China’s Special Economic Zones Explained: Which One is Right for Your Business? 

Choosing the right location to launch or expand a business in China can be a daunting task for foreign investors. With hundreds of development zones spread across the country, each offering different industrial profiles, incentive policies, infrastructure, and levels of supply chain maturity, identifying the right fit requires careful analysis. In this first instalment of our series on China’s economic zones, we take a deep dive into China’s seven special economic zones (SEZs), the progenitors of China’s strategy of expanding market access and attracting foreign capital via delineated development zones.  

For each SEZ, we examine its industrial strengths, preferential tax and investment policies, key development areas, and strategic positioning to help foreign investors assess which zone best aligns with their sector, supply chain requirements, and long-term ambitions in China. 

Over the last four and a half decades since China first established the special economic zone model, the country has created a total of seven SEZs, each with its own distinct industrial characteristics and strategic focus. Many have been expanded over the years to cover entire cities or provinces and have become important drivers of economic growth in their respective regions. 

Although China’s economic zones have since expanded to encompass a broad range of offerings, including free trade zones (FTZs), the traditional SEZs continue to offer unique advantages to foreign businesses. Their decades of development mean they provide mature industrial infrastructure and business service networks, deep integration into domestic and international supply chains, and established regulatory environments that newer zones have yet to replicate. 

The optimal location for a business will depend on its own priorities and ambitions. Each SEZ differs in its industrial strengths, geographic advantages, labor market, natural resources, and preferential policies, and the right choice will be the one that best aligns with a company’s sector, supply chain requirements, and long-term strategy in China. 

Shenzhen SEZ 

Among the first four SEZs established in 1980, the Shenzhen SEZ was expanded to cover the entirety of the city’s nine districts in 2010, meaning the entire city now benefits from the preferential policies and regulatory frameworks originally applied only to the designated zone.  

Since the establishment of the SEZ, Shenzhen’s GDP has grown from RMB 270 million in 1980 to RMB 3.87 trillion in 2025.1 This growth has been driven by rapid industrialization and the development of key manufacturing industries, in particular export-oriented manufacturing of electronics, home appliances, and textiles and garments. The city has also become an important financial hub, with the Shenzhen Stock Exchange – the second-largest by market capitalization – launching in 1990.

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While its legacy as an electronics manufacturing hub remains to this day, the city’s industrial landscape has diversified significantly over the decades. Today, it is known as China’s Silicon Valley due to its high concentration of technology companies, which include some of the country’s largest, such as Tencent, Huawei, ZTE, and DJI. The Shenzhen municipal government’s R&D expenditure is among the highest in the country, with the total reaching RMB 245.3 billion (US$33.8 billion) in 2024. 

The SEZ is doubling down on its reputation as a tech leader with a focus on emerging industries, in particular robotics, AI, biomedicine, intelligent connected vehicles, the low-altitude economy, and new energy and advanced materials. In manufacturing, the SEZ is increasingly focusing on moving traditional sectors up the value chain through automation and digitization, with initiatives supporting smart factory adoption and the integration of industrial internet platforms.  

The Shenzhen SEZ also forms part of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), meaning it enjoys special incentive policies for attracting talent and facilitating the cross-border movement of people, capital, and data between the mainland and Hong Kong and Macao.  

Its strategic position on the border with Hong Kong means that the Shenzhen SEZ is also an important gateway for both foreign trade, and for inbound and outbound foreign investment. Companies established in Shenzhen benefit from streamlined access to Hong Kong’s financial markets and legal infrastructure, while also serving as a staging point for foreign enterprises entering the broader Chinese market. 

The Port of Shenzhen, the third-largest container port in the world, recorded a foreign trade container throughput of 33.156 million TEUs in 2025, while the city’s total two-way foreign trade reached a value of RMB 4.55 trillion (US$666.69 billion). 

The Shenzhen SEZ is deeply integrated into both domestic and international supply chains, and offers mature industrial infrastructure and business service network, greatly facilitating market entry and corporate set-up for companies expanding into the region. The SEZ houses several industrial development zones, including the Qianhai-Shekou Free Trade Zone, the Qianhai Cooperation, and the Hetao Shenzhen-Hong Kong Science and Technology Innovation Co-operation Zone, among many others.

