lie outside of
Custom’s supervision. Second, bonded products may be stored in China’s Bonded Zones
only for a limited time, normally two to five
years. Elsewhere, no such time limit exists
in FTZs. Third, a company that owns bonded
products in China’s Bonded Zones owes the
appropriate duty to the government, but is
permitted to delay payment until ownership
changes or the bonded products are imported
into China. Elsewhere, companies that own
goods stored in FTZs need not recognize any
such liabilities for duties owed.
Export Processing Zones (EPZs): In April
2000, the State Council created the legal
framework for EPZs and established 15 such
zones, to promote the export of products
manufactured in China. No more than 30% of
goods manufactured in EPZs may be sold into
China’s domestic market.
The State Council has designated these zones
as being “inside the boundary, but outside of
Custom’s direct supervision.” In effect, goods
imported into these zones do not need a
ProLogis Research Bulletin
formal customs declaration. As of today, the
State Council has approved 56 EPZs.
Both EPZs and FTZs provide similar exemptions to customs duties and VAT. First, goods
imported into them are exempt from customs
duties until the goods leave the zones.
Second, VAT is not levied on any activity that
takes place inside the zones. Third, if the
goods are exported to destinations outside of
China, they are exempt from customs duties
and VAT.
However, EPZs and FTZs specify different
exemptions from customs duties and VAT in
two situations. The first occurs when goods
are sold to buyers inside China. All goods imported from EPZs are subject to customs duties and VAT on the full value of the finished
goods, with no distinction between imported
and domestically sourced components. The
second applies to the income tax breaks
available to all companies located in FTZs.
In contrast, companies located in EPZs will
be eligible for those same tax breaks only if
they export more than 70% of their products
outside of China.
The Bottom Line: FTZs are the preferred
locations for companies involved in exporttrading and processing. These zones tend to
attract, for example, foreign-owned trading
operations that use China as a transshipment
point – i.e., buying goods produced in China
or elsewhere and then selling them to buyers outside of China. They are also attractive
locations for third-party logistics providers.
In contrast, EPZs are more advantageous
locations for manufacturing companies that
export most, if not all, of their goods outside
of China. These zones are the preferred location, for example, of manufacturing companies that assemble imported components
from outside of China into finished goods for
sale abroad.
EPZs are treated as “outside of China” in
terms of VAT and customs duties. Hence, in
the case where foreign-owned manufacturers
sell more than 70% of their finished goods
outside of China, the sale of those finished
goods will be treated as a transaction that
occurred outside of China and will thus
Pictured here is the skyline of Shanghai’s west side called Puxi, the oldest and largest
section of the city and the one that hugs the western shore of the Huangpu River.
be exempt from VAT and customs duties.
Similarly, the purchase of any raw materials
or components as inputs into those finished
goods will also be exempt from VAT and customs duties.
EPZs and FTZs also diverge in their exportrebate policies. If a company within an EPZ
buys goods from an enterprise in China,
the seller will receive an export rebate and
the in-zone buyer will not have to pay VAT.
However, companies located in FTZs must
pay VAT upfront on any goods sourced in
China and then apply for an export rebate
only after the goods have been re-exported.
Shanghai — Spearheading Development in the Yangtze River Delta
Shanghai is one of China’s four provinciallevel, self-governed municipalities. The other
three are Beijing, Tianjin, and Chongqing.
On April 18, 1990, the State Council established the Shanghai Pudong New Zone,
often referred to as a Super SEZ, abutting
the eastern bank of the Huangpu River. The
Council’s aim was to transform Shanghai
into a global trade and financial hub, and the
Pudong New Zone was intended to jumpstart
www.prologisresearch.com • 11
ProLogis Research Bulletin
the process. City planners from around the
world were brought in to work with Chinese
planners to design a state-of-the-art global
city for the twenty-first century.
Additionally, the State Council extended special
preferential policies to all foreign enterprises
locating operations in this zone, including some
that have not been granted to the other five
SEZs. For example, in addition to the preferential policies of reducing or eliminating customs
duties and income taxes common to ETDZs,
the state also permits the Pudong New Zone
to allow foreign businesses to open financial
institutions and run tertiary businesses.
