India struggles to copy China's SEZs

Posted by: Bruce Einhorn on October 9, 2006

For anybody wondering why China is already an economic power and Asia’s other giant, India, is struggling to catch up, consider four letters: SEZs. They stand for “Special Economic Zones,” industrial areas designed to attract outside investment by offering liberal foreign ownership policies and generous tax incentives. As the ongoing debate about them in India shows, they’re the latest example of how ideas that work just great in Communist China don’t quite translate so well in Democratic India.

China’s government first set up some SEZs in the late 1970s in southeastern China, with an eye on luring dollars back to the motherland from compatriots in Hong Kong, Macao and Taiwan. The SEZs were vital to the development of China’s export machine. The most successful was Shenzhen, which back then was a village on the border of Hong Kong’s New Territories and now is a booming city that’s home to high tech leaders like Huawei and ZTE. Xiamen, along the coast of Fujian province, is directly across from Taiwan and people there speak the same dialect as many native Taiwanese. Dell is a big investor in Xiamen, having just doubled the size of its PC assembly plant in the city. Not all of the original SEZs turned out so well: Shantou, about five hours by car from Hong Kong, is home to a university funded by Li Ka-shing (his hometown is nearby) but not much else. Zhuhai, across the border from Macao, won notoriety in the late 1990s for building a gigantic white elephant of an airport. While China’s SEZs are less important today, when cities nationwide are all vying for investment dollars, it’s hard to imagine China’s economic boom developing so quickly without them.

Twenty five years later, India’s politicians have woken up and suddenly discovered the concept of SEZs. Parliament passed legislation for them last year. The Indians were late to the game. But not to worry. India would do better than China. China has five SEZs? India will have lots more! According to India’s Ministry of Commerce, there are now 8 SEZs. But that’s just the beginning. According to Bloomberg’s Andy Mukherjee, “As many as 267 zones have already been cleared ‘in principle’ by the government; out of these, 150 proposals have won final approval.” But there’s a down side to having so many SEZs: Critics are angry, saying that Indian peasants are getting robbed, losing their farmland to the industrial zones. Farmer activists have gone to the Supreme Court to stop things. Congress Party’s Sonia Gandhi has weighed in too. I don’t know nearly enough about the policy details to say who’s got the better case. As defenders of India often write to Asiatech to remind me, India, unlike China, isn’t a dictatorship. India’s leaders can’t just railroad through policies the way China’s communists do. But it does seem to be a shame that India, with a desperate need to generate more jobs for people from poor rural areas left out of the IT services boom, can’t figure out a way to get SEZs right.

Reader Comments

Andy

October 10, 2006 12:38 AM

Finally we can witness how far India will carry its democracy principles. Will it abandon democracy for economic purposes? Or will it maintain democracy and be left out of development?

Arul

October 10, 2006 3:38 AM

Any policy will carry critics with it always. This is just an another example of "resistance to change" and few political parties are blowing it big. But, the government is determined to develop SEZs with democratic sense. As our first Prime Minister Jawaharlal Nehru phrased India as "Unity in Diversity", we are determined to stay together.

"With more than a billion people, we are making progress together. Long way to go and we will go..."

Viram

October 10, 2006 4:43 AM

India will show the world how we became "the fastest growing free market democracy". When India does something it is here to stay unlike the Chinese bubble. Today China builds cities and SEZs by steamrolling on its 75% poor. The price they will pay for lack of consensus will be extraordinary. India is doing a great job by addressing the needs of peasants and the need for export oriented SEZs. They will find a way out to straddle both concerns. Come on we can sent tanks like Tiananman Square can we?

aajki

October 10, 2006 5:31 AM

It depends on how you define development.

outofin

October 10, 2006 12:59 PM

I don’t think India need SEZs. The SEZ was particularly designed by Deng Xiaoping for China’s transition from a centrally-planned economy to a market economy. SEZs were for Chinese officials to observe how capitalism worked. They could guide the whole country to follow SEZ’s examples if they succeeded, or easily reverse them if they failed. The experimental spirits and gradual adoption are admirable.