Preferential policies

At the end of 2025, the Shenzhen municipal government released the Implementation Measures for Further Strengthening the Attraction and Utilization of Foreign Investment, which outline a range of incentive policies for foreign companies. The policies, which will be in place until 2027, include:

• Financial rewards for new foreign investments of US$50 million or more in high-tech manufacturing, manufacturing, high-tech services, and other industries;
• Financial rewards for new investments by companies with regional headquarters in Shenzhen;
• Temporary withholding tax exemptions for reinvestments;
• Cash rewards for foreign-funded R&D centers;
• Import duty exemptions for R&D equipment and VAT exemptions for purchases of domestic equipment; and
• Talent incentives.

The Qianhai-Shekou FTZ also provides a 15 percent reduced corporate income tax (CIT) rate for eligible companies operating in certain encouraged industries. 

Shenzhen is also a part of the GBA’s IIT subsidy program for in-demand and high-end talent, which allows eligible overseas talent working within Shenzhen’s administrative boundaries to apply for a financial subsidy to offset the portion of IIT paid in Shenzhen that exceeds 15 percent of their taxable income.

Shenzhen also provides a range of R&D funding programs, including scientific and technological innovation vouchers and R&D expense funding projects announced in March 2026, designed to encourage companies to increase their R&D expenditure. 

Zhuhai SEZ

Designated as an SEZ to facilitate the Central Government’s access to Macao and global markets, Zhuhai has evolved into an important port, research and education center, tourist destination, and transportation hub in the Pearl River Delta. In 2025, the city’s GDP reached RMB 456.3 billion (US$66.86 billion), a year-on-year increase of 2.7 percent.

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Zhuhai shares a border with Macao, with which it has remained deeply interconnected through economic collaboration, cultural exchange, and social integration. The Hengqin New Area, a 106-square-kilometre island to the west of Macao, was incorporated into the Zhuhai SEZ in 2009 to support the diversification of Macao’s economy and deepen Guangdong-Macao collaboration. The opening of the Hong Kong-Zhuhai-Macao Bridge has further strengthened Zhuhai’s ties with both Hong Kong and Macao.

Since its establishment, the Hengin New Area has become a key area for strategic and emerging industries and an important testing ground for Guangdong-Macao cooperation. Hengqin is also one of the three areas of the Guangdong FTZ, launched in 2015, and in 2021, was developed into the Hengqin Guangdong-Macao Deep Cooperation Zone (“the Construction Plan”). This Cooperation Zone, which covers the entirety of the island, aims to deepen Guangdong-Macao ties, facilitate cross-border business and movement of people, and serve as a test zone for regional integration with Macao.

Zhuhai’s key industries include home appliances, integrated circuits, biomedicine, new energy, new materials, and high-end printing equipment. Under China’s 14th Five-Year Plan, the city targeted development as a global advanced manufacturing base and industrial innovation hub, with a further focus on IT, high-end medical technology, and intelligent manufacturing.

Zhuhai hosts several national-level development zones, including the Zhuhai Economic and Technological Development Zone, the Zhuhai High-Tech Industrial Development Zone, and the Zhuhai Bonded Zone, as well as three provincial-level industrial parks and three science and technology parks under the direct management of the Zhuhai High-tech Zone.

Preferential policies

Companies in the Hengqin Cooperation Zone operating within one of 150 qualifying sectors are eligible for a reduced 15 percent CIT rate, against China’s standard 25 percent. The policy applies from January 1, 2021, with no expiry date. Companies in the tourism, modern services, and high-tech sectors are additionally eligible for a full CIT exemption on income derived from new overseas direct investment. 

Newly purchased fixed assets or intangible assets valued at up to RMB 5 million may be deducted from taxable income on a one-off basis, with accelerated depreciation available for higher-value assets.

Both domestic and foreign high-end and in-demand talent are also exempt from IIT on the portion of their income exceeding a 15 percent effective rate, applicable across 185 qualifying sectors. This policy has been extended until the end of 2027. 

