Special economic zones – special?

There’s been a fair bit of media flying around about Special Economic Zones (SEZs) in relation to their application in regional New Zealand.  Kicked off by another great piece of research from the NZ Initiative.

As Wikipedia puts it…In SEZs, business and trades laws differ from the rest of the country. To encourage businesses to set up in the zone…policies are introduced. These policies typically regard investing, taxation, trading, quotas, customs and labour regulations.

Financial incentives in my view generally don’t work with the only winner being business, who are being rewarded for shifting their business somewhere or entering into a market or industry.  Subsidies are only slightly better in that they are more targeted to industry or location type initiatives.  The problem with both incentives and subsidies is that money has to come from the public purse, I.e. Shifted from one part of the economy to the other.  NZ has very few incentives or subsidies after the market reforms of the last 40 years so to reintroduce them now would be interesting to say the least!

Special Economic Zones are widespread in China. They were set up among other reasons to transition certain geographic areas of Chinas economy into a more market focused economies and to act as a controlled test bed of policies.  In many instances the focus has been about attracting Foreign Direct Investment (FDI) and all the benefits that come from that. A huge spinoff has been the ability for provincial and local government and companies to enable homegrown industry to develop around the the foreign companies. Do not underestimate the importance of foreign investment on China’s economy or their Special Economic Zones.

I support Special Economic Zones in both the thinking behind them and the potential but before we roll them out in NZ let us answer these questions:
1.  Do we understand all the different parts of the economies and are they working together?  The Special Economic Zones I’ve seen did incredibly well at connecting all the parts of economies that need to which was easy to do with everything within a 100km, but that’s not too different to regional NZ is it?  It wasn’t just about taxes, planning or infrastructure.  It was innovation, entrepreneurship, industry development, education, the environment and more.
2.  Are there projects that are investment ready?  A key platform of Special Economic Zones is foreign investment, so who is spending time with investors to understand what investors want and is regional NZ ready for Special Economic Zones that could consist of largely foreign investors?

Starting out again – “what is the secret to growth?”

It’s been a couple of months since I’ve returned from offshore and I’m starting out blogging again.

I’ve tried to start again a couple of times and I’ll make no excuses, I haven’t “shipped”.   All sorts of questions have arisen: What to write?  How often? Will people keep reading?  Have I got the time, energy and passion?  

So here we go again.  My plan is to post topical insight and analysis once a week.  I will also invite guest bloggers.
If you’d like to guest blog or suggest future topics, please just comment or send me an email. 

First up this week, is the most common question people have asked me since I’ve been back – “what’s the secret to growth?”

It has incredibly difficult to summarise 6 weeks of immersive experience into an elevator pitch. However my response has been consistent – “it’s the people” that make the difference.  The simplicity may well disappoint people but that’s the reality.  There is no magic bullet – be very aware of people who claim there is one. 

This view reflects that anything is possible when you unleash people to be creative, relentlessly execute and learn from their mistakes.  It’s like the analogy of the talented athlete that doesn’t apply themselves – in the long run they will be outdone by a less talented athlete who works harder.  In an economic development scenario – the region with natural resources can be outperformed by a region without the same resources that executes better.  Of course underlying this is an interconnected web of things that if one or more is weak then it can affect everything else.  Over the next few weeks I will run through the “web” or pieces of the puzzle as I see them. And most important time matters – there’s no such thing as overnight success.

Interestingly, the principles of economic development are not too different to organisational development, so Jim Collins ‘Good to Great’ applies. The big challenges for economic development how to ensure alignment and collaboration across a range of sectors, locations and companies.  In a private company it’s clear who is responsible – the board and senior management, but in a region – who is responsible?

And that’s a wrap – an initial summary

One final meeting today with the Suzhou Human Resource and Social Assurance Bureau to compare notes.  This afternoon it was into Shanghai where I depart tomorrow to have a much needed holiday with my family 44 days after boarding the bus in Taupo.

