Coastal Economic Zones: India must learn from China

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New Delhi | Updated: May 8, 2018 7:11:08 PM

Talent, finance and innovation are relatively neglected in the Indian policy framings on CEZs.

india, china, economyThe detailed discussion describes the need to create linkages between entrepreneurship, finance and manufacturing know-how as complementary pieces of the innovation process.

China, as a developing giant, is in many ways a model for India to follow, not in its political system, but possibly in its economic strategy. Small countries may be landlocked, or they may have coast lines of varying lengths. Large countries typically have long coastlines and large interiors, making coastal development part of a strategy of connecting their heartlands to the rest of the world. China used a version of Coastal Economic Zones (CEZs) to facilitate its process of economic development, in which foreign trade played a crucial role. India is only now pursuing this pathway with some degree of alacrity, if not quite urgency. I have written several columns recently on what India is doing about CEZs. It is also worthwhile to update ourselves on Chinese thinking on this matter. The following draws on the IFF China Report 2018, produced by the International Finance Forum (IFF) and the online journal Central Banking.

The IFF China Report includes a section titled “Co-ordinated development – The gateway to the Bay Area Development.” The Bay Area referred to here is the Guangdong–Hong Kong–Macao Greater Bay Area. It is described as a growth pole for “for global economic development and a source of new technologies, industries and business models, as well as a hub for innovation and development.” Creating such regions is what India should aspire to, of course. For the Chinese case, the focus is on coordinated development, overcoming or minimising conflicts among regional departments, as well as institutional and cultural differences.

Gu Shengzu, vice-chairman of the IFF and vice-chairman of the National Committee of the Chinese People’s Political Consultative Conference, offers six suggestions for achieving coordinated development. The first is exploiting complementarities in economic structure, whether within manufacturing, across different parts of the supply chain, or across sectors such as manufacturing, finance, education, and so on. The article describes specific strengths and potential complementarities for the sub-regions of this Greater Bay Area.

The second suggestion is to create a platform for talent exchange. “Talent” is viewed as a strategic resource, and the mechanisms for promoting talent flows include “diverse student-exchange programmes, … mechanisms for mutual recognition of academic credits and degrees, and [ways to] encourage young people to participate in academic exchanges and co-operation in research and development across regions and disciplines.” The third suggestion is for systemic financial improvement, including improvements in financial regulation, deepening and coordinated development and integration of financial markets, and integration of financial market mechanisms with real sector activities in manufacturing and trade. Again, the details of the discussion play off of existing strengths such as Hong Kong’s role as an international financial centre.

Number four calls for collaborative efforts in innovation, not just across sub-regions, but also across industry, academia, and other research organisations. The detailed discussion describes the need to create linkages between entrepreneurship, finance and manufacturing know-how as complementary pieces of the innovation process.

The final two suggestions relate to the conventional merits of CEZs. The first of these is described as strategic interlinking, facilitating and promoting trade and investment with other countries (including attention to basic functions such as logistics), and connecting these to the hinterland. Interestingly, this is a subset of the Belt and Road Initiative, and the Greater Bay Area is conceived of as the heart of the “Maritime Silk Road.” The final suggestion is for an integrated infrastructure, both internal to the region and connecting it beyond the region, especially in the case of transport (land. sea and air networks), but also for information flows and regulatory clearances (such as customs).

Perhaps none of the above ideas are particularly novel or deep. But I was struck by their joint articulation, connecting a general conceptual framework to the specificities of this important coastal region of China. If India’s articulation of CEZ policies has provided something similar, I have missed it and am happy to have my ignorance removed. For India, what I have seen does cover many of the bases, particularly with respect to physical and institutional infrastructure for manufacturing. But talent, finance and innovation are, I believe relatively neglected in the Indian policy framings. And that may be a more general failing of Indian economic policy: talent, finance and innovation tend to be underplayed. Maybe that is appropriate for India, which is decades behind China in economic development. On the other hand, catching up will require strategic thinking, and the above example from China can provide some clues to what India’s new CEZs should have.

Maybe CEZ policies should think about including institutions for nurturing talent and imparting skills, for fostering innovation, and for providing deeper, well-structured financial services. Each of these areas has best-in-class private providers in India. Perhaps some of those organisations need to be drawn into the mix as the development of CEZs proceeds. Finally, to return to a theme in my earlier columns, perhaps India needs to focus on just a few CEZs, and get those very right, rather than a mechanical geographic spreading of efforts across over a dozen coastal locations.

By Nirvikar Singh
Professor of Economics, University of California, Santa Cruz

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