Introduction
More than ten years after India had set up the first export processing zone (EPZ) in Asia, the Kandla EPZ in 1965, Chinese communist cadres stumbled at the stone of “export processing zone” when groping on the road of reform. They carefully picked up the term “special export zone” to disassociate their zones from those of capitalist countries. One year later in 1980, special export zone officially debuted as “special economic zone” (SEZ). Two decades after China set up its first SEZ in Shenzhen, India introduced SEZ policy, aiming to emulate China’s model of SEZ. From a forerunner to a follower, Indian government attempts to catch up with a more liberalized version of SEZ policy.
The SEZ (as well as follow-up development zones in China) is a model of
distorted distribution of resources benefiting privileged pockets of a
country. Indian SEZ policy does not escape from this nature of the
model though there are important differences from China’s SEZs. Hence,
the negative outcomes of China might lash back in similar problems in
India. The article closely examines SEZs in both the countries,
especially how China’s SEZ represents its high-growth, high-cost and
unsustainable development model. The comparison locates SEZs in policy
framework as well as larger political and economical backdrop of two
countries, exploring issues beyond the economic viability of SEZs. The
article argues how the newly formulated SEZs strategy of India
indicates the indian government's impatience with its gradual economic
reform and its inclination towards a more rapid but exclusive reform.
Special Economic Zone as a Chinese Term
In the current development discourse largely dominated by English
language, there are few Chinese expressions that have been repeated,
interpreted and re-constructed as much as the “Special Economic Zone”
(Jing Ji Te Qu). But we should not forget the basic fact that the
expression Jing Ji Te Qu was coined specially for China’s development,
thus, deeply rooted in its political and cultural background. What the
devastating Cultural Revolution left China with was not just a weak
economy but a strong desire for change. Communist cadres were eager to
lift the country out of poverty. They wanted to learn, visiting both
socialist brothers and capitalist enemies. So China saw a decisive
departure from a planned economy towards opening up and liberal reform
in 1978. Deng Xiaoping was heard, “China could mark an area for
attracting the foreign capital and absorbing advanced technology to use
the special policies to develop the economy. It’s an experiment.” Deng
called this area “special zone”.
To establish special economic zones in the socialist China was a “great
pioneering undertaking”, as what the official propaganda would put it,
simply because there had been no instance of similar kind in a
socialist regime. The special economic zones (SEZ) were “special”
because it was a model to use the capitalism means of commodity economy
to accelerate the so-called socialist construction. It subtly indicated
that those zones were the exceptions, or the peculiarities of otherwise
a purely socialist system. They were “economic” because they were meant
to be special only in economic terms while governed in the same
centralized political regime. They had to be restricted in the “zones”
because the model was a testbed for releasing capitalist productivity
and the spillover of negative testing results, if any, would be easily
quarantined.
Thus, 327.5 sq km out of Shenzhen’s 2020 sq km area was fenced up at
arm’s length from capitalist Hong Kong. Shenzhen SEZ was born in August
1980. The demarcated area was to “allow a section of people to get rich
first”(1) before everyone could get rich. More autonomy was given to
Shenzhen to facilitate the setup of foreign-owned enterprises and joint
ventures, the use of land that belonged to the state, the lowered tax,
and the export and import. SEZs in Zhuhai, Shantou and Xiamen were
established in the same year. Five years after the setup of the SEZ,
the industrial output of Shenzhen in 1984 registered a 1.3 billion RMB,
20.2 times of that of 1979. The investment in infrastructure in
Guangdong and Fujian provinces (where four SEZs are located) in five
years exceeded the total of previous ten years before 1978.(2) In 1988,
the 34,000-square-kilometer Hai Nan Island was designated as a province
and at the same time became the largest SEZ among five SEZs in China.
