ABSTRACT
A shift in China's domestic economic policy, coinciding with a conducive international environment, led to the creation of the Shenzhen Special Economic Zones, which drew enormous attention from both within and outside of China. The overall performance of Shenzhen in attracting foreign investment was outstanding during the study period, which could be roughly divided into four phases: initial effort, 1979-1982; accelerated growth, 1983-1986; sustained development, 1987-1990; and rapid growth, 1991-1994. Having excluded labor costs, government policies and domestic market potential as the primary factors, the chapter argues that the significant growth of foreign investment in Shenzhen has been a positive function of Shenzhen's proximity to Hong Kong. The close economic ties between Hong Kong and Shenzhen have been strengthened by industrial relocation based on joint production and a division of labor. In the case of Hong Kong and Shenzhen, cultural and historical affiliations have significantly facilitated mutual development.
