The Overseas Economic and Trade Cooperation Zones Sing the Song of Win-win Results for the Belt and Road Initiative

The Overseas Economic and Trade Cooperation Zones Sing the Song of Win-win Results for the Belt and Road Initiative

By Zhao lei, Hui Chunlin, Qu Peng Fei, the Central Party School

In Northeast Asia, Central Asia, South Asia, Southeast Asia and other neighboring regions, we will build cross-border undersea optical cables, land optical cables and other high-capacity and high-speed communication facilities, and build an all-dimensional communication network system. At present, the central enterprises have undertaken 3,116 projects along the Belt and Road. Among the infrastructure projects that start being constructed or are planned to start, the central enterprises have undertaken about 50% of those projects and over 70% of the contracts. Weng Jieming, deputy director of the state-owned assets supervision and administration commission of the State Council pointed out that in the infrastructure construction, energy resource development, international cooperation in the areas of production capacity, the central enterprises undertake a large number of key- or important projects with demonstration effect and, an important force to turn the idea of the Belt and Road Initiative into action, from the vision into reality.

According to the economic development needs of the countries along the Belt and Road, the central enterprises have launched more than 60 oil and gas cooperation projects in more than 20 countries, strengthening technical exchange and sharing in mineral resources development, and effectively improving the capacity and level of energy and mineral resources development along the routes. China-Russia, China-Kazakhstan and China-Myanmar crude oil pipelines, China-Russia, Central Asia and China-Myanmar natural gas pipelines and other projects undertaken by PetroChina have effectively solved the problem of oil and gas resources export. The 10 transmission lines constructed by the State Grid in Russia and other surrounding countries, the key power projects of the China-Pakistan economic corridor constructed by the Three Gorges Group, China Electricity Construction and China Nuclear Group, have all made important contributions to the promotion of local economic development.

The construction of the Belt and Road effectively promoted the local employment in the host country. The data shows that the central enterprises vigorously promote the operational localization, 85% of the overseas branches are local employees, and the localization rate of many enterprises 'employees reaches more than 90%. The localization rate of employees of PetroChina Indonesia Company and China Mobile Pakistan Company is as high as 99%. While directly providing jobs, these projects also indirectly create ten times or even dozens of times that of local employment.

At the same time, the central enterprises strictly abide by the international general rules and local environmental laws and regulations, and strengthen environmental protection by carrying out third-party environmental assessment, energy saving and emission reduction, waste management and so on. Central enterprises also actively participate in the construction of educational, cultural and medical facilities in the projects site, organize and participate in many rescue and disaster relief operations such as road repair, wreck search and rescue, and traffic accident handling, construction of hospitals and schools in the project site, which benefit the local people and win wide praise from local society and residents.

Under the framework of the Belt and Road construction, the overseas economic and trade cooperation zones have become an organizational platform for the internationalization of Chinese enterprises. Taking overseas cooperation parks as the carrier, organically combining support for outbound investment with promotion of "going global" of domestic equipments, services, technology and standards, promoting trade development and industrial development as well as advancing regional coordinated development by investment have become an important grasp to promote "going global" of Chinese enterprises. We conducted a field survey of the Cambodia Sihanoukville Special Economic Zone, the Ethiopia Oriental Industrial Park and Huajian international light industry city, the China-Belarus Great Stone Industrial Park in Belarus, and the Vietnam Long Jiang Industrial Park, etc., trying to come up with in-depth analysis of the characteristics and existing problems of those parks promoted by state-owned enterprises and private enterprises, on which basis, this paper puts forward some ideas to promote the transformation and upgrading of China's overseas economic and trade cooperation zones.

An overseas economic and trade cooperation zone refers to an industrial park, which is registered inside the People's Republic of China (excluding Hong Kong, Macao and Taiwan), funded by Chinese-holding enterprises with independent legal person, set up an Chinese-funded holding institution with independent legal person overseas funding an industrial park with complete infrastructure, clear leading industries, sound public service functions, agglomeration and radiation effects. At the end of 2005, the Ministry of Commerce put forward the measures of investment cooperation on establishing overseas economic and trade zones, and successively issued a number of supporting policies and measures to encourage enterprises to build overseas economic and trade cooperation zones. In June 2006, the Ministry of Commerce issued the Basic Requirements and Appliocation Procedures for Overseas Economic and Trade Cooperation Zones, formally launching the application and evaluation of Chinese enterprises.