The establishment of SEZs is both economically strategic and politically significant for China’s development. SEZ was an experiment, which would have had no much meaning if the experiences of the experiment were not used in other parts of China. Since 1984, China further opened 14 coastal cities to overseas investment and formed several so-called “open economic areas” including now well-known Yangtze River Delta and Pearl River Delta. After Pudong New Area in Shanghai was opened up in 1990, a belt along the south-east coastal line of China had clearly appeared to lead the efforts of attracting FDI, increasing the export, absorbing new technology and moving towards a market economy. The belt soon began to be dotted with various so-called development zones which could function like a mini-SEZ. In 1990s, development zones (or parks) spread to the inner land of China from coastal line. Currently at national level, there are 222 zones with special policies including 56 economic and technical development zones (ETDZ), 38 export processing zones (EPZ), 57 high technology industrial development zones (HTIDZ), 15 bonded zones, 22 bordering cooperation zones and miscellaneous zones such as logistic parks, tourism and resort areas or Taiwan investment areas. There are another 1346 zones (e.g. industrial park, ETDZ, etc.) at provincial level. Development zones with different names may have different emphasis. The economic and technical development zones (ETDZ) are more general and largest in number to attract export-oriented factories and companies in the zones while high technology industrial development zones (HTIDZ) focus on transferring and absorbing new technologies. Bonded zones and export processing zones (EPZ) are built close to ports or airports. The former is to facilitate intermediary trade and the latter to encourage as well as regulate the processing trade. Bonded zones and EPZs are very often located in or close to ETDZs to enhance the investment environment of the region.
Though the host cities may not be designated either as a SEZ city or a opened-up area, they were able to have those zones and parks to take advantage of the similar polities that coastal areas had earlier. The historical transition from a closed-up, centralized and planned economy to an outward and market-oriented economy was thus expedited. Any analysis about China’s SEZs should be located in this step-by-step strategy.
Meanwhile, the economic transition did not happen in a political
vacuum. To lease the land to foreigners for development in SEZ reminded
Chinese of the foreign concessions in late 19th century. And allowing
the private ownership of a company could easily be associated with the
capitalist exploitation. The discussions and debates around SEZs were
intense till Deng waved his hands in the historical 1992 tour to South
China saying, “SEZ is not capitalist but socialist.” The experiment in
SEZs paved the way for the systematic rationalization of “socialism
with Chinese characteristics” theory of Deng Xiaoping. Communist Party
of China (CPC) redefined socialism and confirmed “Socialism and market
economy are not contradictory with each other.” The ideology transition
from “preferring socialist weeds rather than capitalist seedlings” to
“using the capitalism to construct socialism” was thus realized.
From the above discussion, it shows SEZs, later joined by open-up
cities, open economic areas and development zones they have spawned
have been a historical venture CPC decided to embark on. And when the
venture charted its course almost everywhere in China in both economic
and ideological senses, special economic zones are not so special any
more. China’s entry of WTO has brought average tariff from 43.2% in
1992 to 15.6% in 2000 and 9.8% today. Foreign trade dependence is over
60%. SEZs are no longer the only choices for investors, who nowadays
virtually have whole China to bank on for ease of dealing with the
customs, land, foreign currencies, taxes and duties. Effect from Jan.
1, 2008, to level the playing field for domestic enterprises and
foreign invested enterprises, unified income tax rate of 25 % has been
established, including those foreign invested enterprises in SEZs,
which used to enjoy 15% tax rate. SEZ, the term coined thirty years ago
by innovative and bold reformers, seems finishing its mission in China.
Indian SEZ: an Incarnation of EPZ
In 2000, or exactly two decades after China set up its first special
economic zone (SEZ) in Shenzhen, then minister of commerce of India Mr.
Murasoli Maran declared, “(China’s SEZ) is an exciting example that we
(India) can emulate(3)”. When this declaration later invited one of the
most heated policy debates, not all engaged in the debates realized it
was India that set up the first export processing zone (EPZ) in Asia, a
model that had ignited Chinese imagination about special economic
zones.
As early as 1960s, India had begun to promote the EPZ on the basis of
economic incentives, such as the provision of better infrastructure and
tax holidays. Kandla EPZ (Gujarat) and Santacruz EPZ (Mumbai) were set
up as first EPZs. In 1980s, the government introduced the Export
Oriented Units Scheme (EOU) to facilitate the export-oriented companies
outside of enclaves of EPZs and meanwhile established five more EPZs at
Noida (Uttar Pradesh), Falta (West Bengal), Cochin (Kerala), Chennai
(Tamil Nadu) and Vishakapatnam (Andhra Pradesh). The responsibility of
administering EOUs was entrusted with the zone administration. However,
the policies were still rigid and infrastructure was deficient. EPZ
also lacked objective clarity for some time and only in 1988 it was
clarified that they were designed to provide an internationally
competitive milieu for export manufacture.
