Spend some time in the southern Chinese coastal city of Shenzhen, and you’ll find a cosmopolitan, wealthy and technologically advanced city on par with any developed world business hub – and that includes its sophisticated neighbor just to the south, Hong Kong.

With its gleaming towers, bustling stock exchange, and more than 10 million inhabitants, Shenzhen has become a major financial center and one of the fastest growing cities in the world. Shenzhen is also home to some of the most successful Chinese tech companies such as Huawei, ZTE, and Tencent, as well as being one of the largest container ports in the world.

This modern metropolis would be entirely unrecognizable however from the Shenzhen you would have found just a few short decades ago. The Shenzhen of the 1980s was, for all intents and purposes, a small fishing village inhabited by perhaps 30,000 hearty souls, eking out a living barely above the subsistence level. Where today you find futuristic skyscrapers and jam-packed highways, you would have found little more than drab low-rise buildings two or three stories in height, transportation by foot or bicycle, and muddy farm fields.

What accounts for Shenzhen’s amazing transformation? The answer could not be more straightforward: The decision by the Chinese government to open Shenzhen to foreign direct investment.

The pivotal year was 1979. The developmental gap between China and the West had grown so immense that China’s leaders recognized the need to embark upon a reform and opening-up program in order to jump-start the country’s economic development. Attracting foreign direct investment was job number one. The first major initiative was to set up Special Economic Zones (SEZs) in Shenzhen and three other cities. Given its proximity to highly internationalized Hong Kong, Shenzhen was a natural choice.

The idea was simple enough. The SEZs would be given unprecedented flexibility to loosen labor laws and price controls, permit Sino-foreign joint ventures, openly tender infrastructure contracts, and provide tax benefits and other forms of preferential treatment to FDI-providers. The hope was to draw in foreign companies – at the onset, principally from Hong Kong – in order to build out the needed infrastructure, and develop a light manufacturing sector and a viable export capacity. Hong Kong companies were especially important because of their strong cultural connection to the mainland as well as their experience, contacts and savviness in international commerce.

The SEZ strategy proved to be immensely effective. By taking a gradual, step-by-step approach to reform and greater openness towards FDI, Chinese officials were able to experiment in a controlled environment. When the ingredients were just right, additional reforms and opening could be undertaken, once again making adjustments and calibrations as experience dictated.

The long range goal of course was to eventually introduce the “tried and tested” reforms from the SEZs to wider and wider swaths of the Chinese economy — once the kinks had been worked out and the impacts of FDI could be better gauged.

The cause of reform was given a further boost in 1992, with Deng Xiaoping’s famed “Southern Tour”, which solidified the centrality of FDI and hastened the pace of reform, helping to push Shenzhen even further up the development ladder. The emphasis began to shift during these years from export processing to high technology, and FDI was often conditioned upon technology transfers to local partners and commitments to undertake more and more research and development locally. The Shenzhen High-Tech Industrial Park was established in 1996, and attracted a number of leading international firms such as Intel, IBM, Toshiba, and Samsung.

As Shenzhen was growing by leaps and bounds, much of its physical infrastructure and housing was being delivered through FDI. The Central Government and local government invested only 1.4% and 13.1% respectively of the funds used for the physical development of Shenzhen from 1980 to 1990. Much of the rest was provided by FDI partners, principally from Hong Kong. If there is any city in the world that can be said to have been built – in both literal and figurative terms – by FDI, it is Shenzhen.