In 1978, what would become the Shenzhen Special Economic Zone (SEZ) contained a population numbering around 100,000. Today, it’s a metropolis home to over 17 million, smaller than only Beijing and Shanghai. While the country’s overall GDP grew by 10% between 1980 and 1984—which is itself an impressive number—Shenzhen grew 58%. It’s a hub of finance, technology, and culture. It’s what urban developers have been trying to emulate for decades.
Shenzhen’s initial growth has an unambiguous cause. In 1978, the Chinese government transitioned from being led by hard-line communists like Mao Zedong and his short-lived successor Hua Guofeng to Deng Xiaoping, a man far more open to reform and opening the country. As a sort of first test of reform, the government designated Shenzhen a new Special Economic Zone (SEZ), granting it greater freedom in determining economic policy and structuring its government. This allowed the local government to entice foreign investors, nurture internal development, and ultimately build a city that now joins Beijing, Shanghai, and Guangzhou to form 北上广深, China’s unofficial group of “Tier 1” cities.
What’s often only a footnote in the mythos of SEZ success, though, is that Shenzhen was not China’s only SEZ. Today, there are seven SEZs (and dozens of other cities and areas with similar designations); in 1980, when Shenzhen was first granted the status, it was accompanied by Zhuhai, Shantou, and Xiamen. Xiamen is located in the province of Fujian, while the others are located in neighboring Guangdong.
Zhuhai, Shantou, and Xiamen have not precisely failed, but, next to Shenzhen, they haven’t succeeded as spectacularly either. In that 1980-1984 period, Zhuhai grew 32%, Xiamen 13%, and Shantou 9%, lower than the national average. Xiamen and Zhuhai are usually “Tier 2” cities, a group of around 50 urban centers generally understood to be less culturally and economically significant than “Tier 1”s. Shantou is “Tier 3”. None are particularly remarkable compared to other cities within their provinces.
The reasons Shenzhen outperformed the other SEZs are not often discussed. The Chinese government, for its part, has touted Shenzhen’s story while allowing its less successful siblings to be forgotten. Indeed, on Chinese social media, Zhuhai’s origins as an SEZ are barely mentioned at all, called the “most liveable city in China” (a distinction earned largely based on air quality) more often than economic success, and is still often called up-and-coming. Still, the earliest SEZs offer compelling lessons for planning in the modern era.
Location, location, location
None of the initial SEZs were designated randomly. Shenzhen was just across the border from Hong Kong, which at the time was much richer. Zhuhai was next to a different ex-colony, Macau, forming a cluster of cities in the Pearl River Delta; both Shantou and Xiamen were on the eastern seaboard to enable trade with Taiwan.
Particularly for Zhuhai and Shenzhen, the logic behind placing the new SEZs near existing urban hubs was to entice investors from their richer neighbors. Many locals had family ties, strengthening the bond, and the government did its best to foster cooperation.
Just before the creation of the SEZs, the Chinese government launched a new experimental policy designed to bolster manufacturing in China’s southern cities. In this agreement, cities in Guangdong (including Zhuhai and Shenzhen) would be allowed to form agreements with foreign businesses to receive equipment, raw materials, and export services in exchange for manufacturing goods. In Chinese, this was called sanlaiyibu.
Despite both Shenzhen and Zhuhai being opened by this policy, Shenzhen was much luckier in other ways. Macau was and still is a much smaller economy than Hong Kong. Many people point to Macau’s status as an entertainment and gambling hub (two industries which are not particularly helpful to developing cities) as a reason for Zhuhai’s struggles, but I’m unconvinced this is true. In the 1970s and early 1980s, Macau was not yet a competitor for the Las Vegas Strip. Instead, they dealt primarily in manufacturing textiles, which had become expensive to produce in Hong Kong.
The same fact that allowed Macau to begin its industrial ascent—that the price of labor and land in Hong Kong was making production in Hong Kong infeasible and pushing Hong Kong companies to manufacture elsewhere—was even more beneficial to Shenzhen. Being so close to Hong Kong exporters and consumers, the city became a prime factory location. In 1981, Shenzhen received the lion’s share of foreign direct investment, capturing 50.6% of all FDI in China (the other three SEZs accounted for only 9.2%); by 1985, when pro-investment policies had been expanded to the rest of the country, the SEZs together still accounted for a formidable 26% of FDI, Shenzhen remaining the largest.