In 1991, massive liberalization was launched in the Indian economy. And initiatives were made to restructure EPZs. The overall liberalization brought about the relaxation in the severity of controls and simplification of procedures to the zones. Zone authorities were invested with more power. Additional fiscal incentives were introduced. Indian government kept enlarging EPZ/EOU scheme to include sectors such as agriculture, horticulture, trading, etc. in mid-1990s.
Till the year 2000, China, an old neighbor with the similar population at the similar starting point decades back, was already the sixth largest economy in the world. Its then Prime Minister announced to the world China was going to double its GDP in ten years. India wanted to quicken its steps, perhaps with bitter sentiments of lagging behind. No longer satisfied with handful of small EPZs, India adopted the special name of special Chinese recipe and converted its EPZs to SEZs. India had already had 19 SEZs even before introducing 2005 SEZ Act. Unlike EZPs, those SEZs could be set up by both public and private, or jointly. They aimed to create the best investment environment possible with upgraded infrastructure, fiscal incentives, and simplified custom. SEZ Act, 2005, supported by SEZ Rules, came into effect in February, 2006. Within a year, totally more than 200 SEZs got approved plus other 166 ‘in-principle’ approvals.
India’s SEZ ambition seemed getting stalled when the violence broke out in Nandigram in March 2007. More than 4,000 heavily armed police stormed the Nandigram area (of West Bengal) to stamp out protests against the West Bengal government’s plans to expropriate 10,000 acres (40 km²) of land for a SEZ to be developed by the Indonesian-based Salim Group. Then Government imposed a 5000-hectare cap on SEZ. 2006 SEZ rules have been amended three times to accommodate debates, controversies, questioning and protests surrounding SEZs. States have been barred from carrying out compulsory acquisition. The Chinese recipe in India seems failing its magic in India.
But haven’t SEZs fared smoothly in China? Has the Indian setback happened because Chinese SEZ model is not adaptable to India realities or because Indian SEZ model is not the one China has pioneered?
How China’s SEZs Fared
To answer the first question, we have to look closer at what changes
SEZs have made in China. As discussed earlier, China’s setup of five
SEZs was an experiment with capitalist market economy. Once a part of
city is designated as a SEZ by the central government, the host city
gains more autonomy, both economically and politically, of its
development. In the beginning years, SEZ host cities kept their
revenues for local development rather than contributing to the central
government as other cities did. And any enterprise in SEZ would enjoy
some kind of favorable polices. In a centralized regime, the autonomy
plus the preferential polices almost guarantee the advantage of
attracting the investment and human capital.
1. Making the strong stronger widens regional disparity
In a sense, the development of SEZs is based on the distorted measures
that put other places in relative disadvantage. This was reflected in
the 14 firstly open-up cities as well that were allowed with similar
liberalization of economy as the follow-up of SEZs experiments.
All of 14 firstly open-up cities are located in the east region. As early as 1985 before 14 coastal cities opened up for FDI and development zones, the industrial output of those cities, with a population of less than 8% of China’s population, accounted for 23% of the country’s total and export accounted for 40% of the total. Those cities were already the engines of the economy even without being called so. However, it was not until 2000, the west region had its first country-level development zones. And today, the performance of development zones in East is far better than that of the West. Taking the example of country-level ETDZs, GDP in ETDZs of east, middle and west were 664.8 billion, 105.3 billion and 49.4 billion RMB (Ministry of Commerce of China, 2006). It is obvious that in order to increase the efficiency, the early investment and preferential policies leaned to the cities with the best infrastructure and industrial foundation.
Making the strong stronger with special economic policies such as SEZ, “opening-up”, or setting up national development zones, has directly contributed to the widening regional disparity of the country. East China(4) has always been the region where FDI concentrates since the first SEZ was set up. While FDI in the East accounts for more than 85% every year, the percentage of total FDI from West dropped from 7.28% in 1993 to 2.88% in 2004 and picked up a bit to 4.5% in 2005.
2. Mini-SEZ fever leads to land grab and corruption
It is not to argue SEZ should have happened in the West first so as to
make up its weakness but to emphasize the model of SEZ and development
zones is not a sustainable development policy, which in fact is a
distorted distribution of resources. As a poor country, China chose to
focus its resources on the most promising pockets of the country. Lower
levels of governments followed the suit. All kinds of development zones
are set up in specified areas to serve similar purposes of attracting
FDI and promoting import of materials and export of products. It does
not matter if it is called a SEZ or not. They are privileged pockets
for the “development” as a SEZ is. It was recorded that more than five
development zones were set up every day during the year 1992/1993 and
80% of the land were taken from agricultural land (5).
