SPECIAL ECONOMIC ZONES SEZs IN CHINA

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• Introduction
• Historical background
• From ancient times Harappan, Roman to mediaeval
  times and later
• - Small fenced-in areas specializing in
  manufacturing for exports
• - Modern times Free ports Aden, Singapore,
  Hong Kong Difference
• - Modern version of export zones starting from
  Puerto Rico (USA), Shannon International Airport
  in Ireland in 1959 latter considered the first
  one
• - India Kandla in 1965. EPZs in Taiwan, S.
  Korea and other countries
• - Since 1979, most extensive, large and
  successful SEZs in PRC (China)
• - After early start, India slow in following up
• - Recent interest in India

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• Common Features of SEZs
• Duty-free imports of capital goods and inputs for
  production for Export
• Liberal access to foreign exchange
• Encouragement to FDI
• Simplified, one-stop approvals
• Generous tax concessions esp. in early years
• Flexible Labour Laws
• Limitations on sales within the country
• Better Infrastructure (Power, Transport
  Communications)
• We will note the differences between China and
  India later.

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• Rationale for SEZs
• Main benefits sought from SEZs are
• Faster economic growth
• Employment generation on a large scale
• Earning more foreign exchange
• Infusion of modern technologies their
  demonstration and spread effects
• Economies in production due to clustering
• Benefits can be there for the whole country if
  same policies are adopted everywhere. Economic,
  political, social reasons for restricting to
  certain places. SEZs as second-best options to
  generalized liberalization.
• Export-led growth and creation of fast-growing,
  employment-generating areas main objectives.
• Advantages of coastal regions in export zones
  experience of Mongolia which turned the whole
  country into a free-travel investment zone.

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in China
• Policy Background
• Reforms since 1978 (Lecture 1) Aim Quadrupling
  GDP in 20 years 1980 to 2000
• Four modernizations Liberalization of
  Agriculture Rural Town Industrialization
  through TVEs Defence Urban Area
  Export-oriented enterprises through ETDZs and
  SEZs
• Importance of the last in faster economic growth,
  modernization of Industry Trade and export
  growth
• Policy of preferred regions unequal growth
  open-door policies
• Hong Kong and East Asian factors
• Overriding approach based on Dengs Observation
  For us to establish SEZs and adopt open-door
  policies, we must have a clear guiding ideology
  that is, Not to constrain but to release

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in China
• Development over the years
• Started soon after beginning of reforms in 1978.
• Four SEZs started in 1979 three in Guangdong
  adjacent to Hong Kong and one at Xiamen in Fujian
  (See Map in Annexure 1)
• Established principally to test the effectiveness
  of alternative market-based export-led growth
  strategy, as in East Asian countries.
• Heavy government investment in infrastructure.
  Each zone could introduce its own Regulation to
  growth investment, approvals and tax concessions.
• Based on the success, in 1984, the SEZ benefits
  were extended to 14 coastal open cities.
• Economic Technology Development Zones (ETDZ)
  and High Tech and New Technology Industry
  Development Zones encouraged in coastal open
  cities.
• In 1985, three development triangles Pearl
  River Delta (PRD), the Yangtze River Delta
  (around Shanghai) and Minum Delta (around Xiamen)
  were designated as coastal open areas.
• Hainan Island was declared as fifth SEZ in 1988
• Since then, 52 cities (including all provincial
  capitals) have become open cities
• Uncontrolled proliferation and later
  consolidation (Annexure 2)

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in China
• Reasons for Success
• Unique locations of the five SEZs, Shenshen,
  Shantou and Zhuhai are in Guangdong Province
  adjoining Hong Kong. Fourth, Xiamen, is in
  Fujian Province and nearer Taiwan.
• Large size with government and local authorities
  providing improved infrastructure with foreign
  collaboration (Annexures)
• Investment-friendly attitudes towards
  Non-Resident Chinese and Taiwanese!
• Attractive incentive packages for foreign
  investment
• Liberal customs procedures
• Permission to sell in DTA
• Flexible Labour Laws providing for contract
  appointments for specified periods
• Powers to Provinces and local authorities to
  frame additional guidelines and in administering
  the Zones.
• These arise out of the over-all releasing
  open-door policy mentioned earlier
• Emerging Challenges
• Over-capacity
• Heavy burden of non-performing laws
• Declining competitiveness

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in India
• Experience with EPZs
• Starting with Kandla in 1965 SEEPZ in 1972,
  Based on reviews of working, Cochin, Falta,
  Madras (Chennai) and NOIDA in 1984 and Vizag in
  1989
• Very limited impact
• Less than 40 of approvals fructified
• Rest cancelled or lapsed
• Employed only 0.01 of labour force
• FDI was less than 20 of total investment
• Accounted for less than 4 of exports. Net
  export much lower as imports were over 60 of
  exports

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in India
• The reasons were
• (i) Very Small Size of EPZs

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in India
• Inadequate infrastructure
• Restrictive policies
• Lengthy procedures No Single Window
• Locational disadvantages
• Stringent labour laws
• - In the 1990s, as a part of reforms, powers
  delegated to zone authorities, additional fiscal
  incentives were given, policy provisions were
  simplified and greater facilities were provided
  leading to some, not very significant,
  improvements.

