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Comparative study on SEZ

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The project describes the comparative study on the special economic zones (SEZ) of India, China, Taiwan

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Comparative study on SEZ

  1. 1. SEZ “Concept that changed the way Economy Works” Submitted to: Prof. J Shettigar COMPARATIVE STUDY OF SEZ INDIA-CHINA-TAIWAN Submitted by: Sumit Rekhi (13DM195) Surinder Singh (13DM197) Tushar Mittal (13DM205) Udit Jain (13DM206) Utkarsh Singh (13DM209) Vishesh Raja (13DM216)
  2. 2. TABLE OF CONTENTS INTRODUCTION............................................................................................................................... 3 TYPES OF ZONES.............................................................................................................................. 4 HISTORY AND EVOLUTION OF SEZ.................................................................................................. 5 KEY OBJECTIVES OF SEZ .................................................................................................................. 5 INCENTIVE/ FACILITIES TO SEZ ENTERPRISES ................................................................................. 6 SEZ INSTITUTIONAL FRAMEWORK.................................................................................................. 8 NECESSITY OF SEZ ........................................................................................................................... 9 SEZ IN INDIA.................................................................................................................................. 10 SEZ IN CHINA................................................................................................................................. 13 SEZ IN TAIWAN.............................................................................................................................. 15 INDIA AND CHINA SEZ COMPARED............................................................................................... 20 COMPARISON................................................................................................................................ 22 REFERENCES.................................................................................................................................. 23
  3. 3. INTRODUCTION India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia’s first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. A Special Economic Zone (SEZ) is a ge o grap h ica l re gio n t h at h as economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. The most successful Special Economic Zone is in China, Shenzhen that has been developed from a small v ill age in t o a cit y w it h a p o p u lat io n o ve r 1 0 mi llio n w i t h in 2 0 ye ars . Following the Chinese examples, SEZ have been established in several countries, including India. According to World Bank estimates, as of 2007 there are more than 3,000 projects taking place in SEZs in 120 countries worldwide. SEZs have been implemented using a variety of institutional structures across the world r a n g i n g f r o m f u l l y p u b l i c ( g o v e r n m e n t o p e r a t o r , g o v e r n m e n t D e v e l o p e r , government regulator) to 'fully' private (private operator, private developer, public regulator). In many cases, public sector operators and developers act as quasi government agencies. SEZs are often developed under a Public-Private-P art n e rsh ip arran ge me n t , in w h ich t h e p u b l ic se ct o r p ro vid e s so m e le v e l o f support to enable a private sector developer to obtain a reasonable rate of return ontheproject. MAIN OBJECTIVES OF SEZ (a) Generation of additional economic activity (b) Promotion of exports of goods and services (c)Promotionofinvestmentfromdomesticandforeignsource (d) Creation of employment opportunities (e) Development of infrastructure facilities GOALS OF SEZ CREATION Economic Goals:  E n h an ce me n t an d e xp an sio n o f f o re i gn e c o n o mi c an d f o re ign t rad e activity  Attraction of foreign and national investments  Promotion of export of industrial products
  4. 4.  Increasing of competitiveness of national production and its economic efficiency Social Goals:  Creation of new work places and increasing employment  Training and increasing of qualification of employees ScientificandTechnicalGoals:  Active using of modern foreign and domestic technologies  Concentration of scientific and technical personnel, including foreign one, for development of priority sectors TYPES OF ZONES  Special Economic Zone  Export Processing Unit (EPU)  Industrial Parks or Industrial Estates (IE)  Free Economic Zones.  Expertise Zone  Financial Service Zone  Commercial Zone  Free Port Zone
  5. 5. HISTORY AND EVOLUTION OF SEZ KEY OBJECTIVES OF SEZ  Generation of additional economic activity  Promotion of exports of goods and services  Promotion of investment from domestic and foreign sources  Creation of employment opportunities  Development of infrastructure facilities With above mentioned objectives of SEZ in place basic norms or grants that are placed by the govt. to facilitate the smooth functioning of SEZ are:  Duty-free import/domestic procurement of goods for the development, operation and maintenance of SEZ units.  Exemption from the Income Tax of the individual countries.  Exemption from the Minimum Alteration tax of the country.  Softening ECB (External Commercial Borrowing) norms of the country.  Minimum level clearance at center or state level.