However, as the article has pointed out, the concept of SEZ is no longer relevant in today’s China. Special Economic Zone is nothing “special”. And of course, it’s irrelevant to India, which already has the best legislation systems, banks, stock markets, and, the best democratic systems in the world. Most believe (not only Indians) Indian systems are fundamentally better than China’s. The country should have been working like a SEZ. Why do they need to import the concept of SEZ from China’s early stage?

Andy

October 11, 2006 2:26 PM

While the Indian commentators here talk about democracy, the bulldozers over there are demolishing the poor neighborhoods with little to no compensation. This is a country that has property ownership laws. That's why they are facing demonstrations over there. Didn't the article say that the peasants are getting robbed?

OstrichIndia

October 11, 2006 11:25 PM

One thing I have never understood about Indians is their baseless over-exuberance and over-confidence about themselves and their country. My guess is that Indian media, without basing on hard facts, tirelessly feed the Indian populace ear-sweetening fodders

I think Chinese can be at comfort vis-a-vis fearing Indians could catch up with them one day. It looks though it is never going to happen. The Chinese always take a practical approach and with a real knowledge of themselves and their opponents (shortcomings and advantages). As one of the Sun Tse strategem says, "To be victor, know yourself, know your adversary".

I have been to China and India frequently. Frankly, there is no comparison between China and India. India can always boast of their "democracy" and "free market" (let's assume they know what they are talking about). For India to be in the same league as China is today, it will be extremely lucky if India can achieve that in the next 20 to 30 years.

SmartOpinion

October 12, 2006 1:03 PM

Andy knows so much about India, looks like he is living there. And what's the deal with the name “Andy” why not your real Chinese name? Looks like you need a crash course in Democracy. First thing first, who says that India is in a hurry for any kind of progress? It's the West who is in a hurry to capture India's market and it's their frustration. They came to India to save their own economy. Weren't they saying that huge population was liability and now the same population is market for them? Let's not even talk about the advantages of age demographics of India.

In order to implement Quality Democracy you need money. In just the last 6 years India emerged as serious player. The Quality of Democracy would be proportional to the increase in economy. Andy, if you think there is democracy in the U.S. then just try to be a Dixie Chick or a Michael Moore or a Cindy Sheehan and then you will understand the Quality of Democracy in the U.S. SEZ or no SEZ, democracy or poor democracy, development in India will take time. If you are not with India then you will certainly miss the bus and regret that decision.

David Lee

October 13, 2006 11:53 AM

India & China are both developing countries in different stages of development and different political systems. To compare both countries does not do justice to its people.

The comments so far remind me of two poor people from the countryside trying to outdo each other boasting who is better in the future.

There is no right or wrong way to develop a country, whatever works is good enough. In the end, socities should be judged by their ability to provide food, shelter, education, health, a clean environment and a sense of community and purpose in life to all its citizens.

Until both countries achieve this, we should not be boasting or putting down each other. Its a waste of time and ultimately counter productive.

jcage

October 14, 2006 2:07 AM

Andy is not a Chinese name but at least is a human name unlike SmartOpinion which does not sound human or even Indian.
What is your Indian name? Apu? Nehru? Ghandy? Sonia?
How long was India a democracy? Many decades and still poor. So what make you so sure that this time India will get rich? Do you know that there are many democratic countries as poor as India?
If India is such as democracy why there are so many separatist movements in India that want to split from India? The Sikh want their own country and why do the India government deny their freedom? Why?