As of September 2018, Chinese enterprises invested US$36.63 billion in 113 cooperative zones at primary stage in 46 countries, 4663 enterprises landed in the zones and paid US$3.08 billion in taxes and fees to the host country. Among cooperative zones, 82 of which is built in 24 countries along the Belt and Road, 4098 enterprises entered the zones, invested US$30.45 billion in total, and paid US$2.19 billion in taxes and fees to the host country. The total of 20 cooperative zones are assessed, with accumulate investment of US$20.13 billion, and 873 enterprises in the zones and paid US$2.12 billion in taxes and fees to the host country. The overseas economic and trade cooperation zones are a key area and a cross link in infrastructure construction and productivity cooperation along the Belt and Road. The following will focus on the analysis of three special projects.

1. China-Belarus the Great Stone Industrial Park

Located in the Eastern European Plain, Belarus is the geographical center of Europe, is adjacent to Russia, Ukraine, Poland, Lithuania and Latvia and is the gateway of China's Belt and Road Initiative to Europe from Central Asia. Compared with Russia and Italy and other European countries, there are not many Chinese and overseas Chinese in Belarus. With the development of China-Belarus Great Stone Industrial Park project, there are more and more presence of Chinese people in Belarus in recent years. Currently, the countries with the largest investment in Belarus are Russia, Britain and Germany, and China has invested nearly US$1 billion.

There are many industrial parks in Belarus. As an industrial park promoted by state-owned enterprises, China-Belarus Industrial Park is the first such industrial park established by Belarus in cooperation with foreign countries. Located near Minsk Airport, China-Belarus Industrial Park is the largest project inviting investment in Belarus.

The Great Stone Industrial Park in Belarus

The Great Stone Industrial Park as the largest overseas industrial park established by China’s enterprises has the following outstanding characteristics:

High level promotion: this industrial park is a major strategic project jointly initiated by President Xi Jinping and President Lukashenka and built together by the two countries. The leaders of the two countries attach great importance to this industrial park and strive to make it a Pearl of the Belt and Road.

Coordination mechanism: In September 2014, Vice Premier Zhang Gaoli visited Belarus and reached consensus with Belarusian leaders on speeding up the construction of the Great Stone industrial park in Belarus. The two sides agreed that the Ministry of Commerce of China and the Ministry of Economy of Belarus should jointly set up a coordination working group on industrial park to promote the construction of industrial park. Ten coordination working group meetings are held already.

Towards the two unions: with the European Union and Eurasian Economic Union as the market orientation, commodities can go duty-free to Eurasian Economic Union with nearly 200 million population, and conveniently to the EU market with 500 million population .

High standard: The enterprises investing in Great Stone Industrial Park are mainly "5 + 1" industries, including high-end manufacturing, electronic information, biomedicine, new materials, mechanized chemical industry and storing logistics. The standard, basically, is future-oriented enterprises, requiring high value-added enterprises, which can help Belarusian enterprises to upgrade their products after entering the park.

Financial support: Compared with other overseas industrial parks, an important advantage of the China-Belarus Industrial Park is the establishment of the China-Belarus Industrial Investment Fund. This fund is a state-level fund initiated by China’s SASAC, established by the China Merchants Group and managed by the China Merchants Capital. The Fund mainly invests in the enterprises landed in the Industrial Park and high-quality projects. China New Information Engine is the first investment project by the China-Belarus Industrial Investment Fund after its establishment, and is also recommended by China Merchants Group to be formally landed in the China-Belarus Industrial Park.

The advantages of the Central European Express Train: different with the industrial parks in Southeast Asia and Africa, the radius of the Great Stone Industrial Park can be greatly extended through the role of the Central European Express Train. At present, there are 12 containers express trains running between China and Central Europe via Belarus every day. The Great Stone Industrial Park can yield better effects with the help of Central European Express Train.

At present, there are 38 enterprises in the Great Stone Industrial Park, 19 of which are Chinese enterprises, including Huawei, ZTE, Zhonglian Heavy Industry, Chengdu New Construction Group, Yituo Group, Weichai Power and China new information engine, etc. It is expected that by 2020, the industrial park will produce US$ 1 billion worth of products and create 6,500 jobs. By then, the number of enterprises inside the park will reach about 100, and the total investment will exceed US$2 billion. Belarus hopes that one third of its GDP will come from China-Belarus Industrial Park in the future.

