Establishing development zones doesn’t bring factories
        Author:  Peter Kin
    
       The success of the “Shenzhen Special Economic Zone” and “Singapore Suzhou Industrial Park” in investment promotion at the end of the last century arose the competition of governments across the country. Local governments have established thousands of development zones of varying sizes all over China. Local governments hope to absorb investment through the establishment of development zones, so as to quickly achieve local economic growth and tax increases. (By the way, the increase of employment has never been considered as one of the purposes of establishing a development zone by local governments. This phenomenon requires additional articles to explain.)

It is a very common that the scale of the factory grows from small to large, and the location of the factory extends from the birthplace to other regions or even other countries. The phenomenon mentioned above spread on a larger scale and in a wider geographical space due to the convenience of communication, transportation and other facilities brought by technological advancement. The “globalization” process that began at the end of the last century is a description of it. ("Globalization" seems to be challenging the most sturdy barriers of mankind - the borders of nations.)

The academia has been researching and analyzing the reasons for the distribution and movement of factories in geospatial space. Economic geography, regional economics, spatial economics, industrial cluster theory, evolutionary economic geography, etc. are all products of this effort.

Since the birth of modern factories in the British Industrial Revolution, the distribution and movement of factories in geospatial space has been the result of the independent decision-making of countless entrepreneurs. These decisions can be explained by the academic theories, but all explanations have nothing to do with the existence of industrial zones.

Historically, the Chinese-style development zone can be traced back to the Jurong Industrial Zone in Singapore in 1961 and the Kaohsiung Park in Taiwan, which was established in 1966. They were both authoritarian governments in developing countries.

Those governments set up a development zone and introduced factories from western countries to solve the problems of economic development. The industry developing path of Singapore and Taiwan are completely different from those of western countries. They are not committed to cultivating the development of local enterprises, but only hope to solve the problem of lacking local enterprises by introducing foreign companies.

Compared with the 360-year history of modern factory development since the British Industrial Revolution, Chinese-style industrial zones (or industrial zones in East Asia) only emerged 60 years ago. Chinese economic zones, such as “Shenzhen, Zhuhai, Shantou and Xiamen Special Economic Zones”, which first imitated the industrial zones of Singapore and Taiwan, did not begin until 1979. While in the western developed countries, there has not been any industrial zone owned and managed by the government.

Therefore, the emergence of factories and the development of industry have nothing to do with the development zone.

In fact, it is so easy for any authoritarian government to establish a development zone: delineate a region, relocate residents in the area, and complete infrastructure construction. As long as you have enough power and can borrow enough money, completing a development zone is a matter of no technical content and no suspense. Each development zone has a wonderful vision of filled with factories. It’s because the establishment of a development zone is so simple, plus the loose financial support of banks for local government financing platforms over the past few decades, resulting in thousands of Development Zones: National, provincial, municipal, county, and township development zones; from coastal to border, from urban to rural.

The problem is that the development zone does not create factories itself. But the development zone needs factories outside to fill the huge space of the development zone.

The development zone is only the provider of physical space for the plant: industrial land, industrial infrastructure and industrial plants. These are the easiest to find and the easiest to be replaced in all the conditions needed to build a factory. In terms of business operations, the operating costs of these physical spaces account for a small proportion of total operating costs. In any place and in any era, the competitiveness of a company has nothing to do with the size and cost of the physical space occupied by the enterprise.

Although the factory does not require a development zone, the development zone requires a factory.

If the development zone is regarded as one of the many suppliers of the factory, when the development zone has completed the construction of the infrastructure, it can be seen as the zone has just completed the production of its own products. Then investment promotion is selling its own products to the factory.

The two sides of the transaction have become such a pattern: one is a long-term global entrepreneur, and the other is a government official and a state-owned enterprise employee in the development zone. In the case of product homogenization and excessive quantities of the development zone, this competition will inevitably lead to “race to the bottom” – lower land prices, more incentives, more subsidies, in extreme cases, the development zones may directly invest in the factories that come to invest. Behind the competition between the development zones is the hard fact of the relationship between supply and demand in market economy.

The success of early development zones, whether Taiwan, Singapore or China's Shenzhen and Suzhou, should be understood as products under conditions of non-competitive competition. Where there is no condition for factory production and development, the local government attracts foreign investments through the establishment of “wild west” development zone, designs specific tax system (only within the development zone), special import and export, tailor-made land and labor policies. When other authoritarian governments of developing countries have learned this trick, the number of development zones has greatly exceeded the demand, which has made it difficult to attract investment and leads to ineffective investment in a large number of development zones.

The local government thought that when the infrastructure construction of the development zone was completed, there would be factories competing to enter and swarm. This assumption does not actually exist.