CHINA’S SHENZHEN SPECIAL ECONOMIC ZONE MODEL AND RECOMMENDATIONS FOR VIETNAM

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MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
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MASTER THESIS
CHINA’S SHENZHEN SPECIAL ECONOMIC ZONE
MODELAND RECOMMENDATIONS FOR VIETNAM
Specialization: International Trade Policy and Law
LE HOANG HUE MINH
HANOI - 2023

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
------***------
MASTER THESIS
CHINA’S SHENZHEN SPECIAL ECONOMIC ZONE
MODELAND RECOMMENDATIONS FOR VIETNAM
Major: International Economics
Specialization: International Trade Policy and Law
Code: 821109
Student name: Le Hoang Hue Minh
Supervisor: Associate Professors Dr. Hoang Xuan Binh
Hanoi - 2023

i
DECLARATION
I hereby state that this thesis was entirely carried out by myself under the
guidance of my supervisor - Assoc., Prof, Dr. Hoang Xuan Binh; and that the work
contained and the results in it are true by the author and have not violated research
ethics. The contents and results of this thesis are completely honest. The
information, data and documents which are collected from various sources for
analysis and evaluation have been fully cited in the main content and in the
references list of this master thesis as well.
I make this commitment with awareness of full understanding that in case
any fraud detected in my thesis I will take all responsibility and may face
disciplinary actions
Hanoi , July 2023
Le Hoang Hue Minh

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ACKNOWLEDGEMENT
I would like to take this opportunity to show my sincere gratitude to the
people have supported me much during my period of this research accomplishing.
First and foremost, I am deeply grateful to my advisor, Assoc., Prof, Dr. Hoang
Xuan Binh, for the unwavering support and guidance throughout my master’s
program. His expertise and patience have been invaluable to me and his
understanding for my difficulties during the time I did this research have motivated
me alot and have played a crucial role in the success of this thesis.
Then, I am also grateful to Foreign Trade University for supplying me with
the chance to conduct my research and for all of the resources and support they
provided.
Last but not least, I am deeply thankful to my family and friends for their
love and sustain during this process. Without their encouragement and motivation, I
would not have been able to complete this journey.
Hanoi, July 2023
Le Hoang Hue Minh

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TABLE OF CONTENTS
DECLARATION ....................................................................................................... i
ACKNOWLEDGEMENT....................................................................................... ii
TABLE OF CONTENTS........................................................................................ iii
LIST OF TABLES................................................................................................... vi
LIST OF FIGURES................................................................................................ vii
LIST OF ABBREVIATIONS ............................................................................... viii
SUMMARY OF THESIS........................................................................................ ix
INTRODUCTION.....................................................................................................1
1. Rationales for the research ...............................................................................1
2. Literature review ...............................................................................................3
3. Research objectives ...........................................................................................6
4. Research questions ............................................................................................7
5. Research objects and scope...............................................................................7
6. Research methodology ......................................................................................8
7. Research structure............................................................................................9
CHAPTER 1. THEORITICAL BASIC FOR SPECIAL ECONOMIC ZONE 10
1.1. Concept of Special Economic Zone.............................................................10
1.2. Characteristics of Special Economic Zone.................................................13
1.3. The historical emergence of Special Economic Zone................................15
1.4. Roles of Special Economic Zone..................................................................16
1.4.1. Regarding entities in society....................................................................17
1.4.2. Regarding the sustainable development process .....................................18
1.4.3. Regarding the economic sector................................................................19
1.4.4. Regarding the process of industrialization and modernization ...............21
1.4.5. Regarding society and the environment ..................................................22
1.5. Assessment criteria for Special Economic Zone ........................................22
1.5.1. Geographical location..............................................................................22
1.5.2. Policy and legal regulations.....................................................................24
1.5.3. Management structure .............................................................................26

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1.6. Influenced factors to the development process of Special Economic Zone
...............................................................................................................................28
1.6.1. Objective factors......................................................................................28
1.6.2. Subjective factors.....................................................................................32
1.6.3. Mixed factors...........................................................................................35
CONCLUSION OF CHAPTER 1..........................................................................37
CHAPTER 2. CURRENT SITUATION OF SHENZHEN SPECIAL
ECONOMIC ZONE................................................................................................39
2.1. Overview of formation and development of Shenzhen Special Economic
Zone ......................................................................................................................39
2.1.1. The construction context of Shenzhen Special Economic Zone. ............39
2.1.2. The development of Shenzhen Special Economic Zone .........................41
2.2. Prominent features of Shenzhen Special Economic Zone .......................43
2.2.1. Advantages from geographical location ..................................................43
2.2.2. Government's appropriate policies and legal regulations........................46
2.2.3. Effective government organizational structure........................................52
2.3. Evaluating Shenzhen Special Economic Zone...........................................54
2.3.1. Achievements...........................................................................................54
2.3.2. Limitations and causes.............................................................................62
CHAPTER 3. ORIENTATIONS AND SOME RECOMMENDATIONS FOR
VIETNAM ...............................................................................................................69
3.1. Similarities between Vietnam and China in SEZs establishment............69
3.2. Overview of establishment of SEZ in Vietnam..........................................75
3.3. Orientation of establishment of SEZ in Vietnam ......................................84
3.3.1. General development perspectives ..........................................................84
3.3.2. On institution and policy mechanisms.....................................................86
3.3.3. On organization and management systems..............................................87
3.3.4. On strategic and development goals........................................................88
3.4. Recommendations for Vietnam...................................................................89

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3.4.1. For the development roadmap .................................................................89
3.4.2. For incentives and legal framework ........................................................90
3.4.3. For investment resources and strategic investors ....................................93
3.4.4. For organization and management...........................................................94
CONCLUSION........................................................................................................98
LIST OF REFERENCES ......................................................................................... i

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LIST OF TABLES
Table 1. Potential Benefits Derived from SEZs.......................................................17
Table 2. Tax incentives in the Shenzhen Special Economic Zone............................48
Table 3. Population Growth in the City of Shenzhen SEZ 1979-2006.....................54
Table 4. FDI Inflows in Shenzhen SEZ and other SEZs in China 1978–2008.........56

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LIST OF FIGURES
Figure 1. The population growth rate of the Shenzhen SEZ 1979 - 2009 ................55
Figure 2. Total import and export value in Hong Kong, Shenzhen, Shanghai and
Ningbo, 1990- 2014 ..................................................................................................58
Figure 3. Shenzhen’s GDP per capita and utilized FDI, 1979–2009........................60
Figure 4. Shenzhen Stock Exchange Component Index 2000-2022.........................61

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LIST OF ABBREVIATIONS
BOT Build – Operate – Transfer
CIP Comprehensive Industrial Parks
CPTPP
Comprehensive and Progressive Agreement for Trans-Pacific
Partnership
ESCWA United Nations Economic and Social Commission for Western Asia
EVFTA European Union-Vietnam Free Trade Agreement
FDI Foreign Direct Investment
FIAS Foreign Investment Advisory Service
GDP Gross Domestic Product
GDP Gross Domestic Product
ODA Official Development Assistance
PPP Public - Private Partnership
R&D Research and Development
SEAU Special Administrative-Economic Zones
SEZ Special Economic Zones
WTO World Trade Organization

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SUMMARY OF THESIS
This master's thesis explores the Shenzhen Special Economic Zone (SEZ)
model in China and its potential application in Vietnam. The research is divided into
three chapters focusing on the theoretical framework of SEZs, an overview of the
Shenzhen SEZ model, and recommendations for policy-making in Vietnam.
Chapter 1: Theoretical Framework of SEZs. The first chapter establishes the
theoretical foundation of SEZs as a unique economic development tool. It delves
into the historical evolution and key characteristics of SEZs worldwide, analyzing
their role in fostering economic growth, attracting foreign direct investment,
promoting exports, and creating employment opportunities. Additionally, the
chapter explores various SEZ models and their respective strengths and weaknesses
to provide a comprehensive understanding of their relevance and adaptability.
Chapter 2: Overview of Shenzhen SEZ Model. In the second chapter, the
focus shifts to a detailed examination of China's successful Shenzhen SEZ. This
section highlights the historical background and the key factors that contributed to
the unprecedented growth and transformation of Shenzhen from a small fishing
village into a global economic powerhouse. It analyzes the specific policies and
strategies implemented in Shenzhen, such as tax incentives, streamlined regulations,
and targeted investments, which facilitated its development into a technology and
innovation hub. Furthermore, this chapter evaluates the social and environmental
impacts of the Shenzhen SEZ model to provide a balanced perspective.
Chapter 3: Recommendations for Policy-Making in Vietnam. The third and
final chapter offers recommendations for Vietnam's policy-makers based on the
insights gained from the theoretical framework and the Shenzhen model. Drawing
upon the experiences of Shenzhen, this section proposes necessary innovations and
adaptations to implement an effective SEZ model in Vietnam. The chapter suggests
specific policy measures in areas such as trade and investment facilitation,
infrastructure development, human capital investment, and regulatory framework
improvements. Moreover, it considers the cultural and socio-economic context of

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Vietnam to ensure the proposed SEZ model aligns with the country's unique
requirements and long-term development goals.
Overall, this master's thesis aims to provide valuable insights into the
potential benefits of adopting a Shenzhen-inspired SEZ model in Vietnam. By
understanding the theoretical basis, examining the successful case of Shenzhen, and
offering tailored recommendations, it seeks to support Vietnam's economic growth
and integration into the global economy.