By the end of the year 2003, there were 6015 development zones covering a total area of 36,000 square kilometers (i.e. 3,600,000 hectare). During six years from 1996 to 2003, the agricultural land reduced from 130,040,000 hectare to 123,390,000 hectare and grain production is reducing rapidly in the country. Ironically, 43% of development zones were idle due to the lack of fund to develop the land or lack of companies to enter the zones(6).
Development zones became synonymous with land grab and corruption. It was reported by Ministry of Land Resource Newspaper that one local government (not named in the report) rent the agricultural land of 15,000 Mu (1000 ha.) to real estate developer at the price of 300,000 – 500,000 RMB per Mu (about 666 square meters) and the value of the land was estimated around 3 to 4.3 billion RMB. What each of 30,000 displaced farmers got as compensation was one-time settlement fee: 8,000 RMB. Moreover, flexible and ambiguous preferential policies within purview of local governments gave officials free hands to offer tax exemptions, in exchange of money and gifts, to those corporations that were not up to the requirements or not even located in the development zones. An investor could virtually shop around zones and find out the best deal. In 2005, National Audit Office checked 6 provinces’ 80 development zones. 6.5 billion RMB tax loss was found in the period of 2003 to 2005.
Alarmed by the strained land resource, the central government vigorously checked and cancelled illegal, repeated and non-performing development zones since the year 2003. 77.2% development zones were scrapped. It did not mean the problems with development zones stopped. In reality, there is no law with regard to the exit of the development zones. It is no secret for the scrapped zones to be legally affiliated with an approved zone. It also takes time to restore the land. Some cost, such as displacement, may even not reversible.
3. Mixed outcome at high costs with silenced opposition
Although the constantly increasing foreign trade of China has attracted
the attention of whole world and SEZs and development zones are
repeatedly acknowledged as the driving force, the development of
foreign trade is not a healthy and balanced one at all. Since 2001, the
share of foreign-owned companies in import and export volume has been
always higher than 50%. 62.5% of top export companies are
foreign-owned(7). This means it has been the foreign companies that
reap the benefits of increasing foreign trade. At the same time, the
processing trade has been always higher than conventional trade. This
means the bulk of export is only for meager processing fee. Even for
this process fee, the domestic companies have to lower the price to
compete with each other, which makes China the No. 1 anti-dumping
target in the world.
Though SEZs and development zones are the places where foreign investments are concentrated, investors not only have got market but also held back the technology. The “2005 report of MNCs in China” released by ministry of commerce pointed out that “core technology deficiency disease” was the by-product of FDI. The expected radiation of technology towards local companies from foreign-invested companies did not happen and China has reduced to “a manual worker for the world”. Many development zones continue to be trapped in attracting any foreign company through cheap land and low tax without consideration about the technology or innovation. This to a large degree contributes to the stagnant manufacturing level of China.
It appears “Made in China” dominates the world and some even argued
about “de-industrialization” of U.S and E.U. overshadowed by emerging
economies in Asia. The reality is that China’s production is at the end
of global manufacturing chain and “Made in China” is mostly consumables
rather than technology-intensive products. Further, Chinese industry
now heavily relies on imported equipment and parts including industry
of automobiles, optical fiber, petrochemical products, wind power, etc.
China only accounts for 11.4% of the global manufacturing addition
value (MAV) whereas U.S., EU and Japan account for 24.7%, 23.9% and
15.5% respectively (UNIDO, 2007). If there is an issue of
“de-industrialization”, China should be more concerned about that
rather than U.S. or Europe.
The growth of SEZs and development zones have relied on the high
consumption of energy and resources, which has actually characterized
the general economic growth of China till very recently due to
single-minded pursuit of GDP. The development zones not only face the
lack of land to develop but the shortage of water and electricity. Some
development zones became the place the polluting plants concentrate.
For instance, National Environment Protection Bureau has restricted the
approval of new projects for five development zones in 2007 due to
their violation of environmental regulations, which have seriously
polluted the main water body. The development zones represent the
predicament of
China’s GDP and export-driven economic growth.
