An export-fumbling economy

An export-fumbling economy

by Michael Collins, Investment Commentator at Fidelity - March 2013

Special economic zones, which could be more correctly called special export zones, were instrumental to China’s emergence as a world economic power.

In 1980, Beijing set up its first zone (where national laws are waived in favour of pro-business policies) in the fishing village of Shenzhen, next to Hong Kong. Other zones followed and today China is the world’s biggest exporter, selling US$1.9 trillion (A$1.8 trillion) of goods and services to foreigners in 2011, about 9.7% of the world’s total exports.¹

Lesser known is that India established its first special economic zone for exporters 15 years before China did. In fact, it could be said that India was the modern pioneer of the concept when it set up an “export processing zone” in 1965 in Kandla in the western state of Gujarat. Seven years later, India opened a second zone near Mumbai and by the turn of the century had opened another six zones, including the first privately run one in Surat in 1998. Such government planning fitted in with the public sector’s strategic role in economic planning.

But the government zoning failed to usher in an export boom similar to China’s because poor site selection, insufficient incentives and logistical woes hampered the performance of manufacturers within the sites. The failure of the zones to meet their potential is almost a metaphor for India’s export performance overall.

India’s exports in 2011 only totalled US$305 billion – 16% of China’s total. Put another way, 1.2 billion Indians, at about 17% of the world’s population, produce just 1.7% of the world’s merchandise exports.² Correcting this failure is one of the challenges facing India’s government.

Indices:

The Australian All Ordinaries Index has moved down decreasing -199 points (or -3.8%) since closing last Friday to 03:40 pm today.

                                                                                                                                  

The rest of the world as measured by the MSCI index decreased -1 point (or +0.2%) in A$ from closing last Friday to end of trade Thursday.