Nonetheless, China’s SEZs and ETDZs have
still played an important role in China’s
economic transformation, having served as
incubators for economic growth. As those
economic reforms took root and flourished,
authorities allowed them to fan out to the rest
of China. It is doubtful that foreign enterprises
would have been as willing to venture into
China in the 1980s and ‘90s in the absence of
those oases of reform and modernity. Indeed,
many observers maintain that the SEZs and
ETDZs succeeded in accelerating the pace of
China’s economic revitalization.
Concluding Remarks
Endnotes
China’s economy has undergone a phenomenal transformation in 30 years. When the
“Open Door” economic reforms were first
introduced in 1978, it was a struggling, thirdworld country.
Michael J. Enright, Edith E. Scott, and Ka-mun
Chung, Regional Powerhouse: The Greater Pearl
River Delta and the Rise of China, p. 36, May 2005,
John Wiley & Sons (Asia).
China’s SEZs and ETDZs have been instrumental in persuading foreign companies to
invest in China and thereby nurturing China’s
economic revitalization. Today, 30 years later,
China has evolved into a manufacturing powerhouse, the fourth largest industrial country, and a world-class economic player. Last
year, its merchandise exports totaled US$1.2
trillion, making it the world’s third largest exporter (after Germany and the U.S.). China’s
economic reforms have succeeded far beyond
the reformers’ wildest dreams.
Less developed countries now look admiringly at China’s economic metamorphosis and
wonder what lessons may be learned from its
success. One common question is whether
China could have achieved its economic
transformation without the formal structures
of SEZs and ETDZs. In principle, China surely
could have been equally successful without
them. Its economic success owes more to
the classic prescription for growth — i.e.,
thrift, investment, industriousness, foreign
trade, shifting from agriculture to manufacturing, and a willingness to adopt the best
practices employed by the world’s industrial
leaders — than to SEZs and ETDZs directly.
12 • www.prologisresearch.com
1
Wei Ge, Special Economic Zones and the
Economic Transition in China, World Scientific
Publishing, 1999, p. 53.
2
James C. Morgan, “Effects of China’s New Tax
Laws on U.S. Investment,” Legal Analysis &
Review, Manufacturers Alliance/MAPI, July 2007.
3
The information presented in this section has
been compiled from three sources: an email from
my colleagues in ProLogis’ Shanghai office; an
email from Hong Ye, Senior Manager at Deloitte
Touche Tohmatsu CPA, Ltd., in Shanghai; and the
excellent report by Julie Walton, “Zoning In,” The
China Business Review, September-October 2003.
4
ProLogis Research Bulletin
Appendix: China’s 54 National Economic and Technological Development Zones
Bohai Bay Center
GDP
2006
Registered
Enterprises
Employment
2005
Landmass
(sq km)
NETDZ, Name
City, Province
1
Dalian Dev. Zone
Dalian
Liaoning Province
56.25
6,589
149,700
Petrochemicals, electrical equipment, metalwork, machinery,
foods, garments, and pharmaceuticals.
20.00
2
Shenyang ETDZ
Shenyang,
Liaoning Province
27.60
NA
111,500
Autos and auto accessories, medical chemistry, metal
smelting, textiles, apparel, and bio-engineering.
10.00
3
Qinhuangdao ETDZ
Qinhuangdao,
Hebei Province
11.00
4,565
52,200
Cereal and food processing, auto parts, heavy equipment
mfg., and metalwork
6.90
4
Yantai ETDZ
Yantai,
Shandong Province
39.50
NA
110,900
Machinery, autos, IT, biomedicine, fine chemicals, textiles,
and food processing.
10.00
5
Qingdao ETDZ
Qingdao,
Shandong Province
47.00
622
156,000
Home appliances, petrochemicals, port logistics, shipbuilding, and autos.
12.50
6
Beijing ETDZ
Beijing
36.90
2,170
94,000
IT, biotechnology, pharmaceuticals, autos, and equipment
mfg.
39.80
7
Tianjin ETDZ
Tianjin
78.06
(foreign) 4,371
(dom.) 9,892
288,300
Electronic communication, biomedicine, machinery mfg.,
and food and beverage.