Mukundan

October 14, 2006 9:55 AM

I am not sure what Bruce's agenda is. Every article or blog this dude writes it seems like the dude is sipping margarita's in his plush 5 star hotel room in Shanghai or something. All he talks about is how bad India's democracy is. Yes Bruce we all get it, India is not an efficient model of development, China is a well oiled machine. So what? Let Indians develop the way we want to grow. SEZ is a new name but we have been having IT parks or export processing zones for textiles and gems since the '80s. I think you need to get your butt out of your hotel room and travel to write some worthy material.
Your sarcasm about India is getting boring and frankly tiring for readers looking for some worthy news. I wonder how BusinessWeek has kept cartoons like you.

jcage

October 15, 2006 3:43 PM

Mr. Bruce likes to pit India vs China in most of his articles. He wrote a lot of disparaging articles about China and now it is India's turn. I guess his hobby is to see India and China arguing while he laughs in the background. He is a man with little knowledge of both countries but he thinks himself to be an expert. He is just a hack with not much talent for anything else to throw mud!

Andy

October 15, 2006 11:58 PM

Why does the Indian commentator have to use personal attacks in his/her comment? Is this the type of democracy in India? My name is Andy and I'm not a Chinese citizen, though I have spent some time in China.

India has its right to use whatever means it wants to achieve its development goals. But it doesn't give them the right to complain about Chinese ways. Just because you can't do it, doesn't mean the method is wrong. Maybe you're just incapable.

Vikram

October 17, 2006 3:03 AM

I cant understand Andy dear. How intransigent can you get? "India is not able to do it," "Our methods are failing" !!! Do you ever read the papers? We are already doing it. Why do you think we are having this debate in the first place? We are doing it at a rate and pursuing it with a "modus operandi" which is acceptable to the people of India, in a much more harmonious fashion. Why are the Chinese trying to reduce their growth rate? There are problems boiling under the surface. In India the previous Government had excellent macro economic indicators yet they lost the election. Why? See, don't blind yourself with GDP statistics or growth rate alone. True they go in some way in describing the economy, but ask a poor man in China or India. It matters the least to him or her. For them what matters are petrol prices, education, etc. In India people voted out a government which had great GDP growth rate going for it. Why? Because people want real benefits to trickle down to the masses. In China unfortunately people cannot address this problem because they are not empowered. There is discontent. Get out of Shanghai for heaven's sake and open yourself up to the real China. The Communists are realizing this and recognise the threat of a real revolt against their rule. They are calling for harmonious existence. The thing about these systems is that you never know until it hits you all of a sudden and then hindsight is the only luxury your allowed. China's growth rate is not the real indicator. A few sweatshops here and there is also not the answer. You need to address grassroots issues or else brace yourself up for the next violent revolution of China.

Andy

October 17, 2006 12:23 PM

And there is no discontent in India? You don't have to go to the countryside in India to see the poor, you just need to walk outside your home in Delhi to see the slums. The poor in China are much better off than in India, at least they can still afford basic needs. The inflation rate in India is high enough to make the poor to look for garbage for food.

Sweatshops? India has plenty too with children workers in them. I didn't say that China is much better than India. But India has no place to criticize China on human rights. China has lifted hundreds of millions more poor people from poverty, light years ahead of India's efforts. Now that is what I called protecting human rights. In India, the holy cows are treated much better than the low caste peasants. Tell me how are you going to use your democratic rights while you can't even read or write? Or when you live under the bridge?

TaiwaneseAmerican

October 17, 2006 5:44 PM

Normal Indians spend most of their time learning English, so they can argue and write better in English as compared to normal Chinese. Yet that results in the bad consequence of trouble in copying what Chinese already have achieved.

Vikram

October 18, 2006 3:22 AM

Andy,
See I take serious objections to your ridicule of "Holy Cows." See you cannot respect others' religious sentiments. China eliminates the poor. That's how they eliminate poverty, they kick them out of cities and make them hapless outside the coastal areas. No media allowed. No one knows...how can you know? Do you work for the Chinese Communist machinery? See these cheap people keep implants in every blog to twist arguments in their favor. Millions out of poverty in China. Bullshit. They are risking their lives like stowaways in ships and flight so that they can leave their country. The "world's greatest asylum seekers". Give me a break. In India we address discontent not by persecuting them and reducing them to asylum seekers. Repression has limits, they can fool the world for too long.

