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  Special Economic Zones in China and India.  


By: Dr.Dipak Basu
January 28, 2007
iews expressed here are author’s own and not of this website. Full disclaimer is at the bottom.


(The author is a Professor in International Economics in Nagasaki University, Japan)

The dispute of the farmers against the oppressive governments in Singur, Nandigram, Orissa, Chratisgrah and Narmada Valley in India is not a war between industry and agriculture or between progress and conservatism but between basic human rights and a government determined to create a pure capitalistic heaven by taking over poor people’s only possession of a little land and a home without paying proper compensation. The dispute is not restricted to West Bengal or to CPI (M). The introduction of Special Economic Zones (SEZ) would put India into flames everywhere when the poor 80 percent of the population now understand that they have no choice but to fight in order to survive against the combined might of all political parties, whether CPI (M), Congress or the BJP, who are now acting as agents of the India’s true ruling class, the captains of Indian industry. In India the land Acquisition Act of 1894, a colonial act of the British Raj to take over lands for public purposes, is now being used to take away lands from poor farmers to give these to mega rich private companies for their real estate business, which does not serve public interests.

For industrializations land is needed, however, those who are losing their land must be compensated properly. A proper compensation implies at least compensations for lost home, lost assets and lost professions and regular income. Thus, those who have lost home and land must receive from the government a new home or apartment, value of the land taking into account the possible appreciations over the next decade and a new job or regular monthly payments to compensate for the loss of income. In Singur the government is paying a maximum of 1.3 times the value of the land, although the price of land is becoming double in every five years or less. There is no promise of a new job or regular monthly income or a new house. There are no provisions for lost education for the children of the farmers. Thus, the declared compensations are highly inadequate. That is the source of the dispute.

There is a second argument as well from the point of view of overall economic policy. Industrialization just for the sake of it is not justified. It is essential to look at the costs and benefits of setting up an industry. In Singur for example, about 14,000 families are being evicted from about 1000 acres of land, as given in most newspapers. Out of those 12239 persons are landowners; the rests are landless tillers. If we assume only one person per family was gainfully employed in farming, the number of job losses are 14,000 minus those who are not dependent on farming for living. However, only about 4000 people, mainly from outside West Bengal, will be employed in the proposed Tata Motor Company in Singur. Even if we assume that another 2000 may be employed in motor-parts industry and the service sectors to support the industrial activity in Singur, the total number of job-losses would be huge. Thus, there is a net welfare loss in terms of net job destructions in Singur, which the government has not yet addressed. From this point of view it is better for the government to tell Tata Motor Company to go elsewhere in West Bengal, when according to the government about 14 percent of the land in West Bengal are not under cultivation.

The same argument is much more valid for the Haldia Special Economic Zones in West Bengal, which demands more than 20,000 acres of land whereas Tata Motor Company wants 1000 acres of land in Singur. Already 250,000 people were evicted in Narmada Valley, thousands if not millions will be evicted in Orissa, Jharkand and Chratisgarh or Hariyana in India to make room for the Special Economic Zones creating millions of destitute on the streets, just like in China where possibly 150 million people are now unemployed destitute. Thus, it is essential to ask whether we really need this type of economic growth and industrializations where the gains for the people are really negative.

To understand the issue, it is essential to examine what has happened to the SEZ (Special Economic Zones) in China and why Indian industrialists are so eager to follow the Chinese road.

Chinese SEZs and Exploitations of the Workers:

Foreign direct investment in China is almost 10 times that in India. Indian Ministry of Labor supports strongly for the China model as one of the “doable options” for making the labor market more flexible and attractive. The purpose is to turn India into a “preferred FDI destination”. The so-called experts say India needs to get rid of its prohibitive labor policies, which are designed to protect the weakest members of the society against unrestricted exploitations by the private-sector employers. Special Economic Zones where Indian labor laws and tax laws are not applicable is the answer, according to these proponents of ‘economic reforms’.