33.00
8
Yingkou ETDZ
Yingkou,
Liaoning Province
13.50
NA
144,900
Mineral processing, apparel, food processing, lumber,
and leather processing.
5.60
9
Weihai ETDZ
Weihai,
Shandong Province
10.02
NA
54,544
Autos, machinery, electronics, chemicals, medicine, textiles,
foods, and building materials.
5.72
Total
319.83
Industry Cluster
1,162,044
143.52
Yangtze River Delta
10
Ningbo ETDZ
Ningbo,
Zhejiang Province
27.10
(foreign) 1,058
11
Lianyungang ETDZ
Lianyungang,
Jiangsu Province
8.02
NA
12
Suzhou Industrial Pk.
Suzhou,
Jiangsu Province
67.95
(foreign) 1,800+
(dom.) 3,000+
13
Kunshan ETDZ
Kunshan,
Jiangsu Province
53.90
14
Hangzhou ETDZ
Hangzhou,
Zhejiang Province
15
Wenzhou ETDZ
Wenzhou,
Zhejiang Province
16
Minhang ETDZ
17
147,000
Electronics, machinery, food, chemicals, and textiles
29.60
Pharmaceuticals, new matls., new energy, petrochemicals,
shipbuilding, and food.
3.00
330,900
Electronics, telecom., new materials, precision and mechanical engineering, and biological and pharmaceuticals.
70.00
(foreign) 1,000+
260,000
IT, precision machinery, service trade, biotechnology, and
daily necessities.
10.00
21.20
NA
112,300
Mobile communication, pharmaceuticals, beverages, and
home applicances.
10.00
9.60
NA
92,000
Mech. and electrical equipment, electronic info., pharmaceuticals, building matls., and textiles.
9.11
Shanghai
12.75
NA
33,800
Electronics, pharmaceuticals, medical, and light industry
3.08
Caohejing ETDZ
Shanghai
38.10
1,400+
97,700
IT, new materials, biomedicine, and aerospace equipment.
18
Hongqiao ETDZ
Shanghai
7.47
NA
14,000
Exhibition, displays, office, catering, and shopping
19
Jinqiao Export
Processing Zone
Shanghai
40.22
NA
106,200
Electronic info., autos and auto parts, home appliances,
precision machinery, biomedicine, and refinery chemicals.
27.38
20
Daxie ETDZ
Ningbo,
Zhejiang Province
8.61
NA
16,800
Energy transfer of petrochemical industry, near-port petrochemical and port logistics.
36.00
21
Xiaoshan ETDZ
Hangzhou,
Zhejiang Province
9.98
690+
72,500
Electronic communication, precision machinery, health food,
textiles, and building materials.
22
Nanjing ETDZ
Nanjing,
Jiangsu Province
14.70
(foreign) 400+
32,000
Electronic information, biomedicine, light mfg., and new
materials.
11.37
23
Nantong ETDZ
Nantong,
Jiangsu Province
11.80
(foreign) 600+
35,200
Chemicals, textiles, biomedicine, electronic machinery, and
services.
24.29
Total
331.40
27,100
1,377,500
13.30
0.65
9.20
256.98
www.prologisresearch.com • 13
ProLogis Research Bulletin
Appendix: China’s 54 National Economic and Technological Development Zones
Pearl River Delta
GDP
2006
Registered
Enterprises
Employment
2005
NETDZ, Name
City, Province
24
Guangzhou ETDZ
Guangzhou,
Guangdong Province
78.90
840
132,000
25
Guangzhou Nansha
ETDZ
Guangzhou,
Guangdong Province
20.99
NA
26
Huizhou Dayawan
ETDZ
Huizhou,
Guangdong Province
10.02
27
Yangpu ETDZ
Hainan Province
28
Zhangjiang ETDZ
29
Industry Cluster
Landmass
(sq km)
Raw chemical mfg., chemicals, electrical machinery and
equipment, communications equip., smelting and processing
of nonferrous metals, and foods and beverages.
38.57
67,400
Plastics, processed food, electronic equipment, chemicals,
and ships.
27.60
NA
76,000
Electronic equipment, paper, steel, and petro-chemicals.
4.39
NA
20,000
Extraction of oil and natural gas, paper and paper products.