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INTRODUCTION
1. Rationales for the research
The term “special economic zone” (SEZ) is a general term encompassing
various types of SEZs, and to some extent, specific names such as border economic
zones and coastal economic zones in Vietnam, which may have the potential to
develop into economic and technological development zones. Nowadays, modern
economic zones are established with the aim of promoting trade and are primarily
formed in coastal areas along international trade routes. The fundamental objectives
of SEZs are to create high-growth areas with new and stable management methods
over the long term, to establish modern, green, clean, and safe living environments,
to generate new and high added value within a short period of time to keep up with
developed economies, to increase per capita income and contribute to the state
budget.
Additionally, SEZs will create a favorable investment and business
environment, particularly for innovative startups, research and development,
emerging and high-tech industries, education, healthcare, high-end tourism and
resort services, cultural industries, and the development of port and airport logistics
services, as well as trade and finance. Theoretically, SEZs are considered important
economic tools for promoting growth and economic integration on an international
scale. International economic integration reflects the inherent laws of global
economic development, including continuous expansion of economic activities, the
free flow of goods worldwide, production factors, and the consolidation of this
process through a common mechanism—the market mechanism.
On the other hand, due to the different levels of economic development
around the world, there is still a long way to go to transition from a national
economy to a global economy. It is necessary to carry out a transitional phase or a
smaller scale and select a small area with favorable conditions to implement this
process. Some economists believe that as a form of outward-oriented integration,
SEZs engage in economic cooperation and integration with the global economy to
achieve free trade, implement free economic policies, and exercise administrative

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privileges within and between the zones and the global economy. SEZs serve as
prerequisites, foundations, and demonstrations of a country's potential for global
economic integration. This can be explained as follows: (1) The integration of SEZs
with the global economy begins with trade liberalization and transitions to financial
internationalization and production integration. (2) SEZs create conditions for the
integration of core functions within the zone and between the zone and the global
economy, to some extent reflecting comprehensive integration with the national
economy and the global economy. (3) The preferential policies of SEZs, such as
free trade, free economic policies, and administrative privileges for successful
governance structures, will be replicated and ultimately transformed into general
principles, or conversely, the general principles of the world will become the special
policies of SEZs.
The practice has demonstrated the success of the operational model and
contributions to the national economic development of many SEZ model. Some
countries have shown numerous successful lessons in developing SEZ model, such
as the Shenzhen SEZ model in China. This model emerged in China in the late
1970s, at a time when the national economy was experiencing a downturn and new
economic trends were emerging worldwide. The Chinese government quickly
recognized the need to reevaluate its development path, understanding the
international movement trends. They formulated an open-door strategy with various
measures. Among them, the Chinese government employed a completely new
economic model that combined domestic potential with international trends, known
as the SEZ model. By 1992, Shenzhen attracted 14% of China's total foreign
investment (USD 4.3 billion) [World Bank, 2008]. Currently, Shenzhen has become
one of the major import and export centers with an advanced production platform.
According to Shenzhen Special Zone Daily, with a market capitalization of listed
companies of about USD 2.285 trillion in 2015, Shenzhen Stock Exchange ranked
as the 8th largest stock exchange in the world and the 4th largest in East Asia and
Asia.

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Based on the achievements of the Shenzhen SEZ model, the Vietnamese
government has decided to develop certain SEZs that are appropriate for the
requirements of restructuring the economy and closely linked to the new growth
model. However, in reality, there are still many difficulties in implementing this
model in Vietnam. Recognizing the aforementioned issues, the author has chosen
the topic “China’s Shenzhen Special Economic Zone model and
recommendations for Vietnam” for the master's thesis.
2. Literature review
Extensive research has been conducted on China's SEZs, and numerous
renowned works have explored their development models, policies, and outcomes.
Scholars and experts have analyzed the factors contributing to the success of these
zones, such as favorable business environments, preferential policies, infrastructure
development, and effective governance. The experiences gained from China's SEZs
have provided valuable insights and lessons for other countries, including Vietnam.
Vietnam has also shown a keen interest in establishing SEZs to enhance its
economic development and attract foreign direct investment. Researchers and
policymakers have extensively studied China's SEZs and drawn lessons from their
experiences to inform Vietnam's own strategies and policies. Notable works have
examined the applicability of China's SEZ models in the Vietnamese context,
identifying potential challenges and proposing tailored approaches.
Notable research works in this field include:
Nguyen Quang Tung (2021), “Building SEZs in Vietnam,” Ph.D.
dissertation, National University of Hanoi, Vietnam. The dissertation systematizes
the theoretical frameworks and research studies on SEZs; constructs and classifies
various types of SEZs worldwide; shapes the evaluation criteria for different types
of SEZs globally. It provides perspectives, directions, objectives, and solutions for
the construction of specific types of SEZs in the near future. In terms of practical
aspects, the dissertation presents the following results: Based on the practical
development of SEZs in countries worldwide, especially in developing countries, it
identifies the decisive factors for the success or failure of SEZs globally and draws

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lessons and experiences for Vietnam. It analyzes the current development status of
SEZs in Vietnam, evaluates their strengths, weaknesses, limitations, and
shortcomings. It determines the type of economic zone that Vietnam will form,
build, and develop in the upcoming stage, as the country increasingly integrates
deeply and widely and faces the strong impact of the Fourth Industrial Revolution.
Nguyen, Ngoc Dung (2008), “Development of SEZs in China and Lessons
for Vietnam,” Master's thesis, National University of Hanoi, Vietnam. The thesis
provides an overview of the formation, development, and role of SEZs in general
and specific SEZs in developing economies. It analyzes and evaluates the
development practices of SEZs in China, such as Shenzhen, Zhuhai, Xiamen,
Shanghai Pudong, and Hainan, in terms of geographical location, policy
mechanisms, economic achievements, and existing issues. It extracts lessons from
China's strategies in constructing SEZs. It analyzes the conditions and capabilities
of Vietnam and identifies similarities and differences between Vietnam and China as
a basis for Vietnam to apply China's lessons and experiences in building and
developing SEZs in Vietnam.
Dao Nhat Dao (2014), in his work titled “Historical Contributions and
Lessons from the Shenzhen Special Economic Zone in China's Reform and
Opening-Up Campaign” analyzed the successful lessons in constructing and
implementing the Shenzhen Special Economic Zone model specifically. The study
also examined the institutional framework for China's special economic zones in
general, drawing lessons applicable to Vietnam and Quang Ninh. This research
highlights historically significant outcomes, such as the establishment of an entirely
new economic system, contributing to China's socio-economic development. This
system, known as the market-oriented socialist economy, laid the groundwork for
reform. It propelled a revolutionary shift in perspectives affecting billions of people,
promoting the development of ideologies compatible with the market-oriented
socialist economy and fostering innovative cultural reforms. The limitations
identified include government investment direction and state funding deficiencies,
income distribution imbalances, slow institutional reforms, and an unsustainable

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growth model. Policy recommendations encompass approaches and choices related
to investment and economic zone development, a new orientation emphasizing
green growth as a technological and technical revolution for existing economic
sectors, eliminating infrastructure bottlenecks, and transforming international border
crossings into not just bilateral gateways but international trade transit hubs and
merchandise consolidation centers for regional and global commerce.
Furthermore, there have been several foreign studies on this topic, such as:
Shenzhen University (2014), Successful Development Experience of China's
Special Economic Zone Model – Innovation in Shenzhen Financial Reform, mainly
addresses three major issues: providing a basic overview of the 30-year
development of the financial industry in the Shenzhen Special Economic Zone; the
experience of innovative development in the reform of Shenzhen's financial
industry; and the future trends in innovation in the reform of China's financial
industry. The study delves deep into the characteristics of various stages of the
development of the financial industry in the Shenzhen Special Economic Zone: the
structural framework and financial enterprises contributing to rapid growth; large-
scale deposits and foreign and domestic currency lending; the establishment of a
multi-tiered stock market system with primary, small and medium-sized enterprise
boards, representative share transfer systems, and startup boards; and the volume of
successful transactions in the financial market. The research asserts that alongside
China's capital development, the reforms in interest rate liberalization, the
establishment of a unified stock market, and the creation of an international
financial center abroad are all being accelerated. These initiatives collectively
signify a robust financial system for both Shenzhen and the entire Hong Kong
region. This presents an opportunity for Shenzhen to soar, motivating it to explore
and innovate further while enhancing its position as an international financial
center.
Farole, T. and G. Akinci, in their 2011 publication "Special Economic Zones:
Progress, Emerging Challenges, and Future Directions" [63], addressed issues
related to investment attraction and job creation. They discussed both traditional

