ACQUISITION OF TECHNOLOGICAL CAPABILITY THROUGH SPECIAL ECONOMIC ZONES (SEZS): THE CASE OF SHENZHEN SEZ

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Industry and Innovation, Volume 7, Number 2, 199–221, December 2000

ACQUISITION OF TECHNOLOGICAL

CAPABILITY THROUGH SPECIAL

ECONOMIC ZONES (SEZS): THE CASE

OF SHENZHEN SEZ1

XIE WEI

Special economic zones (SEZs) have been adopted by many countries, particularlyin the Asia region, as a popular means by which to foster and stimulate economic

development (Wong and Chu 1985; Oborne 1986). Encouraged by the success ofSEZs in other Asian regions and countries in the 1960s and 1970s, China set up fourSEZs in 1979, including one in Shenzhen.2 As a result of its extraordinary growth andsuccess, Shenzhen SEZ has itself become a positive example and impetus for the restof the world.3 Although a large number of SEZs are already in operation around theglobe (approximately 400), it is likely that a growing number of SEZs will continueto appear, both in Asia and worldwide.4 This is because SEZs have generally provedto be a successful means of fostering economic growth and prosperity. However,despite their general effectiveness, there do exist variations in the relative success ofSEZs both within China, and between China and other countries. For example, within

1 I would like to express my thanks to Professor Christian DeBresson for his early guidance and constant interest

during the research, and Mr Liu Jun for data collection. I am also indebted to Professor Mathews, an anonymous

referee and my colleagues for helpful advice and comments, and Elizabeth Thurbon for her time and patience toedit this paper. Finally, I am thankful to the Xiao Linshi Research Fund of the School of Economics and

Management of Tsinghua University and NSF of China, which funded much of the research for the paper (NSFResearch Project Reference: 79900005). The author takes sole responsibility for the views expressed in this paper.

2 An export processing zone (EPZ) is generally considered to be like the ‘‘free ports’’ established in the nineteenthcentury by Britain (Mathews 1999). Wong and Chu (1985) de�ne SEZs as the latest development of the concept of

free trade zones and EPZs. UNCTAD (1994) holds that EPZs are one of the most popular forms of SEZs forattracting FDI. While there do exist some differences between EPZs and SEZs, conditions under which SEZs and

EPZs operate are generally depicted as quite similar in the literature. In the �eld of SEZs studies, researchersgenerally employ an interpretation of a SEZ that is broader than common use of the term. Sometimes it applies to

any geographical area that receives one of two particular types of special policy treatments in the areas of taxationand investment. Sometimes the terms SEZ and EPZ are used interchangeably. The greatest difference between EPZs

and SEZs is that, EPZs are usually located in countries with a market economy, whereas SEZs are typically found inan economy transition from planned economy to market economy (Wong and Chu 1985). For convenience, in

most cases, the term SEZ is used throughout this paper.3 For example, Professor Amartya Sen delivered a lecture entitled ‘‘What we can learn from China: thoughts from

Shenzhen SEZ’’ at the Delhi School of Economics in November 1999.4 The question of SEZs has drawn much attention in Russia in recent years. A few selected regions such as

Kaliningrad, Nakhodka and Ingushetiia, have gained temporary status as special zones, with preferential taxtreatment for foreign trade and investment. In August 1998, the Russian government established the town of

Zelenograd as a SEZ to encourage high-tech investment. India recently planned to set up another six SEZs in thecoastal regions.

1366-2716 print/1469-8390 online/00/020199-23 © 2000 Taylor & Francis Ltd

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200 INDUSTRY AND INNOVATION

China, Guangdong’s other two SEZs lag far behind Shenzhen SEZ (Liao 1999). Indeed,Shenzhen SEZ is perhaps the most successful example of a SEZ in the world, havingenjoyed explosive growth (Kasliwal 1998).5 Shenzhen also stands in stark contrastwith some rather unsuccessful SEZs in other countries, including those near Bombayand the Kandla SEZ in India.6

As well as variations in the relative success of SEZs in achieving economic growth,variations also exist in the abilities of particular SEZs to sustain their performance.Whereas several SEZs initially brought about unprecedented growth, their growth didnot continue. Moreover, their importance gradually faded with time as the economyas a whole started to acquire the capabilities and resources that were formerlyconcentrated in the SEZs, thanks to special policy treatments in the areas of taxationand investment.7 For instance, three EPZs of Taiwan, namely Gaoxiong (Kaohsiung),Nanze and Taizhong, played an important role for economic development throughthe 1960s and the �rst half of the 1980s. In 1981, they accounted for no less than 7per cent of the overall export volume of the entire inland. In Korea, from 1974 to1979, exports from Masan SEZ represented 4 per cent of South Korea’s total exports(Wong and Chu 1985). However at present, the contribution of these zones in termsof exports and industrial output appears far less impressive—because the country asa whole has caught up with the �rms within the SEZ. This raises an importantquestion: what determines the long-term sustainable competitiveness of SEZs? Whydo some SEZs experience spurts of economic growth but fail to sustain them? Isit appropriate that SEZs be phased out of operation as a country successfullyindustrializes?

Since the end of the 1960s, an extensive body of literature on SEZs has evolved(EPZ Authority 1981; UNCTAD 1983), including works focused on Shenzhen SEZ(Vogel 1989; Thoburn 1990; Sung 1991; Zhang 1994; Wu 1996; Chan 1999; Ching1999; Li and Huang 1999). In addition to performance evaluation of SEZs,8 moststudies have focused on the debate concerning the role of SEZs in economicdevelopment, in terms of the kinds of bene�ts or constraints they may bestow.9 Somestudies stress the bene�ts of SEZs for achieving rapid growth. Arguments advanced infavour of SEZ development generally point to the positive role that SEZs can play inat least four ways: (i) overcoming a common problem experienced by less-developedcountries, namely the lack of resources required to make large-scale investments

5 Kasliwal (1998) argued that among the EPZs set up worldwide, one of the most successful examples is the entireprovince of Guangdong, including Shenzhen SEZ. Economic data on Shenzhen SEZ also include those of the two

rural districts, Baoan and Longgang. Shenzhen SEZ has been recognized by the Chinese government as animportant model of rapid economic growth and economic reforms in the transition from a centrally planned to a

market-based economy.6 There exist differences between EPZs in other Asian countries and the SEZs of China. For instance, Shenzhen SEZ

is the largest in scale among EPZs of other Asian countries. Secondly, in other Asian EPZs, foreign investments areusually con�ned to manufacturing, but economic activities in the Shenzhen SEZ are much more comprehensive,

embracing not only manufacturing but also agriculture, tourism, commerce and real estate development (Wongand Chu 1985).

