Building industrial parks and development zones is an important part of China's rapid economic growth and a salient feature of the country’s development model. Overseas economic and trade cooperation zones have become an essential approach to carry out the strategy of going global and have helped form a community with shared interests and future between China and Belt and Road partner countries. By leveraging respective strengths and potential, the overseas zones that have been participated in or built by China, and the people in host countries have worked together to seek common interests and ground for win-win cooperation and high-quality development.

A Thriving Picture of Overseas Economic and Trade Cooperation Zones

113 overseas economic and trade cooperation zones have been recorded by the Ministry of Commerce. Statistics on provincial-level government websites show that, by the end of 2019, 201 such zones had been built or were under construction by Chinese enterprises in 57 countries, with 138 in BRI countries. As of September 2018, the zones recorded by MOC had attracted 4,663 enterprises and $36.63 billion in investment, and paid $3.08 billion in taxes and fees to host countries. The zones, therefore, not only drive economic growth in host countries, but also help create jobs and facilitate the achievement of Sustainable Development Goals.

Due to natural resources, geographic location, labor costs, market size and other factors, the distribution of existing zones is concentrated and imbalanced, with zones placed mainly in developing countries and emerging economies in Asia, Africa, and Europe. Most host countries or regions are either countries near China (such as Russia, Pakistan, Thailand, Cambodia and Vietnam) or those that maintain sound political and economic relations with China (such as Mauritius, Zambia, Nigeria, Egypt and Ethiopia). Hence, building overseas economic and trade cooperation zones in developing countries or emerging economies is a new model of South-South cooperation, an example of building a community with a shared future for mankind, as proposed by China. These zones also serve as an engine for Belt and Road cooperation and development.

The year 2006 marked the beginning of a rapid increase in the number of the zones. Since 2011, seven or more new zones have been built every year, with 14 new ones created in 2015 alone. However, the increase slowed down after 2015, when MOC suspended relevant subsidies. This also reflects the significance of financial subsidies in the early stage of industrial parks.

Among the 20 national-level overseas economic and trade cooperation zones that passed review, the largest one (China-Belarus Industrial Park) occupies 91.5 square kilometers, while the smallest (Pengsheng Industrial Park in Uzbekistan) only takes up 1.02 square kilometers. Overall, the zones have an average area of 16.14 square kilometers. According to the investment disclosure made by 18 overseas parks, 72.22% of parks have investments of $500 million to $1 billion. The highest planned investment is $5.6 billion, while the lowest is only $100 million, with an average investment of $949 million.

The leading industries in these zones are mature domestically, including industries such as home appliances, textiles, machinery, electronics, and building materials. Based on their leading industries and functions, overseas industrial parks can be categorized as agricultural parks, light industrial parks, heavy industrial parks, logistics parks, high-tech parks, or comprehensive industrial parks. Among the 201 zones, 59 are agricultural parks (29.4%); 38 light industrial parks (18.9%); 26 heavy industrial parks (12.9%); 13 logistics parks (6.5%); 13 high-tech parks (6.5%) and 52 comprehensive industrial parks (25.9%). Most parks in BRI countries are agricultural parks, with the 43 agricultural parks accounting for 31.2% of the total. In conclusion, agricultural and industrial parks make up the largest proportion of the existing 201 zones, and some zones are becoming more diversified and higher-end.

Operators Face Multiple Challenges in the Zones

First, low profitability and long payback period. Local governments play a crucial role in the operation of domestic development zones of all kinds at all levels. On the one hand, the administration committee of development zones is in itself a government agency. On the other hand, even if enterprises run an overseas park, they also perform a substantial part of government functions. To boost the local economy, governments often offer development zones preferential policies and financial support. However, overseas industrial parks have at least three stakeholders: the host country government, operating companies in the parks, and settled enterprises. The operation of overseas industrial parks is more complex than those at home, because park operators need to strive to obtain as many preferential policies as possible from the host country government and earn as much revenue as possible from settled companies. Although overseas economic and trade cooperation zones have become an important platform for Chinese enterprises to invest abroad and a vital approach of the strategy of going global, they remain the outcome of commercial investment, and thus call for a clear and sustainable profit model. A survey by a research group in the Chinese Academy of International Trade and Economic Cooperation, MOC, shows that among the 42 overseas zones interviewed, five have made considerable profits (12%), 14 have made some profits (33%), and eight can guarantee operation (19%), while the remaining 15 are not yet profitable (36%). Overall, the current profitability of enterprises in parks is not encouraging. The success of a park is usually judged by three criteria: First, whether it makes contributions to the local community in the host country. Second, whether enterprises in the parent state make profit from their investment in the park. Third, whether park developers generate income. The third criterion, however, has not been met and remains a major obstacle when overseas parks draw on experience from domestic ones.

