Chinese Special Economic Zones in the CIS Area

18 m.   |  2020-06-01

S pecial economic zones (SEZ) began to be formed in the 50s and 60s of the last century, mainly in the west. In the next decades, SEZs were established on the Asian continent. Although SEZs have a history of nearly half a century, they were integrated quite quickly into the whole logic of the world market economy’s development.

According to various estimates, there were more than 1000 SEZs in the world in the 1990s. However, the necessity to create and operate SEZs began to be highlighted especially in the last two decades.

SEZ is a trade area of economic significance provided by the state, were monetary, tax, customs and other privileged legal regulations and functions operate. SEZ is an economic integration platform, which in cooperation with state and private organizations of different countries, accumulates foreign financial and investment flows from different parts of the world on a single window basis with the possibility of a wide choice of economic activity.

SEZs are of great importance in terms of integrating the country’s national economy into the world market. It can play an important role in both ensuring the growth of the country’s economy and in the development of leading or poorly developed industries. SEZs also greatly contribute to the socio-economic and infrastructural development of the surrounding areas and settlements. SEZ creates a wide opportunities for local producers to enter foreign markets in cooperation with foreign companies. SEZ is also very important for foreign investment companies in terms of internationalization of their financial-economic capital.  

The activity of SEZs are directed to achieving the following goals:

  • attracting foreign direct investment,
  • job creation,
  • promoting economic reforms,
  • development and implementation of innovative economic –investment projects [1].

Over 1000 SEZs were established only in the last 5 years [2]. Recently, SEZs are widely used especially in developing countries. Currently, there are around 5400 SEZs in 147 countries [3].

Out of the 5400 SEZs, about 4772 are in developing countries: 2645 SEZs are in East Asia, 2543 of which in China. Out of the developing countries, 373 are located in India. There are 374 SEZs in developed countries, 105 of which in Europe and 262 in North America. As of 2019, China, the Philippines, India and Turkey are leading in the number of SEZ countries among the developing countries of the Asian continent.

As of 2019, Russia (130), Northern Macedonia (15), Serbia (14), Kazakhstan (10) and Kosovo (9) stand out among the transition countries in the number of SEZs. Among the developed countries in 2019, USA (262), Poland (21), Lithuania (16), Croatia (11) and Bulgaria (9) were leading in the number of SEZs.

Industrial, commercial, service (tourism, banking and other fields) can be distinguished among the main functions of SEZs. In recent years, the demand for creating scientific-technological, innovative SEZs is especially noticeable. Innovative centers, techno-parks and techno-polices are especially widespread.

Techno-park is a scientific technological integration platform, where research institutes, universities, business centers are presented with their innovative and technological projects. Techno-parks first began to be formed in the United States in the 1950s. In 1951, Stanford Research Park was created, the first American technology park built on a university education platform. The Silicon Valley is one of the first famous metropolises. As of mid-2000s, there were more than 200 techno-parks in the USA, more than 30% of the world’s technoparks. Currently there are more than 700 techno-parks in the world, most of which (about 87%) are in the USA, Western Europe and China [4].

Techno-parks began to develop in Europe since the 1980s and in Russia since the 1990s. Between 1995-2015, about 180 techno-parks were created in Russia.

In 1988, the first techno-park began to operate in China, and in the mid-2000s, there were already about 120. Chinese Government has been attaching great importance to the formation of SEZs in recent decades, considering them within “One Belt, One Road” Chinese strategic initiative’s framework.

By the end of 2017, Chinese companies built 99 industrial parks in 44 countries and regions. Among them, 75 parks are in 24 countries along the Belt and Road, attracting 3,879 enterprises with total investments of over 25 billion U.S. dollars and creating 219,000 jobs, according to China's commerce ministry [5].

In October 2010, the Government of Belarus and Chinese CAMC Engineering Corporation (CAMCE) [6] signed an agreement on the construction of a Chinese-Belarusian industrial park [7][8] in Belarus. The construction work of the Great Stone Industrial Park Free Economic Zone started in 2015.