Shantou SEZ

One of the first four SEZs established in 1980, Shantou, situated near Guangdong’s border with Fujian on the South China Sea coast, was chosen due to its historical role as a trading port and strong ties to overseas Chinese, which it sought to attract for investment. The SEZ was expanded to cover the entire city in 2011. 

Due to its relative distance from Hong Kong and the rest of the Pearl River Delta cities, the Shantou SEZ has not developed into as large an economic hub as Shenzhen or Zhuhai. Nonetheless, the city has developed into a considerable coastal economy, with its GDP growing from RMB 1.08 billion in 1980 to over RMB 302.3 billion in 2025.

To this day, the city still has a strong connection to overseas Chinese. Over the past 45 years, the city approved nearly 6,500 foreign investment projects with a combined foreign capital amount reaching US$10.033 billion, of which around 80 percent came from overseas Chinese. 

Over the decades since its establishment as an SEZ, Shantou’s economy has relied on lower-value light manufacturing, such as toys, textiles, and furniture, as well as seafood processing, chemical raw materials, and electronics. 

Foreign trade, in particular manufacturing exports, is also an important economic driver, with the port’s container throughput reaching 1.76 million TEUs in 2024.

In recent years, the SEZ has sought to move its industries up the value chain with a focus on developing high-tech, advanced manufacturing, new materials, and renewable energy. These industries have begun to take off: in 2024, the value added of advanced manufacturing grew 38.4 percent year-on-year, while investment in new materials and renewable energy increased 52.3 percent and 10.7 percent year-on-year, respectively. 

Shantou is also becoming a center for the development of wind power, and has currently built three offshore wind farms with a total installed energy capacity of around 1.2 GW. 

In 2023, the Shantou International Wind Energy Innovation Port was launched by a consortium of offshore wind technology companies, creating a base for the development of offshore wind energy covering equipment manufacturing, financing, R&D, education, and talent training. 

Preferential policies

Unlike the other SEZs, Shantou has not retained the same level of preferential policies to attract investment. However, companies can still benefit from the national preferential policies available to companies nationwide, including the R&D expense pre-tax super deduction, the VAT credit refund policy, the 15 percent CIT rate for high-tech companies, and the CIT reduction and exemptions for qualified technology transfer income, among others. 

Xiamen SEZ 

Xiamen’s proximity to Taiwan led it to be included in the first batch of four SEZs established in 1980, positioned from the beginning as a launchpad to develop cross-strait trade and investment. Over the past four and a half decades, the SEZ, which was expanded to the whole city in 2010, has succeeded in breaking new ground on cross-strait cooperation, steadily increasing the number of flight routes and establishing several cross-strait collaboration mechanisms, such as a cross-strait financial center, a Southeast international shipping center, and a cross-strait trade center.

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The city has benefited from Taiwan’s manufacturing boom in the 1980s, attracting investment from Taiwanese companies in manufacturing and light industry in particular, which helped to spur the development of labor-intensive manufacturing of electronics, plastics, textiles, footwear, toys, and furniture in particular.

In the decades since its establishment, Xiamen’s industrial make-up has expanded to include sectors such as eyewear manufacturing, shipbuilding, civil aviation, and high-tech.

High-tech companies, in particular in sectors such as microelectronics and ICs, flat panel displays, computer and telecom equipment, and software and IT services, are largely concentrated in the Xiamen Torch Hi-Tech Industrial Development Zone, established in 1990. Today, the zone is home to companies such as AU Optronics, Dell, ABB, Schneider Electric, and Panasonic, among others. 

The deepwater Port of Xiamen is also an important trade link and a major channel through which the city exports large volumes of advanced manufacturing products such as vehicles, ships, and solar cells, as well as labor-intensive goods such as apparel and toys.

The Xiamen Area of the Fujian FTZ, established in 2015, covers 43.78 square kilometers across two main areas: the Cross-Strait Trade Center Core Area in Huli District, and the Southeast International Shipping Center Haicang Port Area in Haicang District. The FTZ provides a preferential business environment and expanded market access for foreign investors, in particular in the entertainment and publishing industries, which are generally strictly off-limits for foreign investors. 

