Time to rethink special economic zone policy

via CAAI

Monday, 20 December 2010 15:00 Steve Finch

WHEN China designated its latest special economic zone earlier this year in Yili, in the northwestern province of Xinjiang on the border with Kazakhstan, much of the necessary infrastructure was in place.

The area already has a container port which will be further developed and the government completed a new electric train line from the border to the provincial capital Urumqi last year, according to reports.

As the undisputed master of developing economic zones to drive the overall economy, China has focused on a low number of special economic zones in areas with good trade links and suitable infrastructure.

And in the case of Shenzhen, the mainland city bordering Hong Kong – considered the biggest SEZ success story in China, the state mobilised a significant chunk of the funds to kickstart the project which as a percentage of total investment was slowly reduced over time and replaced by capital from the private sector.

Cambodia’s SEZs mirror this hugely successful model mostly in name only.

Instead of focusing on a small number of large SEZs and building infrastructure around them, the government has handed out more than 20 SEZ licences, mostly to well-placed business people including Kith Meng, Mong Reththy and Lao Meng Khin.

Still around two-thirds are idle, some more than eight years after approval.

Whereas countries such as China have helped develop key infrastructure around SEZs to give them the best chance of success, those in Cambodia have required the developers themselves to foot the bill for even basic utilities such as electricity supply. And at 20 percent, the corporate tax rate offered in Cambodian SEZs is less attractive than the 15 percent offered in China at the start of its own SEZ experiment.

Having celebrated 30 years of Shenzhen in September, there is no doubt that China has had a great deal more time to develop its SEZ program and with far greater economic resources at its disposal, the Chinese government has been much better equipped to set up these areas than the Cambodian government.

But that suggests even more reason to keep the numbers small so the state and private developers can concentrate on channelling capital to a select number of sites.

There is no doubt that Cambodian SEZs can attract large companies.

Japanese food seasoning multinational Ajinomoto opened its first packing factory at the Phnom Penh SEZ in October and Hyundai is scheduled to begin assembling vehicles at the Neang Koh Kong SEZ in the coming months.

However, these sites are among the few that have attracted any companies at all, suggesting its time the government had a rethink of its SEZ policy. After all, as China has already demonstrated, a proactive and well-funded policy on SEZs can mean all the difference when it comes to accelerating economic development.