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models and new challenges, drawing lessons from experiences in Bangladesh,
Honduras, the Americas, China, Singapore, among others. The study examined the
potential for restructuring special economic zone development, emphasizing
sustainable social and environmental development. Simultaneously, the research
presented analyses of institutional reforms, promoting economic development
through special economic zone activities, and addressing emerging concerns related
to social development and environmental protection. Three critical policy-making
questions emerged: how to make special economic zones successful in attracting
businesses and generating employment, how to ensure their economic sustainability
and positive impact, facilitating structural transformation and economic reform, and
how to guarantee their sustainability in terms of governance, social factors, and the
environment.
3. Research objectives
The research aims to explore the theory and practice of SEZ development in
Shenzhen, China, and draw lessons for Vietnam. It also aims to summarize the
diverse development of SEZs in Vietnam in recent years. Based on this, in the
context of globalization and deepening integration, the study will analyze the
underlying patterns to propose recommendations for institutional arrangements,
policy mechanisms, management, and prerequisite conditions for constructing SEZs
in Vietnam in the future.
To achieve the aforementioned research objectives, the author identifies
specific targets that this thesis aims to pursue, as follows:
Addressing theoretical issues: Systematize and clarify the fundamental
theoretical issues related to SEZs, as well as the contribution of such zones. The
thesis needs to elucidate the underlying patterns to provide a foundation for
studying practical issues.
Addressing practical issues: Investigate and summarize the practical
experiences in constructing and developing the Shenzhen SEZ model and draw
lessons for Vietnam regarding the factors and mechanisms impacting the

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establishment of SEZs in Vietnam. Analyze and evaluate the current conditions and
prerequisites for building and developing different types of SEZs in Vietnam in
recent times, identify barriers and limitations, and propose solutions to promote the
development of various types of SEZs. Assess the feasibility of constructing SEZs
in Vietnam in the near future.
4. Research questions
The objectives of the research are obtained from the research questions as follows:
Question 1: What is the theoritical basic of SEZ?
Question 2: How is the current situation of Shenzhen SEZ?
Question 3: What are the prominent policies of Shenzhen SEZ?
Question 4: What are recommendations for policy for SEZs in Vietnam?
What is the theoritical basic of SEZ?How is the current situation of Shenzhen
SEZ?5. Research objects and scope
5.1. Research objects
The author's thesis focuses on studying the following subjects:
Firstly, the object of study in this thesis is the SEZ model. In reality, there are
various types of economic zones such as industrial parks, coastal economic zones,
export processing zones, and many other forms. However, in this thesis, the author
concentrates solely on investigating the special economic zone model, which is one
of the limited geographical types of economic zones that enjoy special benefits from
preferential policies regarding taxes, investments, and other incentives.
Secondly, in China, there are a total of 7 SEZs, but this research specifically
examines and analyzes the distinctive features of the Shenzhen special economic
zone - the first special economic zone established in China.
Thirdly, building upon the research conducted on the Shenzhen special
economic zone model, the thesis will also compare and contrast it with the special

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economic zone model in Vietnam. Through this comparison, the author will have a
foundation to propose necessary innovations and recommendations for Vietnam.
5.2. Research scope
Spatial scope: The thesis concentrates on studying the Shenzhen SEZ model
in China and comparing it with different types of SEZs in Vietnam.
Time scope: The research topic covers the period from approximately the
1970s to the present day.
Content scope: Within the framework of the thesis, the prominent features of
the Shenzhen SEZ model will be studied to identify the factors for establishing and
constructing SEZs in Vietnam. At the same time, the thesis also examines and
evaluates the experiences of Shenzhen in the process of forming and developing the
SEZ model, thereby providing recommendations and proposals for the development
of SEZ in Vietnam.6. Research methodology
To achieve the research objectives mentioned above, the author applies and
combines the following research method: Qualitative method will focus on
collecting and analyzing domestic and international documents related to economic
zones and the Shenzhen SEZ. Documents such as government summary reports and
research works by other scholars will be carefully studied. This will help to gain a
deeper understanding of the characteristics, roles of economic zone models, their
development processes, prominent features, as well as the successes and limitations
of the Shenzhen SEZ. Additionally, the author employs the comparative method to
contrast the Shenzhen SEZ with the economic zone model in Vietnam. This helps to
grasp profound similarities between the two models, thereby proposing necessary
innovations and improvements for the development of the economic zone model in
Vietnam.
By employing these research methods, the author aims to provide a
comprehensive and insightful examination of the economic zone model and the
Shenzhen SEZ. This research also seeks to identify potential improvements and

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adaptations that are necessary for the successful development of the economic zone
model in Vietnam.
7. Research structure
In addition to the introduction, conclusion, and references, the thesis consists
of three separate parts in the corresponding chapters:
Chapter 1: Theoritical framework of Special Economic Zone
Chapter 2: Overview of Shenzhen Special Economic Zone model.
Chapter 3: Recommendations for policy-making in Vietnam.

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CHAPTER 1.
THEORITICAL BASIC FOR SPECIAL ECONOMIC ZONE
1.1. Concept of Special Economic Zone
SEZs are known by various names and encompass different types. However,
some scholars and countries use the terms based on specific areas (e.g., science
park, regional development zone), which are brought into policy discussions. This
study proposes the concept of SEZs based on (i) specialization and (ii) design and
governance characteristics. The terminology used varies greatly among countries,
with the most common terms being free zone, SEZ, free trade zone, economic free
zone, and free port. This study adopts the terminology of UNCTAD: (1) A
geographically delineated area; (2) A distinct regulatory regime from the rest of the
economy (typically including customs and fiscal rules, but potentially
encompassing other relevant regulations, such as foreign ownership rules, land
access rights, or employment regulations); (3) Infrastructure support. [UNCTAD,
2015]
SEZs are defined as areas with a distinct economic space and a specially
favorable investment and business environment for investors, with defined
geographical boundaries established by the relevant authorities. The SEZs studied in
this dissertation differ from the concepts of “industrial park” or “export processing
zone” in that they are primarily formed and serve as comprehensive economic
entities, housing projects and core infrastructure that are of significant importance
to the nation across multiple sectors such as industry, tourism, trade, duty-free areas,
and urban areas. They play a dynamic role in promoting the growth and export of
regions and provinces. The development of SEZs is ensured through specific
mechanisms and incentive policies established by the relevant authorities.
The concept of SEZs gained global recognition through the success of this
model in China in 1980, with the first four zones being Shenzhen, Zhuhai, Shantou,
and Xiamen, among which Shenzhen was the leading zone. Although SEZs are
widely known in China, this model actually emerged much earlier in the form of

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free economic zones, known by various names such as free ports and free trade
zones. The first free port was established in 1547 in Genoa, Italy, while the
Hamburg free trade zone in Germany, established in 1888, was the earliest free
trade zone in the world. As of 2008, there were 3,000 similar models of free
economic zones worldwide, including SEZ in 135 countries, contributing to the
direct employment of over 68 million workers and generating $500 billion in
revenue from trade activities in these areas. These are economic zones with policy
orientations that closely align with the essence of SEZs. [Hien & Oanh, 2019]
Currently, the concept of an economic zone has various definitions.
According to the Institute of Economics (under the National Center for Social
Sciences and Humanities), “an economic zone is a geographically defined area
where foreign laws and investment policies with preferential benefits are applied to
attract foreign investment.” [Tram, 2014]. This definition by the Institute of
Economics is based on studies of SEZs in China, where SEZs play a role in
attracting foreign investment through exceptional advantages. On the other hand,
according to the Foreign Investment Advisory Service (FIAS) of the World Bank,
“an economic zone is a clearly defined geographical area managed by a single
authority, with a separate customs system, and offers exceptional benefits (such as
import duty exemptions and streamlined customs procedures) for businesses
operating within the zone. [World Bank, 2018]. This definition by FIAS is broader
in scope and not solely based on the role of SEZs; rather, it provides a more
comprehensive definition. According to this definition, an economic zone is a
distinct area with a management structure and a system of specific policies and
incentives for investment and business entities within the zone.
According to UNCTAD, SEZs are geographically demarcated areas with
distinct regulatory regimes compared to the rest of the economy. These regimes
often include customs and fiscal regulations, but may also involve other regulations
related to foreign ownership, land access, or employment. [UNCTAD, 2019]. SEZs
are supported by the development of infrastructure. The United Nations Economic
and Social Commission for Western Asia (ESCWA) argues that SEZs are areas