  6. 6. INCENTIVE/ FACILITIES TO SEZ ENTERPRISES Operationaladvantages: •Sectoral restrictions on manufacturing sector inapplicable within SEZ • All SEZ activities on self certification basis •Single window clearance •Inter unit transfer of goods permitted •No routine customs examination of export and import cargo •Forward looking labour laws under consideration Fiscaladvantages:  100% FDI for manufacturing units operating inside SEZs Through automatic approval route in almost every sector.  100% profit repatriation facility from export earnings  Permission to sell within Domestic Tariff Area (DTA) and an exemption from a Special Addition Duty (SAD) subject to the company having a positive NetForeignExchangePosition(NFEP)  Supplies from DTAs to be treated as exports while those from SEZs to DTAs to be treated as imports  Investments in SEZ treated as infrastructure development and eligible for exemption local inputs at reduced cost without the excise, VAT and other levies of India  Duty free import of materials for construction, capital goods and goods requiredforO&M CustomsandExcise:  SEZ units may import or procure from the domestic sources, duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipment, DG sets etc. for implementation of their project in the Zone without any license or specific approval.  Duty free import/domestic procurement of goods for setting up of SEZ units.  Goods imported/procured locally duty fr ee could be utilized over the approval period of 5 years.  DomesticsalesbySEZunitswillnowbeexemptfromSAD.  Domestic sale of finished products, by-products on payment of applicable Custom duty.  DomesticsalerejectsandwasteandscraponpaymentofapplicableCustom duty on the transaction value.
  7. 7. Incometax  Physical export benefit  100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter.  Reinvestment allowance to the extent of 50% of ploughed back profits  Carryforwardoflosses ForeignDirectInvestment:  100% foreign direct investment is under the automatic route is allowed in manufacturing sector in SEZ units except arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes , cigars and manufacturedtobaccosubstitutes.  No cap on foreign investments for SSI reserved items. Banking/Insurance/ExternalCommercialBorrowings  Setting up Off-shore Banking Units allowed in SEZs.  OBU’s allowed 100% Income Tax exemption on profit for 3 years and 50 %fornexttwo years.  Externalcommercialborrowingsbyunitsupto$500millionayearallowed without any maturity restrictions.  Freedomtobringinexportproceedswithoutanytimelimit.  Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make overseas investment from it.  Commodity hedging permitted.  Exemptionfrominterestratesurchargeonimportfinance.  SEZ units allowed to ‘write-off’ unrealized export bills. Benefits offered by the SEZ  The Government of India through the SEZ Policy has made available a basket of I n c e n t i v e s , E x e m p t i o n s , C o n c e s s i o n s a n d P r i v i l e g e s ( I E C P ) t o t h e S E Z Developers and the SEZ Units. The benefits available to the Developer and Unit under the SEZ Policy, essentially translate into :  Reduced Cost of Infrastructure  Reduced Cost of Utilities  Reduced Cost of Raw Material  Reduced Cost of Capital  Reduced Cost of Manpower  OperationalEase
  8. 8. SEZ INSTITUTIONAL FRAMEWORK
  9. 9. NECESSITY OF SEZ The SEZ’s are important in today’s context for the third world countries which have been in the race for rapid economic growth. There are many positives which emerge out of establishing an SEZ. Let us have a look on these factors. For undertaking any kind of massive development program the government requires huge amount of funds. So it looks out for potential partners to help the government carry out the program. Now say for setting up an SEZ, the government may tie up with a private partner whose willing to invest in that area, thus a win-win situation for both. As in the government gets the capital needed to establish the required infrastructure and also the expertise. The private player on the other hand gets the right to market and use the SEZ’s with relaxed tax laws, thereby increasing its revenue generating capacity and also carrying out the economic growth of the company in a more efficient way with the better tax policies. Actually SEZ’s with relaxed import tariffs help the Import dependent and export driven industries to flourish by helping them develop manufactured goods at competitive prices. SEZ’s create immense employment opportunities. The setting up of SEZ’s creates lot of indirect employment in terms of labour required. Then after the completion it enables employment in the relevant industries operating in the SEZ. Then there are lots of indirect employments generated wherein people start investing around SEZ. For example SEZ’s are townships of their own; thereby there are shopping malls, restaurants, amusement parks setup around to attract people, thus resulting in more economic development in that area. Moreover SEZ’s improve the country’s foreign export. Because of the increased FDI and Private Equity presence, the local manufacturers get to tie up with these big names and export their products which now carry a better brand value, therefore helping in creating a greater demand for the goods of local manufacturers. Moreover the massive capital required for expansion is brought in form of FDI resulting in increased economic activity. The increased exports from the country bring in more revenue for the country which improves the economic growth. SEZ’s help in creating a balanced economic growth in a country if they are properly located and implemented leading to tapping of local talent and contributing to increased economic activity in the area.