The existing problems of the industrial park are as follows: Firstly, over-emphasizing on high-tech and only allowing future-oriented enterprises. China and Belarus have set a high standard for the industrial park, and the enterprises landed must have a certain high-tech content. Belarus requires that the products produced by the enterprises in the industrial park must be either export-oriented or import-substituted, or can fill its domestic vacancies, so as to avoid squeezing the development of similar local enterprises outside the industrial park. At present, the enterprises in the park cover many fields, such as machinery and equipment, electronic communication, new materials, big data, research and development, logistics and so on. Secondly, because of the high threshold of investment, a number of promising small enterprises were rejected. The original investment was set for US$5 million inside the industrial park, but now has dropped to US$500,000. The industrial park covers a large area and has a high standard. Due to these two reasons, the industrial park is growing slowly .

2. Ethiopia Oriental Industrial Park

At present, all the eight industrial parks under construction led by the Ethiopian government are built by Chinese enterprises. Two non-government-led industrial parks -- Oriental Industrial Park and Huajian International Light Industry City, are built and developed by Chinese private enterprises.

The Oriental Industrial Park is the first industrial park built and formally operated by foreign capital in the country, which promotes the adoption of Ethiopia's Industrial Park Law. In 2008, Jiangsu Yongyuan Investment Co., Ltd. invested in the construction of an Oriental Industrial Park in Ethiopia, introducing the concept and mode of modern industrial park development into the country. Not many businesses landed in the park before 2013. Yongyuan investment corp. originally came here to prepare for the production of running water pipes, but found that there was no industrial foundation in the country, so it turned to making cement, which goes well since the supply is in short. Now Yongyuan investment corp. turns to making investment and operate the park. As a private enterprise, the industrial park relies on "rolling development", and depends on the income of the invested Oriental Cement Plant, Oriental Iron and Steel Plant to support the development of the industrial park.

The total investment of the first phase of Oriental Industrial Park is about US$250 million. In the most difficult time, it even planned to sell the domestic assets of enterprises to support the development of the industrial park. At the beginning, 30,000 yuan per mu (or 180,000 yuan per acre) could not attract enterprises. Since the Chinese Government proposed the Belt and Road Initiative in 2013, a large number of enterprises landed in the industrial park for development. Currently, there are 96 enterprises in the first phase of the industrial park, which provide 16,000 local people for employment.

Chinese Premier Li Keqiang, accompanied by Ethiopian Prime Minister Hailemariam Desalegn, visits the Oriental Industrial Park.

The park, constructed and invested by China, has provided more than 5,000 jobs for the local people. (Photo: www.gov.cn)

Huajian Shoes Factory is one of the first enterprises to land in the Oriental Industrial Park, and is regarded as a model of production capacity cooperation between China and Ethiopia. After that, Huajian group became a developer enterprise from a landed enterprise. In September 2013, Huajian Group signed an official agreement with the Ethiopian government on the project of "Ethiopia-Huajian international light industry City" with a total investment of US$2 billion. In April 2015, the foundation stone was laid with the witness of former Ethiopian Prime Minister Hailemariam and other leaders. So far, the project investment totals US$80 million, with a construction of floor space of 180,000 square meters completed, and 8,000 local people employed, and accumulated foreign exchange of US$120 million earned from exports. Huajian exports accounted for 65 percent of Ethiopia's total footwear exports and 25 percent of Ethiopia's local leather procurement exports. It is a model enterprise of earning foreign exchange through export and solving employment in Ethiopia and has made outstanding contributions to the development of export-oriented economy in Ethiopia.

Currently, most Chinese enterprises in Ethiopia have the following characteristics:

Labour-intensive firms are the mainstream: most Chinese firms working with the Djibouti–Addis Ababa railway in Ethiopia are labour-intensive firms, benefiting from low labor costs, and low energy costs. Although logistic cost is high, yet in terms of overall accounting, profits are still good. In addition, the Djibouti–Addis Ababa railway is commercialized, but the goods export process is not smooth. Chinese enterprises still rely on road transportation, and the logistics cost and time cost are high.

Planning the global layout by entering Africa: taking Huajian group as an example, its two domestic production bases are still in production, of which high-end products are completed in Dongguan city and low-end products are completed in Ganzhou city. In the future, it plans to transfer 60% of its production capacity to Ethiopia and other African countries.

Enjoying tariff-free, quota-free and other preferential policies: African and Southeast Asian countries enjoy tariff-free, quota-free policies for their export products, exports of shoes, clothing and other similar products manufactured by Chinese enterprises in Ethiopia to Europe and the United States can enjoy zero tariff policy, but the exports of them from China will pay up to 30% to 40% tariff. At present, many textile enterprises set up factories here, such as Jiangsu Sunshine, Wuxi Yimian, Wuxi Jinmao and other leading textile enterprises.