7 I am grateful to the referee’s helpful advice and comments on this point.8 In terms of the utilization of foreign direct investment (FDI), export growth, employment generation, domestic

linkages and regional development (Fitting 1982; Wong and Chu 1985; Oborne 1986).9 For a critique of balanced and unbalanced growth see Nafziger (1990: 86-89).

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SPECIAL ECONOMIC ZONES 201

in all regions within a country simultaneously (Litwack and Yingyi 1998); (ii)experimentation-based learning and trade-based learning (USAID 1983); (iii) attractingForeign Direct Investment (FDI), and promoting export growth and employmentgeneration (UNIDO 1988); and (iv) facilitating economic liberalization, includingtrade, �nancial and institutional liberalization (Wu 1996). Others emphasize thelimitations and disadvantages of SEZs. Potential drawbacks commonly identi�edinclude: (i) the idea that as interconnected relations and complementarities existamong regions and sectors, all sectors and regions should be developed simulta-neously, thus making SEZs an inappropriate choice for less-developed countries(Murphy et al. 1989; Nafziger 1990); (ii) the limited learning related to non-complexassembly work (Zhou 1984); (iii) the idea that contribution and performance seem tobe less important when viewed from a different angle, because of possibly inef�cientdistribution of resources (Sufen 1993); and (iv) the risk of increased economicdisparity among regions within a country and the resulting risk of social instability(Lin 1997).

In this paper I focus on the role played by SEZs in accelerating technology transfer(UNCTAD 1994). In the �eld of innovation studies, quite a number of books andpapers have been written on the subject of acquisition of technological capability indeveloping countries.10 Several papers have developed the model of acquisition oftechnological capability in developing countries (Hobday 1995; Mathews 1996), whilesome have been concerned speci�cally with the case of China (Hendryx 1986;Stewart 1988, 1992; De Bruijn and Jia 1993; Andreosso and Qian 1999). Surprisinglylittle attention has been paid to the particular issue of technology transfer in SEZs(UNCTAD 1994; Liang and Nkasu 1997; Mathews 1999), or to the development oftechnological capability in SEZs.

This paper seeks to �ll this gap in the literature, by examining the followingquestions. (1) How, in a rural zone, has indigenous technological capability beenacquired in Shenzhen SEZ? (2) What role is played by the municipal governments inthe process? (3) What kinds of policies were helpful in fostering acquisition oftechnological capability in SEZs? Highlighting the acquisition of technological capabil-ity through a SEZ system, this paper draws lessons concerning possible recipes forsuccess, which may be of interest to other developing countries, particularly if theyare currently attempting to emulate the success of Shenzhen SEZ.

SHENZHEN SEZIn 1978, Shenzhen was a small border town located in Guangdong province with apopulation of about 20,000.11 When it was designated as China’s �rst SEZ in 1979,Shenzhen boasted nothing more than a few thousand hovel-dwelling farmers, andonly 26 small factories with a total industrial output of less than US$10,000. Shenzhen’s

10 See for example Bell (1984), Dahlman et al. (1987), Enos and Pack (1987), Katz (1987), Amsden (1989), Enos(1991), Bell and Pavitt (1992), Kim Linsu and Dahlman (1992), Kim Linsu (1997), Mathews (1999), and Mathews

and Cho (1999).11 Shenzhen Municipal Government, formerly named Baoan county, is about 2,020 square kilometres.

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TABLE 1: STRUCTURE OF GDP IN SHENZHEN SEZ (PER CENT)

1979 1980 1985 1990 1995 1997 1998

Primary industry 37.0 28.9 6.7 4.1 1.6 1.4 1.2Secondary industry 20.5 26.0 41.9 44.8 52.4 49.3 49.7Tertiary industry 42.5 45.1 51.4 51.1 46.0 49.3 49.1

Sources: Shenzhen Special Zone Daily (7 April 1999) and SBSZ (various years).

major activity was agriculture. Food products represented 61 per cent of the industrialproduction revenue.

After 20 years of development, Shenzhen SEZ has evolved into a modern city of3.5 million people with a per capita GDP of approximately US$4,000. Over its periodof development, the annual rate of GDP growth reached 32 per cent, while the shareof primary industry in GDP steadily declined as shares of secondary and tertiaryindustries increased notably, as shown in Table 1.

As well as rapid growth, the Shenzhen SEZ has built the necessary technologicalcapability to enhance the competitiveness of economy. In 1998, as shown in Table 2,Shenzhen accounted for 14 per cent of world output in �oppy disks, 6.2 per cent ofoutput of PC motherboards, nearly 8 per cent of hard disk drives, and 10 per cent of

TABLE 2: MARKET SHARE OF SHENZHEN SEZS’ MAIN PRODUCTS IN

CHINESE AND WORLD MARKET (PER CENT)

Domestic Chinesemarket World market

Main products 1994 1998 1994 1998

Floppy disk 80 85 10 14Motherboard 89 82 10 6.23Printer 80 42 5 –Hard disk drive 80 60 3 7.8Monitor 51 72 2 –Clock and watch – – > 25 23Colour TV sets 20 41 – –Magnetic head – – – > 10CT – 80 – –LCD 90 70 – –Personal computer 35 30 – –Wireless telephone 30 33 – –Switch 30 50 – –

Sources: STBSZ (1995, 1998); Shenzhen Special Zone Daily (26 November1998, 12 December 1998, 21 May 2000); Shenzhen Business Newspaper(29 March 1999, 31 May 1996, 14 March 2000); People’s Daily (26 November1999); The Market Newspaper (27 November 1998).

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FIGURE 1: THE SHARE OF HIGH TECHNOLOGIES IN TOTAL INDUSTRIAL OUTPUT (PER CENT).

Source: Shenzhen Special Zone Daily (7 April 1999).

magnetic heads. It accounted for 70 per cent of Chinese output in liquid crystaldisplays (LCDs), for 33 per cent of Chinese output of digital wireless telephones, for30 per cent of personal computers, and no less than 85 per cent of Chinese outputof �oppy disks.