  10. 10. SEZ IN INDIA Asia’s first EPZ (Export Processing Zone) was set up in Kandla in 1965. Seven more zones were set up thereafter. However, the zones were not able to emerge as effective instruments for export promotion on account of the multiplicity of controls and clearances, the absence of world-class infrastructure and an unstable fiscal regime. While correcting the shortcomings of the EPZ model, some new features were incorporated in the Special Economic Zones (SEZs) Policy announced in April 2000. To in still confidence in investors and signal the Government’s commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime and thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 and received Presidential assent on the 23rd of June, 2005. The SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing simplification of procedures and single window clearance on matters relating to Central and State governments. As a result of this Act and Rules coming into force, it was envisaged that the SEZs would attract a large flow of foreign and domestic investment in infrastructure and production capacity leading to generation of additional economic activity and creation of employment opportunities. Objectives of the SEZ Act Promotion of exports of goods and services Promotion of investment from domestic and foreign sources Creation of employment opportunities Generation of additional economic activity Development of infrastructure facilities
  11. 11. Tax benefits offered by SEZ are:  Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.  100 per cent income tax exemption on export income for SEZ units for first five years, 50 per cent for next five years thereafter and 50 per cent of the ploughed back export profit for next five years.  Exemption from Minimum Alternate Tax (MAT).  External Commercial Borrowing (ECB) by SEZ units up to USD500 million per year without any maturity restriction through recognised banking channels.  Exemption from Central Sales Tax.  Exemption from Service Tax.  Single window clearance for Central and State level approvals.  Exemption from State sales tax and other levies as extended by the respective state governments. Employment, Investment and Exports in SEZ The details of employment and investment generated in the Special Economic Zones are given below Direct Employment in Special Economic Zones (as on 30.09.11) : 1. SEZs in India provide direct employment to over 8,15,308 persons 2. The incremental employment generated by the SEZs in the short span of time since the SEZ Act came into force in February 2006, is of the order of 6,80,604 persons Investment in Special Economic Zones (as on 30.09.11): 1. The Special Economic Zones notified under the SEZ Act, 2005 have already made an investment of ` 2,31,159 crore since the coming into force of the SEZ Act in February, 2006. Export Performance: 1. The exports from the SEZs have been to the tune of 2,20,711.39 crore (as in 2010). Exports from the functioning Special Economic Zones during the 2003-2010 are in Table below:
  12. 12. SUCCESS STORIES OF INDIAN SEZs 1 Nokia Special Economic Zone (Telecom Equipment SEZ)  Physical Exports of USD2.2 billion6 in four years i.e from FY07 to FY10.  Investment of USD0.6 billion has already been made in this SEZ, out of which FDI is USD 0.2 billion.  Projected investment of USD0.6 billion and projected direct employment of 20,000 persons. 2 Mahindra City SEZ (Apparel and fashion accessories; IT/Hardware; Auto-ancillary)  Physical Exports worth USD0.5 billion in four years i.e from FY07 to FY10.  Direct employment provided to 16,257 persons.  Investment of USD0.4 billion has already been made in this SEZ, out of which FDI is USD41.5 million.  Projected investment of USD0.5 billion and projected direct employment of 57,236 persons. 3 Apache SEZ Development India Private Limited (Footwear SEZ)  Physical Exports worth USD31.3 million in four years i.e from FY07 to FY10.  Investment of USD115.4 million has already been made in this SEZ, out of which FDI is USD89.2 million.  Projected direct employment of 20,000 persons. 4 Reliance Jamnagar Infrastructure Limited (Multi-product SEZ)  Physical Exports worth USD15.7 billion in two years i.e from FY09 to FY10.  Investment of USD8.1 billion has already been invested in this SEZ, out of which FDI is USD15.2 million.  Projected investment of USD7.6 billion