The Great Stone Industrial Park was built in the Minsk region, in Belarus (25 km. from the capital city Minsk) and covers an area of 112.5 square km. and in close proximity to the international airport, railway lines, transnational highway Berlin-Moscow [9]. Production and residential areas, office and shopping and entertainment complexes, financial and research centers were built in the Industrial Park.

I ndustrial Park’s production resources are aimed at electronics, telecommunication, pharmaceuticals, biotechnologies, machine building, logistics, data storage and processing, as well as research, mining and technology. Based on the project, any company, regardless of country and economic capital, can have a representative office in the IP. The Government of Belarus provides preferential terms and attractive investment environment to companies wishing to operate in IP. The parties established the Chinese-Belarusian Industrial Park Development Company with an investment capital of $10 mil. to implement the “Great Stone” IP construction project. It should be noted, that Minsk had high expectations from the project’s investment opportunity, direct investment of which were amounted to about $2 bil. [10]. According to the results of late 2018, the investment amounted to $430 mil., $200 mil. of which was directed to the development of infrastructures: $225 mil. are resident’s investments [11]. Early in 2019, the contractual amount of investment by companies involved in the IP reached more than $1 bil. [12]. According to forecasts, in the end of 2020, there will be 70-100 representative offices with an investment capital of $2-2.5 bil. in the IP. In the end of 2018, the residents were 41, and there were 24 investment projects with the participation of Chinese capital [13].

In December 2018, the IP received the status of a special economic zone by the decree of the President of Belarus [14], by which the resident companies of the IP receive customs privileges for both logistics and production activities within the framework of the EEU. The issue of attracting investment from China in the Industrial Park. Dnipro city [15], in Ukraine is still in the process of negotiations. Recently the Chinese Donge Yike Panel CO., LTD, a major manufacturer of galvanized steel has shown an interest in this direction.

The activity of the IP is aimed at the production of electric cars, equipment, metallurgical, non-metallic mineral products and other fields. The IP will occupy an area of 60 hectares. The investment is estimated at about $200 mil. The project’s dates are 2017-2027 [16].

Numbers of SEZ and SEZ countries

In September 2019, the leadership of the Chinese province of Shanxi hosted the Moldova’s parliamentarians. During the meeting, the Moldovan side suggested the establishment of an industrial park in Moldova [17]. It should be noted, that the talks on a project to build a joint industrial park in Moldova are not a new fact. In 2017, Chinese Sinomec Company planned to build an industrial park to produce solar panels [18]. Currently, Huawei is interested in Moldovan IT parks [19].

Russian and Chinese trade and economic cooperation also contributes to the creation and development of joint SEZs. In June 2019, the 2020-2021 were officially declared as cross-Russian-Chinese scientific, technical and innovative cooperation years [20].

The Russian-Chinese trade and economic cooperation zone of Ussuri region (Primorsky Territory) operates since 2010, the construction of which started in 2006. It is one of the major bilateral non-energy projects between China and Russia’s Far East and envisages the production of shoes, textile, household appliances, construction materials and care spare parts.

In September 2018, Russian-Chinese Cooperation Development Program in Russia’s Far Eastern economic and investment spheres for 2018-2024 was signed [21]. Point 1.4 [22] of the program states: “Based on the fact that the Development of the Far East is determined by the national priority of the Russian Federation for the 21st century, Russia and China  recognize the development of trade, economic and investment cooperation in the RF Far East as an important area in bilateral relations” [23]. “Occupying the first place in terms of trade and investment cooperation with the Far East regions, the People’s Republic of China is a key foreign partner of the Russian Federation in accelerating the economic development of the Russian Far East” [24].

Russian side attaches a great importance to the development of investment opportunities in the free port area of Vladivostok in the Far East [25]. In the territories of advanced development and the free port of Vladivostok [26], 45 projects are being implemented with the participation of investors from China with an investment of $ 2.6 billion, which is 63% of all foreign investments in the Far Eastern Federal District [27]. The sides also cooperate on another 35 investment projects with a total volume of $17.8 bil.