Second, a lack of top-level design in investment plans. Without an overall strategic plan, especially one at the national level, some parks are unclear about their role. In spite of their initial plan for leading industry, most zones often end up attracting companies in such industries as processing and manufacturing, commerce, logistics, service, and leisure. They fail to shape their own identities or advantages and neglect the economic conditions and needs of the local community, which does not help the zones carry out their plans and attract investment.

Third, insufficient funding and policy support. The central government has provided overseas zones with less than2 billion yuan in subsidies. No new financial support has been issued since 2015, when special subsidies were suspended. Unlike domestic parks, where local governments build public infrastructure, overseas parks depend solely on the investment of enterprises, which, therefore, are under great financial burden. In addition, policy support for overseas parks, offered by the MOC, Ministry of Finance, local governments and policy banks, remains unsystematic and inconsistent.

Multi-pronged Measures for the Sustainable Development of the Zones

Overseas zones have become a platform through which enterprises explore the international market while averting risk. The zones also serve as a timely firewall for overseas enterprises during emergencies. According to a UNCTAD report released at the end of March, direct international investment is projected to drop by 30-40% this year due to COVID-19. Therefore, it will become more important for overseas parks to attract investment from Chinese companies. The host countries of overseas parks have been only mildly affected by the pandemic. Preliminary data show that, as of the end of March, 4 out of 58 host countries had no COVID-19 cases, 11 countries had single-digit cases and 17 countries had double-digit cases. Therefore, these overseas parks can provide a sound environment for investment by Chinese enterprises during the pandemic, thereby substantially contributing to the high-quality development of parks.

First, build a multi-stakeholder community with shared interests to aid in the development of overseas parks. An effective community with shared interests is the key to the sustainable development of industrial parks. Overseas parks are built by companies, whose ultimate goal is profit. When parks strive to obtain preferential policies or special management rules from host countries, a balance must be struck between the interests of the host country government and those of park enterprises. It is therefore essential to build a community of shared interests with host country governments. It has been seen that enterprises can build cooperate with host countries to build joint-venture parks; a community of interests among the Chinese government, park enterprises and host country governments can better fuel the high-quality and sustainable development of these parks. Park developers need to make trade-offs in equity ratio and managerial decision-making authority.

Second, select the zones with exemplary strategic value. Specifically, relevant government departments should build strategic overseas parks in Belt and Road hub countries and regions. For example, we can learn from the examples of the China-Singapore Suzhou Industrial Park and the China-Egypt Suez Economic and Trade Cooperation Zone by building a three-tier operational mode for key parks, including intergovernmental coordination agencies and administration committees, as well as developing and operating enterprises in parks. This operational mode has two key features. First, it should have an efficient and pragmatic intergovernmental coordination mechanism, namely a regular and institutionalized communication mechanism between the national steering committee and the liaison body of the park’s competent authority. Second, the administration committee should not only provide management services, but also enjoy independence and decision-making power, and be entitled to communicate with relevant departments in the host country.

Finally, improve supporting policies. A coordination mechanism should be put in place for communication between overseas parks and China's MOC, MOF, the China Council for the Promotion of International Trade (CCPIT), the China Development Bank (CDB), the Export-Import Bank of China (CEXIM), the China Export & Credit Insurance Corporation (Sinosure) and related industrial associations. Currently, the top priorities are to quickly introduce financial support policies to lift funding pressure on overseas parks during the early stages of construction, while also attracting major high-impact projects with sound comprehensive benefits, thus helping form industrial belts of regional cooperation.

(Source: Chinese Social Sciences Today May 8, 2020)