The FTZs’ focus industries include civil aviation (including component manufacturing, materials trading and distribution, business jet design and modification, aviation finance, and simulation and personnel training), ICs, cross-border e-commerce, and shipping logistics, among others.  

As of 2025, Xiamen had over 7000 Taiwan-invested companies, which include the likes of AUO, Tsann Kuen, Nan Ya Plastics, and Everyoung Optical Hi-Tec. 

Preferential policies 

The Xiamen SEZ offers a range of preferential policies across tax, talent, and market access.  

On March 30, 2026, the Xiamen municipal government released the Implementation Plan for the Comprehensive Pilot Programme on Expanding the Opening-up of the Service Sector. Key measures include relaxation of foreign equity restrictions in value-added telecoms, expansion of the Qualified Foreign Limited Partner (QFLP) pilot in finance, support for building a global aviation maintenance base, and upgrading of the International Trade Single Window.7 

The city also provides extensive talent programs for attracting and cultivating high-end talent in key industries such as ICs, biomedicine, and advanced manufacturing, as well as for attracting talent from Taiwan. 

The Xiamen portion of the Fujian FTZ also provides expanded market access opportunities for foreign investors, namely:

• Permission for qualified foreign-invested enterprises in and outside the zone to provide film post-production services;
• Permission for the establishment of wholly foreign-owned entertainment venues;
• Relaxation of restrictions on the proportion of Chinese personnel in the main creative teams (screenwriters, producers, directors, lead actors, and so on) of Sino-foreign co-produced TV dramas; and
• Permission for online publishing service providers to cooperate with domestic foreign-invested enterprises or overseas organizations and individuals on online service projects.

Hainan SEZ 

The entire province of Hainan was designated as an SEZ in 1988, making it the largest SEZ in China until this day. Due to its location at the southernmost point of China and its tropical climate, Hainan has historically been known primarily for tourism and tropical agriculture, while its proximity to ASEAN nations has also positioned at the frontline of China’s integration with Southeast Asia. 

Despite its designation as an SEZ almost four decades ago, Hainan has continued to be one of the least-developed provinces in China, with a GDP of RMB 810.89 billion (US$118.82 billion) in 2025, ranking 28th among the 31 mainland provinces. 

On June 1, 2020, Chinese authorities released the Overall Plan for the Construction of Hainan Free Trade Port (“the Masterplan”), a large-scale plan to transform the entire island province into a free trade port (FTP), which would culminate in the launching of an independent customs zone on December 18, 2025.

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On December 18, 2025, Hainan launched an island-wide special customs zone, implementing a “two-line” tariff system under which 74 percent of goods entering from abroad (through the “first line”) are exempt from import tariffs, VAT, and consumption tax. Goods circulate freely within the province, but if shipped to mainland China (through the “second line”), they are subject to standard import duties, unless substantially transformed on the island. This structure is designed to attract investment in value-added processing rather than simple transshipment, lowering the cost of imported inputs for industries such as pharmaceuticals, food processing, and light manufacturing, while providing access to both the Chinese mainland and Southeast Asian markets. 

In addition, goods that are imported to Hainan tariff-free can be exempted from import duties when being shipped to the mainland if they achieve 30 percent added value through processing in Hainan. This opens new options for companies to restructure supply chains and reduce production costs, especially for industries that are reliant on imports and can offshore high-value segments of their production. 

While Hainan has historically been reliant on agriculture and tourism, the government is actively diversifying its economy with a focus on pharmaceutical and yacht manufacturing, medical tourism, food processing, and high-tech and digital industries, among others. The island is also home to the Wenchang Space Launch Site and is cultivating an emerging aerospace industry. 

Preferential policies

Companies in encouraged industries registered in the Hainan FTP benefit from a reduced 15 percent corporate income tax (CIT) rate. In February 2025, the Ministry of Finance and State Tax Administration extended this policy – previously set to expire at the end of 2024 – until the end of 2027. 