Andy

October 19, 2006 4:42 PM

I respect religion, but you can't expect me to respect religion that treat cows better than human. Millions of low caste Hindu are suffering from discrimination. The Indian government doesn't do anything to them. The caste system in India is the equivalent of apartheid system.
Just because I'm disagree with bashing China doesn't mean that I work for CCP. Did you ever read the UN report or the reports of various organizations? The report has stated that the Chinese government lifted hundreds million of poor people.
I'm sure that the Indians are never leaving their nation for a better life abroad. Oh, btw, I'm enjoying the Indian foods in the US cooked by Indian chefs and served by Indian waiters. I also do my groceries in Indian supermarket.

Nikhil

October 21, 2006 5:53 AM

Another great news coming from the wires.India's TATA steel has just closed a deal with Corus steel for nearly a staggering 8 billion dollars..this would make it the 5th largest steel maker in the world.
Indians now control nearly 20% of the world steel production.Way to Go.5 years back India controlled less than 2% and now we are talking of 20%...The Great Indian Juggernaut well and truly on its way to supremacy..

sandeep kshatriya

January 31, 2007 1:32 AM

hey definately we r trying to imitate china, but what we r lacking behind is making the farmers and other people to get trained n literate them along with developing the sez.

Mike

February 4, 2007 11:45 AM

really, India and China are not on same page! over 20 years, India has not changed much! the face of India today is still pretty much similar to the face of India 20 years ago! This is ridiculous "economic development". but today China, the mordenisation speed is just amazing! To be very honest, the face of China is changing every single month! a 50 floors high skysrapers can be just finished in few months! so, this little fact reflects a big truth of what a rising China really means! China economic mircal can be seen every part of China!

India is already 20 years lagged behind China at least, and China's mordenisation is still twice or even three times faster than India, the gap is going larger! so hopefully Indian poeple can realise this and become a bit modest to study China! Simply go to China to have a look! dont have to be Coastal cities! just some cities in central or west part of China, u will find how much India needs to catch up!

Observer just on site

February 22, 2007 3:48 AM

No one has the right to judge any country's progress. None of you who are participating has ever worked in any roles which take the decision to develop a country.

I suppose you should stop this stupid argument and get on with your work. What do anyone from outside a country who came for a visit know how much a country has developed. You are talking of 20 years, how much of your thought process must have changed in this twenty years. Walking on Delhi or Shanghai roads don't necessarily portray a country's development or its development plants. Both China and India are bigger than the two cities you are mentioning.

I feel these are the kind of bolgs which instigate the wrong thought process. Learn good from others and create better places.

a native Chinese

February 27, 2007 4:28 AM

The SEZs policy in China in late 1970s was kind of a special political arrangement in the certain circumstance where most Chinese then did not accept capitalism at all.Trying to develop the economic while maintaining the stability of society,DengXiaoping decided to develop a totally different business environment in a few cities which were not so important to the central fiscal and key commodities supply.Shanghai ,Tianjin and other major economic center at that time did not be appionted to be SEZs in this regard.Consequently, the SEZs policy was not so fair for the residents living outside the few SEZs who could not benefit from the rapid growth of the export-oriented economic.(Remember,there is a population management system called "hukou" in China that restricts people to immigrating from rural to urban or from one city to another.)
Farmers who suffered from land-acquisition for SEZs did not gain reasonable repay as well for they are not actual owner of their land legally.That sounds strange but that was and has been true since 1956.Communities of villagers are the trully owners legally. In fact,though,the rulers of the villages individually act as owners in land transactions.That is largely why farmers can not receive market level offset.
So i expect the farmers in India who are the owners of their land legally can feel free to negotiate with the land buyers,so that the farmers can gain reasonable payoff according to the current market prices and eventualy benefit from the industry booming.
We Chinese society have Hongkong, Macao,Taiwan, mainland and even Singapore developed in defferent system.That is a little bit kind of asset portfolio that reduce the risk of failure in a same development modal.When China mainland was at the verge of economical collapse in late 1970s,it was the capital from overseas Chinese that revitalise the China mainland.Therefore,it is wrong to over-applaud the 1970s-1980s Chinese central government-it is not so great and wise as many of foreigners think.