Existing problems of industrial parks: firstly, the name and identity. In April 2015, the Ethiopian government issued its first Industrial Park Proclamation, which was largely related to the Oriental Industrial Park's practice, but the key word of the new law is Park, and Oriental Industrial Park originally used the wording “zone” instead of “park”, so Oriental Industrial Park (renamed) could not enjoy the new preferential policies for a “park”. In addition, Oriental Industrial Park is under the jurisdiction of Oromo state.The preferential policies of the national industrial park law cannot be applied in Oriental industrial park, but the state government often fails to solve practical problems encountered. Secondly, land prices soared. In 2008, Oriental Industrial Park only paid 1 birr per square meter per year for land acquisition and enjoyed a 99-year lease. Now, due to the impact of the park, the surrounding land has increased to 68 birr per square meter per year, with a growth of 68 times in ten years. But now the problem is that the government is slow to approve the second phase of the land lease for the park, which in Ethiopian 's view "fee" is too low.

3. Long Jiang Industrial Park

In 1986, Vietnam put forward the policy of "innovation and opening up" and formally opened its door to foreign investment. At present, the business atmosphere in Southern Vietnam is strong and where Chinese enterprises are concentrated. In Vietnam, state-owned sectors account for 30-40% of the national economy, while private-funded and foreign-funded enterprises account for 60-70% of national economy .

The European Union recently has signed a free trade agreement with Vietnam. According to the agreement, the EU over the next seven years and Vietnam over the next 10 years will phase out 99 percent tariffs on goods between the two sides. Vietnam will liberalize trade in areas such as financial services, telecommunications, transportation, postal and express services, etc. open manufacturing markets such as food and beverage processing and non-food industries to the EU, and welcome EU companies to participate in infrastructure construction and bidding for public projects such as hospitals and railways, etc. The agreement opened up an export market with 90 million consumers for the European Union and helped Vietnam integrate more fully into the global economy. The agreement will fuel a new round of EU investment in Vietnam.

An aerial view of Long Jiang Industrial Park in Tien Giang province, Vietnam [Photo/zjol.com.cn]

Labour costs in Vietnam are 40-60% of that in China. At present, the largest source of foreign investment in Vietnam is South Korea, followed by Japan, Singapore and China’s Taiwan, etc. China ranks eighth with 1,774 valid projects and an agreed investment of about US$12 billion. By the end of 2017, South Korea had invested 6,477 effective projects in Vietnam, with an agreed investment of US$57.5 billion, accounting for 18 percent of Vietnam's total FDI. Among them, Samsung group of South Korea began to invest in Vietnam in 1994 and has become one of the largest foreign investors in Vietnam after more than 20 years.

In Vietnam, many large projects are taken by Japanese and South Korean companies, and the United States has a big influence too. At present, Chinese enterprises mainly invest in the processing and manufacturing and power generating sectors. At the beginning, most of China's investment in Vietnam was carried out by small and medium-sized private enterprises. As domestic labor costs rise and the domestic market becomes saturated, some large enterprises begin seeking investment opportunities in Vietnam, especially labor-intensive enterprises such as electronics and textiles, as well as power and real estate sectors.

Long Jiang industrial park is the first Chinese-funded industrial park in Vietnam and the largest industrial park built by China in Vietnam, about 60 km away from Ho Chi Minh city. Long Jiang industrial park began preparations for construction in November 2007, and began attracting investment in 2008, with an investment of US$120 million. At present, there are 42 enterprises in the park, of which 70% are Chinese enterprises (50% are from Zhejiang province) and 85% of the output value is created by Chinese enterprises. The total investment of enterprises in the park exceeds US$1.6 billion, and the development area of the park has reached 80%. The Long Jiang industrial park has created 16,000 jobs, and the enterprises in the park have generated US$30 million in local taxes. Of the 42 enterprises, 28 are in operation, with an output value of US$ 800 million. When all 42 enterprises are in operation, employment for 35,000 people will be created and total output value will be US$6.0 billion.

As an overseas economic and trade park promoted by private enterprises, Long Jiang industrial park has the following prominent characteristics:

The enterprises with the high-end and low-end products overseas are in the mainstream: Vietnam Long Jiang industrial park’s plan focuses on an export-oriented processing in areas such as textile light industry, machinery and electronics, building materials and chemical industry, etc. More than 80% of the enterprises inside the industrial park are export-oriented enterprises, and a small number of fodder enterprises provide supply to Vietnam's domestic market. Vietnam Government requires the domestic industrial parks and zones to follow the path of international development. Currently, there are enterprises from Japan, South Korea, Singapore, Denmark (furniture), Malaysia, China’s Taiwan (shoe enterprises) and other countries and regions land in the industrial park, but the overall quality of enterprises is not high.