One potential takeaway from the Hong Kong-Shenzhen relationship is that physical proximity is extremely important; even Zhuhai, which sits roughly 60 kilometers away from Hong Kong, couldn’t reap the similar benefits. While this is likely true, the effect is probably exaggerated by the lack of connection between Zhuhai and Hong Kong. 60 kilometers is not a lot, but that 60-kilometer path passes over an estuary that until 2018 lacked a bridge crossing. Previously, the main route between the two cities took eight times as long to travel—and that bridge, the Humen Pearl River Bridge, only opened in 1997. Back in Zhuhai’s critical early years, cars traveling between Zhuhai in the west bank of the delta and Hong Kong in the east bank needed to take a detour through Guangzhou, the provincial capital.
Size (and Government) Matters
Often forgotten is that even between the four original SEZs, comparisons aren’t entirely fair. Shenzhen and Zhuhai, the two cities in the Pearl River Delta, are most easily comparable because their initial purposes were similar.
Here, it’s important to draw a distinction between cities and SEZs within them. While all four of the original cities containing SEZs are now fully encompassed by their SEZs, rendering them functionally identical (the areas of the modern cities, and the areas of the modern SEZs, for reference, ranges from roughly 1500 to 2000 square kilometers), in 1978 the story was very different. China was not planning on creating Shanghai-rivals. At first, the Shantou and Xiamen SEZs weren’t even meant to transform Shantou and Xiamen.
For the first five years of its existence, Xiamen SEZ was only 2.5 square kilometers, expanding to 131 sq km in 1985. At its conception, the SEZ was an export-oriented business district capitalizing on the local port, not a city. Shantou SEZ was even smaller, 1.6 sq km, and wasn’t expanded (to 53 sqkm) until 1984. Zhuhai SEZ was 6.1 sq km in 1980, 15 sq km in 1983, and 121 sq km in 1989. All were dwarfed by Shenzhen SEZ, which was some 330 sq km in 1980.
This context reframes statistics on growth, especially those focused on the early 1980s. Statistics regarding growth usually report the city’s change, not the SEZ’s. One of the theoretical benefits of SEZs is spillover effects onto surrounding areas, so even a small SEZ could have the potential to transform a region, but it’s undeniable that larger areas can create greater cultural and legislative change.
Shenzhen did not come in with the largest economy. When they gained SEZs, Shantou’s GDP was 1.1 billion Chinese yuan, Xiamen’s was 480 million, Shenzhen’s was 270 million, and Zhuhai’s was about 260 million. That quickly changed, of course, thanks in part to Shenzhen’s aggressive pro-business policies.
Amongst Shenzhen’s list of governance innovations are a new contract labor and wage system, new tender system, home-purchase scheme for workers, the first urban land development rights auction (1987), new separation of commercial and state functions, the first stock exchange in China (1990), a price reform system, an empowered legal system, and a more democratic culture of electing factory managers. All served to make business easier. They became the first city in China to permit rural hukou holders to immigrate, tapping into a workforce that would literally be deported from other cities. These immigrants were less tied to their family units and historic values than other residents, allowing a more dynamic culture to grow.
Contrast this to Zhuhai, which boasts the first local legislation in China, or Shantou, which created the first legislation on self-funded enterprise. It’s rather telling that lists like these, when discussing non-Shenzhen SEZs, quickly turn to narrow accomplishments like the successful construction of an airport in Zhuhai in 1994.
It is also worth noting that most non-Chinese SEZs are physically small—on average about 1 sq km, oftentimes single industrial parks or even single businesses. Larger SEZs generally have more impact; smaller ones struggle to legislatively innovate in meaningful ways.
Of course, even after the other three SEZs expanded in the late 1980s and early 1990s, Shenzhen continued to outpace them in growth. One speculative explanation is that this period was also marked by significant reform elsewhere in China: with Shenzhen’s success becoming obvious, the central Chinese government implemented many reforms initially tested in Shenzhen in nearly 300 new Chinese regions covering 426,000 square kilometers and nearly 20% of China’s population by 1988.
Shenzhen benefited from being the first Chinese city friendly to outside investment, building cultural and economic momentum before other cities could catch up. Tech companies Huawei and ZTE, both worth billions today, were founded in Shenzhen in 1987 and 1985 respectively (the city’s proximity to Hong Kong being particularly influential in the establishment of the former; Huawei’s first business venture was reselling Hong Kong-built telephone switches), drawing in researchers and tech professionals who would create an innovation hotbed.
Also in 1988, the same year Shenzhen’s 1980s governance ideas were being applied to the rest of the country, Shenzhen acquired the autonomy of a province, enabling them to further experiment governmentally and surpass competing cities.
Conclusion?
What’s remarkable about Shenzhen is how immediate its success was. To be sure, its growth in the last 30 years has been impressive, but it was evident within the first decade after the establishment of the Shenzhen SEZ that something special had been created. The decisions made at the SEZ’s conception—in contrast with those made with other SEZs—provide valuable lessons in SEZ formation not just in China but in all countries and cities.