  13. 13. SEZ IN CHINA From the 1980s, special economic zones (SEZ) played an instrumental role in the integration of China to the global economy and in its economic development. Their setting aimed at attracting foreign investments and technology (many through the setting of joint ventures), provide employment, utilize Chinese and imported resources, and support capital formation. The bulk of the output was to be exported to foreign markets, underlining that SEZ were part of an export oriented strategy that has characterized many Asian economies since World War II (Japan being the first to develop such a strategy in the region). The following incentives were offered to foreign investors: Labor. The ability to use the Chinese vast pool of low cost labor was a powerful incentive to locate in SEZs. Foreign firms have also the right to hire and fire labor, which was different from the then prevailing Chinese lifetime system of public or collective firms. Land use. SEZs were physically developed as planned entities with infrastructures and access to a container port complex (airports played a more significant role later) so that parts and raw material could easily be brought in for processing and shipped to foreign markets. A degree of protection of private property was also significant, since until 2004 there was no constitutional protection of private property in China outside SEZs. SEZs offered reduced corporate income tax rate, including income tax exemptions for foreign nationals working in SEZs. No custom duties were levied on imported materials and parts as long as they were for re-exports.The development of SEZ went through several stages which were linked with the setting and expansion of major container port infrastructure:In 1980, the first four SEZs were established in proximity to Hong Kong (Shenzhen), Macau (Zhuhai) and Taiwan (Shantou and Xiamen). Their location was aimed at attracting "overseas" Chinese capital and also as a showcase for the potential impacts of such a reform. This was dramatically different from the centrally planned policies that have taken place since the setting of the People's Republic of China in 1949. These SEZs were also close to Hong Kong, the only modern port facility of the time, which had effective access to the global shipping network. By 1984, the SEZ model was judged to be successful and could be expanded. The initial setting of the four SEZs was solely concerning southern China, so 14 coastal port cities, from the Dalian to Beihai, were selected to become SEZs. This triggered the development of modern port infrastructures, particularly container ports, which were essential to support an export-oriented strategy.The importance of specific economic clusters was acknowledged in 1985 when the status of SEZ was expanded to the Yangtze River Delta, the Pearl River Delta, and the Xiamen- Zhangzhou-Quanzhou Triangle (Min River delta). This also provided additional space for the setting of industrial districts. In time, the Pearl River Delta would become the world's most important manufacturing cluster. The development of manufacturing clusters was also accompanied by the development of port terminal clusters in these deltas, particularly for the
  14. 14. Yangtze River Delta and the Pearl River Delta.In 1988, the status of SEZ was expanded to Hainan Province which mostly developed the touristic and agribusiness sectors, which became the fifth SEZ. By the late 1990s, the province would become an important touristic destination for domestic tourism. Since their inception, SEZs and their positive economic impacts were solely a coastal endeavor with interior provinces lagging behind. By the late 1980s, a substantial migration of labor from interior to coastal provinces was beginning to be observed. In an attempt to counterbalance this trend, six Yangtze River ports and 11 border cities were granted the SEZ status, in addition to all the capital cities of interior provinces and autonomous regions. Yet, accessibility to port infrastructures and foreign markets remained the dominant factor in the dynamism of SEZs and comparatively, limited development took place in interior provinces until the 2000s.By 1992, 60 SEZs have been set in China, including 5 initial SEZs, 15 coastal port cities, 8 river port cities, 19 inland cities and 13 border cities. Then, the process received wide adoption, particularly through the coastal provinces of China. Ten years later, by 2005, there were 210 national development zones and 1,346 provincial development zones. China's geography of production is therefore strongly coordinated by its proximity to coastal areas and their capabilities to access global markets through port and airport terminals. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years.