At such expenses, some indeed got rich first as Deng envisioned. The
governments got GDP; officials and developers fattened their pockets;
MNCs expanded into a new found land for materials and labor; and there
heralded a new class called “middle class”. Rarely is attention given
to farmers who lost land and workers who sell labor. There are no data
available about how many farmers lost their land. It could be from 20
million to 40 million. Those farmers have no land to cultivate, no job
access to livelihood, and no social security to rely on. A research
done by Jiu San Xue She in 2003 shows only 30% of displaced farmers are
not affected by the loss of land(8). More and more farmers choose to do
Shangfang, i.e. to complain to the higher-level governments. Very often
the complaints become riots. It is estimated 70% of complaints of
farmers is related to the land issues (Mao, 2004). When many of them
ended up in cities, they may find themselves joining an army of “cheap
labor”, a term a socialist country would have loathed. Cheap labor has
long been criticized as the dark side of those factories in development
zones, especially in Guangdong Province, the pioneering province of
SEZs and development zones. In the early development, there was no law
protecting labors’ rights and working conditions at all. The employers
were given freedom to hire and fire according to their needs and
regulations. The salary of workers were kept low for many years in
South provinces like Fujian and Guangdong before the regulations about
minimum wage and working conditions were formulated and the competition
of attracting labors against other regions became intense.
Conducive to the economic reform as the SEZs and development zones may have been, it is a model of distorted distribution of resources between different regions, sectors, and groups. The process is not and could not be smooth. There had been ideological debates about the anti-socialist elements in SEZ. That was silenced by Deng’s one sentence “Don’t argue. We have to work hard to win the time.” There had been complaints from cities like Shanghai about SEZ’s too much advantage. That could be pacified by setting up a famous “Pudong New Area” in Shanghai or allocate more budget to disobedient provinces. There had been resistance of urban residents and farmers who were being removed from their houses and their land. That could be cleared violently and hushed later. There had been closed state-owned companies and laid-off workers. That could be countered with massive “re-employment program”. Obsessed with efficiency and growth, China has taken every advantage of a centralized and authoritarian government. It is with the cost of equality and sustainability covered up by a strong government that the SEZ model wins the favor of India.
Indian SEZ: Comparing with China
Many have argued that different SEZs profiles in India would not
promise the similar economic growth that its Chinese counterparts have
registered. The deficient economy of scale, the dominance of domestic
investors rather than foreign ones, the large percentage of
non-processing zones which have nothing to do with manufacture or
technology, and lack of government investment are the main reasons that
indeed will affect the attraction and absorption of foreign capital and
technology as well as enhancing the manufacture base of the nation. As
for building of infrastructure, though it might happen in a patchy
manner, the issue of to what extent it could lead the overall
infrastructure development of the country remains.
1. Different initiator and owner of the zones
When India took the Chinese term Special Economic Zone in 2000, what it
embraced was also the idea of allowing “special” section of society
catch up first. In this model, there are not only SEZs but also
numerous development zones scattered around China. It will be
incomplete and misleading to compare Indian SEZs with five Chinese SEZs
while omitting development zones altogether. In fact, all of five SEZs
have set up their development zones as well. The current SEZ fever in
India is not unlike the spree of development zones in 1992 and 1993 in
China when the “development” scenes were everywhere with the land
demarcated by the sign of development zones. The only difference is
that it was local governments that directly hurried up the setup of
development zones in China while in India it was corporate appetite
that drives the craze with the central government at the back seat.
This points to the first important difference between SEZ/development
zones policies in two countries. In China, governments initiate and own
SEZ/development zones while most of SEZs in India have been initiated
and owned by the private. This is because when China came up with the
idea of SEZ, its economy was still centrally planned and nationalized.
There was no possibility to let the private develop a piece of land in
both economic and ideological terms. With the liberalization of
economy, the management of some development zones shifted from
governmental department to state-owned management companies so as to
make it more efficient. Even today, there is voice to privatize
development zones in China. Therefore, it is not surprising that Indian
government, in full swing of liberalization reform, would allow the
flexibility of ownership of zones to government, private or both. This
is supposed to give an advantage of Indian SEZ to be less bureaucratic
than Chinese ones. More importantly, it is also a possible disadvantage
to reduce SEZs as a source of profit for corporate rather than as a
development policy guided and planned by the state to drive the
economy.