Moreover, the manufacturing industries within Shenzhen SEZ have been steadilyupgrading in terms of technological sophistication. As shown in Figure 1, ShenzhenSEZ is becoming a centre for high-technology industries, indeed a ‘‘new technologytiger’’ in its own right (Guynne 1993). In 1998, high-technology industries accountedfor nearly 40 per cent of industrial output within Shenzhen SEZ. High-technologyindustries, rather than labour-intensive industries, now support Shenzhen SEZ’sdynamic economy.

SEZ establishment and its purpose

Before 1978, China was an autarkic economy, in which foreign investment andoperations were closed, except for Soviet Union assistance in the 1950s. Under theleadership of Deng Xiaoping, China opened its economy to foreign trade andinvestment in order to close the growing gaps between China’s technology andef�ciency levels and those of the developed economies. After 30 years of communismand complete state control of the economy, China designated four SEZs as laboratoriesfor its experiments with market economy and foreign investment. These wereShenzhen SEZ (next to Hong Kong), Zhuhai SEZ (next to Macau), Xiamen SEZ andShantou SEZ (these last two across the Taiwan Strait opposite Taiwan). The rationalebehind the establishment of these zones was that if foreign participation in theindustrialization programme were to be applied immediately to the economy as awhole, con�ict with existing political, economic and social systems would probablyemerge. Therefore, the openness was con�ned at �rst to the designated SEZs.

Following the experience of other countries, the goal of establishing SEZs inChina was to foster and stimulate economic development through attracting foreigninvestment, expanding exports, and technology imports. Of course, as a test of the‘‘Open Door’’ policy, the success or failure of SEZs would have important policyimplications for further economic liberalization of China.

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TABLE 3: REGIONAL SHARES IN THE NATIONAL FDI (PER CENT)

1979–84 1985 1988 1990 1995 1997 1998

11 open coastal provincesa 79 80 77 79 82 82 82Of which:Guangdong 66 60 49 46 27 32 323 SEZs of Guangdong 29 26 22 18 26 27 –Shenzhen SEZ of Guangdong 21 19 16 14 23 14 14

Source: Author’s calculations based on China Statistical Yearbook and StatisticalYearbook of Chinese Economy.Note: In this table, all the �gures exclude FDI sponsored by various central ministries.aThe 11 open coastal provinces (OCPs) cover Fujian province, Guangdong province,Guangxi province, Hainan province, Hebei province, Jiangsu province, Liaoning province,Shandong province, Zhejiang province, Shanghai and Tianjin.

Technology transfer through Foreign Direct Investment

Shenzhen SEZ was, in the early stages, a technologically backward zone lacking incapital with only limited access to international markets. In the short-term therefore,production and managerial know-how and capital had to be imported. The attractionof overseas capital and technology was accorded a high priority in the Shenzhen SEZ.

In 1979, the incentive package devised for the SEZs was announced for Shenzhen,Zhuhai and Shantou SEZs (Liu 1986). The fundamental incentive system was designedto attract foreign direct investment (FDI) via the following measures (Wong andChu 1985; Oborne 1986; Lin 1997): streamlined administrative control; relativeindependence for local planning authorities; direct access to provincial and centrallevel planning units; access to tax breaks; free or low duties on imported equipmentand production materials; free or low-rent business accommodation; �exibility inhiring and �ring workers; depreciation allowances; negotiated limited access to thedomestic Chinese market for goods produced within SEZs; and residence and workpermits and income tax exemptions for foreigners working within the SEZs.12 AllSEZs were treated equally under the incentive scheme.

By the end of 1998, more than US$12 billion in FDI had �owed into the ShenzhenSEZ. Regional percentage shares of the national FDI total since 1979 are shown inTable 3. Interestingly, through the 1980s and 1990s, FDI was concentrated in the 11so-called opened coastal provinces (OCPs). Of total FDI in�ows to China during the1994–98 period, their share of FDI has remained about 82 per cent. Shenzhen SEZhas consistently been the leading destination. In almost all years under investigation,its FDI intake was no less than that of any single province or municipality in China,including Shanghai and Beijing.

The success of Shenzhen SEZ in attracting FDI is a result of the following factors:

(1) Low-cost labour surplus. Agricultural reforms have released the underlying labour

12 This incentive package has been evolving over the past two decades, for the most part by lowering taxes and

extending duty free status to new categories of articles imported into the SEZs. For example, the preferentialtreatment was originally granted for a �ve-year period, and later extended to 10 years.

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surplus in the Chinese countryside. The wage of the average Chinese worker,even in Shenzhen SEZ is about one-tenth that of the average Hong Kong worker.

(2) Preferential treatment for FDI. SEZs have preferential treatment for FDI, includinga better incentive package to attract foreign capital than other Asian regions(Wong and Chu 1985; Liu 1986).

(3) Geographical proximity to Hong Kong. The global city of Hong Kong has beena major source of FDI. Hong Kong and Shenzhen also have similar culturalbackground and common language, so mutual communication is very convenientand transport cost is low, even more than with Zhuhai (next to Macao).

In sum, attracting overseas capital was relatively easy in Shenzhen SEZ because ofits geographical advantage and preferential terms for FDI.13 However, it is importantto note that technological capability is not the automatic by-product of FDI (Bell andPavitt 1992, 1995). Acquisition of technological capability is complex and timeconsuming, and sometimes it is necessary for the public sectors to act as collectiverisk-taker in up-grading technological capability (Mathews 1999).

ACQUISITION OF TECHNOLOGICAL CAPABILITY WITHIN SHENZHEN SEZThe acquisition of technological capability through FDI in Shenzhen SEZ can bediscussed as a process that moves through three stages: a formative stage, a labour-intensive stage and a technology-intensive stage. This provides a platform for discus-sion of the technological enhancement process.

Stage 1: Formative stage of the Shenzhen SEZ

In 1981, as Table 4 shows, during the early stages of development, more than two-thirds (67.8 per cent) of FDI in Shenzhen went to tourism and real estate developmentand only 16.3 per cent to manufacturing activity. Tourism and real estate developmentwere initially more successful than manufacturing in attracting overseas capital toShenzhen SEZ because of inadequate infrastructure (such as unreliable supplies ofelectricity and water, and a lack of housing and communication links). Investment inmanufacturing also requires a large capital outlay and a longer period of return oninvestment (ROI) which involves an inherent risk, whereas in real estate developmentthe period of return is shorter and pro�t margins are higher. FDI in tourist industriescan be explained by the relative ease with which such investment is recouped, giventhat tourism caters exclusively for overseas visitors in possession of hard foreigncurrencies (Wong and Chu 1985; Changyu 1994). A third factor in the relative scarcityof manufacturing FDI was a lack of adequate institutional framework.