sumesh issac

March 13, 2007 12:00 PM

now india is lagging behind china by 20 tears of economic development . but still india will have the last laugh.How? one, economic liberty and political liberty will collide each other in one day esp; in chinese autocratic setup.two,one child policy forced to be adopted by entire population is dangerously tilting the genic balance mechanism which will produce disastrous consequences in near future so andy pack off soon from china...

indians are dumbasses

April 21, 2007 7:11 PM

The Chinese people have been living under this style of government for over 2,000 years. First it was the dynasties of old, then it was the Communist dynasty. Sure there were a couple of opponents but this is China's way of government and it will always be. Look at India. The states were legally separate countries before the British came. How can you expect them to cooperate when they are suing for the right to leave the dictatorship of the Indian confederacy?

Dr.P.Arunachalam

December 2, 2007 12:06 AM


Research papers are invited for an Edited Volume on “SOCIAL, POLITICAL, ENVIRONMNETAL AND ECONOMIC IMPACT OF SPECIAL ECONOMIC ZONES IN INDIA” by Dr.P.Arunachalam


Respected friends,

I am Dr.P.Arunachalam, your UGC Pune friend, writing from Cochin University of Science and Technology, Kochi-22, Kerala. I have written a book on “Special Economic Zones in India: Principles, Problems and Prospects”. It is purely from an economist point of view only. But there are a lot of other non-economic issues involved with Special Economic Zones (SEZs) in India like Social, Political, Economic and Environmental issues as raised by Political and Social Scientists and Natural Scientists particularly after Nandigram incident. Now I plan to bring out (edit) a book consisting of all these issues. I hereby request you kindly contribute a paper on any of these aspects of SEZs in India. It can be based on case studies, survey of literatures, your personal experience etc. I am collecting research papers not only from India but also from China and other Asian countries. I would be thankful to you if anybody contribute a paper.
Thanking you.

Yours faithfully,


P.Arunachalam
arunachalam14@yahoo.co.uk

About the Author


Dr.P.Arunachalam is Reader in the Department of Applied Economics, Cochin University of Science and Technology (CUSAT), Kochi-22, Kerala State, India. He was the Head of the Department of Applied Economics, Cochin University of Science and Technology during the period April 2004 to April 2007. He has eighteen years of Teaching and research experiences. He took his PG Degree from Loyola College, Madras, a world-renowned college in South India, affiliated to Madras University, and M.Phil and Ph.D Degrees from Cochin University of Science and Technology, Kochi - 22. Pondicherry University, a Central University, Awarded him Doctoral Fellowship in the year 1988. He joined as a Lecturer in the year 1989 and become Reader in the year 1997. He was Awarded Post Doctoral Training Fellowship by the NUFFIC (Netherlands Council for Co-Operation in Higher Education, Government of Netherlands) for Six Times under SEPTRA-MHO-Programme between the Department of Applied Economics, Cochin University of Science and Technology, and the Development Research Institute (IVO), Tilburg University, the Netherlands during the period from 1999 to 2004. Part of his Research Training Programme, he visited France, Germany, Italy, Belgium, Spain, England, Switzerland, Srilanka, and most of the Gulf countries. He is specialized in Quantitative Techniques and International Economics. He is teaching Business Statistics at Master of Business Economics (M.B.E) level and Quantitative Techniques at M.Phil level. He was a member of Academic Council, CUSAT from April 2004 to April 2007. He is a visiting Faculty Member of Many Universities in South India. He is a Member of several Academic and Professional Bodies at National and International Levels. He has done a Minor Project on “India’s Spices Exports to the Netherlands” under UGC Un-Assigned grant and jointly done a major project on “Global Based Commodity Chain: with Special Reference to Cardamom” funded by NUFFIC through Development Research Institute, Tilburg University, the Netherlands, with Dr.Wim Pelupessey, Economist, IVO, Tilburg University, the Netherlands. He has to his credit 32 Research Articles in various reputed journals and magazines and also contributed articles to 9 textbooks. Participated as an expert and also presented research papers in more than 40 National and International Level Conferences, Workshops, Symposiums and Seminars. He has produced 3 Ph.Ds and several more students are doing Ph.D under his supervision. Now doing a major research work on ‘Special Economic Zones in India”. He has written a book on “Special Economic Zones in India: Principles, Problems and Prospects. It is under print in New Delhi.”