2. Different preferential policies
The second difference is that the preferential policies are designed in
China to attract foreign-invested companies to the SEZs/development
zones while those of India are to attract both developers as well as
so-called SEZ units, i.e. investors who would like to set up a unit of
service or manufacture in the zones. This is related to the first
difference. Since SEZ/development zones in China are developed by
governments, there is no issue of attracting developers but of getting
money to develop the infrastructure. Shenzhen SEZ solved the problem by
turning state-owned land into capital. Therefore, it has been State
that takes land from its citizens in the name of development and hands
it over to the corporate to develop. When it comes to India, the
situation is more complex. The state does not have guardian status of
land, nor the farmers or corporate. Therefore, India has to offer good
policies to developers first to motivate them to build the
infrastructure so that the investors could be lured with both good
infrastructure and policies. Comparing the tax policies for
SEZs/development zones in two countries, it is easy to find India
offers much more than China does. The need to attract developers is one
reason. The other reason is that Indian SEZ started when the economy is
already liberalized and SEZs have not much to offer besides the fiscal
incentives. But when SEZ started in China, a foreign investor even had
no place to set up his/her factory except SEZ. The economies in and
outside of SEZ/development zones were running in two tracks. The
preferential polices like tax holiday were not as crucial as they are
for today’s India. That is why the model lost its glitter when China
moved into market economy.
The implications of this difference are twofold. If SEZ/development zones have helped China to develop its infrastructure, it has not been the corporate that led the drive but the governments’ investment. SEZ/development zones were just a motivation for the governments to invest rather than the one that created the infrastructure. Therefore, it is doubtful to what extent this could be achieved through private developers in India. Indian SEZs maybe should encourage more participation from the governments. China’s experience also suggests that SEZ/development zone model had more advantages when the overall liberalization degree of the economy was lower. Whether India could make this up by giving away more tax revenue is another test. Even if it could pass the test, SEZ/development zones policy should be taken as transitional because the goal should be to develop infrastructure for the whole country rather than the selective pockets. In fact, the famous Shenzhen SEZ has created SEZ and non-SEZ apartheid in Shenzhen so that many proposed to expand SEZ to the whole city.
3. Different legal framework
The third difference is of the legal framework. As China had its first
three SEZs in Guangdong province, the reformers passed a 26-clause rule
of SEZ with less than 2000 words. Till today, there is no central law
on either SEZ or development zone. Local rules prevail. Lame legal
framework made maximum flexibility possible to SEZ/development zones
with a lagging legal framework. There are no clear mechanisms to settle
the land, labor, or environment issues until very recently. This on one
hand creates a development zone bazaar for investors to pick up the
favored item and on the other hand a breeding bed of corruption and
injustice. The patchy laws are congruent with Zones’ nature as an
experiment. Without experiences of setting up similar zones in a
socialist country, SEZ/development zones adopted a trial and error
approach. Laws did not matter as much as “what works and what doesn’t”.
It is a very different picture for India. It spent five years to come
up with a central Act since SEZ policy was announced. Comprehensive
rules have been formulated to govern SEZs. The debates of SEZ Act
stirred up wider discussions about the laws regarding labor, land
acquisition, resettlement and rehabilitation, etc. Laws are always in
the center of the stage. However, a relatively better legal framework
could not change the privileged enclave nature of the zonal policy and
laws do not guarantee it would be pro-people either. Ironically, the
Indian legal framework allows the amendments of the rules about the
minimum and/or maximum land a SEZ could occupy but could not stop the
practices of evicting farmers illegally or selling the land to
corporate at extremely low price. The first amendment to 2006 SEZ rules
was meant to solve problems developers encountered rather than people.
4. Different background
Different political economy backdrop that SEZ policy was born in India
determined Indian policy is different from China original. That creates
different SEZs in India. They are much smaller, scattered whenever
possible rather than strategically or conveniently located, domestic
investors also encouraged rather than for foreign investors, more
fiscal incentives offered, and less emphasis on manufacturing. Many
have argued that different SEZs profiles in India would not promise the
similar economic growth that its Chinese counterparts have registered.
The deficient economy of scale, the dominance of domestic investors
rather than foreign ones, the large percentage of non-processing zones
which have nothing to do with manufacture or technology, and lack of
government investment are the main reasons that indeed will affect the
attraction and absorption of foreign capital and technology as well as
enhancing the manufacture base of the nation. As for building of
infrastructure, though it might help in a patchy manner, the issue of
to what extent it could lead the overall infrastructure development of
the country remains.
If they are so different, would different policies and zone profiles
help India avoid the problems of China’s SEZ/development zones
discussed earlier?
