Special
Economic Zones:
Lessons From China
By
Bhaskar Goswami
13 February, 2007
Countercurrents.org
China's
record economic growth rate fuelled by the Special Economic Zones (SEZ)
is often advocated as the reason for India to adopt this approach. Since
the 1980s, China implemented a series of measures and policies with
the sole purpose of achieving rapid economic growth. As evidence over
the years has shown, this single-minded pursuit of growth has lowered
the efficiency and effectiveness of economic policies, besides incurring
huge resource and environmental costs. The Chinese experience offers
a valuable lesson for India.
Cost of Export-driven Growth
China has to feed 22 percent
of the world's population on only 7 percent of land. In July 2005, China's
countryside had over 26.1 million people living in absolute poverty
and was home to 18 percent of the world's poor, according to Chinese
Minister Li Xuju quoted in the People’s Daily. Every year, an
additional 10 million people have to be fed. Despite this daunting target,
between 1996-2005, "development" caused diversion of more
than 21 percent of arable land to non-agricultural uses, chiefly highways,
industries and SEZs. Per capita land holding now stands at a meager
0.094 hectares. In just thirteen years, between 1992 and 2005, twenty
million farmers were laid off agriculture due to land acquisition.
As more arable land is taken
over for urbanization and industrialisation, issues related to changes
in land use have become a major source of dispute between the public
and the government. Protests against land acquisition and deprivation
have become a common feature of rural life in China, especially in the
provinces of Guangdong (south), Sichuan, Hebei (north), and Henan province.
Guangdong has been worst affected. Social instability has become an
issue of concern. In 2004, the government admitted to 74,000 riots in
the countryside, a seven-fold jump in ten years. Whereas a few years
ago, excessive and arbitrary taxation was the peasants' foremost complaint,
resentment over the loss of farmland, corruption, worsening pollution
and arbitrary evictions by property developers are the main reasons
for farmers' unrest now.
While rural China is up in
arms against acquisition of land, SEZs like Shenzen in Guangdong showcasing
the economic miracle of China, are beset with problems. After growing
at a phenomenal rate of around 28 percent for the last 25 years, Shenzen
is now paying a huge cost in terms of environment destruction, soaring
crime rate and exploitation of its working class, mainly migrants. Foreign
investors were lured to Shenzen by cheap land, compliant labour laws
and lax or ineffective environmental rules. In 2006, the United Nations
Environment Programme designated Shenzen as a 'global environmental
hotspot', meaning a region that had suffered rapid environmental destruction.
There's more. According to
Howard French, the New York Times bureau chief, most of the year, the
Shenzen sky is thick with choking smoke, while the crime rate is almost
nine-fold higher than Shanghai. The working class earns US$ 80 every
month in the sweatshops and the turnover rate is 10 percent –
many turn to prostitution after being laid off. Further, real-estate
sharks have stockpiled houses which have caused prices to spiral and
have created a new generation of people French calls "mortgage
slaves" in an article in the International Herald Tribune on 17
December 2006.
The mindless pursuit of growth
following the mode of high input, high consumption and low output has
seriously impacted the environment. In 2004, China consumed 4.3 times
as much coal and electricity as the United States and 11.5 times as
much as Japan to generate each US$1 worth of GNP, according to the The
Taipei Times. Some 20 per cent of the population lives in severely polluted
areas (Science in Society) and 70 percent of the rivers and lakes are
in a grim shape (People’s Daily). Around 60 per cent of companies
that have set up industries in the country violate emission rules. According
to the World Bank, environmental problems are the cause of some 300,000
people dying each year. The Chinese government has admitted that pollution
costs the country a staggering $200 billion a year - about 10 per cent
of its GDP.
While export-driven policy
for economic growth has helped China touch record growth figures, the
income gap is widening and rapidly approaching the levels of some Latin
American countries. Going by a recent report by the Chinese Academy
of Social Sciences, China's Gini coefficient – a measure of income
distribution where zero means perfect equality and 1 is maximum inequality
– touched 0.496 in the year 2006. In comparison, income inequality
figures are 0.33 in India, 0.41 in the US and 0.54 in Brazil. Further,
the rural-urban income divide is staggering – annual income of
city dwellers in China is around US $1,000 which is more than three
times that of their rural counterparts.