  15. 15. SEZ IN TAIWAN In Taiwan, the development has received this kind of free economic zones as export processing zones. The concept of export processing zones appeared on the country in the 60's. While the bulk of Taiwan's exports amounted to agricultural products. There was no infrastructure needed for industrial development. To improve the investment climate and accelerate industrial development, the government took part of the country under the export processing zones, where the intention was to create industrial infrastructure and to introduce simplified procedures for investment along with providing tax incentives. The law establishing export processing zones and management was adopted by Parliament in January 1965. The first zone is an area of about 68 ha was established in 1965-1968 close to the port Kaosyung, the following two – in Nantz (98 hectares) and Taygunge (26 ha) – have begun to operate in 1969. By April 1997 the total number of enterprises in these zones was 220. Currently planned are three special zones in Chungtao, Chengkunge and Syaokane. By April 1997 total investment in the three export processing zones in Taiwan amounted to 1.7 billion dollars, of which the joint ventures accounted for 54%, and net foreign and purely domestic investments – 46%. This indicates that the export processing zones have greatly contributed to attracting not only foreign but also domestic investors. In Taiwan, the costs of establishing the three zones, including the purchase and development of land management and operation of zones, as well as the loss of the budget as a result of exemptions on taxes and duties amounted to about $ 3 billion Foreign trade The activities of export processing zones has contributed significantly to the expansion of foreign trade of Taiwan. In the years 1985-1996 total exports from the zones of greater than $ 49 billion, averaging about 4.1 billion year. Tax benefits In Taiwan, companies are exempt from customs duties on imports of raw materials, spare parts, components and equipment imported for use by enterprises registered there. In addition, granted tax holidays on corporate income tax liability. Period covered by this tax benefit in Taiwan up to 5 years. Employment In April 1997 directly at enterprises zones worked almost 55.5 thousand people. Job creation in the zones, in turn, leads to increased employment in ancillary industries beyond.
  16. 16. Revenue Revenues of Taiwan in the form of taxes and duties, payment of licenses for construction, contributions for compulsory insurance of workers, interest on loans reached approximately 5.9 billion Taking into account the wages paid to workers, domestic procurement, payment of transportation revenues received by Taiwan's three zones, approximately 10.3 billion dollars Taiwan is also an example of successful use of zones to attract investment and promote economic and social development. TAIWAN'S SCIENCE-BASED PARKS 1. The Hsinchu Science Park (HSP) was established in 1980 by the National Science Council called Taiwan's Silicon Valley. Over 430 companies (including many listed on TAIEX) employing over 130,000 people are located within the park, and paid in capital totaled US$36.10 billion in 2008 Since 1980, the government has invested over US$1 billion in the park's infrastructure 2. The Southern Taiwan Science Park (STSP) was established in 1996 focus on integrated circuits (ICs), optoelectronics, and biotechnology. 3. The Central Taiwan Science Park (CTSP) was established more recently in 2003 which focuses on ICs, optoelectronics, and biotechnology, with the optoelectronics industry accounting for 78% of its revenue in 2008 These three science parks alone have attracted over NT$4 trillion (US$137 billion) worth of capital inflow, and in 2010 total revenue within the parks reached NT$2.16 trillion (US$72.8 billion). TAIWAN OTHER INDUSTRIAL PARKS The Linhai Industrial Park, established in Kaohsiung in 1960, focusing on other industries including base metals, machinery and repairs, nonmetallic mineral products, chemical products, and food and beverage manufacturing. The Changhua Coastal Industrial Park, located in Changhua County, is a newer industrial cluster with many different industries such as food production, glass, textiles, and plastics The complete lists of industrial and science parks in Taiwan are:  Central Taiwan Science Park  Hsinchu Science Park
  17. 17.  Kaohsiung Science Park  Nankang Software Park  Neihu Science Park  Tainan Science Park Taiwan Free Trade Zone Among more than 600 Free Trade Zones and similar special administrative regions throughout the world, Taiwan FTZ is the most competitive. The unique geographical advantage, strong transport capacities, the highly efficient customs clearance system, strong manufacturing capabilities, and the extraordinary B2B infrastructure of Taiwan enable enterprises to integrate business flow, logistics, cash flow, and information flow with swift processes in manufacturing, ordering, transport and sales to meet the demand of supply chain. Far Glory Air Cargo Park The Park includes import/export cargo customs clearance, cargo handling, warehousing, logistic, value-added park, operational display and business conference center. This Park transports through air, land and sea, and combines logistic, human resources, business and finance information into one, making it the most competitive Free Trade Port with cargo Park in the whole world. Hence realizing the vision of entering the world stage with “Develop Locally, Position Globally”. Port of Kaohsiung Free Trade Zone It is an essential point on American, European, and Asian navigation routes– make Kaohsiung the foremost gateway and cargo hub for Taiwan’s imports and exports. The Kaohsiung FTZ offers the following advantages: 1. Vast areas of adjoining land, providing opportunities for achieving a multiplier effect through cooperation. 2. Repackaging, processing, and other value-added functions can be expanded in combination with the offshore shipping center and logistics center mechanisms. 3. With privatization, dock operations offer high-efficiency, low-cost, and high-quality services.