To qualify, companies must be registered in the FTP, maintain substantial operations there, and operate within an encouraged industry as defined by one of three catalogues: the Hainan FTP Encouraged Industries Catalogue (2024 Edition), the Catalogue for Guiding Industrial Restructuring (2019 Edition), or the Catalogue of Encouraged Industries for Foreign Investment (2022 Edition). 

High-end and in-demand talent working in the Hainan FTP are exempt from IIT on the portion of their income exceeding a 15 percent effective rate. This policy was likewise extended until the end of 2027 in early 2025. 

Eligible income includes comprehensive income earned in the FTP (wages and salaries, labour remuneration, royalties, and franchise royalties), business income, and Hainan-recognised talent subsidies. 

Kashgar SEZ 

The Kashgar SEZ was one of two new SEZs established in 2010, along with the Khorgas SEZ, in order to spur the development of western China’s border regions and develop trade links to Central Asia and eastern Europe. 

Situated near the border with Kyrgyzstan and Tajikistan to the west and northwest, and Afghanistan and Pakistan further to the southwest, Kashgar is one of China’s main western border cities and an important hub for the import of key goods such as natural gas, crude oil, and mineral resources from Central Asia, as well as cotton and agricultural produce from across the region. Kashgar also exports a range of Chinese-manufactured goods to Central Asia, including electronic components, machinery and equipment, textiles and garments, household appliances, and building materials.

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The city is also the starting point of the China-Pakistan Economic Corridor (CPEC), a project under China’s Belt and Road Initiative (BRI) that links China with Gwadar Port on the Arabian Sea. 

Despite its remote location, the Kashgar SEZ is well-connected with several mature transport links, including 38 railway stations, spanning the three prefectures of Kizilsu Kyrgyz Autonomous Prefecture, Kashgar, and Hotan, and four civil transport airports: Kashgar Laining International Airport, Shache Yarkand Airport, Tashkurgan Khunjerab Airport, and Tumshuk Tangwangcheng Airport. The highway network connecting Kashgar with major cities in Kyrgyzstan, Tajikistan, and Pakistan is now also fully operational, allowing for overland transport to major cities in neighboring countries within two to five days.

The Kashgar SEZ is spread over two distinct zones: the Kashgar Main Zone, covering 40 square kilometers in Kashgar City, and the Irkeshtam Port Zone, covering 10 square kilometers on the border with Kyrgyzstan. Within these areas, there are several sub-zones, including the Logistics Industrial Zone and the Kashgar Comprehensive Bonded Zone. 

The Logistics Industrial Zone focuses on developing strategic emerging industries such as Li-ion batteries and basic industries like textiles, apparel, and home textiles, while also supporting industries such as electronic assembly and processing, IT, building materials, and modern logistics. The bonded zone focuses on developing bonded processing, warehousing, logistics, and cross-border e-commerce industries.

The Kashgar Area of the Xinjiang Pilot FTZ was launched in 2023, and like other FTZs seeks to promote trade liberalization and attract foreign investment with liberalized market access and incentive policies. 

As is the case all over China, the SEZ is now also focusing on developing its advanced manufacturing and high-tech capabilities, with a focus on electronic components processing, renewable energy, high-end equipment manufacturing, biotechnology and biomedicine, modern services, and e-commerce.

Khorgas Economic Development Zone

Established in 2010 along with the Kashgar SEZ and officially launched in 2012, the Khorgas Economic Development Zone (EDZ) is situated on China’s western border with Kazakhstan in the Ili Kazakh Autonomous Prefecture, and is China’s only cross-border special economic zone, with a corresponding section established on the Kazakhstani side in the Zhetysu Region.  

The EDZ covers a total area of 73 square kilometers and operates across three main areas: the Khorgas Port Area in Khorgas City, the Yining Area in Yining City, and the Qingshuihe Supporting Industrial Park in Huocheng County. Within these areas are ten national-level open platforms, including the Khorgas Port, the China-Kazakhstan Khorgas International Center for Boundary Cooperation (ICBC), the Khorgas Comprehensive Bonded Zone, and the Khorgas Area of the Xinjiang Pilot FTZ.