It is in this backdrop that
India's SEZ thrust must be seen. Following China, India is replicating
a similar model where vast tracts of agricultural land are being acquired
for creating SEZs and other industries. The September 2005 notification
on Environment Impact Assessment is lax for industrial estates, including
SEZs, and apprehensions of dirty industries coming up in these zones
are quite real. Further, with drastic changes in labour laws favouring
industry being considered, the plight of workers in these SEZs will
be similar to those in China. Such a mode of development is environmentally
unsustainable and socially undesirable.
Further, it is now widely acknowledged that Chinese exports have also
been boosted by its undervalued currency, something which Ben Bernanke,
chairman of the US Federal Reserve, terms as an "effective subsidy".
This is a luxury that Indian exporters do not enjoy. The argument for
setting up SEZs to emulate China's export-led growth is therefore questionable.
Is export-driven growth through
SEZs desirable for India?
There is no doubt that exports
play a significant role in boosting GDP. However in the case of a country
with a sizeable domestic market, the choice lies with the producer to
either export or supply to the domestic market. Ila Patnaik of the National
Institute for Public Finance and Policy wrote in the The Indian Express
in December 2006 that household consumption in India at 68 percent of
the GDP is much higher that that of China at 38 percent, Europe at 58
percent and Japan at 55 percent. This is an important source of strength
for the domestic manufacturing industry of India.
Given the high level of consumption
of Indian households, it is quite possible that this rush is fuelled
not by the desire to export out of the country but by the possibility
of exporting from SEZs into the Domestic Tariff Area (DTA). The SEZ
Act is also designed to facilitate this. Any unit within the SEZ can
export to the DTA, after paying the prevailing duty, as long as it is
a net foreign exchange earner for three years. It is therefore a win-win
situation for these units.
The sops in a SEZ will reduce
the cost of capital while labour reforms will ensure trouble-free operations.
Further, given the considerable international pressure to reduce industrial
tariffs, SEZs will be able to export to the DTA at highly competitive
prices. This does not augur well for units outside the SEZs who will
now face unfair competition. As cheaper imports have already played
havoc with the livelihoods of artisan sector of the economy, cheaper
imports into DTA from SEZs will also adversely affect the domestic industry.
No wonder many of them now want to migrate into SEZs.
In a country with 65 percent
of the population depending on agriculture as a means of livelihood,
industry ought to be complementary to agriculture. Through SEZs however,
industry is being promoted at the cost of agriculture. Valuable resources
spent to create SEZs will be at the cost of building better infrastructure
for the rest of the country, something that will affect both the domestic
industry as well as agriculture.
Other lessons India could
learn from China: Welfare
While the Chinese experience
with export-driven economic growth definitely offers many sobering lessons,
there are many other areas where India can learn from China. China has
initiated a series of measures to arrest social tensions and rising
inequality in rural areas. In April 2004, the State Council, China's
cabinet, halted the ratification of farmland for other uses and started
to rectify the national land market. The Minister of Agriculture, Du
Quinglin, promised "not to reduce acreage of basic farmland, change
its purpose or downgrade its quality".
China also abolished agricultural
tax in 2006 and increased subsidy for food grain production by 10 percent.
To boost rural income, the selling price of grain was increased by 60
percent in 2005. In 2004, out of a total 900 million farmers in China,
600 million received US$ 1.5 billion (Rs.6,630 crores approximately)
as direct subsidies. 52 million of the Chinese farmers have joined in
the rural old-age insurance system and 2.2 million received pensions
in 2005. More than 80 million farmers had participated in the rural
cooperative medical service system by the end of 2004, and 12.57 million
rural needy people had drawn allowances guaranteeing the minimum living
standard by the end of 2005.
India, on the other hand,
either does not have any of these safety nets or is in the process of
dismantling the few that exist. There is much to learn as well as unlearn
from the Chinese experience. Until that is done, millions of poor across
the country will be made to pay an even higher price than the Chinese
did for following this flawed approach.##
The writer is with the New
Delhi based Forum for Biotechnology and Food Security.Email:
[email protected]
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