Understanding Special Economic Zone Policy in China: A Conceptual Framework and Two Cases By Kun Cheng Master of Architecture, Washington University in St. Louis (2017) Bachelor of Architecture, Tsinghua University (2015) Submitted to the Department of Urban Studies and Planning in partial fulfillment of the requirements for the degree of Master in City Planning at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2019 © 2019 Kun Cheng. All Rights Reserved The author hereby grants to MIT the permission to reproduce and to distribute publicly paper and electronic copies of the thesis document in whole or in part in any medium now known or hereafter created. Author________________________________________________________________________ Department of Urban Studies and Planning May 23, 2019 Certified by ___________________________________________________________________ Professor Siqi Zheng Department of Urban Studies and Planning Thesis Supervisor Accepted by___________________________________________________________________ Professor of the Practice, Ceasar McDowell Co-Chair, MCP Committee Department of Urban Studies and Planning 2 Understanding Special Economic Zone Policy in China: A Conceptual Framework and Two Cases by Kun Cheng Submitted to the Department of Urban Studies and Planning on May 23, 2019, in partial fulfillment of the requirements for the degree of Master in City Planning ABSTRACT As a prominent place-based policy (PBP) in China, special economic zones (SEZ) contribute a substantial portion of GDP using very little land. Similar practices such as enterprise zones, industrial parks, and business districts widely exist in other parts of the world, but studies of such PBP’s effects in the United States and Europe show both positive and negative outcomes. Recent studies on China’s SEZs and industrial parks show a positive agglomeration and spillover effect, which indicate effective coordination through the visible hand—policy intervention. However, empirical studies also show problems of over-investment and spatial misallocation. To complement existing empirical evidence of the outcome of SEZs, I propose a conceptual framework to help understand the development model of China’s SEZs utilizing an analysis of two specific case studies, Bazhong New Economic Zone in Sichuan Province, and Gu’an High-tech Special Economic Zone in Hebei Province. In this framework, I propose three modules to examine an SEZ, including the formation of the central coordinator, the industry selection mechanism and outcome, and a conceptual cash flow model. This thesis finds that the SEZs which are collaborated with private developers are more likely to be successful than the Government-led SEZs. It discusses the reasons for and implications of this tendency. 3 4 ACKNOWLEDGEMENT I want to thank those who provided me with data in Bazhong New Economic Zone, including my interviewees. I’d also like to thank my advisor Professor Siqi Zheng, who guided me from my early research to the final stages of writing my thesis. Also, I want to thank my reader Professor Amy Glasmeier on providing sharp insights to challenge my thinking. I learned a tremendous amount from them. Finally, this thesis was produced in a difficult time of my life. I thank my family and all my friends for the support they have given to me. 5 6 CONTENT CHAPTER 1 ................................................................................................................................. 15 Special Economic Zone as A Prominent Place-Based Policy (PBP) In China ......................... 15 1.1 China’s Urbanization .............................................................................................................. 15 1.2 Special Economic Zones in China’s Context ......................................................................... 16 1.3 Theories On Placed-Based Policy ........................................................................................... 18 1.4 PBP Practices & Effects .......................................................................................................... 19 1.4.1 U.S. Practices ....................................................................................................................................... 20 1.4.2 European & Other Practices................................................................................................................. 21 1.5 Upside & Downside of China’s SEZ ...................................................................................... 22 CHAPTER 2 ................................................................................................................................. 23 Institutional Context & Conceptual Framework ........................................................................ 23 2.1 The General Role of Local Government in Urbanization .................................................... 23 2.1.1 Local’s Fiscal Burden .......................................................................................................................... 23 2.1.2 Land Management ............................................................................................................................... 24 2.1.3 Political Incentives ............................................................................................................................... 25 2.2 A Conceptual Framework....................................................................................................... 26 2.2.1 Fundamentals ....................................................................................................................................... 27 2.2.2 Formation of Central Coordinator ....................................................................................................... 28 2.2.3 Industry Selection Mechanism & Outcome ......................................................................................... 28 2.2.4 Economic Performance: Conceptual Cash Flow Model ...................................................................... 28 CHAPTER 3 ................................................................................................................................. 29 Two Cases: Gu’an SEZ & Bazhong SEZ ................................................................................... 29 3.1 Background .............................................................................................................................. 29 3.1.1 Background of Gu’an........................................................................................................................... 29 3.1.2 Background of Bazhong ...................................................................................................................... 31 3.2 Formation of Central Coordinator ........................................................................................ 34 3.2.1 Central Coordinator in Gu’an .............................................................................................................. 34 3.2.2 Central Coordinator in Bazhong .......................................................................................................... 39 3.3 Industry Selection Mechanism & Outcome .......................................................................... 46 3.3.1 Coordinator’s Strategy in Industry Attraction ..................................................................................... 46 3.3.2 Brief Analysis of Industry Selection in Gu’An SEZ ............................................................................ 47 3.3.2 Brief Analysis of Industry Selection in Bazhong SEZ ......................................................................... 50 3.3.3 Detailed Analysis of Industry Selection in Bazhong SEZ ................................................................... 51 3.4 Economic Performance: Conceptual Cash Flow Analysis ................................................... 67 3.4.1 Fiscal Status ......................................................................................................................................... 67 3.4.2 Conceptual Cash Flow Model .............................................................................................................. 68 CHAPTER 4 ................................................................................................................................. 71 Conclusions & Implications ........................................................................................................ 71 4.1 SEZs in China .......................................................................................................................... 71 7 4.2 Key Aspects of China’s SEZ ................................................................................................... 71 4.3 Two Cases & Limitations ........................................................................................................ 73 BIBLIOGRAPHY......................................................................................................................... 75 APPENDIX .................................................................................................................................. 79 8 LIST OF FIGURES Figure 1. China’s Urban Population Share. Data Source: United Nations, 2018. ........................ 15 Figure 2. Land Expropriation Process in China ............................................................................ 25 Figure 3. A Conceptual Framework for China’s