  18. 18. Port of Taichung Free Trade Zone Taichung Port Free Trade Zone exploitative area amounts to 536ha, divided into two phases and three exploitative areas. This is the first international harbor which has been designed and built by Taiwanese engineers. Software and hardware construction in Taichung Port Free Trade Zone : Software and hardware facilities hereunder for free commercial harbor area dealing with relevant business through computer connection and electronic material transmission mode are in the process being constructed. Taipei Port Free Trade Zone Taipei Port was elevated to be the auxiliary port of Keelung Port on January 8th, 2004. Currently there are 14 operational wharves, including 2 container wharves. The overall planning land area reaches 1038 hectares. Keelung Free Port Keelung was opened as a commercial port in 1863 and a naval defense headquarters was set up here in 1872. It has already been more than one hundred years since the port began to operate. Keelung Port has made great progress and ranks now as one of the major ports of the world. Free Economic Pilot Zones Agricultural goods from mainland China that are currently banned from Taiwan may soon be imported through Taoyuan airport, six free-trade ports and an agricultural technology park. This liberalization is part of a plan to promote high-tech logistics, medical services, agricultural processing and finance. The first phase of the plan, under which 13 regulations on foreign and mainland professionals, land use and import procedures will be loosened by year-end. Phase Two will kick off after a special Act governing the zones' operations, being drafted by the Council of Economic Planning and Development, is approved by parliament. The Act is expected to offer businesses tax breaks, free up capital flow and allow the tariff-free import of previously restricted agricultural and industrial raw materials to be processed and exported as Made-in-Taiwan products.
  19. 19. One of the anticipated features is that mainland businesses will also be allowed to invest in the zones, subject to approval from Taiwanese authorities, without being limited to a 20 per cent stake, as stipulated under current rules. Taiwan's determination to liberalize trade and join regional free trade areas, namely the Trans- Pacific Partnership that now gathers 13 countries, including Singapore and the United States, and the Regional Comprehensive Economic Partnership, comprising 16 states in the Asian region including Asean members. Taiwan Strait West Coast Economic Zone Taiwan is formally known as the Republic of China, including the Taiwan island group. Fujian-Taiwan Fujian is one of the wealthier provinces of China. Xiamen was one of the first cities in China to be opened up to foreign trade and investment as a Special Economic Zone (SEZ) in 1979. Because of the closeness both geographically and culturally with Taiwan, the Xiamen SEZ targeted Taiwan to attract Taiwan business people’s investment and facilitate bilateral trade. As of December 2005, Fujian received US$ 3.9 billion of foreign direct investment from Taiwan. Over the past twenty-five years, the Fujian province has maintained close business and trade connections with Taiwan. In terms of foreign trade, in 2004, Fujian’s imports and exports registered US$ 47.6 billion, an increase of 34.6 percent over the previous year. Of that, the exports reached US$ 29.4 billion, a rise of 39.1 percent; and the imports US$ 18.2 billion, a rise of 27.9 percent. During the National People’s Congress (NPC) held in Beijing in March 2006, NPC deputies advocated that Fujian should be defined as a special zone for Taiwan by implementing the Economic Zone proposal and other political experimental proposals for unification across the Taiwan Strait which was accepted and Fujian was declared as special economic zone for Taiwan.