After the Shenzhen SEZ authority realized this problem, massive investments weremade in infrastructure development.14 Up until August 1982, over US$265 million

13 Compared with other long-established EPZs in other Asian countries, Shenzhen SEZ offers two new incentives:one is more preferential treatment such as reduced land utility costs and longer tax exemptions. The other is to

accommodate foreign investors’ interests by allowing selected FDI to target the Chinese domestic market(Shenzhen Special Zone Daily 24 January 1983).

14 Sit and Wong’s (1988) survey shows that transport and electricity are the major dif�culties encountered by theHong Kong partners.

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TABLE 4: THE DISTRIBUTION OF FDI IN SHENZHEN

SEZ: 1981

Amount of Proportion ofinvestment total investment

Item (HK$ million) (%)

Agriculture 114.1 4.13Manufacturing 450.2 16.30Commercial 217.7 7.90Real estate/housing 1,090.2 39.50Transportation 6.5 0.24Tourism 781.9 28.30Others 100.1 3.63

Source: Kwan Yiu Wong, Shenzhen Special EconomicZone: China’s Experience in Modernization (Hong KongGeographical Association, 1982), Economic Reporter,No. 45, 11 November 1981, p. 8 and Shenzhen SpecialZone Daily (6 July 1982).Note: Figures exclude FDI sponsored by Shekou District.

was spent for such purposes in the Shenzhen SEZ, with overseas investors contributingabout one-third. In particular, most high-rise housing in Shenzhen was built by HongKong construction companies.15 In the meantime, a lack of ef�cient administrative,legal and �nancial systems had also deterred many potential investors from under-taking large-scale manufacturing investments. They preferred to wait and see howthings developed before committing themselves. Then, the Shenzhen SEZ authoritiesreformed the structure of government and issued some legal regulations, and workedhard to improve the infrastructure and cut down bureaucracy in Shenzhen in orderto interact smoothly with foreign investors and attract more FDI.

In summary, while industrial growth was originally to be top priority, with industrialproduction forming the basis of the zone’s economy, it was not possible to ful�l thisobjective during the formative stage of Shenzhen SEZ due to the lack of well-developed energy, transportation and telecommunications systems.

Stage 2: Labour-intensive stage of development

At the end of 1982, Shenzhen SEZ issued guidelines regarding the sectors in whichFDI should focus, sending a clear ‘‘signal’’ to foreign investors. Since then, with thehelp of ever-improving economic infrastructure and business-friendly government,the number of investment projects in the manufacturing industry began to increase.Initially, most foreign direct investors in manufacturing came from Hong Kong. Theaverage investment for each manufacturing project was small and mainly involvedlabour-intensive manufacturing activities in mature industries (SBSZ 1985; Sit andWong 1988).

15 Shenzhen Special Zone Daily 24 December 1982.

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TABLE 5: MAIN DIFFERENCES AMONG THE THREE FORMS OF FDI IN CHINA

Items Joint ventures Co-operation Wholly owned

Minimum foreign investment(per cent) 25% No limit 100%

Needing legal status Yes No YesRequired asset evaluation before

set up Yes No NoDecision of share By value By contract Information not

availableLimitation of operating years > 10 None NoneMethod of receiving back capital Pro�ts dividend Many methods No limitsManagement Shared By contract Information not

availableTax levy One law Two laws One law

The following factors may explain this. At that time, Hong Kong was readjusting itsindustrial set-up due to rises in labour and land costs. In the meantime, China had alot of semi-skilled and unskilled low paid labour in the countryside. Lots of potentialcomplementarities existed between the two partners. Shenzhen SEZ was lackingtechnological and marketing capability and funds, but Hong Kong had suf�cient fundsand technological capability in a number of industrial areas. The Qishan furniturefactory established in 1985 under the arrangement of co-operative production betweenHong Kong and Shenzhen SEZ provides a good example of this. Initially, the partnerswere not equal in status. The Hong Kong party, as the dominant partner, providedthe capital, equipment, management skills and technology, and was responsible forsales products in Hong Kong. The Shenzhen SEZ partner provided the labour andland in exchange for learning opportunity. Through two years of co-operation, as theShenzhen partner gained experience and skills, they established an equity jointventure.

The Shenzhen SEZ government, in order to channel the necessary technology andcapital to manufacturing, had devised four �exible and practical forms of foreign�nancial participation in projects: joint venture; co-operation production; whollyforeign-owned companies; and other direct investment. FDI �ows came into ShenzhenSEZ mainly through three kinds of vehicles: wholly owned subsidiaries, joint venturesand co-operative �rms, as shown in Table 5.

Within the category of foreign investment, there is also the category ‘‘other directinvestment’’, with a distinct operating mechanism: it usually includes processing andassembly, compensation trade and international leasing, shown in Table 6. In thecategory ‘‘other direct investment’’, the most common is ‘‘processing and assembly’’.Table 6 demonstrates that at the setting-up stage between 1979 and 1984, in additionto ‘‘foreign direct investment’’, ‘‘processing and assembly’’ also played an importantrole for �rms of Shenzhen SEZ with less technological capability and capital. In somerespects, it was an appropriate entry strategy. For example, Konka Group was the

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No. 1 manufacturer of colour TV sets in China in 1999. It evolved from a co-operativearrangement between Shenzhen and Hong Kong under the category of ‘‘processingand assembly’’. Under this arrangement, Konka learned necessary production skillsand accumulated capital through assembling tape recorders for international orders.Just one year later, Konka established a joint venture with the same Hong Kongpartner and began to assemble colour TV sets in 1984. For �rms of Shenzhen SEZ,lacking in capital and technology, ‘‘processing, assembly and compensation trade’’ isa suitable choice at the setting-up stage.

During the period 1980–90, more than 90 per cent of ‘‘processing and assemblyand compensation trade’’ partners came from Hong Kong (Nan 1995). At this stage,the key industries were the labour-intensive processing light industries such asclothing, toys, shoes, packing and bicycles. Cheap labour combined with guaranteedproduction capability only involved minor technological adaptation capability. Outputincreased for the domestic Chinese market and the overseas export market. In theoverseas market, the competitive advantage was the low cost. In the domestic Chinesemarket, advantage was based upon product novelty (overseas product design andfashion) and quality (compared to other enterprises in other Chinese regions, sup-ported by more advanced technology, equipment and better quality control). Those�rms within Shenzhen SEZ generally supplied the domestic middle class with goodsthat would not have been realistic a decade ago.

