CorporateDon't follow Chinese in establishing SEZs: Book
State governments in India have thrown caution to the winds and are rushing to attract FDI into export-oriented manufacturing and service industries by establishing Chinese-style special economic zones (SEZs) which are quite damaging for the society, says a new book.
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"What they may not know is that (Chinese) President Hu Jintao has closed 4,755 of the 7,000 SEZs that the Chinese provincial, prefectural and township governments had created after 1988, because these had become the single-most dangerous fuse, lighting the flames of discontent in the Chinese society," says writer-diplomat Prem Shankar Jha in "Managed Chaos: The Fragility of the Chinese Miracle".
"Between 1987 and 1992, state authorities at every level from the province to the township acquired land to create SEZs and development zones, paying only minimal compensation to the peasants who were losing their land with the intention of allotting or selling it to investors and real estate developers. By 1992, no fewer than 6,000 such zones had been established, but more than half never took off. Many had still not attracted a single investor when they were dissolved by the government of Hu in 2005," the book, published by Sage, says.
Jha says that since there was no real land market, peasants found it difficult to estimate the value of the land that was being taken away from them. Being powerless, they got only what the cadres at the upper levels of local government deemed it necessary to pay them.
"As investment from Hong Kong flowed into the Zhou Hai, Shantou, Guang Zhou and Pearl River delta areas, it sparked an instant frenzy to open up SEZs. Townships and municipalities in these provinces put vast tracts of land on the leasehold market. So great was the frenzy that in 1992 an estimated tenth of the entire capital raised in the Hong Kong market was sucked into these provinces," Jha writes.
"Their success caused the rest of the country to jump on the bandwagon. Between the end of 1992 and mid-1993, the entire country joined in the race to open SEZs. Money poured in also from Taiwan and South Korea. In 1993, by some estimates, nine-tenths of the fresh capital flows into China went into the real estate market."
According to the writer what these SEZs did irrevocably was to destroy farmland.
"The ministry of agriculture estimated that by the end of 1992, the SEZs had swallowed 667,000 hectares of farmland in China," the book says. Jha, however, says this does not mean that we have nothing to learn form China. "But to do so, we must first understand precisely what it has achieved, and at what cost."
The book reads into the resounding events of Chinese politics and economy and delves deep into both elements: the economic narrative that China has sustained a near 10 per cent growth rate for 30 years and the political narrative that China is an increasingly fragile state, trapped in an incomplete transition from a totalitarian to a democratic market economy.
Armed with an original application of Michal Kalecki"s theory of intermediate regimes, the book provides an explanation of China"s explosive growth. It indicates the formation of a new stratum, through winding up of centralised planning, the stratum of "proto-bourgeoisie," consisting of the local cadres of the communist party, who can counter the central cadres for capturing investible resources of the state.