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where customs duties and import controls are not applied to create an attractive
environment for investment, technology transfer, export promotion, and
employment opportunities. The ILO defines SEZs as industrial zones with special
incentives to attract FDI, where imported raw materials undergo certain processing
stages before being re-exported.
According to the Cambridge Dictionary, SEZs are regions within a country
that have more economic advantages than the rest of the country in order to promote
development. SEZs can be designed and constructed alongside an airport to attract
investors. According to Wikipedia, SEZs are areas where business and trade laws
differ from the rest of the country. They are located within a country's borders and
aim to increase trade, attract investment, create employment, and manage
efficiently. To encourage businesses to establish within SEZs, various financial
policies are implemented. These policies typically involve investment, taxation,
business regulations, quotas, customs, and labor regulations.
According to the Chinese perspective, an SEZ is a geographical area
separated from the outside world by two management barriers: the first barrier
manages the relationship between the economic zone and the global market, while
the second barrier serves as a physical separation. Additionally, the economic zone
interacts with the domestic market through strict customs control. [Xiangming
Chen, 2013]
In the SEZs Law of the Philippines, an economic zone is defined as follows:
“The SEZs under this law shall be referred to as areas selected and designated as
centers of industry, agriculture, tourism, recreation, commerce, banking,
investment, and finance. An economic zone may consist of one or more of the
following components: industrial parks, export processing zones, free trade zones,
tourism centers, and entertainment zones.” [SEZ Act, 1994]
In Vietnam, apart from the Legal Dictionary and some research articles on
SEZ, there is currently no legal document that provides an official definition of an
economic zone, despite the policy to establish this model being initiated over 20

13
years ago. At the beginning of 2017, in the Proposal of the Ministry of Planning and
Investment to the Government, it was suggested to develop the Law on Special
Administrative-Economic Unit (SAEU) as a supplement to the legislative program
of the National Assembly in 2017. The ministry presented a draft outline of the Law
on SEAU. According to this draft outline, an economic zone is generally defined as
a “special administrative-economic unit,” which is described as follows: “A
geographically defined area established by the National Assembly, which applies
special mechanisms and policies regarding the economy and society, with a locally
organized government appropriate to the characteristics, requirements, and
socioeconomic development goals of that special administrative-economic unit.” In
Vietnam, an economic zone is also part of a special administrative-economic unit.
The regulations of the law regarding SEAU also apply to SEZs. Therefore, based on
the above definition, the explanation of an economic zone in Vietnam bears
similarities to the definition provided by FIAS.
Based on the aforementioned analysis, the following definition of an
economic zone can be proposed: it is an area with defined borders, larger in size
than industrial parks and export processing zones, within the national territory.
Specifically, this area applies incentives in terms of customs, foreign exchange,
taxes, and immigration procedures to both domestic and foreign investors.
1.2. Characteristics of Special Economic Zone
Firstly, SEZs are built in areas that have relatively favorable geographical
and natural conditions, convenient transportation, abundant and easily exploitable
natural resources, mild climates, and beautiful landscapes. These natural advantages
provide a solid foundation for the operation of SEZs. In fact, countries around the
world that have implemented the SEZs have chosen locations for building SEZs that
have strong development advantages for the country, favorable natural conditions,
and potential for promoting the economy. For example, the Clark Economic Zone in
the Philippines was built in a strategically important location that was previously
used by the United States as a military base (Subic military base). The Philippine
government has capitalized on the geographical advantages of this port area to

14
establish a SEZs. Another example is the Shenzhen SEZ in China, which was built
in the southern region with a mild climate and is located across from the rapidly
developing “Asian dragon,” Hong Kong. As a result, this economic zone achieved
significant success shortly after its establishment.
Secondly, SEZs are established in countries with economies undergoing
transition. They serve as a buffer between a protected economy and a free market
economy, acting as a harmonious blend of national and international elements for
the purpose of common development. Consequently, SEZs have a dual task of
“extension” through expanding foreign investment and “intension” by establishing
relationships with domestic enterprises. This means that advanced techniques and
management experiences imported from foreign countries, through digestion,
absorption, and transmission, are transferred domestically to foster domestic
economic development based on an outward-oriented model. In other words, SEZs
are “windows” to the world, acting as a “bridge” between the national market and
the international market.
Thirdly, the primary purpose of establishing a SEZs is to expand exports,
develop the economy, enhance technical capabilities, and increase foreign exchange
earnings. To achieve this goal, countries place special emphasis on developing
export-oriented manufacturing industries, attracting foreign investment and
advanced technical equipment, thereby promoting the regional economy and
neighboring areas, and enhancing the technical capabilities of domestic production.
Additionally, to develop a diversified economic structure, SEZs also encourage
foreign investment in other sectors such as industry, agriculture, and services.
Fourthly, SEZs have an investor-friendly investment environment. Here, the
government implements preferential policies and special measures to support
foreign investors and businesses, simplifies administrative procedures, and creates
optimal conditions for all business and production activities within the SEZs.
Therefore, SEZs are always the most attractive destinations for investment in the
country.

15
Fifthly, SEZs have relatively complete and modern technical infrastructure,
including electricity, water supply, bridges, sewage systems, transportation
networks, factories, warehouses, hospitals, schools, communication systems, postal
services, and other social and cultural facilities. These infrastructure facilities may
have already existed before the establishment of the economic zone or could be
developed after its establishment.
1.3. The historical emergence of Special Economic Zone
Socioeconomic Development based on Trade: The oldest SEZs are free ports,
with the origins of free ports traced back to the Leghorn Free Port established in
1547 in the Gulf of Genoa, Northwestern Italy [Amar Maruti Dhere, 2012]. In the
early 17th century, free harbors emerged in several European cities and gradually
transformed into “free trade zones.” Free trade zones are small, enclosed areas with
no tariffs, providing storage facilities and distribution centers for commercial
activities, transshipment, and re-exporting. They are located in most major seaports
worldwide. The theoretical foundation for the establishment of these zones is to
facilitate transit trade. Therefore, international trade is not linked to domestic
production but relies on the expansion of “transit trade.”
Socioeconomic Development based on Production: In the late 1920s, a series
of new SEZs appeared in the city of Cadiz, Spain. These SEZs were established
with the aim of increasing exports by value-adding to the available raw materials in
the country. In 1950, the Foreign Trade Zone Act of 1934 in the United States was
amended to allow manufacturing activities within free trade zones. The first
production-oriented SEZ in a developing country was established by Puerto Rico in
the Caribbean Sea during the period from 1947 to 1951. However, the origins of
SEZs with a focus on production can be traced to the Shannon Free Export Zone in
Ireland, established in 1958. This zone became the first global model of an Export
Processing Zone [Bolin, 2004].
Comprehensive Industrial Parks: Towards the end of the 1970s, China
designed its own model of “Comprehensive Industrial Parks” (CIPs). Unlike export

16
processing zones, which encompass closed industrial areas, CIPs are large industrial
towns spread over several square kilometers. CIPs, in general, are a broad concept
and often encompass larger areas. These types of CIPs are suitable for various types
of activities, including tourism and retail, allowing people to reside on-site and
providing a range of broader benefits and amenities. It can be observed that these
comprehensive CIPs draw inspiration from the industrial district concept by
Becattini in 1990.
Newly named forms of parks: The concept of CIPs has been supplemented
with additional functions by incorporating innovative provincial elements into the
basic design to harness their potential and gain a competitive advantage over
international counterparts. This has led to a variety of different types of parks. These
include parks with names like high-tech (scientific) industrial park, specialized
park, service park, specialized national CIPs, and mixed-use parks.
Coastal CIPs: During the 1990s, many coastal CIPs were formed. The
objective of these parks is to capitalize on the advantages of maritime trade.
Cross-border economic zones: Similar to coastal economic zones, in the
1990s, cross-border economic zones emerged as a growth strategy for transnational
regions. The objective of these zones is to leverage the advantages of border
locations and promote economic cooperation and trade within the region. These
zones are upgraded versions of traditional border industries developed in Mexico
and South Africa. In the early 1990s, the growth triangle was formed and proposed
as a growth strategy for transnational regions [Kudo, 2009]. The expanded countries
of the Mekong Subregion seized this opportunity to develop industrial clusters in
the border area. This is referred to as cross-border economic zones.
1.4. Roles of Special Economic Zone
Starting from the macroeconomic theory, research on SEZs has clarified and
evaluated their contributions to the economic development process. Theories such
as investment and economic growth have provided a detailed perspective on the