In this latter process, enterprises needed to acquire technological adaptive capabilityin order to succeed in the domestic Chinese market. They needed the capabilities toachieve the following kinds of activity: change the product in accordance with localmarket conditions; adapt product and/or process to take account of special featuresof local raw material supplies; adapt the process to local physical conditions (climate,temperature, etc.); modify the process to take account of domestic Chinese marketsize; and adapt process technology to take account of different relative prices offactors of production.

While Hong Kong �rms came mostly to use Shenzhen SEZ’s low-cost labour as amanufacturing base to export or for sales in the domestic Chinese market, theShenzhen SEZ had an incentive to welcome them in order to gain access to foreigncapital and technology. The ability of FDI to perform successfully in large domesticChinese and export markets, however, was dependent upon how effectively theycould transfer their technological capability. Technological learning in ‘‘processingand assembly and compensation trade’’ enterprises was signi�cant. Seventy per centof these enterprises were technologically upgraded to various extents (Lu 1993).Through the learning process, ‘‘processing and assembly and compensation trade’’enterprises accumulated the necessary production experience and improved theproduction capability signi�cantly. They have now accumulated manufacturing experi-ence to the extent of being able to design their products, make samples and manageproduction inside China.

During this development stage, the government performed three critical roles,encompassing the formulation of a development plan, the development of a strategyfor channelling FDI, and providing for a constant supply of labour.

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Formulation of a development plan of Shenzhen SEZ. Although the newly estab-lished Shenzhen SEZ government preferred factories that used advanced technology,this emphasis on technological capability acquisition re�ects a concern with promot-ing its long-term development. Incentives were provided for foreign investors withadvanced technologies. However, the inadequate supply of local technicians, engin-eers and other technologically ancillary facilities was a major impediment to theirestablishment.

In fact, initially, Shenzhen SEZ aimed at attracting ‘‘high-technology’’ transfers, andbegan to allow �rms that were willing to transfer high technologies special salesaccess to the domestic Chinese market. Without de�ning the term carefully and givenlow starting technological capability in Shenzhen SEZ, ‘‘high-technology’’ transfer wasimpossible. The government then took a �exible and pragmatic attitude. Governmentrevised the incentive packages in 1984 and dropped the word ‘‘high technology’’from the text, and granted incentives to �rms within labour-intensive industries, thatmerely transferred some ‘‘technology’’ which was needed and was in accordance withthe absorptive capability in the area.

Speci�c FDI strategy. This referred to as ‘‘Liangtou zaiwai’’ (placing two headsoutside). This means relying on the outside world for both input supplies (new‘‘hardware’’, ‘‘disembodied technology’’ and capital) and market outlets. China hadbeen cut off for so long from the outside world that there was an obvious lack ofknowledge of Western consumer tastes, which made exporting dif�cult. Hong Kong�rms did much to alleviate this. This strategy was easy to implement at low risk.Chinese partners thus needed to ensure not only that their Hong Kong partner hadaccess to capital, but also that they could market the output and help with production(Lu 1993). Between 1988 and 1994, Konka Group not only sold products in thedomestic market under their own brand name, but also exported products to othercountries under the brand name of foreign companies provided by vendors.

Competitive position in the labour-intensive industries. Shenzhen SEZ was origin-ally a small town with a relatively small population. The chronic problem in thelabour-intensive stages of development was the maintenance of an adequate supplyof labour. Shenzhen SEZ government set up a special company, the Labour ServicesCompany, which provided manufacturers with candidate employees in order to keepthe competitiveness in the labour-intensive industries. Most of the workers werebrought into the Shenzhen SEZ by this company. This resulted in migration fromother Chinese regions to Shenzhen, and the population of Shenzhen SEZ experienceda dramatic growth over ten years (Parry 1992).

Stage 3: Technology-intensive stage of development

Towards the end of the 1980s, the Shenzhen SEZ authorities began to de�ne theirdevelopment objectives more clearly, and to formulate policies in greater detail toattract foreign investment. They also shifted back their focus to technological-intensiveindustries, by way of response to two main changes in the local economic situation.

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(i) Cost of land. The phenomenal rise in the price of land and rents in ShenzhenSEZ (Guynne 1993). Shenzhen was no longer a suitable place to focus on labour-intensive manufacturing activities (The Economist 1995). The costs of land and labourin the Shenzhen SEZ, though still low compared to Hong Kong and other East Asiantigers, had risen over the years. Land prices in the SEZ were several times those foundin inland China, and rising labour costs had damaged competitiveness. Faced withincreasing costs, many companies based in Shenzhen SEZ were beginning to relocateto other parts of China.

(ii) Competition from inland China. Encouraged by the success stories inattracting foreign investment, many municipalities in China had sought to by-passcentral regulations by taking steps to offer potential overseas investors additionalbene�ts such as concessions on land rentals, labour charges and other local levies.Such preferential treatment often outweighed the bene�ts Shenzhen SEZ could offer(Zhang 1994). The nearly exclusive preferential status-trade and investment incentivesonce unique to the Shenzhen SEZ had now spread to other parts of the country.Shenzhen SEZ’s labour-intensive products faced stiff competition from inland China.For example, Huizhou city, which had no industry in the late 1970s, produced 40 percent of China’s telephones in 1993 and posed a serious challenge to manufacturersof telephones within Shenzhen SEZ.

The Shenzhen SEZ government realized that the two trends constituted a seriousthreat to the further development of Shenzhen SEZ, and that the SEZ was at astructural turning point. The municipal government acknowledged that technologicalcapability played an important role in the process of industrialization (Lall 1992) andcould help Shenzhen SEZ shift from a stage of very rapid labour-intensive growth into atechnology-intensive stage. As a response to the challenges, the municipal governmentgradually shifted their policy priorities to technology-intensive industries and issueda number of policies such as the: ‘‘science and technology development plan’’, the‘‘strategy of science and technology development’’, the ‘‘high and new technology-based industries development plan’’, and so on (STBSZ 1995, 1998). The introductionof technology-intensive production units was being encouraged under a deliberatepolicy, including such measures as the following.