In May 2018, the agreement on the China-Russia Tomsk State Wood Industry and Trade Cooperation Zone construction project was signed. The program is being implemented based on the agreement between the Governments of the Russian Federation and of the People’s Republic of China on cooperation in joint development of forest resources [28]. The construction is implemented by the Chinese leading AVIC Forestry Company. It is envisaged to attract $530 mil. worth investment in the first stage , $177 mil. of which was already invested in mid-2018. It plans to harvest and process 4.5 million cubic meters of wood annually [29].

At the annual meeting of the Russian-Chinese Business Advisory Committee held in September 2018, the Russia-China Investment Fund and Tus-Holding signed an agreement on creating a scientific and technology park in the former Tushino airfield in the north-west of Moscow. Total investment of the project is 90 bil. rubles. The Public Investment Fund (PIF) of Saudi Arabia, Mubadala Investment Company (UAE), Silk road fund and other international investors also participate in this construction. The project will create an advanced multifunctional technology park, which will include the largest innovation center in Russia, as well as sports, public, scientific, educational, residential and recreational facilities.

Developing Asia. Leading countries in the number of SEZs, 2019

RCIF and Tus-Holdings company also consider another joint program, which is the construction of an innovative park in the Skolkovo Innovation Centre’s territory [30], envisaging the establishment of multifunctional center with a total area of 70 thous. square meters. The investment value of the program is $100 mil. [31]. This high-tech center is designed to serve as a platform for promoting new startups [32].

C hina Chengtong International Investment Company has been operating in the Russian investment market for over 2 decades. Among the major joint investment projects were Greenwood 1 and Greenwood 2, which aimed at creating international business centers. The Greenwood 1 International Trade and Exhibition Complex was completed in 2010. Launched in 2017, the Greenwood 2 business park will be exploited in 2020 [33][34][35][36]. Total value of the project is $220 mil.

In June 2019, the agreement was signed with the participation of the Technopolis Moscow SEZ (RF), the SCO Economic Development Zone (PRC), ATEMHealthcarePartners (USA) and ThePharmaPartners (China), which envisaged creating a high-tech Chinese technology park Confucius on the territory of the Russian technopolis. In addition, the parties agreed to create a private equity fund in which partners from China, Russia and the United States will participate [37].

Based on the agreement the high-tech park Confucius will specialize in issues related to biotechnology, pharmaceuticals, medical equipment and related information technologies. It is also planned to create a center of traditional Chinese medicine, the services of which will be available to residents of Moscow as well. Currently, 180 high-tech companies are located on the territory of the Technopolis “Moscow” SEZ.

In April 2019, the Russian Direct Investment Fund (RDIF) and RCIF came to the agreement with Chinese Tus-Holdings Company on the joint creation of a scientific and technology park on the territory of Moscow State University named after Lomonosov [38]. The activities of the science and technology park will be aimed at supporting Russian-Chinese cooperation in science and high technology [39].

Pengsheng Industrial Park, located 70 km. from Tashkent, is the largest non-energy cooperation project between China and Uzbekistan. The Industrial Park occupies an area of 102 square km. and was built by the Chinese Wenzhou Jinsheng Trading Company Ltd in 2009, with a total investment of 99.4 million. The Industrial Park includes more than a dozen manufacturing companies in the fields of footwear, artificial leather, plumbing and other fields [40]. 1500 jobs were created in the IP. There are warehouses, office areas and a dormitory in the territory of the IP. In 2013 the Industrial Park produced more than $56 mil. worth of products, $32 mil. of which was exported [41].

In the end of 2018, the construction of a two-side science and technology park in the Yunusabad district of Tashkent in cooperation with the Ministry of Innovative Development of Uzbekistan started. Chinese medical center and a pharmaceutical factory will operate in the park. The investment of the construction of the Chinese Medical Center is $20 mil. and both traditional Chinese healing services and modern technological treatments will be provided. The construction of a pharmaceutical factory has already been completed where 8 types of medicines will be produced [42][43].