  20. 20. INDIA AND CHINA SEZ COMPARED Indian policymakers' ongoing fascination with special economic zones was inspired by China's roaring success with these enclaves of galvanized production. New Delhi has sanctioned close to 200 SEZs. Exactly six Sez have been started in china since 1979, Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and Pudong. China's success in attracting oodles of foreign direct investment and becoming one of the top exporting countries of the world hinged on the careful implementation of its SEZ policy. More than two decades later, India, too, is trying to tread on the same ground. There are, however, certain fundamental differences in the Indian and Chinese approaches to SEZs, which make it difficult to say for sure that Indian SEZs will be able to recreate the Chinese magic. Size, location, flexible labour laws and stable policies are the factors primarily responsible for making Chinese SEZs attractive to foreign investors. In India, it is the fiscal sops being offered to developers and units which are the primary driving force. The Chinese government started building SEZs way back in 1979. The idea behind the SEZs was to experiment with liberal policies in certain ear-marked regions while insulating the rest of the economy from their influence. The government identified huge tracts of land, near the coastal region, and started building mega cities with all required infrastructure. Stringent labour laws applicable in China were relaxed in the regions and foreign investors were wooed with sops and the promise of stability. Though India had a head-start in the direction by building its first export processing zone in 1969 with certain minimum infrastructure and fiscal sops (seven more followed later), it could not muster enough political will to build full-fledged SEZs with foreign territory status in the matters of international trade till the turn of the century. In 2000, former trade minister late Murasoli Maran announced that India should try to replicate the Chinese success story in SEZs and announced an SEZ policy. However, when five years later the SEZ Act was passed by Parliament and rules were framed, what India had was a policy very different from China's. As opposed to five mega SEZs built by the Chinese government (the largest being Shenzhen built over 49,500 hectares), India opened its doors to private players and allowed sector- specific SEZs to develop on just 10 hectares of land. As a result, India has as many as 173 operational SEZs with about 55 more having received approvals. The economies of scale, which seems to have worked so well in China by reducing production costs, may not have the same effect in Indian SEZs.
  21. 21. In China, the government chose the location for SEZs with a lot of thought with all five located near the coastal region. This makes it easier for SEZ units to export their products and import inputs. In India, SEZs are being built all over the country, wherever land can be acquired by developers. This has also led to allegations of land-grabbing and conversion of productive agricultural land by developers. This had led the Centre to make it mandatory that all proposals should have a certificate from the state government notifying that the land being used is non- agricultural for at least 90%. Flexibility in labour laws, which played an important role in attracting foreign investors, is absent in Indian SEZs. This is one of the prices India is having to pay for the advantages of a federal democratic government. India has, however, tried to make up for all the disadvantages by offering attractive fiscal sops. Tax holidays for SEZs in India are longer and steeper than those given by China. This had given rise to some dissent from the finance ministry which had complained that the fiscal loss would be immense.
  22. 22. COMPARISON Issue China India Taiwan Size Very big. Typically in hundreds of hectares. Even 10 hectares will do. A mixed bag varying from 28 hectares to 100 hectares Location Well thought out and located only on coasts. To facilitate exports and imports easily. Anywhere. No restriction. Ports specially those near to china. Labour laws Relaxed in the SEZs. Flexibility is totally absent. Relaxed and compulsory insurance of workers Policy regime Experimentation of liberal policies in the specified areas while insulating them from the rest of the country. Based on fiscal sops. Policy to liberalize trade and join regional free trade areas. Investors Basically foreigners who are wooed with sops and promise of stability in policy. Basically locals. Not foreign investor driven; which should have been the case. Mix of foreign and local investors. Commencement In 1979 In 1965 with the export processing zone concept. But failed to muster courage in giving these regions foreign territory status till the year 2000 when Murasoli Maran announced the SEZ policy. First zone is an area of about 68 ha was established in 1965- 1968. Number of SEZ Only six: Shenzhen, Zhuhai, Shantou, Xiamen, Hainan and Pudong as of 1979, 212 in 2013 Any where and any number. 28 operational in 2006 and 173 in 2013 Including all the FTZ, SBIP and FEZ 18 zones are operational as of 2013. Tax holidays Present. Longer and steeper than in China Granted tax holidays on corporate income tax liability
  23. 23. REFERENCES www.sezindia.nic.in/ http:// sez.icrindia.org/ http://commerce.nic.in/ www.infodrive.com www.reuters.com chineseculture.about.com www.google.com http://en.wikipedia.org/wiki/Special_economic_zone http://en.wikipedia.org/wiki/Special_economic_zone#India http://en.wikipedia.org/wiki/Special_economic_zone#China https://people.hofstra.edu/geotrans/eng/ch5en/conc5en/China_SEZ.html Breslin, S. 2009. Understanding China’s Regional Rise: Interpretations, Identities and Implications. International Affairs85 (4): 817–835. Chinese Overseas (Africa) Economic and Trade Cooperation Zones and China –Africa Development Fund. 2010. Newsletter of Joint Meeting of Chinese overseas (Africa) Economic and Trade Cooperation Zones and China–Africa Development Fund. No. 2, July. http://www.prologis.com/docs/research/asia/China_Special_Economic_Zones_National_Indust rial_Parks_Door_Openers_to_Economic_Reform.pdf

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