1. Special allowances and incentives

The extension of tax holidays for technologically advanced ventures, and priorities inobtaining the services of public utilities and various other concessions. All jointventures and wholly foreign enterprises received the right to exchange foreignexchange among themselves, and were subject to simpler export and export licensingprocedures. In China, more attractive incentives such as tax exemption are given toforeign investment projects which are quali�ed as ‘‘technologically advanced’’ in orderto encourage them to transfer their technologies to China (Xie and Wu 1997). Fortechnologically advanced enterprises established in Shenzhen SEZ, central governmentalso accommodated foreign investors’ interests by allowing technologically selectedjoint ventures to target the domestic Chinese market. FDI also played an important

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role in this stage, 80 per cent of enterprises engaged in high-technology industriesare joint ventures. Contrary to prior practice, most leading-edge technology nowcomes from developed countries, rather than from Hong Kong. Between 1992 and1999, more than 100 multinationals invested in at least 200 projects under variousarrangements. Some of these were �rst rank companies, including Dupont, DEC,Emerson, Compaq, HP, Xerox, Intel and IBM from the United States; Toppan Printing,Nichmen, Hitachi, Sanyo, Mitsui, Ricoh, Mitsubishi, National, Dai Nichmen andKomatu from Japan; Samsung Electronics from Korea; and Philips, Siemens andABB from Europe. The result was an inexorable shift towards higher value-addingactivities.16

2. Technological infrastructure support

(i) Quality support services. Shenzhen Quality Assurance Centre was establishedin 1992, funded by Shenzhen Technology Monitoring Bureau. Its services helpmanufacturers build quality into their design, management and production.

(ii) Productivity enhancement services. The government started to fund theShenzhen productivity promotion centre to maintain a wide range of productivityenhancement services, including laboratory facilities, specialized training courses,and a variety of consultancies.

(iii) Information services. The Shenzhen Science and Technology Bureau estab-lished the Technology Market Centre in 1993. The purpose of the centre is to presentthe information of new technology for industrial �rms, and promote the diffusion ofnew technology. In addition to the centre, The Shenzhen Institute of Science andTechnology Information also plays a similar role in innovation process and technologyacquisition.

(iv) Protecting intellectual property. With the source of imported technologies andforeign investors changing, a concern of companies transferring technologies toShenzhen SEZ is the loss of intellectual property. In order to encourage the transferof more technologies to Shenzhen SEZ via FDI, and to motivate technologicalinnovation, Shenzhen SEZ government has taken numerous steps to protect intellec-tual property. First, it enacted laws and regulations, including ‘‘Protection regulationson the enterprises’ know-how (1995)’’, ‘‘Regulations on the methods of rewardingR&D persons in enterprises (1993)’’, ‘‘Regular methods of evaluation of intangibleassets in Shenzhen SEZ (1994)’’, and so on (STBSZ 1995, 1998). Second, the govern-ment is making considerable efforts to bring intellectual copyright violation undercontrol, including the imposition of severe penalties on offenders.

The in�ux of engineers and scientists from inland China and abroad has transformedShenzhen into a high-tech centre. Notably, partly bene�ting from the directives and

16 Parry visited most of the factories located in the Shenzhen SEZ, driven by the government directives and bycompetitive pressure, found that: ‘‘a number of Chinese �rms are shifting from cost-driven emphasis on price to

an emphasis on upgrading product quality and incorporating state-of-art technology into their products’’ (Parry1992).

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incentives provided by Shenzhen SEZ’s government, remarkable transformation istaking place in China’s telecommunication industry, in which Shenzhen HuaweiTechnology Co. Ltd and Shenzhen Zhongxing Telecommunication Co. Ltd, located inShenzhen SEZ, play an important role.

China’s market for telecom equipment is the second largest in the world, followingUnited States. With its huge market potential, there are at least 16 large multinational�rms making and selling telecom equipment in China, such as Siemens, Lucent, NEC,Alcatel and Fujitsu. In 1995, local equipment makers had less than 10 per cent of theChinese market, and supplied cheap and low capacity gear to the rural market. In1997 and 1998, the rise of Huawei and other local �rms represented a challenge forthe multinationals. With �erce competition, prices for switches in China are nowabout 80 per cent of the price for comparable equipment elsewhere. This differencearises from good research of low-cost highly educated labour, rather than from lowermanufacturing cost, because most multinationals also have production and distributionnetworks in China. For example, in order to shift into high-end, high-value-addedsegments of the market, Huawei made huge efforts to employ lots of engineers,whose average salary was about one-seventh that of the average employees inmultinationals, and in 1996 established the largest in-house R&D centre of China’stelecom industry. Based on the improved own product design competencies, by 1998Huawei had 70 per cent of the market for broadband access networks, which werespecially designed to �t customers’ requirements in China.

FACTORS IN THE SUCCESS OF SHENZHEN SEZThe success story of Shenzhen SEZ over the past two decades has importantimplications for the role that SEZs may play in other countries. The Shenzhen casereveals that SEZs may have a positive impact not only in small economies, like Taiwan,but also large continental economies such as China (Litwack and Yingyi 1998).Moreover, Shenzhen SEZ’s growth experience has shed some new light on thequestion of why some SEZs may experience spurts of economic growth but be unableto sustain them.

Technological upgrading

‘‘Processing and assembly and compensation trade’’ played an important role in theacquisition of technological capability. At the outset, Shenzhen SEZ was a techno-logically backward region. At the same time, Chinese universities and researchinstitutes were not suf�ciently equipped to supply adequate technology, hindered bypast lack of contact with the outside world (Mingrove 1994). Through the develop-ment stages of Shenzhen SEZ, we have observed that most industrial technologieswere transferred from overseas via FDI. Among the different forms of FDI, ‘‘processingand assembly and compensation trade’’ played the dominant role, especially in thelabour-intensive stage. Through ‘‘processing and assembly and compensation trade’’,Shenzhen SEZ could not only attract foreign capital at low risk, but also acquire the

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technological capability from overseas, including management know-how.17 ‘‘Pro-cessing and assembly and compensation trade’’ acted as a training school for thetransformation of the Shenzhen SEZ industry, steering it onto the path of effectiveand ef�cient production. Building upon the integration of the accumulated experi-ences with ‘‘processing and assembly and compensation trade’’ manufacturing, theseenterprises then began to diversify their product offerings and to follow the rapidlyevolving technological trajectories of these industries. Although it arose from thearrangement of ‘‘processing, assembly and compensation trade’’, Konka Group thenestablished a joint venture with a Hong Kong partner. Today, the main products ofKonka include colour TVs, washing machines, refrigerators, air conditioners andmobile phones. Konka has established joint ventures in four countries: Mexico,Indonesia, Russia and India. Last year, Konka marketed 25,000 TV sets in the UnitedStates, accounting for 1 per cent market share in USA. Most signi�cantly, Konka Groupnow can develop and produce HDTV, and won the ‘‘Innovation 2000 Award’’ for itsinnovative products at the 2000 Las Vegas Electronics Fair.