17
impact of investing in these zones, supporting economic development and
increasing the GDP growth of the country.
According to research conducted by the World Bank, SEZ normally operates
under more liberal economic laws than those typically prevailing in the country.
[World Bank, 2012]. As a result, these SEZs often benefit from policies that offer
more advantages and priorities. SEZs confer two main types of benefit, which
explain in part their popularity: “direct” economic benefits such as employment
generation and foreign exchange earnings; and the more elusive “indirect”
economic benefits. (View Table 1)
Table 1. Potential Benefits Derived from SEZs
Direct benefits Indirect benefits
Foreign Exchange earnings Skills upgrading
FDI Testing field for wider economic reform
Employment generation Technology transfer
Government revenue Demonstration effect
Export growth Export diversification
Enhancing trade efficiency of domestic firms
Source: World Bank, 2012
With the aforementioned benefits, the SEZs model can be observed to fulfill
specific roles as follows:
1.4.1. Regarding entities in society
According to Farole & Akinci, the development of SEZs serves four main
objectives: (1) Attracting FDI; (2) Creating employment opportunities; (3) Acting as
a platform for broader reforms; (4) Testing new policies and approaches to
economic development. However, for developing countries, the objectives of
developing SEZs are more diverse because they have a broader impact on various

18
stakeholders, including multinational corporations and domestic and foreign
investors. [Farole & Akinci, 2011]
For developing countries, the development of SEZs aims to: (1) Export
goods; (2) Earn foreign exchange; (3) Address employment issues; (4) Attract FDI;
(5) Exploit resources; (6) Industrialize; (7) Develop regions; (8) Experiment with
policies; (9) Achieve political goals; (10) Technological innovation; (11) Generate
tax revenue; (12) Specialize.
For multinational corporations, SEZs provide an economic model that aims
to: (1) Access low-cost labor; (2) Enjoy duty-free imports; (3) Access markets; (4)
Gain a competitive advantage in the market; (5) Vertical integration; (6) Expand
product life cycles.
For domestic investors, the SEZ model serves as a mechanism to benefit
from: (1) Tax exemptions; (2) Special incentive policies; (3) Enhancing
international competitiveness; (4) Engaging in dual economic activities.
1.4.2. Regarding the sustainable development process
There are very few systematic studies on the impact of SEZ, and very few
countries have comprehensive procedures to monitor and evaluate the effectiveness
of SEZ. In general, SEZs have direct and indirect economic contributions, financial
and fiscal sustainability, technological and skill contributions, social and
environmental impacts, regional integration support, and policy experimentation
and learning opportunities. Empirical research provides evidence of the potential
contributions to economic growth and development. Some SEZs are expected to
have economic contributions from both direct and indirect regional development.
The direct benefits include attracting FDI, job creation and income generation, and
export growth and diversification. Some of these benefits may be particularly
important in less developed countries, where employment and foreign exchange
income are scarce.
Indirect economic benefits are more difficult to determine and measure.
However, indirect economic benefits are an essential component of the sustainable

19
development impact of the zones. The benefits here include linkages with external
suppliers and the indirect employment they create, as well as income and
employment, as well as wages, stimulating expenditure in the surrounding area.
The combination of direct and indirect economic contributions will lead to
higher economic growth. The establishment and early development of the regions
provide a temporary boost to GDP growth. However, with the continuous benefits
and incentives provided to investors in the SEZs, they should also provide
sustainable stimulus for growth. In other words, the economic activities within the
zones should surpass the overall economic growth after the early development stage
of the zone.
Furthermore, reducing the economic, social, and environmental impacts of
SEZs presents potential for comprehensive reforms. On one hand, as different
regulations apply, the zones can alleviate the pressure on governments pursuing
challenging nationwide structural reforms. On the other hand, the zones can serve as
testing grounds for regulations by allowing countries to experiment with different
policies and new approaches, with successful experiments acting as catalysts for
national policies.
1.4.3. Regarding the economic sector
SEZs can stimulate investment, exports, and employment. However, they are
not prerequisites nor guarantees for above-average performance in terms of FDI
participation and global value chains. The overall impact on economic growth tends
to be temporary: after a construction period, most growth zones operate at a rate
equivalent to the national economy.
Attracting investment: SEZs serve as important investment promotion tools
and can play a significant role in attracting FDI. Through comprehensive and
advanced infrastructure, these zones can compensate for unfavorable investment
environments to some extent. Research in China has shown that SEZs can have a
strong positive impact on FDI, including investments in new green technologies.

20
Expanding and diversifying exports: Another key objective of SEZs is to
develop exports, not only in terms of export growth but also in terms of
diversification. This is particularly important for developing countries reliant on
commodity exports and aims to add value to these export items.
Some countries have used SEZ as part of their export promotion strategies,
supported by trade incentives. SEZ play a crucial role in Kenya's export strategy by
attracting foreign investors in the textile industry and directing them towards
targeting exports to the United States.
SEZ programs have been a major component of export diversification efforts
in many countries. For example, countries in Central America and the Caribbean
have utilized SEZ to reduce dependence on fruit and vegetable exports. In Costa
Rica, the share of SEZ exports increased from under 10% in 1990 to 55% in 2003
[FIAS, 2008; Gereffi, 2019]. Additionally, SEZ have diversified production from
textiles and garments to electronic components.
SEZ serve as tools for developing global value chains as policy instruments,
promoting countries' participation in global value chains. Trade costs such as tariffs,
transportation, and insurance, as well as various customs duties and fees,
accumulate when intermediate goods are imported, processed, and subsequently re-
exported downstream in complex global value chains, undergoing different
transformation steps in different countries. By reducing transaction costs within
global value chains, SEZ contribute to the profitability of multinational corporation
activities, which largely explains the success of the region.
Creating direct and indirect employment. One of the main reasons for
developing SEZ is to generate employment. SEZ are often seen as an effective tool
for job creation, particularly for women entering the labor force. The indirect
employment impact of the zones can also be significant. The zones can play a major
role in job creation in each country. In some countries, the employment generation
rate in national SEZ programs has far exceeded the overall economic employment
growth rate. Employment creation in the United States’s SEZ program since 2013

21
has averaged over 7% annually, compared to below 2% for the overall economy.
[TW Bell, 2016]
The overall impact on economic growth. The success of SEZs can be directly
measured by considering FDI inflows, exports, and employment, as well as the
overall growth in production within the zone.
1.4.4. Regarding the process of industrialization and modernization
SEZs are an important tool of industrial policy because they offer
opportunities for technology transfer, skill development, and upgrading within
global value chains. Linkages with local firms, spillover effects, concentration, and
demonstration effects are key to maximizing the industrial development impact of
SEZs, but these effects do not automatically occur.
SEZs have been criticized for perpetuating the middle-income trap, as they
focus on low labor costs, low value-added activities for exports, limited spillovers,
and limited technology transfer to domestic industries. Various studies have shown
that the average skill level of SEZ workers is relatively low and rarely increases
over time [FIAS, 2008].
However, there are numerous examples of how development strategies
incorporating SEZs have contributed to industrial development and upgrading.
Early examples include South Korea and Taiwan, where successful supplier
linkages with domestic companies were developed. ASEAN countries such as the
Philippines and Malaysia have also been able to attract FDI into SEZs and upgrade
to higher value-added and high-tech industries, including electronics, services, and
software development. Outside of Asia, other regions have also contributed to
structural transformation in some countries. The contribution of SEZs to industrial
development strategies is primarily driven by improving the workforce and skill
development through formal training and on-the-job experience. However, as
production processes in SEZs often rely on basic skills and low technology, the
development of such skills is often limited. In investment-attracting zones, investors

22
tend to seek efficiency and focus on processing industries, where labor is primarily
seen as a cost rather than a resource for development [UNCTAD, 2002]
1.4.5. Regarding society and the environment
SEZs can make positive contributions to the efficiency of the environment,
society, and governance of national industrial establishments. Control and
enforcement, as well as supporting services (e.g., inspection, healthcare services,
waste management, and renewable energy installation), can be easily and affordably
provided in a confined area. Emerging industrial zones are increasingly competing
based on high environmental, social, and governance standards. Since the earliest
Export Processing Zones were introduced in developing countries, concerns have
been raised about working conditions and environmental impacts. SEZs have also
been criticized for encroaching upon or destroying agricultural land in the pursuit of
industrialization, or for benefiting specific interest groups. [Moberg, 2015]
1.5. Assessment criteria for Special Economic Zone
The assessment criteria for a SEZ can vary depending on the objectives and
policies of the government or entity establishing SEZ. Generally, SEZs are
designated geographical areas that offer specific incentives and benefits to attract
foreign and domestic investment, promote economic growth, boost exports, and
generate employment. When evaluating the success and effectiveness of an SEZ,
the following criteria are often considered:
1.5.1. Geographical location
Geographical location is a paramount criterion when evaluating the
establishment of a SEZ. SEZs are designated areas within a country that are
subjected to specific economic regulations and incentives, aimed at attracting
foreign investment, boosting exports, and driving economic growth. The location of
an SEZ plays a crucial role in determining its potential success and effectiveness in
achieving these objectives. Several key factors contribute to the significance of
geographical location in evaluating an SEZ.