Zhangjiang,
Guangdong Province
50.50
638
35,000
Special paper products, electronic equipment, information
equipment, bio-medical, and sea products
Haicang Investment
Zone
Xiamen,
Fujian Province
18.09
(foreign) 178
127,800
Chemicals, machinery, electronics, polyester, PVC products,
photo-sensitive materials, and electric power.
100.00
30
Dongshan ETDZ
Dongshan,
Fujian Province
1.36
NA
20,000
Electronics, processed food, light industry, and new materials.
10.00
31
Fuqing Rongqiao
ETDZ
Fuqing,
Fujian Province
10.90
458 (in 2005)
45,000
Electronics and automobile glass.
10.00
32
Fuzhou ETDZ
Fuzhou,
Fujian Province
13.50
1,000+ (foreign)
85,000
Electronics, photoelectric machinery, biochemical pharmaceuticals, building materials, metallurgy, and textiles.
10.00
Total
208.65
608,200
9.98
30.00
9.20
245.35
Central Region
33
Changsha ETDZ
Changsha,
Hunan Province
15.30
NA
35,900
Advanced machines, electronic information equipment,
construction materials.
12.00
34
Wuhan ETDZ
Wuhan,
Hubei Province
21.50
1,427 (2002)
81,000
Cars, car parts, processed foods and beverages, medicines,
and biological engineering.
10.00
35
Nanchang ETDZ
Nanchang,
Jiangxi Province
16.17
368
83,200
Electric applicances, air conditioners, largest IC mfg., cars,
papermaking.
9.80
36
Hefei ETDZ
Hefei,
Anhui Province
18.60
NA
42,500
Cars, engineering machinery, electronic equipment, and
processed foods.
18.60
37
Wuhu ETDZ
Wuhu,
Anhui Province
13.40
NA
51,000
Construction materials, cars, car parts, and electronics.
10.00
38
Huhhot ETDZ
Huhhot,
Inner Mongolia
6.89
NA
23,600
Dairy products, biological medicines, organic foods, machinery, and textiles.
9.80
39
Zhengzhou ETDZ
Zhengzhou,
Henan Province
4.90
NA
40,000
Information technology, food processing, printing and packaging, electric power equipment.
12.49
40
Taiyuan ETDZ
Taiyuan,
Shanxi Province
2.04
NA
23,500
Electronics, biological medicines, food processing, and hightech planting.
9.60
Total
98.80
380,700
92.29
Northeast Region
41
Changchun ETDZ
Changchun,
27.65
1,540
111,400
42
Harbin ETDZ
Harbin,
13.60
NA
64,500
Total
14 • www.prologisresearch.com
41.25
175,900
Car parts, grain processing, biological medicines, and construction materials.
10.00
Car parts, medicines, foods, and textiles.
10.00
20.00
ProLogis Research Bulletin
Appendix: China’s 54 National Economic and Technological Development Zones
Western Region
GDP
2006
Registered
Enterprises
Employment
2005
Landmass
(sq km)
NETDZ, Name
City, Province
43
Chengdu ETDZ
Chengdu,
Sichuan Province
8.78
NA
58,400
Cars, machinery, new materials, medicines, steel, and
organic foods.
9.94
44
Kunming ETDZ
Kunming,
Yunnan Province
4.18
NA
27,300
Tobacco products, information and electronic equipment,
food processing, biological medicines, and new materials.
9.80
45
Guiyang ETDZ
Guiyang,
Guizhou Province
2.82
93,100
Engineering equipment, power machinery, airplane parts,
and car parts.
9.55
46
Nanning ETDZ
Nanning, Guangxi
Autonomous Region
4.16
232
42,300
Electronics, fine chemicals, cars, car parts, papers, and
medical equipment.
47
Chongqing ETDZ
Chongqing,
11.10
1,225 (2001)
86,300
Information technology, biological medicine, cars, fine
chemicals, new materials, textiles, and organic foods.
9.60
48
Xi’an ETDZ
Xi’an,
Shanxi Province
14.20
1,800 (2005)
45,200
Electronic machinery, light industrial products, biological
medicine, and new materials.
9.88
49
Yinchuan ETDZ
Yinchuan, Ningxia
Autonomous Region
3.26
225
17,400
Digital control machinery, heavy steel casing, precision
processing, wind power, equipment, power distribution
equipment, crane facilities, and electric instruments.
