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.