23
Firstly, proximity to major transportation hubs is vital for an SEZ's success.
Access to well-connected airports, seaports, railways, and highways facilitates the
efficient movement of goods and people in and out of the zone. A strategic location
near international shipping routes can significantly reduce transportation costs,
making exports more competitive in global markets. Additionally, a well-connected
SEZ ensures ease of access for investors, executives, and skilled workers,
encouraging more foreign direct investment and enhancing the overall business
environment.
Secondly, the geographical location influences the potential customer base
and market access for businesses operating within the SEZ. Being close to densely
populated areas or emerging markets can provide an advantage in terms of a large
consumer base, which is particularly attractive to companies engaged in
manufacturing or services sectors. Proximity to key markets also reduces
distribution costs and allows businesses to respond quickly to changing consumer
demands, making the SEZ an attractive investment destination.
Thirdly, natural resources and climate are significant considerations in
evaluating an SEZ's geographical location. Access to vital resources such as water,
energy, raw materials, and fertile land can foster the growth of industries that
heavily rely on these inputs. Furthermore, a favorable climate can benefit industries
such as agriculture and tourism, enabling them to operate efficiently and contribute
to the economic development of the region.
Fourthly, geopolitical factors must also be taken into account when choosing
the location of an SEZ. Political stability and favorable relations with neighboring
countries reduce the risk of disruptions in trade and business operations. Moreover,
a location situated in a region with a peaceful and conducive political environment
attracts more investors, as they are more likely to feel secure in their investments.
Fifthly, the proximity to research and educational institutions can be a crucial
determinant in the success of technology-based SEZs. The availability of skilled
labor and a culture of innovation in nearby universities and research centers can fuel

24
technology transfer and foster an ecosystem of research and development, attracting
high-tech industries and leading to sustainable growth.
Sixthly, the geographical location impacts the cost of land and real estate
within the SEZ. Lower land acquisition costs and affordable real estate can make
the zone more appealing to potential investors, encouraging them to set up their
businesses and operations within the area.
1.5.2. Policy and legal regulations
SEZs are designated areas within a country that are subject to unique policy
and legal regulations aimed at promoting economic growth, attracting foreign direct
investment, boosting exports, and creating employment opportunities. These zones
have gained significant traction in recent years, as governments seek to create
business-friendly environments to compete in the global market and foster
economic development. While various factors play a role in the evaluation of SEZs,
policy and legal regulations emerge as the most critical criteria due to their direct
influence on the success and sustainability of these economic enclaves.
The primary function of policy and legal regulations within SEZs is to
establish a conducive and predictable business environment. By designating SEZs,
governments can provide targeted incentives, tax breaks, and streamlined
bureaucratic processes that facilitate the establishment and operation of businesses.
Transparent and consistent legal frameworks ensure that investors and entrepreneurs
feel secure in their investments, minimizing the risks associated with doing business
in a foreign country. Moreover, a clear policy roadmap enables businesses to plan
for the long term, allowing for better allocation of resources and strategic decision-
making.
One of the most significant advantages of SEZs’ policy and legal regulations
is their potential to attract FDI. Investors are more likely to commit their capital
when they can be confident in the stability and profitability of their ventures. With
the right policies in place, such as tax incentives, duty-free imports, and simplified
customs procedures, SEZs become an attractive destination for both domestic and

25
international businesses seeking to expand their operations. Increased FDI brings
not only financial capital but also technology transfer, expertise, and knowledge
sharing, which can have a transformative impact on local industries and the overall
economy.
Furthermore, policy and legal regulations in SEZs can be tailored to address
specific regional development objectives. Governments can use SEZs to target
industries that align with their economic diversification goals and regional
strengths. For instance, a country aiming to boost its high-tech industries may create
an SEZ with incentives specifically tailored to attract technology companies. By
focusing on targeted sectors, SEZs can become hubs of innovation and
technological advancement, further enhancing their competitiveness in the global
marketplace.
Employment generation is another crucial aspect where policy and legal
regulations in SEZs play a pivotal role. As businesses flourish within these
designated zones, they create numerous job opportunities for the local population.
The establishment of manufacturing units, service industries, and other businesses
generates direct employment, while the economic activities in SEZs also lead to
indirect job creation in associated sectors. Policy measures that encourage skill
development and workforce training can further enhance the employability of the
local population and ensure the availability of a skilled labor force within the SEZs.
Additionally, policy and legal regulations can address environmental
sustainability and social responsibility concerns within SEZs. By incorporating
environmental standards, energy-efficient practices, and waste management
policies, governments can ensure that the economic development in these zones
occurs in an ecologically responsible manner. Furthermore, SEZs can be designed to
comply with labor laws and regulations, safeguarding workers' rights and ensuring
fair working conditions.
Despite the undeniable benefits of policy and legal regulations in SEZs,
challenges can arise if these regulations are not properly implemented or if they lack

26
consistency over time. Frequent changes in policies, ambiguity in legal frameworks,
or failure to enforce regulations can lead to uncertainty among investors and
businesses, thereby hindering the growth and stability of SEZs. Therefore,
governments must strike a balance between providing a business-friendly
environment and maintaining regulatory certainty to attract sustained investment
and growth.
1.5.3. Management structure
SEZs play a pivotal role in fostering economic growth and development by
creating conducive environments for business and investment. One crucial aspect to
evaluate the effectiveness of SEZs lies in understanding the structure of their
management apparatus. The management apparatus of SEZs refers to the
organizational framework, administrative hierarchy, and governing mechanisms put
in place to oversee and facilitate the smooth functioning of these designated zones.
A well-designed and efficient management apparatus is fundamental to ensure that
SEZs operate optimally and deliver the intended benefits to the economy and
stakeholders involved.
At the core of the management apparatus is the governing body responsible
for formulating policies and making strategic decisions regarding the SEZs. This
body is typically composed of government officials, industry experts, and
representatives from relevant agencies. Its effectiveness hinges on the balance
between government involvement and private sector participation. While
governments need to provide support and an enabling environment, excessive
bureaucratic control can hamper agility and responsiveness to market demands.
Conversely, adequate private sector involvement can infuse entrepreneurial
dynamism and market-driven decision-making, but it should be complemented by
strong regulatory oversight to prevent potential abuses.
An essential criterion for evaluating the management apparatus of SEZs is
transparency and accountability. Clear and well-defined rules and regulations
should be established, and the decision-making processes should be transparent to

27
all stakeholders, including investors, businesses, and the public. Furthermore,
accountability mechanisms must be in place to hold those responsible for any
mismanagement or misuse of resources within the SEZs. Regular audits and
independent evaluations can help ensure compliance with established standards and
prevent corruption, thereby bolstering investor confidence and attracting more
businesses to the zone.
Effective communication channels are vital components of a successful
management apparatus. SEZ authorities must establish seamless communication
between the government, private sector players, investors, and local communities.
Transparent communication helps in disseminating information about the benefits
and opportunities offered by the SEZs, addressing concerns and grievances of
various stakeholders, and fostering a collaborative environment for development.
Regular meetings, conferences, and consultations should be organized to enable
feedback and input from different parties.
Flexibility and adaptability are critical attributes that a management
apparatus should possess to respond to changing economic conditions and evolving
global trends. SEZs need to remain dynamic in their approach to attract new
industries, technologies, and investments. The management team should be open to
incorporating suggestions from stakeholders, updating policies, and adjusting
strategies when necessary. Rigidity and resistance to change could result in missed
opportunities and the stagnation of the SEZ's growth potential.
Furthermore, a well-functioning management apparatus should focus on
promoting a competitive business environment within the SEZs. This includes
ensuring efficient infrastructure development, streamlined customs procedures, and
a business-friendly regulatory environment. It is essential to eliminate bureaucratic
red tape and minimize administrative burdens on businesses operating within the
zone. A robust infrastructure network that includes reliable transportation,
communication, and utility services is crucial to facilitate smooth operations and
attract investors.