Comparing India’s SEZ China’s SEZ and Development Zones
Background Started 9 years after 1991 economic reform Kicked off the economic reform in 1980
Current status Increasing despite of resistance Stagnant, losing the advantage after 30 years of development
Locations Anywhere SEZ: strategically locatd (close to Hong
Kong and Taiwan, home places for overseas Chinese)
Development zones: usually suburb of the
cities, or close to ports, airports. It spread
from the east to west China gradually
Size Multiproduct SEZ: 10 – 50 km2 SEZ: huge (all larger than 150km2 )
IT SEZ: 0.1km2 or above Development znes: any size (usually 1-
( most of approved SEZs smaller than 10km2) 5 km2 with many smaller than 1 km2)
Number 462 SEZs approved
135 “in-principle” approved SEZ: 5
250 established Development Zones: more than 1 thousand
Categories - SEZ for multi-product SEZ
- SEZ for specific sector New Area (Pudong and Binhai)
- SEZ in a port or airport Economic and Technical Development Zone
Export processing zone
Hi-tech industrial development zone
Bordered zones
Bordering Cooperation Area
Tourism Resort Area, etc.
Developed Central/state government, private, or Before 2005: All levels of governments
and owned by public-private partnership After 2005: central and provincial
governments
Administration Three-tier: board of approval at central level; Flexible and autonomous: could be
approval committee at zonal level; managed by management committee
development commissioner in the host government, by both
management committee and state-owned
development company, or by a state-owned development company alone
Preferential To both developers and SEZ units To SEZ host city governments;
polices To units in development zones
Main duties and taxes duties and taxes
preferential simplified procedures regarding approval, simplified procedures regarding approval,
policies customs, banking, foreign exchange, etc. customs, banking, foreign exchange, etc.
flexible hire and fire policies
Legal framework Central SEZ law and rules No central law; legal framework lagging
behind the experimental practices
Shifting from Gradual Economic Reform and Inclusive Growth
It shows in the above discussion that Indian SEZ policy is a
liberalized version of China’s SEZ/development zone policy with a
clearer legal framework in a democratic state. The nature stays the
same: the distorted distribution of resources benefiting certain
section of the society. Indian SEZs are more market-oriented with less
governmental intervention. This will rather deepen the inherent
problems of China’s policy than correct them. Today’s India is echoing
yesterday’s Chinese stories. The developers began the construction even
before the approval of SEZs; the farmers were displaced without proper
compensation or forcibly displaced anyway; the real estate speculation
already started as it did in the beginning of China’s SEZ in early
1990s. In fact, Indian SEZ policy has made manufacturing less mandatory
than China, which means real estate speculation might even be more
rampant.
Unfortunately, there have been not much positive signs that clearer legal framework and democratic system would self-correct problems and injustices of China’s SEZ/development zones policy mentioned earlier. On the contrary, moot to change labor law to deregulate labor in SEZs and Nandigram incident indicated the dangerous tendency for the laws to be used and democracy to be undermined for corporate interests. Indian SEZs may have created more jobs or attracted some big foreign companies. But what is guarding them to be exempted from the negative outcome happened in China such as destruction of environment, marginalization of farmers, exploitation of labor and widening disparity of regions?
The current strong resistance from people as well as active debates about the policy-related laws is a test of Indian democratic system as well as the opportunity to examine the policies more critically. Not long after adopting SEZ policy, the ideal of “inclusive growth” Prime Minister Manmohan Sigh pledged caught fashion in India. But SEZ is a direct clash with the inclusive growth. As mentioned earlier, SEZ policy was engineered in China based on the idea of “Let a section of population get rich first” and the zone itself speaks the division of resources. The policy of SEZ and development zones might be justified as both an economic and political experiment for socialist China to learn about capitalist market economy and governance. It facilitated transitions from planned economy to market economy and from socialism to so-called “socialism with Chinese characteristics”. How could India justify itself to push it through in an already liberalized economy?