Low cost of production factors: the relatively low cost of land, labor, electricity and other production factors is an important reason to attract enterprises to set up plants in Vietnam. The current labor costs of Vietnam is about 1500 yuan RMB per month, about three times the wages in Cambodia, Ethiopia, etc., but the Vietnamese workers efficiency is higher, which is rather attractive to the textile and garment, processing and assembling and other labor-intensive enterprises, and energy-consuming companies such as copper processing can also have its production cost greatly reduced by local low electricity price.

An "safety island" to share together: if a Chinese enterprise invests alone to build a factory, it is difficult to deal with a dispute when encountering it, the staff personnel can hardly have safety guaranteed as a chaos situation emerges. While inside an industrial park, the park management can help to settle various kinds of disputes, business owners can set their minds at business. In case of emergencies, the industrial park management has practical experience in dealing with them. The industrial park or zone has become a security island for them.

The existing problems in the park are as follows: firstly, due to the capricious policies in the host country, the development of private enterprises is faced with many uncertain factors, and the sustainability is greatly affected by the policies. Secondly, for Chinese enterprises, apart from exporting to Europe and USA and providing local employment, they should also devote themselves to building their own brands. Thirdly, the phenomenon of "one businessman, one park" is common. Overseas, it is usually for an entrepreneur to build an industrial park, which shows that there are needs for institutional construction and institutional guarantee.

4. Some ideas on the transformation and upgrading of overseas economic and trade cooperation zones

First, getting free from the "sweat business" and "enclave business " mode and moving towards the smart economy and brand economy. For many enterprises, overseas economic and trade cooperation zones are conducive to "working together for common good" and "borrowing boats to go global", but their weakness is that Chinese enterprises are still "clustering", has a low localization and insufficient integration with the host country. According to overseas research, most enterprises landed in many industrial parks are engaged in labor-intensive production, making OEM for famous brands in Europe and America, though can also provide employment for local society. However, the development of Chinese enterprises is basically through a "sweat business", and they have earned profits through hard work. Therefore, it is necessary to take the overseas economic and trade cooperation zone as the starting point, and take the path of smart business and brand products, so as to improve the global competitiveness of Chinese enterprises.

Second, establishing diversified development models. At present, only a few industrial parks are developed by cooperation between state-owned and private enterprises, so enterprises in the host country or a third country should be encouraged to participate in the Belt And Road construction in the form of investment and equity. In building overseas economic and trade cooperation zones, we need to make the economies of all parties more closely intertwined so as to form a pattern of interconnected interests. Particularly, we should strengthen cooperation with developed Western countries. Prato, Italy, can be viewed as an overseas economic and trade cooperation zone without barriers. Nearly 20,000 of more than 30,000 immigrants in the area are Chinese. Chinese hard work and Italian fashion creativity make this town the largest textile and clothing center in Europe. From the original fabric enterprises to today's garment production and processing, Chinese people not only extend the industrial chain, but also enhance the economic viscosity, contributing to 14% of GDP.

Third, enhancing the soft power of corporate culture in the industrial parks and building the soft connection capacity. Chinese enterprises should not only go global physically, but also get integrated with the host country; should not only concern with sales data, but also enhance the international community's appreciation and recognition of Chinese enterprises. Therefore, it is necessary to establish a dynamic evaluation mechanism for the overseas economic and trade cooperation zones, to evaluate the development of the industrial parks or zones all the time, allocate resources and solve problems timely through a scientific evaluation index system. The evaluation criteria should be comprehensive according to the host country's level of economic development, number of employment, social responsibility to fulfill, enterprise profits and taxes. Now many industrial parks developers mainly rely on land price difference to make profit, so putting development of industrial parks in a bottleneck situation. At present, processing, light industry or manufacturing parks are basically saturated. We need to build modern cultural and industrial parks as soon as possible according to the actual needs of relevant countries.

Fourth, avoiding "simple repetition" and building flagship industrial parks. Currently, there are as many as about 100 overseas economic and trade cooperation zones related to the Belt and Road construction, but only a few of them are in sound operational business. For example, a number of Chinese corporations are investing in or operating industrial parks in Ethiopia, mostly attracting Chinese companies from sectors such as textiles, clothing and leather, and homes building materials, etc., which are basically "simple repetition" of the existing ones. Therefore, it is suggested to build a few flagship industrial parks in key regions and countries in the world and improve the quality of enterprises in those parks so to accumulate replicable and popularizing experience .

(Edited excerpt of the article in Guangming Daily, 2019-03-29)