Jammer

December 3, 2007 4:16 PM

I didn't realize this blog was over a year old. So what's the progress as of today because you certainly don't hear about anything different. It seems it remains the same.

satyasiba

December 13, 2007 2:09 AM

State government is killing poor people in the process of grabbing their land. DISASTER...the word

Iyatta Maharana Upreti

January 25, 2008 4:58 AM

I think we should not do development at the cost of destruction specially with reference to India

mukesh kumar sharma

September 2, 2008 11:33 PM

hi, this is mukesh here, actually i wanna depth information about india and china countires because i intrested to open by business in both countries, but i dont know that which countries would be better for set up a business, because i need to know political and economics system for open up my business, if any one have depth knowledge about that please mail me, my ID is mukeshsharma333@gmail.com, i need some recomedation on the both countries if i am going to open my own business then i should have qustion which country?why?how? also which is better for politicaly and economically? thanks . if anyone provide me assistence then i shall fell very obliged....

ubaid akram

September 23, 2008 2:50 PM

implement the sez policy is a positive step taken by the Indian government to boost up the export of the country,but still there is a problem in implementation part of the policy.In present situation the contribution of chinas sez in their economy in around 42%-45%,where as the Indias sez contributin in economy is just 5%only.So we may conclude that the government should take necessary step to implement the sez policies properly,so that India may overcome on the problem of dificit and having a favourable balance of payment..

K.NARAYANAPRASAD

October 13, 2008 6:16 AM

Instead of approving smaller SEZs,the Indian Government should aim at larger SEZs in riparian states, like China. Land aquisition and compensation has to be rationalized, burocratic,pecuniary,administrative,legal,judicial,procedural hassles must be brought down to a lowest minimum. Tariff and non tariff walls must be dismantled. The individuals working in the SEZs must have salubrious working environment. All infrastructure and facilities commensurate with the requirements of the units in the SEZs must be provided by the Government itself.Local self Government representatives shall be part of approval committees.

Soothsayer

October 23, 2008 10:44 PM

This is sad. where do they get this irrational ultra-positive viw of themselves...it seems the indian media has in inferiority complex with China. They always frame their arguments as we will catch of with China, our system is better then China, We will have better weapons with China...all the aspirations revolve around China like an irrational stupid kid wishing he had more candy.. why don't the indians just look in the mirror and smell the reality that surrounds them and act humbly..??????!!#$!$!

Lookclearly

May 15, 2009 10:26 PM

Firstly one needs to realize that India and China are totally different politically. In a sense in India each state takes its own decisions and has its own economic policies. Even political structure. It could be socialist govt at center but at state level it could be capitalist or communist.
Hence depending on how good they (policies) are and how well they are implemented in various states, there is large disparity in economic development within these states. In fact even within states it is so courtesy of certain political bias or weightage. All states have ubiquitous policy of pulling in more resources in their capitals but then some states have succeeded in spreading development fairly well like western state of Maharashtra.
I think couple of things which are gonna be decisive factors for country's development are firstly how it deals with its energy issue which China has tackled by burning tonnes of coal. Well hope it(India)doesn't have to go along that path.
Second factor is how well its govt can curtail "black money" which limits its ability to lift poor, which China has successfully done. Unfortunately even its former PM (Gandhi) was involved in one of biggest scandals and have tons of black money in Swiss accounts. This is a unique country which has more(1.5trillion dollars) black money in Swiss accounts bigger than gdp of entire nation.

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