28
Social and environmental considerations are also integral aspects of
evaluating the management apparatus. Sustainable development practices,
adherence to environmental regulations, and the welfare of workers and local
communities should be prioritized. A responsible management apparatus will
incorporate measures to mitigate negative environmental impacts and promote
inclusive growth through job creation and skill development programs for the local
workforce.
1.6. Influenced factors to the development process of Special Economic Zone
1.6.1. Objective factors
a) Integration and globalization trends
Globalization is an inevitable trend that is expanding rapidly. The economic
aspect is the most crucial aspect of globalization. Economic globalization is
strongly influencing political and social fields, while also experiencing
multidirectional impacts that lead to differentiation and diversification of the global
economy.
Currently, globalization is exerting a powerful influence on many countries,
communities, and individuals. Perspectives and attitudes towards globalization vary
significantly. While some developing countries enthusiastically embrace
globalization, anti-globalization movements are widespread in many developed
countries, attracting a large number of participants. However, regardless of different
attitudes, whether supportive or oppositional, globalization remains an inevitable
trend that each country must confront.
In addition to opportunities, globalization poses significant challenges such
as economic setbacks, unemployment and job shortages, wealth disparity,
increasing social ills and crime rates, concerns about cultural homogenization, and
the erosion of national cultural identity. The path to overcome these challenges is
not to close off and live in isolation from the world. On the contrary, it requires
proactive and active international integration, strengthening the economy,
enhancing national competitiveness, being resilient to new risks, while nurturing

29
and educating the domestic population to raise awareness, civic responsibility, and
patriotism. This approach aims to inspire and promote the national spirit,
incorporating selectively chosen universal values to foster both economic and
cultural development.
So how is the essential nature of globalization manifested? The essential
nature of globalization is primarily expressed in its economic dimension. It brings
about fundamental changes in human economic activities, altering the nature and
position of markets. The process of globalization has attracted many countries and
become an interdependent component of the global or regional economy. In
addition to the global nature of commodity and service markets, the fields of
science and technology, finance and currency are also increasingly exhibiting
globalization, with complex and multidimensional spillover effects of financial
systems and currencies. From the Asian financial crisis in 1997 to the global
economic crisis in 2008, it has been evident that globalization has impacted every
country. No one can deny that globalization is an inevitable process and is creating
opportunities for economically developing countries to integrate into the world
economy, accelerating economic growth and technological innovation. The reality
of the past few decades has affirmed that many less-developed countries in Asia, by
seizing the opportunities of globalization, have achieved record-breaking economic
growth and become Asian “dragons.” However, there are also countries that, due to
incorrect economic and social policies, not only fail to sustain high growth but also
fall into crises and lag behind, such as the Philippines several decades ago.
Regarding the process of construction and development of SEZs, there are
tax incentives to attract foreign investors. The legal regulatory framework of
countries must ensure compatibility with the trends of globalization and
international integration to attract investors. In the context of integration and
globalization, legal regulations should not become barriers to the formation and
development of SEZs. Power delegation to these zones should be focused on
achieving the development goals of the zones. Long-term land use privileges, if not
managed effectively, can lead to unhealthy competition and inefficiency, as well as

30
potentially turning a country into a destination for outdated industries and
environmental pollution. Infrastructure and policy environment are also important
factors. The SEZs must become destinations for multinational corporations, banks,
financial centers, securities markets, and ideal incubators for scientific and
technological innovation. In this regard, the mechanisms and specific policies that
bring breakthroughs for the SEZs need to be comprehensively and scientifically
evaluated in terms of economic, social, defense, and security impacts. To establish
and develop the SEZ model as a growth driver for a new phase, it is important to
strategically plan sustainable investment, creating long-term competitive
capabilities for domestic enterprises. It is crucial to establish an investment
framework and environment that can compete with other SEZs worldwide, while
also ensuring national interests. Building a qualified and competent workforce for
the SEZs is necessary to ensure their efficient operation and contribute more to the
socio-economic development of the country.
b) Science, technology, innovation, and the fourth industrial revolution
Science, technology, innovation, along with the emergence of the Fourth
Industrial Revolution, are fundamentally changing the lives of human beings, from
work and living to social relationships. The scale, scope of influence, complexity,
and societal shifts resulting from this new industrial revolution are enormous,
presenting both opportunities and numerous challenges for each nation. The extent
of the impact will depend on the adaptive capacity of each country to the
technological wave brought about by this new industrial revolution. The positive
impact of the Fourth Industrial Revolution is significant in terms of individual and
community labor productivity due to breakthroughs in new technologies that have
emerged over the past decade, such as artificial intelligence, the Internet of Things,
3D printing, big data, cloud computing, and more. They have generated strong
impact and dissemination. In fact, the influence of the Fourth Industrial Revolution
has contributed to changing the lifestyle of individuals and society.
However, alongside significant opportunities, the Fourth Industrial
Revolution poses major challenges to socio-economic development:

31
(1) A major shift in the workforce towards enhancing the quality and skill
level of human resources. As a result, low-skilled or intermediate-skilled jobs are
gradually being replaced by automation, resulting in surplus labor.
(2) Increasing income inequality between a small number of wealthy
individuals and the majority of the workforce. This trend places developing
countries, including Vietnam, at great risk and challenges, requiring them to address
both distribution and redistribution.
(3) The ubiquity of the Internet of Things, artificial intelligence, big data,
cloud computing, 3D printing, brought about by the Fourth Industrial Revolution,
will increase challenges in security and information safety, making it difficult to
control information in cyberspace.
The formation, construction, and development of SEZs in the Fourth
Industrial Revolution present both opportunities and challenges, requiring a more
innovative approach. The development of SEZs in this fourth industrial revolution
offers breakthrough opportunities and addresses the economic backwardness of
middle-income countries. Based on practical experience, the high-level
development of SEZs relies on three pillars: (1) Human resources, the ability to
absorb technology, expertise, and soft skills... to enhance productivity; (2) Physical
infrastructure, technical infrastructure, technological expertise, production tools,
and smart products, with intelligent production processes and high flexibility based
on autonomous processes, data sharing, and high reliability through cybersecurity
mechanisms; (3) Above all, a modern territorial governance regime is necessary in
national governance to foster breakthroughs, generate growth engines and spillover
effects, without creating fragmentation, making the SEZs “isolated” in the economy.
However, developing SEZs at a simple level such as industrial parks or
export processing zones to attract cheap labor and average production capacity is no
longer an advantage for Vietnam. The overall quality of human resources and
human resources in the field of science and technology in some countries is still
low, lagging behind some developing countries worldwide. Labor productivity and

32
competitive capacity are still low. Therefore, it is not possible to establish SEZs to
attract investors with low or average technological expertise and average services. It
is necessary to consider constructing one or more SEZs with modern infrastructure,
attracting leading investors in technology, finance, banking... combined with a
healthy, safe, and world-class living environment, creating opportunities for SEZs to
accelerate, breakthrough, and spread domestically and internationally, serving as the
driving force for the country's growth.
The two objective factors mentioned above, namely globalization and the
industrial revolution, can be seen as external factors influencing the formation and
development of SEZs in the face of new competition.
1.6.2. Subjective factors
a) Contemporary political thinking
The majority of countries aiming to develop SEZs always start with the goal
of socio-economic development and other objectives such as finding momentum for
national development, promoting integration, and implementing comprehensive
reforms in various fields. SEZs are always identified as “experimental grounds” and
entail potential risks. Despite numerous studies on SEZs, there is no universal
model for these zones across countries due to varying levels of development,
cultural, social, religious, and ethnic characteristics. Based on practical experience,
each country must explore, learn, and establish appropriate scenarios and roadmaps
for the formation, construction, and development of SEZs in their own country,
suited to each stage of development. Particularly in the new context of the Fourth
Industrial Revolution and intense competition, modern development thinking that
adapts to globalization and integration plays a crucial role and reflects the
leadership's determination in the country most decisively.
On the other hand, under the pressure of reforming the system and
institutional barriers that hinder development, political determination has become an
extremely important factor. Recognizing this, many countries have placed political