There are many restrictions on foreign investors in China. They must have a Chinese partner company; they have to export a substantial part of their production; they cannot raise finance from China; they in many cases supply defense-technology to China in return for permission to invest in China. Still the foreign companies are going to China as they can use the Chinese workers as they please. Chinese workers have no trade union rights or any basic human rights. Workers who have tried to form independent unions or lead labor protests have been imprisoned for many years, and were severely punished or killed (www.amnestyusa.org/business/chinaprinciples.html). Thus, China is not a socialist country but a fascist capitalist country with its economy driven by the foreign capitalists with an insignificant (less than 2 percent) private sector of its own.

Exploitations of the workers are the basic elements of Chinese economic policy. As a result, increased foreign investments do not add to the social welfare of the people of China, but to the economic welfare of a small minority of people in China who are connected to the government, army and above all the Chinese Communist Party. China is no longer a socialist country, but a fascist state which is using the state power to suck the blood of the workers to enhance its attractiveness for the foreign investors. Should the people of India emulate China to increase economic growth, which would not benefit the people at large, but a small elite of India? This is the fundamental question one should ask.

The exit policy or the right of the employers to retrench is a part of the so-called ‘flexible labor market policy’. The flexible labor market includes some other characteristics as well: temporary job contracts instead of permanent job, outsourcing of most of the activities, contract laborers, hiring of home based workers and so on. The idea is to save money by not paying pensions, medical benefits, leave entitlements, and complete freedom of the employers not to take any responsibility for the workers. Employers also do not need to have office facilities or factory premises if they can contract out most of the activities. As the employees do not know each other and suffer from the chronic fear of being unemployment, organized trade union activities cannot take place. The employers are at the mercy of the employers and the market forces. China, since it has started her economic reform to transform itself into a pure capitalistic economy, has a flexible labor market with flexibility organized and implemented by her ruthless state machine. India wants to emulate that.

Flexible Labor Market in the SEZ in China:

In the Chinese Special Economic Zones workers are treated in a militaristic fashion with very strict discipline, which amounts to serious abuses. The rights of Chinese workers are routinely violated. Workers are often required to work far more than 40 hours a week, have few days off, are paid below the minimum wage, and are not paid required overtime. Improper deductions from wages are common. Some Chinese workers must pay a large sum of money as a "deposit" to their employer, and they may have to pay a "recruitment fee" in order to be hired. These payments can prevent workers from leaving jobs where their rights are violated. Physical abuse of workers, and dangerous working conditions, are also common.

A lot of the labor forces are very young women, who arrive from the villages at the age of 15 or 16 and would have to go back at the age of 30 when their efficiency due to long hours of tedious works with little food and cramped living condition will be diminished.

Among the 150 million of migrant workers in China about 60 percent are women from the poor areas. China has a virtually inexhaustible supply of migrant workers, most of whom are ignorant of their rights under Chinese law, which are never implemented. They are willing to work under any conditions without protest.

Factories owned by Hong Kong Chinese, Taiwan, and South Korean companies tend to have worse conditions, as do small, privately owned Chinese factories. The conditions of the workers in the special enterprise zone for Taiwanese and Korean foreign investors are some of the worse. Some work 12-hour shifts called "long day shifts"; others are on "long night shifts”. Often these exceed 12 hours. One has to work longer if one cannot finish the day's allocated quota. Another unpaid extra hour or so is spent in preparation before the shift begins.

The worst factories in south China do not even allow workers to leave the factory compound after work. In extreme cases, the isolation and iron discipline are prison-like. The official press has reported cases of unpaid workers enslaved in heavily guarded compounds who have staged escapes. In the worst example that has come to light, a Taiwan-managed joint-venture factory employs more than a hundred guards for 2,700 workers, one of whom recently died in an escape attempt.

Some of the Korean-run factories in north China, which is where almost all of Korea's investments are concentrated, are even harsher and more unscrupulous in their treatment of workers. Korean employers often resort to beatings, tight military control, and public humiliation to subdue the workers. In one case, a woman worker was locked inside a dog cage with a large dog and placed on public display in the factory compound. So bad are the conditions that nine out of 10 of the spontaneous strikes that broke out in the large northern city of Tianjin in 1993 occurred in Korean-managed enterprises. Orissa government has invited Koreans to invest in mining and steel plants without possibly knowing the Korean labor management practices.