The Mayor of Shenzhen SEZ18 con�rmed this view on the role of ‘‘processing andassembly and compensation trade’’ when he stated that to some extent, ‘‘processingand assembly and compensation trade’s role in the acquisition of technologicalcapabilities in Shenzhen SEZ is similar to the role played by OEM manufacture inKorea’’.

In comparison with other domestic regions in China, Shenzhen SEZ now has ahigher technological capability and as such it constitutes a world-class competitiveregion in the world economy. High-technology industry accounted for very nearly 40per cent of Shenzhen SEZ’s industrial output in 1998. Although export growth fell to3 per cent in 1998, Shenzhen SEZ has continued to lead China in exports for thesixth year in a row, representing 15 per cent of the country’s total exports. Somescholars believe that based upon its industrial capacity and acquired technologicalcapability, Shenzhen SEZ will keep its competitive position in China and the world,even after its preferential policies have been phased out by the end of 2003, as ispresently required.

A unique learning model

Acquisition of technological capability in developing countries is an importantresearch area, but few models focus on the regional level. In this paper, the authorhas tried to describe the process of technology evolution in Shenzhen SEZ, as shownin Table 7. This analysis of Shenzhen SEZ’s experience can assist us in forming abetter understanding of the acquisition of technological capability at the regionallevel. Possible lessons may include the following.

Infrastructure enhancement. As a backward region, during the formative stage,

17 Recent work on technology has highlighted the fact that there exist large differences in total factor productivitybetween plants in different countries using the same production techniques, and also between �rms in the same

country (Pack 1987).18 Shenzhen Special Zone Daily 16 June 1998.

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TABLE 7: MAIN FEATURES OF ACQUISITION OF TECHNOLOGICAL CAPABILITIES IN

SHENZHEN SEZ

Stage Formative Labour-intensive Technology-intensive

Comparative Incentive package Low-cost, labour Low-cost highlyadvantage for FDI; surplus in Chinese educated labour;

Location-speci�c countryside; Accumulated skills andadvantage Location-speci�c capital;

advantage; Huge domestic market;Huge domestic market; FDI with advancedIncentive package for technologiesFDI.

Main product Tourism and real Toys, clothes and Computers, switches,estate development bicycles, etc. IC, etc.

Source of Hong Kong Developed countriestechnologyRole of Infrastructure Help �rms �nd Technologygovernment building; employees nationwide infrastructure building;

institutional in order to keep the protection intellectualreforms competitive position, property

faced with other low-cost competitors

infrastructure building and institutional framework formation is necessary, otherwiseit will be dif�cult to form an industrial base and attract foreign investment.

Building on resources. Based on the achievement realized in the formative stage,development should then be based upon the advantages offered by the SpecialEconomic Zone, such as land, labour, including its geographical advantages. At thisstage, labour-intensive activities may be suitable. FDI with low technological capabilitycan also be helpful, not only because it helps to accumulate capital and acquire sometechnological capability, but also because it is in harmony with the technologicalcapability level of the zone. Acquisition of technological capability in labour-intensiveand mature industries may be the necessary prelude to enter technology-intensiveindustry.

Shift towards higher value-adding activities. Because of the rising cost of produc-tion factories (land, labour, etc.), and competition from other low-cost regions,manufacturing must gradually shift into technology-intensive industries.

Compared to other models of acquisition of technological capability, for examplein Korea, Shenzhen SEZ’s model has four key characteristics.

(1) Inward and outward market orientation. In the development process, itsmarket is both inward- and outward-oriented, never completely depending ononly one of them. The large size of the domestic Chinese market played akey role in the upgrading of the industries in Shenzhen SEZ. Export-oriented

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manufacturing did help the transformation, but it did not play a dominant role inacquisition of technological capabilities. Instead, export orientation combinedwith active promotion of the domestic Chinese market served to simultaneouslycreate incentives and opportunity for enterprises to develop and acquire techno-logical capabilities. This may limit the applicability of the Shenzhen SEZ modelto only other large developing countries with growing domestic market.

(2) Labour-intensive phase for competitive advantage. Shenzhen exploited its lowlabour costs as a development strategy. In the labour-intensive stage, most of itstechnologies and capital source came from Hong Kong;19 a new industrial region,not a developed region. In the technology-intensive stage, developed countriesbegin to play an important role. Most leading edge technologies came fromdeveloped countries, not from Hong Kong, because Hong Kong’s technologicaldevelopment even lags well behind that of Taiwan, Korea and Singapore. Shenzhenis shifting from the stages of exporting labour-intensive products to one in whichtechnology and knowledge-intensive products dominate. In technology-intensiveindustries, Hong Kong’s technological capability is limited, and it lacks R&D andmanufacturing capabilities as engines of growth (Mingrove 1994; Amsden 1997).In this respect, Shenzhen may leapfrog Hong Kong. Facing the challenge posedby the Shenzhen SEZ, Hong Kong is also looking to tap the mainland Chineselabour and academic pool to help it develop higher levels of technology.20

(3) FDI as capital source. FDI has been the most signi�cant source of the acquisitionof technological capability in Shenzhen, whereas in Korea, licensing and equip-ment purchase ranks �rst (Kim 1997).

(4) Clear guidance from government. Throughout the process of development,there has been guidance and the setting of goals by municipal and other levels ofgovernment. This has been of help in the acquisition of technological capability,but the government’s role must change according to different stages of develop-ment (Amsden 1989; Kim and Dahlman 1992). Shenzhen SEZs experience demon-strates that the government can help and speed up the acquisition of technologicalcapability in manufacturing, if its focus is shifted in a timely manner. BecauseShenzhen SEZ was bigger and perhaps more backward than SEZs in other Asiancountries, most foreign capital was channelled into infrastructure building in theformative stage. The government had to devise different forms of FDI in order toattract foreign capital, and help to �nd a suitable labour source nationwide inorder to keep its competitive position in the labour-intensive stage and to takeadvantage of the massive labour source in inland regions. The government had tomake a timely response to the changes in the local economic situation, andgradually shifted their policy focus to technology-intensive industries. At someappropriate times, the government has had to pay particular attention to thebuilding of technology infrastructure in order to lower the risk and cost ofdevelopment of enterprise’s technological change.