It’s been a blast, both inspirational and exhausting.  Why that combination?  The incredibly smart people kept my head spinning the whole time and the sheer logistics constantly stretched me (11 flights – 5 overnight, 24 beds, driving over 6500km in the US and countless trains, buses, taxis and walking!).  Getting to bed before 11pm was a luxury, so it was relentless but what an incredible experience.

So I need to say thanks.  To the Winston Churchill Memorial Trust for the opportunity, my wife and kids for holding the fort, my employer and team for making this possible, family and friends for their support and all the people I met along the way.

Here’s an initial summary.

Are the regions/provinces important?

This is a rhetorical question, of course they are although I’m biased. Their role is changing from simple primary producer (which is the main source of NZ’s exports) to more value add.  The problem is that adding more value increases efficiency which means less jobs.  Add in an aging population, centralisation to bigger citiies and it’s a tough road ahead.  However successful regions are building on their strengths, connecting related industries and diversifying into new ones.  Whereas previously locations would by grow by default this is not the case anymore – locations have to make themselves important or get left behind.  The common factor in all the great places I visited was talented people.  They had committed to innovative solutions over a long period of time, made mistakes and improved relentlessly.

What themes are impacting local economies?

Technology is significantly changing the nature of work including the internet of things, apps, robotics and automation.  Shifting demographics is driving urbanisation, mega cities, aging populations and lower birth rates.  We are truly in a global village and the only thing constant is change.  However, not all that is predicted will come true (“I think there is a world market for maybe five computers”) so we’ve got to take all these predictions with a grain of salt and if you want to create change then do so.

What tools are available?

From my observations, economic development is a young industry in NZ which means we don’t have the experience of all the tools available.  We are small enough to implement easily and it gives us an opportunity to apply all the great bits and add our own innovation.  Will we have the patience though?  Some of the tools available are Retention/Growth, Attraction, Workforce & education, Entrepreneurship, Metrics/data, Strategy, Brand, Collaboration, Clusters, Enterprize Zones, Mainstreet, Infrastructure, Financing, Small Business, the list goes one.

There are so many models and theories and there is no silver bullet.  We need to look at context for each location – what fits best?  Economic development is an interconnected web, and all it takes is one element to be weak and it flows through into the rest.


Metrics are often ignored because it can take a very long time to see impacts when we all want results today.  While measures like jobs and GDP are important, more robustness is needed to move from the headlines into the real engines that really drive economic growth things like intellectual property created, business starts/survival rates and GDP per capita.  If we combine metrics with technology, then imagine what would be possible!

Is there a future for the provinces?

Yes and no.  We need to have the zombie town debate, as some places won’t survive.   However no one has a crystal ball, so who knows what the future will look like?  I witnessed many places carving a bright future for themselves with a number reinventing themselves.

In talking about regions we have to talk about cities.  Make no mistake, cities are important, but the regions are just as important so we need to shift the conversation from ‘cities or regions’ to ‘cities and regions’.  Cities are bit like oldest siblings (I’m on so I can say it).  They naturally get all the attention and also take a lot of responsibility and leadership, but often it’s the younger sibling who is achieving just as well and might just have more potential because they have to work harder.  Several people in both cities and rural locations talked about the interdependence of both on each other and I think that is spot on.

Anything is possible and in the same way a few people can make a location a few people break a location.  It’s everyone’s responsibility to grow places – business, government, the 3rd sector but most importantly people.

Thanks and see you soon!

The blog will be taking a break for a while. I’m thinking about resuming service on something like weekly basis – less the international travel of course.  Thanks to you for reading and talk soon!

Development zone ecosystem

What I’ve seen the last few days is a great ecosystem centred on economic development. This is local innovation in action and NZ could learn a lot from this at a time when we seem with obsessed with centralisation.

Suzhou Bureau of Commerce

I met with the team who are across every bit of data which is collected, analysed and reported.  By the end my heading was exploding so thankfully I had a book to take away. One relevant statistic with all the talk of foreign investment in NZ (albeit it’s in housing which doesn’t generate export revenues): Suzhou has 17,000 enterprises from dozens of countries that have invested over USD$100b of foreign capital.