These abuses have persisted because of extensive collusion between such factories and the local governments, which will happen in India as well. Many of the Chinese partners of joint-venture firms are actually local government organs and departments, and senior members of the Communist Party, which reap considerable profits from these factories. They are as eager to make money by overworking and underpaying the migrant workers as are the outside investors, and look aside when cases of imprisonment and other serious violations of law occur. Those who should be acting as impartial overseers and law enforcement agencies are, instead, management's accomplices.

In a visit to Beijing in 2001, the director general of the UN International Labor Organization, Juan Somavia, handed China's labor minister a list of 24 detained labor activists and asked for their immediate release. The list has grown since then. China insists anyone in prison or in labor camps is there only because he or she has "violated laws and regulations”, which says something about China's laws and regulations and how they are administered.

Effects of Labor Market Reforms in China:

Economic reforms in China means large-scale unemployment among the workers in state industries, which no longer receives public subsidies, investments, or even orders from the public procurements. The result is increasing bankruptcy of the public sector. Despite of the fact that there is no trade union and any rights for the workers to protest, Chinese workers are defying the threat of arrest and persecutions to protest against growing miseries and extreme inequalities in the new Chinese society.

In May, 2002, 800 workers in Liaoyang, where 25 percent of the working population are now unemployed, protested against the government to demand unpaid wages of the 5000 workers who had lost their jobs recently in a public sector factory. In Fudan, in May 2002, coalmine workers have blocked the road against their unemployment. In Daqing oilfield of Heilonggjing 50,000 redundant oilfield workers demonstrated against the government. In Mianyang, Sichuan province, in July 2001 more than 4000 workers rioted on the streets as their factory went bankrupt. In March 2001 in Nanchong, 20000 textile workers had occupied the city hall to demand unpaid wages.

In 2001, the government expanded the scope of reforms by allowing state firms to go bankrupt. The State Commission for Economic Restructuring estimates, this measure will lead to at least 20 million unemployed by the year 2003. Displaced workers have few places to air their grievances. Since the mass killings of 9000 students in the Tiananmen Square of Peking in 1992, all independent trade unions were proscribed and their leaders are in prisons.

There is no organized labor movement of any size and significance, as the Communist Party of China does not recognize any rights of the workers. Throughout China, there are increasing number of clashes between workers and armed police. Amnesty International report on 30th April, 2002 on China says,” Protests by angry Chinese workers over layoffs, wage arrears, poor working conditions and management corruptions have been met with repression and force”.

Even the Chinese Ministry of Labor issued a warning on 29 April 2002 that official urban unemployment is likely to triple from 6.81 million to over 20 million within four years due to layoffs. This figure does not include 40 million xiagang (laid-off) workers from former state industries or the estimated 150 million ‘surplus’ workers in rural areas. There is a floating army of 80 million unemployed workers moving all over China looking for jobs. Competition from imported agricultural products, following China’s entry into the World Trade Organization, is predicted to drive 20 million small farmers bankrupt.

Attacks on Chinese Peasants:

Tens of millions of peasants who lost their land or could not support themselves by farming have been forced to migrate to the coastal industrial areas to work as super-exploited cheap labor.

In July 2005, Public Security Minister Zhou Yongkang told Reuters that 74,000 “mass incidents” involving over 3.8 million people had taken place in 2004, an increase from 58,000 protests in 2003. In response to escalating social tensions, the Chinese government announced on August 18, 2005 the formation of specialized, heavily armed “anti-terror”, and riot police units in 36 major cities, including Beijing, Shanghai, Chongqing and Tianjin. The first 500-strong squad has been sent to Zhengzhou, the capital of very poor Henan province. The Chinese government already possesses a million-strong paramilitary force, the People’s Armed Police. The new units, however, considerably enhance the ability of the police to suppress large-scale urban unrest. They are being formed in large part because the regime no longer feels confident it can rely on the peasant conscripts in the People’s Liberation Army.