In the mid-2019, the Ministry of Innovative Development of Uzbekistan and Chinese Academy of Sciences signed an agreement on creating a joint medical techno-park in the Navoi Free Economic Zone in Uzbekistan [44], with which it was planned to establish a technological platform for the synthesis of pharmaceuticals. The construction of the techno-park is a necessity, as Uzbekistan still imports pharmaceuticals and now it will be possible to synthesize the materials on site [45]. The techno-park will be created together with the Chinese Topharman&VigoVita&CADDDC-CAS Consortium.

In September 2018, the Kazakh side hosted the management of the Chinese Holley Group Production Company in Tashkent. At the meeting, the sides discussed the construction project of Holly Tashkent Industrial Technopark, the investment value of which is $200 mil. The Chinese company expressed his willingness to attract large Chinese companies specializing in textile, pharmaceutical, microelectronics and in other industries. The project will allow to create 10 thousand new jobs [46], and exports of industrial products will amount to $1,5-2 billion annually [47].

In 2016, the construction process of a large concentration plant for processing zinc and lead ore began. The plant was scheduled to be commissioned in June 2017. At the initial stage, it will process about 100 thousand tons of ore per year [49]. In September 2014, the sides signed a memorandum of understanding for the construction of the Tajik and Chinese industrial zone in Istiklol city of Tajikistan. The total area of the industrial park is 690 thous. square meters. The Chinese side planned to invest $400 mil. It was planned to build 5 industrial enterprises in the Industrial Zone, including zinc and lead ore, chemical industry, cement and construction materials [48].

I n December 2014, the construction project of Textile Industrial Park of the Tajikistan Government and Chinese China’s Zhongtai Group և Xinjiang Production and Construction Corps companies, with an initial production capacity of 15 thous. tons of cotton fiber per year and the total production capacity is 52 thous. tons. Within the 10 months of 2019, a total of 12 thous. tons of fiber was produced in the industrial park [50].

In May 2017, within the framework of “One Belt, One Road” international forum held in Beijing, KTZE-Khorgos Gateway Company signed an investment agreement with COSCO Shipping Lines Co. Ltd corporation and Lianyungang Port Holding Group Co. Ltd company on the joint development of the “Khorgos-East Gate” Free Economic Zone. With this agreement, Chinese investors jointly purchased a 49% stake in the Khorgos Gateway Dirty Port. No data on the financial figures was reported. The agreement will impetus to the development of the SEZ Khorgos - East Gate and the creation of a large regional hub for the consolidation and distribution of cargo flows between Asia and Europe [52]. In the mid-2019, Kazakh and Chinese company Kazakhstan CHN-KZ electric industrial park group signed a memorandum of understanding on the construction of “Turkestan” Kazakh-Chinese Industrial Park in Turkestan Region of Kazakhstan. The project envisaged to attract $524 mil. investments. The Industrial Park will consist of a number of factories, which will produce generators, transformers, power distribution systems, batteries, home appliances and renewable energy sources. Besides Kazakhstan, the production will also be exported to Central Asia, the Customs Union, China and Europe. As a result of the full operation of the Industrial Park, it is planned to create 8 thous. workplaces. The project is financed by Silk road fund and the implementation period is between 2019-2022 [51].

With another agreement signed between Kazakh Kalishen, Sakhaman, TEA Company and Chinese Yichang KELISON Industrial Co., Ltd , it was planned to build a techno-park on the territory of the “Khorgos - East Gate” SEZ [53].

In 2017, Kyrgyzstan and China signed an agreement on the creation of an innovative agricultural park “Asian Star” through a grant on the basis of the Kyrgyz National Agrarian University. Located 60 km. from Bishkek, the techno-park will allow to increase the productivity and quality of vegetables and fruits [54].

There were talks about creating this techno-park since 2013. The park will cover an area of 5.67 square km. and greenhouses, logistic center, vegetable processing plants will be built there. It is planned to attract more than 20 companies with a total investment capital of $1 bil. In the next few years after the launch of the project, the park is expected to become a major regional center for meat production and supply. The major initiator and investor of this project is the Henan Guiyou group [55][56]. The construction of the park is expected to be completed in 2020.