As outlined yesterday, growth has been achieved through starting with some initial strengths in the processing trade and then moving into more value add aided by foreign investment which also enables domestic investment. As part of the open economy, development zones create the ultimate atmosphere for business to grow.

Suzhou Industrial Park

Then it was onto Suzhou Industrial Park (SIP), which is a development zone similar in philosphy to Suzhou New District which I visited yesterday.  It was set up in 1994 as a cooperation between the Singapore and China governments as a test area for the opening up of the economy where policies, incentives and business models being trialled.

The way they have attracted and proactively chased foreign investment from a number of continents is impressive, learning considerably from Singapore and then adapting for their own environment and continuously improving.

Fast forward to now and they have been so successful they are running out of land within the zone…what a great problem to have.

So how does all this apply to NZ, and locations of any size?

‘Ecosystem’ is one of those buzz words used in many industries, so I’m loathe to use it but there’s no better way to describe the understanding and application needed to get economies growing.

In simple terms (and I will miss some stuff)…Start with whatever industry(s) your region is good at and create an open environment with good infrastructure. Make it simple for businesses to operate and work with local government to develop a long term vision which changes along the way. Do the boring but highly important collection and reporting of the data that matters – not just GDP and employment but the really grunty stuff like number of patents created and percentage of exports. Use this data to not only guide decision making but to actively attract businesses and capital – both domestic and foreign. Add more value to products and services. This grows profits which creates higher wages, both of which create more taxes (aka business wins – government wins). Higher wages attract more talent which requires universities to provide training, and colleges to feed in to the universities, ditto for primary schools…who teach kids about business (and civics!) all the way through. Well connected universities spin out more research and alongside this people develop ideas which turn into intellectual property. These ideas require investment of all shapes and sizes generating work for support industries (lawyers, accountants, banks, advisors). While this pipeline of new business is growing, look after existing businesses. The challenge is to then grow and scale business and so the cycle spirals upwards.

The question is, what are the missing links in NZ?


Economic transformation and transition

On home stretch now, I’m jaded after nearly 6 weeks travelling but stimulated (hard not to be in China). Another productive day thanks to the Suzhou municipal government. It’s been a great getting a better sense of how government and industry works.

These are definitely not rural locations, but 20 years ago it was and it’s amazing to see the transformation and look at different ways of doing things, what is transferable and learn more about NZ’s biggest trading partner. I heard a lot and saw a lot of economic transformation and transition today, hence the title of the blog.

Suzhou Development and Reform Commission

First up was the team at the Suzhou Development and Reform Commission who are responsible for a number of things but the most important is the mid to long term development of Suzhou and rolling out the 5 year plan. It was interesting to learn about the research undertaken to guide goal setting including overseas analysis and working closely with universities.

This is another location with strong data metrics – GDP, employment, income, including an urban vs non-urban comparison. There’s a very clear understanding of the importance of science and technology in economic transformation and getting industry to add more value. Research and development as a percentage of GDP is measured, echoing the cluster work from Harvard. As the Chinese economy opens up the role of government will move more to oversight, monitoring and creating the right market environment.

Suzhou New District (SND)

Then onto SND which has transformed from a mix of small urban area and farmland into a major technology hub. They’ve been very specific about encouraging certain industry– starting with the pillars of electronics and precision engineering, progressively building over 22 years to now include medical, renewable energy, rail transport and new digital technology. This is another great example of starting with what you have and then building on it to achieve their ambitious targets for new capital each year.

Growth has been achieved through partly through the close proximity to Shanghai (similar to the impact Auckland has on Hamilton), supply chains and labour. There’s been a lot of proactive work encouraging foreign investment, leveraging government and private partners, looking after existing businesses (who account for a large amount of annual growth) and travelling domestically and internationally for new customers. Their criteria for providing support to industry is a great way to ensure businesses don’t take advantage of initial incentives and then leave when a better offer comes up elsewhere.

