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The Shenzhen Syndrome: Will India repeat China's mistakes?

By Aseem Shrivastava

From the mid-'80s, China experienced a 'zone fever' much like India's, with millions of hectares of agricultural land being transferred to infrastructure and industrial use. But Beijing woke up in time to the dangers of the speculative bubble thus created and acted to conserve arable lands

"Few cities anywhere have created wealth faster than Shenzhen, but the costs of its phenomenal success stare out from every corner: environmental destruction, soaring crime rates and the disillusionment and degradation of its vast force of migrant workers..."

-- The New York Times, December 19, 2006,
describing the world's leading SEZ

Neighbours are so busy competing, they rarely learn from each other. Just consider how little India's policymaking elite and media are willing to learn from the experience of SEZs (Special Economic Zones) in the Middle Kingdom. Here is a neighbour who has experimented with SEZs for a quarter-century, with quite dubious results for the most part. But the one notable 'success' - Shenzhen - has been tossed around as the model to emulate.

The language barrier cannot be cited as a reason for not learning from the Chinese. There is enough writing about China in English across the world today. If the Indian media fails to draw the right lessons, the reasons have less to do with the unavailability of information (you just have to access The New York TimesGuardian) and more with a preferred blindness to many aspects of the Chinese economic experience of the past three decades. or The

While India has been experimenting with SEZs since the inception of the Kandla EPZ (Export Processing Zone) in 1965 (India has had 11 functioning EPZs before the enactment of the SEZ law in 2005), the policy thrust for SEZs came after ex-Commerce Minister Murasoli Maran's trip to China in 2000. Impressed by his visit to the Chinese city of Shenzhen - site of the world's largest and most successful SEZ - Maran prevailed on policymakers to get SEZs enacted into Exim policy in the same year. Thereafter some states like Gujarat passed an SEZ Act (2004), the central government itself doing so in June 2005, after a mere two days of discussion in parliament. Now virtually every Indian state has an SEZ Act.

The following table offers at a glance the main points of comparison between SEZs in China and in India:

 

China

India

Number

At present only 7 though at one stage there were several thousand

Ultimately 600 or more

When started

1980

Mostly after 1991, especially after 2005

Democratic decision-making?

Lot of discussion and debate (within policy-making circles) preceded setting up of SEZs

No discussion. Parliament passed the law easily. Most discussion has followed protests.

Land legislation used

Law for agricultural land conservation passed in 1998 after concern over loss of cultivable land and natural resource base because of SEZs. No SEZs after 1998.

'Public purpose' clause in Land Acquisition Act of 1894 still used to acquire land for SEZ, though recent policy announcements promise State withdrawal from land transactions

Size

Very large
(Shenzhen: 32,700 hectares)

Small
(3 - 14,000 hectares)

Ownership

State

Private corporations

On what kind of land

Mostly coastal wasteland

Mostly fertile cultivated land

Exports

Very good
(Shenzhen: Net exports 2006: $35 billion)

Poor so far
(In 1998, a waiver of $1.67 billion on customs duties was given to earn $1.04 billion in foreign exchange)

Employment

Several million low-paid jobs with poor working conditions

Very limited so far: 180,000 in all the SEZs till March 2007.

Tax revenue collections

Only selective tax incentives provided

Across-the-board tax holiday given to companies

Overall economic success

Shenzhen very successful, but most SEZs have failed

Largely unsuccessful so far

Ease of land acquisition

Land battles in some areas still

Bloody, bitter resistance

Source: Table has been adapted from Citizens' Research Collective's booklet SEZs and Land Acquisition: Factsheet for an Unconstitutional Economic Policy and Shankar Gopalakrishnan, 'Negative Aspects of SEZs in China', EPW, April 28, 2007. The data and facts are drawn from various government documents

Since the Chinese SEZ at Shenzhen has served as the inspiration for the SEZs being planned in India, the experience of SEZs in that country is worth examining in some detail. As we will see, the lessons with regard to land acquisition and real estate speculation are particularly sobering, though no less are the lessons to be drawn from working conditions within the SEZs.

