A  tiny Irish town and China's rise to superpower status

A tiny Irish town and China's rise to superpower status

UNIDO helped with the information exchange between experts in Shannon and Chinese officials, and subsequently to the spread of SEZs across the world.

02 Mar 2017

A recent article in The Guardian newspaper, Shannon – a tiny Irish town inspires China’s economic boom, tells the story of how a special economic zone established in Ireland in 1959 was the catalyst for China’s dramatic economic boom in the late 20th century.

The Guardian article claims the key connection was the participation of JIANG Zemin, at the time a senior Vice Minister in charge of the State Import and Export Administration, in a three-week training programme on how to set up an industrial free zone held in Shannon in 1980: “At that time, Chinese leader DENG Xiaoping was experimenting with opening up the country’s economy and the idea of “testing” reforms in specific areas was appealing. The Shenzhen SEZ – China’s first – opened the same year Jiang Zemin returned from Shannon.”

When China’s then Premier, WEN Jiabao, visited Shannon in 2005, The Guardian continued, “He was the latest in a long line of high-level Chinese dignitaries to come and pay their respects to the site on the west coast of Ireland where they believe China’s rise to superpower status really began.”

Patrick Neveling, an academic who has carried out extensive research into the history of the world’s SEZs, thinks the Shannon-China connection is somewhat overstated, given that plans for the China's zones had been drawn up in 1977. However, he agrees that the measures introduced throughout the 1980s when China’s first special economic zones were established, shared many of the characteristics of the Shannon SEZ, including “an absence of corporate tax waivers in favour of a flat corporate tax of 15%, as well as administrative control of local SEZ authorities that extended beyond the industrial areas to workers' settlements”.

What the Guardian article omits and what Neveling stresses in his published work on the history of the SEZs is the involvement of the United Nations Industrial Development Organization (UNIDO), both in the information exchange between experts in Shannon and Chinese officials, and in the spread of SEZs across the world.

The training course in Shannon in which Jiang Zemin participated in 1980 was one of many organized by UNIDO in order to share knowledge about the development of free trade zones, export processing zones and enterprise zones, today know by the umbrella term, special economic zones. Jiang was one of a team of eight senior government officials from China who took part in a six-week study which visited SEZs in six countries, namely Ireland, Malaysia, Mexico, Philippines, Singapore and Sri Lanka. At the end of the trip, the delegation submitted mission reports and recommendations to the State Council and the National People's Congress. These inputs fed into the legislation concerning the operation of China’s first SEZs. (see Planting the seed for China's special economic zones development)

Shenzhen

UNIDO became the driving force in global SEZ promotion soon after it was established in 1966. As Neveling’s research shows, the decision to promote export processing zones was taken at the first session of UNIDO’s Industrial Development Board in 1967 when a group for export promotion was established as part of the Industrial Policies and Programming Division.

One of the group’s first successes was a technical assistance mission to Mauritius in 1969 which grew into a project providing industrial policy advice and assistance with the initial preparation for an industrial free zone. As a result, the Government of Mauritius was able to play a prominent role in attracting a large amount of foreign investment in the zone, which resulted in a positive impact on the economic front and created the so-called economic "miracle" of the 1970s. (see Industrial free zones boost Mauritius' export-led manufacturing)

In 1970, the UNIDO group conducted a global survey of industrial free zones (known later as SEZs). In 1972, UNIDO organized an international training workshop on export processing zones (EPZs) at the Shannon Free Airport Development Corporation (SFADCo), a partly state-owned development agency in the Republic of lreland, which was running an export processing zone attached to Shannon airport. Subsequently, a close partnership between UNIDO and the SFADCo developed.

A SFADCo affiliate, Peter Ryan, became the head of UNIDO’s group for export promotion and, from 1972 until well into the 1990s, a significant percentage of UNIDO's consultancy contracts for work on export processing zones went to SFADCo. One UNIDO consultant was Shannon entrepreneur, Tom Kelleher, who wrote the first Handbook on Export Processing Zones, published by UNIDO in 1976. The handbook was a comprehensive guide to establishing an EPZ, and included templates for organizational structures from EPZs in Shannon; Bataan, the Philippines; and Masan, Republic of Korea, as well as a blueprint act for setting up an EPZ by national law. The publication was widely distributed and as, Neveling notes, “many national EPZ laws strikingly resemble its suggestions”. (A later version of the handbook, Manual on Free Zones, also by Tom Kelleher, was published by UNIDO in 1993.)

In February 1978, representatives of UNIDO and of EPZ regulatory authorities from 29 countries gathered in Manila, Philippines, to officially form WEPZA, or the World Export Processing Zones Association as it was then known. From 1978 to 1985, WEPZA consisted of representatives of governments with EPZs and operated under the auspices of UNIDO.  For UNIDO, WEPZA provided crucial training programmes for zone officials. Other partner organizations also supplied UNIDO with studies to help improve EPZ performance:  the Asian Productivity Organization, which measured the productivity and efficiency of zones, and the International Labor Organization, which measured the social, economic, and employment-generation effects of zones.

The WEPZA became a regular partner of UNIDO EPZ projects, for example, helping establish EPZs in Eastern Europe where countries were keen to follow the example provided by China. It also worked with the World Bank which, during the 1980s and 90s, promoted structural adjustment programmes that included the establishment of EPZs in developing countries as a condition for loan agreements. The number of EPZs rose from 79 in 1975 to 197 in 1986 and 845 by 1997.

Today, the World Bank recognizes that while many of the traditional EPZ programmes have been successful in attracting investment and creating employment in the short term, they have “failed to remain sustainable when labour costs have risen or when preferential trade access no longer offers a sufficient advantage”. However, the Bank stresses the catalytic role zones can play in processes of economic growth and adjustment, and gives the examples of the many zones established in the 1970s and 1980s in East Asia’s “tiger economies” which were critical in facilitating their industrial development and upgrading processes.

The Bank also lauds the later adoption of the model by China where the launch of SEZs on a scale not seen previously “provided a platform for attracting FDI and not only supported the development of China’s export-oriented manufacturing sector, but also served as a catalyst for sweeping economic  reforms that later were extended throughout the country’’.

China's first special economic zones, in Shenzhen, Xiamen, Zhuhai and Shantou, contributed significantly to China's development. They permitted experimentation with market-oriented reforms, and acted as a catalyst for the efficient allocation of domestic and international resources. At the time Shenzhen was given SEZ status, it was just a small town. Now, 36 years on, it is a booming trade hub and one of China's largest cities. Its population grew from some 30,000 in 1979 to more than 10 million by 2015.

The editors of the Bank publication, Special Economic Zones: Progress, Emerging Challenges, and Future Directions, conclude that “although  the  nature, scale, and scope of their success or limitations will no doubt continue to be debated for decades to come, what is clear is that the attraction to policymakers of SEZs as an instrument of trade, investment, industrial, and  spatial policy is undiminished.”

-  Much of the information for the above was provided by Patrick Neveling, who is currently Researcher and Lecturer at the Department of Cultural Anthropology and Sociology, University of Utrecht, and an Associate at the Historical Institute of Berne University. Many of Neveling’s publications are available as open access here.

Further reading:

Building ideas from data and practice. The intellectual history of UNIDO (chapter 8)

Special economic zones should serve the purpose of smart urbanization: Interview with ADB's Jong Woo Kang