Today, the peasantry is one of the most rebellious social layers in China. Free market restructuring in the countryside over the past 20 years has led to tremendous inequalities. A minority of wealthy farmers connected to the regime control the most profitable land and local industries, while most peasants barely eke out an existence or have been driven off the land altogether. Millions of farmers have been forced to migrate to the cities to find work. As a result, the size and social weight of the working class has grown enormously. The animosity toward government and party officials is inseparable from their role in impoverishing masses of people and enforcing the ruthless exploitation of tens of millions of workers by transnational and Chinese corporations.

According to U.N. statistics, the poorest 20 percent of China's 1.3 billion citizens account for only 4.7 percent of total income, while the richest 20 percent account for more than half. Moreover, that gap has been widening steadily over the last few years. It is China's most serious social problem. India is trying to adopt the Chinese style labor market in the SEZs to impress the foreign investors and Indian industrialists. Is there no alternative?


The decision to establish Special Economic Zones to allow the ‘hire and fire’ policy by evicting farmers from their home and land is a journey to the wrong direction. The ‘Chinese’ road means abolition of all human rights for the workers and maximize exploitation to maximize short-term profit.

In a fascist state like China, it is possible to suppress dissents, protests, and the truth. In a democratic country like India, it would mean increasing miseries, gross inequality, mass unemployment, and conflicts. There were hardly any foreign investments in China before 1990. Foreign investments have started flooding into China after the massacre of 9000 students demanding democracy in Beijing in 1989. Would India also like to follow China by suppressing democracy just to attract foreign investments?

China’s record of high economic growth cannot be taken very seriously either. According to the official statistics of China from 1951 to 1986 for most of the year average annual rate of growth of China’s national income was about 10 percent; for India it was 3.86 percent per year. Yet in 1986 China’s per-head national income in US$ was just the same as that of India. The average annual growth rate of China’s national income between 1991 to 2001 was also about 10 percent. That would mean, if we take Chinese statistics seriously the economic reform policy and the flexible labor market with increased foreign investments in China had no effects on its economic growth.

About 10 million people in China died in famines in 1959-61, which was never reported until after the death of Mao. Growing unemployment and miseries of the Chinese people do not correspond to the high economic growth propagated by the Chinese government. Thus, India is trying to emulate a false hero.

Foreign investments are neither necessary nor sufficient for economic development. Both
Japan and the Soviet Union have achieved spectacular economic development with very little or no foreign investment. Indonesia and Thailand have received massive amounts of foreign investment but they are still very poor.

Repressive labor policy, privatization, retrenchments are not necessary magnet for foreign investment. Western Europe with massive public sector industries, security of jobs and inflexible labor market is the most important destination for the American foreign investment.

Privatization and downsizing may not lead to economic revival but the result can be just the opposite. China by exploiting the workers and driving out peasants from their home have gathered massive amounts of foreign currency to be used by a minority while the majority suffers from destitutions. In China, high economic growth has not touched the majority of the people who are losing whatever economic security they earlier had.

In India situation will be the same with the recent drive for more economic reforms through the creation of Special Economic Zones (SEZ) by evicting farmers, when the majority has not benefited from it during the last fifteen years of reforms. This policy will create mass unemployment in a country where employment opportunities are scarce. A country cannot be considered a great economic power if the people are unemployed and destitute and children are without education.

India should learn from the mistakes of China. In the Special Economic Zones the government must retain ownership of the land and rent out lands to the companies. The government must pay at least double the current price of the land as compensation for asset destructions. Every evicted family should receive appropriate accommodation, houses or apartments, to compensate for the loss of housing. The government must pay regular income to the evicted families or jobs to compensate for loss of profession. The rental cost of the land to the companies should reflect these costs of rehabilitations. The evicted people also would have priority in employment in the Special Economic Zones. Rights of the work force cannot be violated either by the companies in the SEZ. That can be achieved if the government can maintain share ownership in the new companies in the SEZ. Pure private ownerships in the SEZ would spell disaster for the both the workers and the evicted peasants, as it is the case in China.

Dr.Dipak Basu

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