One of seven surviving SEZs in China and covering an area of about 327 sq km, Shenzhen is the world's largest SEZ. A "sleepy fishing village" has been transformed into a metropolis within a generation. It has grown at an annual rate of 20-30%. It was started in 1980 in order to promote Chinese exports, as part of Deng Xiao-Ping's economic reforms. Today it contributes $35 billion in net exports to the Chinese economy (over a fourth of India's total exports). 14% of China's total exports come from Shenzhen alone. Importantly, from the point of view of employment, for most of the past two-and-a-half decades, toys, garments and low-end electronics - all labour-intensive goods - have constituted the staple of Shenzhen's production and exports. MNCs operating in SE China have repeatedly complained of the lack of technical skills among available workers.

As in India, the Shenzhen SEZ has been built on acquired land. However, unlike India, there was no freehold private property in land in China until very recently. The process of creating private property in land began in the late-1980s when user rights and leases were awarded to private parties by the State. Moreover (as in India) local and provincial governments were empowered to create their own land regulations. In the pattern that emerged, urban land belongs to the State and rural lands to village communes (within which individual families are granted contracts to their lands). While urban land use rights could be transferred to private parties, rural land use rights could only be transferred to the State. It could then re-designate it as 'urban land' and award development rights on it. Much land was transferred from farmers to developers via this route, with compensation generally lower than the 'market' value of the land. Many officials in Guangdong profited immensely in such transactions. Public, often violent, protests against official corruption became common in the province.

Also important to learn from, especially given the fears in India that the SEZ policy is vulnerable to ready abuse by speculative real estate developers, is the extraordinary similarity of circumstances with respect to land in the two countries. Like India, China too has a large amount of land devoted to agriculture. Naturally, it has turned to agriculture to find land for industrial development. Despite significant differences in laws relating to landed property, the Chinese experience of land-grab under a communist totalitarian regime is most revealing and instructive.

Since the late-1980s, for about a decade, land would be acquired by the State and handed over to developers via a chain of speculators. In one 18-month period in 1992-93, 127,000 hectares of land were transferred in this way, but only 46.5% was ultimately developed. As a consequence of the active promotion of SEZs by the State, there was a rapid multiplication of such zones across the country (as many as 6,000-8,700 for a brief period around 1993, ranging over 1,500,000 hectares!). Between 1986 and 1995 as much as 5 million hectares of arable land were transferred to infrastructure and real estate development in China. It came to be referred to as 'zone fever'. Importantly, the requisition of farmland by the State in areas close to SEZs or cities had deleterious consequences for agriculture, as farmers in the neighbourhood, fearing takeover, reduced their investment in the land.

In 1992, The Economist reported that Hainan had become "the world's biggest speculative bubble", everyone having "money to burn", while high-rises remained empty. Only in 1998 when the Hainan Development Bank went bankrupt from making too many speculative loans, precipitating a chain of similar failures, did the government in Beijing wake up to the fire it had ignited. Following a 1997 moratorium on land-use conversion it passed a new law for the conservation of arable land in 1998. 'Zone fever' came down: SEZs had disturbed the agro-ecological equilibrium of several regions and the State acted with due urgency - by strictly regulating changes of land-use, one of the spurs to real estate speculation.

Are we reading about India's future here?

Endnotes

The account provided here is based on Weiping Wu, 'Proximity and Complementarity in Hong Kong - Shenzhen Industrialization', Asian Survey, 1997, vol. 37, number 8, Ashok Upadhyay, 'SEZ idea must be revisited', The Hindu Business Line, Oct.4, 2006, 'Shenzhen Becomes "World's Factory"", article in China People's Daily, Feb.19, 2002, 'S China's Shenzhen Leads Nation in External Trade', article in China News, January 29, 2007, 'Mao's Promised Land Ends in Sweated Labor', The Guardian, May 9, 2004, 'Chinese Success Story Chokes on its Own Growth', The New York Times, December 19, 2006, Shankar Gopalakrishnan, 'Negative Aspects of Special Economic Zones in China', Economic and Political Weekly, April 28, 2007, 'For China's Labor Rights, Increasingly the Game is Blame', Cox News Service, Feb 4, 2007 and Corporate Hijack of Land (Navdanya, New Delhi, 2007).

Shankar Gopalakrishnan, 'Negative Aspects of Special Economic Zones in China', Economic and Political Weekly, April 28, 2007.

Ibid.

Also Read: The Shenzhen Syndrome: Growth compromises equity

InfoChange News & Features, July 2007