19 With the help of Hong Kong in providing market information and channelling foreign trade, Shenzhen was ableto make fantastic progress in exporting. Most of Shenzhen EPZ’s exports go through Hong Kong. For more details

on this see Nan (1995).20 Industrial and technological upgrading within Hong Kong has slackened off over the last ten years, due largely to

the spread of Hong Kong manufacturing capability into the south of China in search of low-cost manufacturing(Mathews 1999).

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Of course, in the different stages, the government devised and implemented thetax and duty privileges for FDI. On this point, there exists a major difference betweenShenzhen SEZ and other developing countries. Some literature has come to theconclusion that investment in human capital and in technological knowledge is acrucial condition for economic growth (Lall 1985, 1990; Pack and Westphal 1986;Dahlman et al. 1987; Katz 1987; Enos 1991; Bell and Pavitt 1992). In Shenzhen SEZ,however, the government played less attention to this aspect, because there existeda large sum of low-cost and high-quality human capital in inland China.

FDI effects

Shenzhen SEZ has depended for its success on its massive in�ow of FDI. Table 8shows that FDI’s contribution to total �xed asset investment in Shenzhen SEZ is, inmost cases, much greater than other regions in China. This is linked to its geographicalproximity to a rapidly developing region. This provided numerous advantages, includ-ing learning from other experiences and bene�ting from technology spill-over acrossboundaries. Shenzhen enjoyed a relatively cheap and abundant labour supply, sup-ported by a labour surplus from the Chinese countryside.

SEZs of other countries which are generally believed to have been successful, sharethe characteristics identi�ed above, including Gaoxiong, Nanze and Taizhong ofTaiwan and Masan EPZ of South Korea. Some of them are not geographically near arapidly growing region, but located in a coastal region where port facilities areavailable.

In some respects, Shenzhen SEZ has realized transformation from the labour-intensive stage to the technology-intensive stage. The commodity structure of productswithin Shenzhen SEZ is becoming more and more physically and human capital

TABLE 8: RELATIVE CONTRIBUTIONS OF FDI TO TOTAL FIXED ASSET INVESTMENTS IN

SHENZHEN SEZ AND OTHER REGIONS IN CHINA, 1985–98 (PER CENT)

1985 1988 1990 1995 1998

Shenzhen SEZ 16.01 15.56 33.72 39.6 29.0Open coastal citiesDalian (Liaoning) 1.90 7.15 33.44 25.0 27.2Tianjin 1.42 2.56 1.99 32.3 31.0Qingdao (Shandong) 0.63 1.75 7.69 31.1 26.8Open coastal provincesLiaoning 0.52 1.81 4.72 13.2 17.3Shandong 0.52 1.12 2.65 16.5 8.9Jiangsu 0.65 1.24 1.77 23.8 18.9PRC total 2.26 3.09 4.03 15.6 13.3

Source: Author’s calculations based on China Statistical Yearbook and StatisticalYearbook of Chinese Economy.Notes: FDI in US$ is converted into RMB (based on of�cial annual average of exchangerate) to be related to the total �xed asset investment �gures for the years concerned.

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intensive. At the labour-intensive stage, Shenzhen SEZ maintained strong comparativeadvantages, mostly from low-cost and unskilled or semi-skilled labour. By contrast, atthe technology-intensive stage, comparative advantages come from low-cost highlyeducated labour and well-developed technology infrastructure.

By contrast, the other SEZs, even if they initially enjoyed spurts of economicgrowth, did not sustain them. This is because they did not realize the timelytransformation into the technology-intensive stage. For example, at present in Taiwan,the fast-moving area is Hsinchu industrial park, not the former three EPZs.

Moreover, the question of what factors promote the transformation is worthy ofdiscussion. The experience of Shenzhen SEZ supports the following two propositions.

(i) With targeted and deliberate policies, the government can help speed up theacquisition of technological capability.

(ii) Special policy treatments for a SEZ are aimed at stimulating economic develop-ment, not creating a monopolistic status of the SEZ within an economy. Aftersetting up SEZs in an economy, there must exist competition between SEZs andother regions. Competition reduces pro�ts, creating �nancial pressures thatinduce technological learning, promote economizing behaviour, and stimulatingthe structural transformation of a SEZ economy.

China has taken a ‘‘gradualistic’’ approach to the market economy, the transitionstrategy has relied on the creation of market competition through deregulation andthe entry of new domestic producers. With regard to SEZs, four SEZs were establishedin 1979. Five years later, in 1984, 14 coastal cities were designated as ‘‘open cities’’for foreign investors. In 1987, Hainan Island was created as the �fth SEZ. In 1991, thePu Dong of Shanghai was set up as a special zone with more preferential treatmentsthan Shenzhen SEZ (MacDonald 1999). Therefore, over the past 20 years, ShenzhenSEZ, as the most successful zone of China, was always facing �erce competition fromother zones and regions within China and abroad, and its comparative advantage frompreferential policies was relatively eroding. In this respect, the experience of theShenzhen SEZ suggests that the tax and duty privileges of �rms in SEZs should bedeliberately and gradually curtailed in order to stimulate technological learning andstructural transformation in a timely fashion,21 not to create the monopolistic statusof �rms within SEZ which will constrain learning and innovation. In short, economicgrowth does not necessarily lead to structural transformation in a SEZ. Rapid growth,technological learning and the absorption of new technology combined can alterrelative factor endowments in a SEZ, which in turn changes the prices of the factorsof production as well as those of basic and intermediate inputs. Thus the SEZcontributes to, and is in turn affected by, the process of development within acountry.

21 In 1995–97, there existed a controversy in China over whether or not the privileges of SEZs should be cut. The

debate has now reached a �nal conclusion: since January 1999, China began to eliminate preferential taxtreatment for SEZs, but at present, preferential tax policies in SEZs of Shenzhen, Zhuhai, Shantou and Xiamen

remain unchanged. Their preferential policies will be phased out by the end of 2003 (East Asian ExecutiveReports 15 September 1998).

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Documents

ACQUISITION OF TECHNOLOGICAL CAPABILITY THROUGH SPECIAL ECONOMIC ZONES (SEZS): THE CASE OF SHENZHEN SEZ