SND is transitioning from the previous model of attracting companies which broadens the tax base to now focusing on high end industries, quality of life and the environment. One thing struck me as we looked around their exhibition hall: talent + innovation = growth. In the end it’s all about people.

China – different perspectives on development

I’m writing this on the bullet train from Beijing to Suzhou travelling at over 300km/hr.  Not bad being able to travel over 1000km in 5 ½ hours for around $250NZD.  I’m having problems getting internet access, so this is no frills without links to other websites…(who is clicking on those anyway?)

Business environment and regulations

Today I met with Sabrina from Dezan Shira, who assists foreign companies operating in China. She gave me a great overview of the business environment, particularly in relation to accounting, tax and law.  NZ and China are not that different in general methods of taxation or the rates applied for corporate, goods, services and local government.

We discussed Free Trade Zones which are now commonplace and highly competitive.  Do these have merit in NZ?  Particularly in locations outside cities to encourage certain industries that suit a regions characteristics or to shift growth away from cities where a business could be based anywhere and more growth in a city will end up costing more in total in the way of infrastructure investment,  household indebtedness and quality of life through longer commuting times.  I like how Free Trade Zones are used as a way testing/piloting what happens in different industries and regions.  There’s a simple overview of the Shanghai Free Trade Zone on their China-briefing.com website.

Being Asia-ready and enabling growth

While in Boston I’d met with Richard who also works for Dezan Shira heading up their North American operations.  He has spent considerable time in China so had some fascinating insights that really challenged me not to apply my own world view to other countries like thinking long term and in cycles rather than short term and linear.  The more time I spend in China I realise it’s more a civilisation than a country.  This must bring challenges in managing growth when overall stability is important but each locations want growth.

It raises some interesting questions around where future growth will happen in the world and how is society responding to the shift in world dynamics?  With Europe and US growth flat, Asia is predicted to play to account for much of the future growth.  So much of NZ”s world is centred on our past links to the Western world with the UK, Europe, US and Australia.  Are we China and Asia ready?  Potentially everything will require some form of change from tourism offerings, language, links with government, skills needed by people, what is taught in our education system to name but a few (see Asia NZ foundation release on these lines last week).   As raised yesterday, perhaps it’s a case of starting small and gradually increasing offerings rather than a big bang approach.  What have we got to lose versus the cost of missing out?

Richard’s insight on the best way to enable economic growth locally was not at all what I expected but on the mark – talented people innovating in local government (yeah right you say!).  As an observation – business and government are much more intertwined in the Europe and China than NZ…food for thought.

Beijing – cross a river by feeling the stones

Onto the last leg of the journey in Beijing, China now.  Dubai was absolutely humming, as you can see by the departures board from 1am-7am in the morning.  They are all Emirates flights, with one leaving on average every 6 minutes.  There’s an amazing history – 30 years young.


China Center for International Economic Exchanges (CCIEE)

I met with Dr Wang and his team at the CCIEE, which an economic organisation which “operates under the guidance and supervision of the National Development and Reform Commission (NDRC) in terms of it’s business scope and is registered in the Ministry of Civil Affairs”.  The NDRC is heavily involved in China’s five year plans, so it was an honour to be hosted.

We covered a lot, but a few take-outs from the discussion were:

  • The importance of innovation led right from the top
  • How integration between central, regional and local government can enable economies including significant local ownership for economic growth
  • Even in a massive civilisation, the recognition of the importance of different locations
  • The interdependence of cities and rural areas.  Will urbanisation be reversed and does it outweigh the negatives of high house prices and affect on quality of life?
  • Transport as a key enabler in connecting resources and people
  • Trade zones…more to come on those later in the week

Mahon China

Then an afternoon session with Charlie and the team at Mahon China.  A great summary of their key insights into economic development was the proverb Cross a river by feeling the stones.  Could the five year plan more be described as a five year target that is achieved with innovation and pragmatism?  Can pilot projects be tested and developed before rolling out to other regions?  What can NZ learn from China and these questions?

And finally, a very quick shot from Tiananmen Square which is huge.