After WWII, most developing countries have utilized a special zoning strategy (SZS)--Free Trade Zones, Export Processing Zones, etc.--to attract foreign investment and to propel their economic takeoff. In the development literature, there have been three major competing arguments concerning special zoning and foreign capital's role in socio-economic development: Liberal (or Neo-classical), Marxist (or Neo-Marxist), and Statist. Liberal and Marxist approaches do not provide satisfactory answers to different causes and results of SZS in different countries. Statist approach tried to ease the tension between the two approaches by focusing on the state role in socio-economic development, and applied a new dimension of research, state capacity, to the research. However, there have been few studies specifically focusing on SZS in developing countries.; This research adopts the third approach--statist approach--to provide a case study about China's SZS and its state's role in foreign investment and socio-economic development in the perspective of political economy. It describes the effectiveness of SZS implementation, and contends that state capacity is a major determinant for the state to play an important and positive role in social-economic development.; The findings show that a developing country with a relatively strong state capacity can play a positive role in handling foreign capital inflow by using SZS. The China case provides an alternative route towards development which eases the tension between two opposite theories (Neo-Classic and Marxist theories) in political economy. It also provides a supplement for the Statist approach to development. That is, not only should a state intervene in socio-economic development in developing countries, but a state also needs to possess state capacity to implement the policies and fulfill the development goals.
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