7.50
50
Xi’ning ETDZ
Xi’ning,
Qinghai Province
1.66
NA
26,000
NA
4.40
51
Lanzhou ETDZ
Lanzhou,
Gansu Province
2.08
471
28,100
Mining, Non-ferrous metal ore processing,
petroleum machinery, and electronics.
9.53
52
Tibet Lhasa ETDZ
Lhasa,
Tibet
0.98
NA
NA
NA
2.51
53
Urumqi ETDZ
Urumqi, Xinjiang
Autonomous Region
3.24
NA
15,500
Furniture, electronic equipment, and
alcoholic beverages.
4.30
54
Shihezi ETDZ
Shihezi, Xinjiang
Autonomous Region
2.71
NA
26,000
Textiles, organic foods, and modern
agricultural equipment.
11.20
Total
Grand Totals
Industry Cluster
10.80
59.17
465,600
99.01
1,059.10
4,169,944
857.15
Source: China Development Zone Yearbook.
From the Editor…
I recently traveled to China on business and visited several industrial parks. They were totally
different from any others that I had seen elsewhere. For example, a large American industrial
park might include as many as 15 to 20 industrial buildings and encompass as many as 2,500 to
7,500 workers. In contrast, China’s industrial parks are more like small cities, often encompassing
thousands of acres and hundreds of thousands of workers.
Leonard Sahling
First Vice President
ProLogis Research Group
303-567-5766
lsahling@prologis.com
I left China intrigued by its industrial “city-parks.” This report is the result of my efforts to
understand better what role they play today in China’s economy and what role they have played in
facilitating China’s economic transformation. Theirs is a fascinating story, and it could not have told without the help of researchers at Shanghai
Jiao Tong University. They did a brilliant job of digging up the facts. We worked together in assembling them into this story highlighting just how
critical these zones have been in fostering China’s amazing economic metamorphosis.
www.prologisresearch.com • 15
ProLogis Research Bulletin
About ProLogis
ProLogis is the world’s largest owner, manager, and developer of distribution facilities, with operations in 121
markets across North America, Europe, and Asia. The company has $38.8 billion of assets owned, managed,
and under development, comprising 526 million square feet (49 million square meters) in 2,817 properties as
of March 31, 2008. ProLogis’ customers include manufacturers, retailers, transportation companies, third-party
logistics providers and other enterprises with large-scale distribution needs. Headquartered in Denver, Colorado,
ProLogis employs over 1,500 people worldwide.
ProLogis Research Reports
Additional ProLogis research reports are available to download from the ProLogis Research Center. Go to www.prologisresearch.com to view our full library of research reports.
© Copyright 2008 ProLogis. All rights reserved.
This information should not be construed as an offer to sell or the
solicitation of an offer to buy any security of ProLogis. We are not
soliciting any action based on this material. It is for the general
information of ProLogis’ customers and investors.
This report is based, in part, on public information that we consider
reliable, but we do not represent that it is accurate or complete, and
it should not be relied on as such. No representation is given with
respect to the accuracy or completeness of the information herein.
Opinions expressed are our current opinions as of the date appearing
on this report only. ProLogis disclaims any and all liability relating
to this report, including, without limitation, any express or implied
representations or warranties for statements or errors contained in, or omissions from, this report.
Any estimates, projections or predictions given in this report are
intended to be forward-looking statements. Although we believe that
the expectations in such forward-looking statements are reasonable,
we can give no assurance that any forward-looking statements will
prove to be correct. Such estimates are subject to actual known and
unknown risks, uncertainties, and other factors that could cause actual
results to differ materially from those projected. These forwardlooking statements speak only as of the date of this report. We
expressly disclaim any obligation or undertaking to update or revise
any forward-looking statement contained herein to reflect any change
in our expectations or any change in circumstances upon which such
statement is based.
No part of this material may be (i) copied, photocopied, or duplicated
in any form by any means or (ii) redistributed without the prior written
consent of ProLogis.
0508
ProLogis Corporate Headquarters • 4545 Airport Way, Denver, CO 80239 • 303.567.5000 • 800.566.2706 • www.prologis.com