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in India
• SEZ Policy of 2000
• New Policy in April 2000. SEZs permitted to be
  set up in the public, private, joint sector or by
  the State Governments
• Minimum size of 1000 hectares (4 sq. miles)
• Simplified procedures and more incentives
• Main measures were
• Conditions for automatic approval relaxed
  considerably
• Customs procedures simplified
• Units could produce items reserved for SSI units
  in domestic market
• 100 FDI investment for manufacturing
• Profits could be repatriated fully
• Freedom for sub-contracting
• 100 I.T. exemption for five years
• Exemption from Central Excise Duty on capital
  goods, raw materials, consumable spares from
  domestic market
• Reimbursement of CST paid on domestic purchases
• Some states also promulgated SEZ Policies
  (including Kerala)

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in India
• Since 2000
• 11 functioning SEZs
• About 40 were approved in addition
• Growing interest by private developers to go in
  for large projects Mumbai Integrated Special
  Economic Zone, Reliance Petroleum Zone at
  Jamnagar and so on.
• The special Economic Zones Act 2005
• Comprehensive law providing for larger tax
  incentives
• Covers all aspects of establishment of zones,
  operation and fiscal regime

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• SEZs in India
• Incremental changes over 2000 Policy main
  are
• Corporate I.T. exemption increased to a block
  period of 15 years
• 100 I.T. exemption for 5 years, 50 for next
  five years and 50 of ploughed-back profits for
  last five years
• Other fiscal incentives in the form of exemption
  from Service Taxes and Securities Transaction Tax
• Greater operational freedom, eg., Free to fix
  user charges
• Approval committee for each zone to provide
  single-window clearance in all matters.
• 10 more SEZs were sanctioned since the Act was
  passed in June 2005
• Bigger than before. Investment of over 15000
  crores in all. Big players like WIPRO, Reliance,
  Biocon, etc., in action
• SEZs are public utilities under I.D. Act, but no
  changes in Labour Laws.
• General perception among foreign investors that
  SEZs wont play a great part in Indian
  manufacturing
• Reasons Problems of infrastructure, continued
  small size despite some increase continued
  centralization of power with GoI its
  functionaries, over-all restrictive climate for
  foreign investment. Role of FIPB and FIIA.

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• Special Economic Zones in Kerala
• 1. SEZ for Electronics at Kalamassery, Ernakulam
  District
• The SEZ is planned in an area of 30 acres.
  Expressions of interest have been called for
  getting a co-developer. However, the response
  has not been very encouraging and hence KINFRA,
  who is the implementing agency, is on the lookout
  for a co-developer. Government of India has
  already given approval.
• 2. SEZ for Food Processing Kakkanchery,
  Malappuram District
• The SEZ is planned in an area of 30 acres for
  which KINFRA on the lookout for a co-developer.
  Government of India has already given approval.
• 3. SEZ for Animation and Gaming, Trivandrum
  District
• This SEZ is planned in Trivandrum District
  within the already existing video park of KINFRA.
  SEZ is planned in an area of 25 acres. KINFRA
  has also constructed a building 1.5 lakh sq.ft.
  and is on the lookout of a co-developer.
  Government of India has already given approval.

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SPECIAL ECONOMIC ZONES (SEZs)INCHINA INDIA

• Special Economic Zones in Kerala
• 4. Infopark, Ernakulam District
• Approval obtained from Government of India for
  converting the existing Infopark into a SEZ.
  Discussions are being held with Dubai Internet
  City for handing over the Infopark to be
  developed as Smart City.
• 5. Technopark, Trivandrum District
• Inprinciple approval has been obtained by the
  existing Technopark, Trivandrum from Government
  of India for converting 100 acres of their 3rd
  phase expansion into a SEZ for IT IT enabled
  services.
• 6. New SEZs being proposed by KSIDC are-
• SEZ for health care products in Trivandrum
  District (100 acres)
• SEZ for textiles at Cherthala, Alappuzha
  District (250 acres)
• SEZ for petrochemical products at Kasargod
  District (1000 acres)

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ANNEXTURECHINAS SEZS, COASTAL OPEN CITIES, AND
OPEN ECONOMIC REGIONS