33
determination at the top of their priorities in the formation, construction, and
development of SEZs.
In the process of formation, construction, and development, SEZs encounter
numerous difficulties and challenges, and they may even fail on multiple fronts.
Therefore, it is necessary to have high political determination, firm objectives, a
clear roadmap, and uninterrupted progress, without changing policies or personnel
during implementation. This will instill confidence in the citizens, investors,
entrepreneurs, especially strategic investors. Looking at the reality of South Africa,
the failure in the formation, construction, and development of SEZs in this country
is due to a lack of political determination from the state leadership, the absence of
proactiveness from the government and local authorities, leading to distortions in
development policies, coupled with the increasing problem of corruption.
b) Institutional and policy mechanisms
Alongside modern development thinking, another equally important factor
for the most successful SEZs in the world today is the need for flexible and open
institutional and policy mechanisms with a high level of autonomy, accompanied by
a superior level of liberalization compared to the existing institutional and policy
mechanisms for the rest of the country. This is done to create a dynamic, favorable,
and highly competitive business environment. An important issue is that the
institutional and policy mechanisms applied in SEZs need to be in line with
international practices and in accordance with commitments made in bilateral and
multilateral agreements.
Specifically, in order to establish, construct, and develop SEZs in each
country, they need to be regulated by a framework law that governs fundamental
issues for one or more SEZs within a nation. The most essential issues to be
determined include the extent of power and legal authority of the economic zone
government, as well as the conditions ensuring the rights and obligations of citizens,
investors, and entrepreneurs. The economic zone government should be granted a
high degree of autonomy to have sufficient capacity to develop strategies, plans,

34
and socio-economic development projects, as well as effectively manage the
economic zone's operations. Building a streamlined and efficient administrative
apparatus for managing the provincial economic zone, harnessing the effects of
institutional arrangements, policy mechanisms, and incentives, along with
facilitating transparent administrative procedures and eliminating corruption, are
crucial to ensure the economic zone develops in accordance with its intended
direction and goals. The institutional arrangements and policy mechanisms need to
be consistently stable, publicly disclosed, and transparent, while also being
predictable to create favorable conditions for development. However, it is important
to note the establishment of a mechanism for state supervision of the economic zone
government's power.
Most successful countries in building SEZs, such as China, South Korea, and
the UAE, have enacted separate laws and regulations specifically for SEZs. The
management apparatus of the economic zone is granted autonomy. In fact, some
countries empower the economic zone government to issue various preferential
policies, exceed the limits of ordinary administration, and achieve global
competitiveness as a pilot initiative to attract investors, particularly strategic
investors.
c) Developing modern infrastructure and connectivity
This subjective factor involves constructing the foundation infrastructure.
The success or failure of an SEZ relies heavily on the development of infrastructure.
A comprehensive, synchronized, and modern infrastructure with reasonable long-
term costs is a crucial condition for the development of an SEZ. It generates high
labor productivity, superior competitiveness, and attracts numerous investors,
especially large-scale investors, as well as high-skilled workforce for settlement and
employment. A weak infrastructure will increase the operating costs for production
and services facilities and make it difficult to attract investors, entrepreneurs, and
highly skilled personnel for settlement and employment. The economic and social
infrastructure must be developed in a synchronized manner, connected both
domestically and internationally, without any lagging behind; this is one of the

35
prerequisites for the success of an SEZ. The question arises: where does the
investment come from, considering that developing a comprehensive and modern
infrastructure requires significant capital investment? For developing countries,
such as Vietnam for example, the investment resources are still limited, and the
allocation needs to be spread out in order to maximize the achievement of the
objectives set by the Party and the National Assembly.
In many developing countries, there is a limited investment resource, and
various forms of SEZs can be managed by private or state entities. However, the
state also has a responsibility in developing the infrastructure, especially in the
initial stages. Specifically, this may include essential technical infrastructure such as
internal transportation roads, roads connecting to the SEZs, water supply systems
for production, domestic use, wastewater treatment, electricity supply,
telecommunications infrastructure, etc. Attracting strategic investors with global
vision and modern connectivity for the development of the SEZ infrastructure and
its operation is a matter of concern for many countries, especially those that are
developing.
In some more developed countries, the state allocates a significant portion of
the budget for investing in the development of SEZ infrastructure, ranging from
50% to 100% of the total investment capital for infrastructure. The important aspect
is that these resources are led by strategic investors to make the SEZs attractive and
outstanding. For developing countries with limited public resources, the priority is
to select strategic foreign investors who have the ability to provide long-term
comprehensive design advice. This can create conditions to invite public-private
partnership (PPP) or private investment models for continuous and connected
development without compromising long-term operational efficiency.
1.6.3. Mixed factors
In addition to subjective and objective factors, there are other factors that
have a “mixed” nature, as they partly represent objective conditions, but also reflect
subjective efforts to create better conditions.

36
a) Geographical location
SEZs need to be formed, built, and developed in strategically advantageous
locations that are convenient for trade and have high connectivity. These locations
should be close to major economic centers, large markets within the region and the
world, allowing for regional integration through road systems, air routes, maritime
routes, or railways. These areas may be underdeveloped, starting from a low base,
remote, and may not have a large population. Such areas are often relatively isolated
or create a unique sense of isolation. The selection of the location for an economic
zone needs to leverage its advantages and strengths to concentrate and spread
development. An important aspect is that once the economic zone is established, it
becomes a significant driving force for growth and facilitates more effective
interregional cooperation.
Currently, most successful SEZs worldwide are predominantly constructed in
strategically located positions, close to international sea routes and major economic
centers. These zones require low yet effective investments to enhance
competitiveness in production and business, serving as crucial platforms for
attracting investments. For instance, the Shenzhen SEZ (China) is situated adjacent
to Hong Kong, the Incheon Free Trade Zone (South Korea) is near major economic
centers of China and Japan, positioned on vital maritime and aviation routes
globally. The Batam SEZs (Indonesia) is located next to Singapore, along the
busiest maritime trade route worldwide (with over 50% of goods passing through
this area by sea), and Dubai (UAE) holds a significant position in the Middle East,
serving as a crucial maritime trade link between Asia and Europe [Aritenang, 2017].
The significance of geographical location is of utmost importance. Therefore, some
countries, like Laos, which is a neighboring country, also desire to establish SEZs;
however, the actual effectiveness might be limited. Simultaneously, favorable
natural conditions are only a prerequisite, as without the subjective factor of
integration into a global value chain network, the outcomes would also be limited.
b) High-quality human resources

37
The subjective factor closely linked to the objective factor is the quality of
human resources, utilizing talented individuals and attracting overseas talents. Local
human resources are crucial and subjective, but they face challenges in meeting the
diverse requirements of the economic zone. Therefore, objectively, it is necessary to
accept and retrain manpower from different localities and countries that are suitable
for the requirements.
Furthermore, during the utilization of human resources, there needs to be
adjustments based on on-site needs and other objective requirements. For an
economic zone, it requires a policy of prioritizing the recruitment of talented
individuals, especially for special zone managers, large enterprises, and various
other entities to enhance labor productivity, quality, efficiency, and competitiveness.
Moreover, it also demands synchronized human resources to achieve high
efficiency, rather than relying entirely on “imported” labor, as seen in current export
processing zones and industrial zones, which increase the demand for urban areas
for workers and their families. This is the interaction between objective and
subjective factors.
CONCLUSION OF CHAPTER 1
In general, chapter 1 delved into the theoretical issues surrounding the SEZ model.
The examination of these issues has shed light on the complexities and intricacies
involved in implementing and managing SEZs. The analysis revealed that the SEZ
model presents both opportunities and challenges. On the one hand, SEZs have the
potential to attract foreign direct investment, stimulate economic growth, and
enhance industrial development. They can create employment opportunities,
transfer technology, and foster innovation. On the other hand, concerns have been
raised about the potential negative consequences of SEZs, such as labor
exploitation, environmental degradation, and increased inequality. Furthermore, the
study highlighted the importance of considering the local context and specific

38
circumstances when designing and implementing SEZs. Factors such as
geographical location, institutional capacity, governance structures, and social
dynamics play a crucial role in shaping the outcomes and impacts of SEZs. Overall,
this research contributes to the existing literature on SEZs by providing a
comprehensive analysis of the theoretical issues associated with this model. The
findings underscore the need for a balanced and context-specific approach to SEZ
development, ensuring that the potential benefits are maximized while addressing
the challenges and mitigating the negative impacts. Further empirical research and
case studies are recommended to deepen our understanding of SEZs and inform
policy and practice in this field.

CHINA’S SHENZHEN SPECIAL ECONOMIC ZONE MODEL AND RECOMMENDATIONS FOR VIETNAM

CHINA’S SHENZHEN SPECIAL ECONOMIC ZONE MODEL AND RECOMMENDATIONS FOR VIETNAM

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CHINA’S SHENZHEN SPECIAL ECONOMIC ZONE MODEL AND RECOMMENDATIONS FOR VIETNAM