The Khorgas Port is China’s largest land port for automobile exports, handling 421,000 vehicle exports in 2024. The port is also a major export gateway for large-scale green technology equipment, including wind turbines, which are transported onward to Central Asian countries, as well as engineering machinery, EVs, and electrical machinery.  

The Khorgas Area of the Xinjiang Pilot FTZ, launched as part of the broader 2023 FTZ expansion, seeks to promote trade liberalization and investment facilitation through reforms in customs clearance, inspection, and certification, and is working to shift the zone’s focus from goods trade toward services trade. 

The EDZ focuses on developing industries including chemicals, agricultural product deep processing, biopharmaceuticals, renewable energy, new energy, new materials, building materials, imported resource processing, machinery manufacturing, and trade and logistics. 

Preferential policies in Kashgar and Khorgas

Both the Kashgar SEZ and Khorgas EDZ offer generous CIT policies to attract investment. 

From January 1, 2021 to December 31, 2030, newly established comapanies in the two SEZs that fall within the scope of the Catalog of Corporate Income Tax Preferential Industries for Key Encouraged Development in Difficult Areas of Xinjiang can be exempt from CIT for five years, and exempt from the local government’s share of CIT from the sixth to the tenth year, starting from the tax year in which their first production and operating revenue is received.10  

Companies operating in certain encouraged industries (those included in the Catalog of Encouraged Industries in the Western Regions) can also enjoy a reduced 15 percent CIT rate across the whole of Xinjiang Province. 

Choosing the right location for your business 

Choosing the right SEZ depends on a company’s sector, supply chain requirements, cost structure, and long-term strategic ambitions in China.

For instance, the Shenzhen SEZ provides perhaps the most mature infrastructure base and business services ecosystem of any SEZ in China, as well as the most extensive preferential policies. However, it is also one of the most expensive cities in China, meaning labor costs, office space, and manufacturing facilities will come at a premium, squeezing margins for lower-value production. Shenzhen is therefore best suited for R&D, high-value manufacturing, and advanced services, where the depth of the talent pool, supply chain maturity, and access to capital outweigh the higher cost base.

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Zhuhai and Xiamen offer a middle ground, with competitive costs relative to Shenzhen, strong industrial bases, and important strategic advantages. Zhuhai’s proximity to Macao and its integration into the Guangdong-Macao cooperation framework make it particularly attractive for companies seeking access to that relationship, while Xiamen’s cross-strait links with Taiwan and its role as a logistics and shipping hub give it a distinct advantage for companies with regional supply chains.

The right location may also be determined by proximity to key infrastructure or trading partners. Kashgar and Horgos are ideal for companies with ambitions in Central Asia dur to their strong trade ties with Central Asia and the broader Eurasian market. Both cities also offer significantly lower labor and land costs than the coastal SEZs, and the rapid build-out of renewable energy in Xinjiang is helping to drive down energy costs, which may be an important consideration for energy-intensive industries.

Certain SEZs also provide unique structural advantages unavailable elsewhere. Hainan’s 30 percent added value rule, for instance, is particularly well-suited to industries that rely heavily on imported inputs but complete core production or processing stages locally, and whose end customers are on the Chinese mainland. Industries with strong technological content and relatively high margins, such as biopharmaceuticals, high-end technology manufacturing, and aerospace and yacht maintenance, are inherently best positioned to meet the value-added threshold while benefiting from tariff-free entry into the mainland market.

Preferential policies and tax incentives also play an important role in cost evaluations, with areas providing reduced CIT and IIT rates being particularly advantageous. 

With the region’s rapid economic growth and diverse regulatory environments, businesses must navigate shifting costs, complex compliance frameworks, and conflicting information. Our professionals support investors with actionable data on Asia’s industrial landscape, location analysis, supply chain diversification, and market entry strategy. We also offer business partner matching services and assist in identifying optimal investment destinations through cross-country competitiveness benchmarking.

Pritesh Samuel

Co-Head of Business Intelligence

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