Even before SEZs, India had begun to encourage export, particularly embodied in its Export and Import Policy. Various schemes were already available such as input duty relief schemes or fast track clearance scheme. The mechanisms similar with China’s development zones such as Export Oriented Units (EOU), Software Technology Park (STP) and Electronics Hardware Technology Park (EHTP) had been available to promote export and FDI. However, India’s export performance was not deemed impressive by reformers(9). Complex procedure for obtaining the necessary duty-free import licenses, reservation of small scale industry, rigidity of labor market were often cited as reasons for the slow progress. Therefore, it is hardly surprising the kickoff of SEZ policy was in the period when the change of labor law was mooted (in 2001) and reservation of more than 100 items of small scale industry was lifted (in 2005). To a large extent, SEZ in India could be considered as the further expansion and liberalization of old export processing zones. This suggests India, standing at the threshold of new millennium, seemed getting impatient with its gradual reform of economy started in 1991 and determined to quicken its steps of reform. Just as SEZ is an experiment for China to bring about liberalization of economy, SEZ could be taken as an experiment with more radical reform for India. If this is the case, the signal Indian SEZ policy has sent is: the further reform of economy is shifting from inclusive growth rather than towards it.
Conclusion
As a model that is supposed to drive the overall development of the
country, SEZ has to ward off the rest with an enclosure. It is a model
of creating privileged pockets that Indian government made itself
committed to. Nandigram bloodshed, continuous protests against
Reliance’s SEZ in Navi Mumbai, or cancellation of SEZ in Goa are the
expressions of the non-privileged discriminated by this model.
When Indian government introduced SEZ from its home country, the fact
that China is an authoritarian state might have been diluted by
impressive figures of FDI. It is undeniable that the State has played
an essential role in SEZ/development zone policy in China. On one hand,
the strong state has made the economy of scale possible and guided it
for the overall reform process. On the other hand, it has guaranteed an
uninterrupted investment environment for the corporate interests.
Whether learning from China’s SEZ would drag India into more
suppressing governance for so-called efficiency and high growth or it
would learn the lessons of China to listen to people remains to be
seen.
References
Mao, Shou’long (2004). Observing the Event. China Reform. Volume 10, 2004
Ministry of Commerce of China (2006). Development Report on Development Zones
Navdanya (2007). Corporate Hijack of Land.
Wong, Kwan-Yiu (1987). China's Special Economic Zone Experiment: An
Appraisal. Geografiska Annaler. Series B, Human Geography, Vol. 69, No.
1. (1987), pp. 27-40.
Wu, Chung-Tong (1984). China’s Special Economic Zones: Five Years After
an Introduction. Asian Journal of Public Administration. Volume 6
Number 1, 1984.
End Notes
1. Deng Xiaoping is considered as the “architecture of reform and
opening-up of China”. He also had personally pushed and confirmed the
development of SEZ in China. Deng began to promote the idea of
“allowing some people to get rich” since late 1970s, particularly
popular in 1980s. This thought of his was institutionalized in “CPC
Central Committee’s Decision to Reform the Economic System”. Due to the
widening disparity, this thought began to gradually fade out in 1990s
till the thought of “getting rich together” was institutionalized in
2004 in the 2nd plenary meeting of Tenth People’s Congress.
2. The data was according to the “The report on SEZs development and
further opening up 14 coastal cities” in the ninth plenary meeting of
sixth People’s Congress on 17th, Jan. 1985.
3. quotes from Minister’s speech on March 31, 2000 about Exim policy
4. China is divided into three economic regions: West, Middle and East.
East China includes 12 provinces covering 13.5% territory; Middle China
includes 9 provinces with 29.3% of territory; And West China includes
10 provinces accounting for 56.4% of territory. Sometimes, it is
divided into two regions: East and West, where middle china would be
considered as west, as in the case at point.
5. Ministry of Land Resource published a series of articles regarding
the fever of development zones in the year 2003 to propaganda its
efforts of removing non-performing development zones. Though the
article mentioned the land acquisition, it did not discuss about the
problems farmers who had lost land.
6. Based on an article “The Analysis of Rectification of Development
Zones” published in 15 issue of Information for Leaders’
Decision-Making in the year 2004.
7. from online Xinhua News Agency report “Three Unbalances in Foreign Trade of China” dated Sept. 22, 2006
8. Jiu San Xue She is a political party in China. The result of
research was cited by China Economic Daily dated on April 9, 2004.
9. See details in Montek S. Ahluwalia’s article “Economic Reforms in
India since 1991: Has Gradualism Worked?” Ahluwalia was Deputy Chairman
of Planning Commission when writing the article in 2002.
* Wenwen Tu, then a student with Tata Institute of Social Sciences, Mumbai and working as an intern at Focus on the Global South, India in April 2008. Currently a research associate of Focus on the Global South, Bangkok based in Bangkok.
