The Hindu Business Line : "If the wind comes from an empty cave, it's not without a reason"

THREE banks have received the RBI's (Reserve Bank of India) nod for crossing over the Great Wall, and now they are waiting in line for approval at the `Red' end. When Allahabad Bank, UTI Bank and UCO Bank disembark from the overcrowded China bus (or bandwagon or bogey, if you'd like to take a contrary view), they aren't going to be among strangers because already many Indian companies have set shop in the dragon's country.

For those who are sitting on the fence, the book I'd recommend this weekend is Building a Successful Plant in China, from China Knowledge Press (www.chinaknowledge.com).

Credit for the country's economic growth, and the growing international attention China is receiving, goes to development zones and industrial parks, says the book. "Collectively called industrial parks, these parks - economic and technological development zones (ETDZs), hi-tech development zones, free trade zones (FTZs), and export processing zones (EPZs) — promise a developed infrastructure, a relatively efficient administration and above all, attractive business terms."

The experiment grew from the four SEZs or special economic zones of the early 1980s to more than a dozen ETDZs in the late 1980s, in typically suburban regions of major cities. In addition to more than 50 state-level ETDZs, there are 11 national zones. Plus, over 4,000 local ETDZs at the provincial/ municipality levels, some of which offer "more attractive policies than state-level ETDZs."

The `Torch Program' of the Ministry of Science and Technology gave birth to HIDZs or High-tech Industrial Development Zones. "These zones expedite technology diffusion and create synergies among the academic and financial institutions, and corporations within or near the park," explains the book.

An informative chart summarises policies of ETDZs, HIDZs, FTZs, and EPZs. Uniformly, there is a 15-per cent corporate income-tax rate for foreign invested production enterprises, though the first two years are free from tax and the next three years are taxed at only half the rate. Ordinary production enterprises are levied at 10 per cent.

VAT is uniform across the four zones, 13 per cent for agri-related projects and 17 per cent for others. There are, however, differences — such as that there are no exemptions from customs duty and VAT on office appliances in the first three, while the last offers exemptions. To suit Deng Xiaoping's `white and black cat' analogy, the Chinese National People's Congress amended the country's constitution in March 2004 stating, "Private property obtained legally shall not be violated." A disturbing report on http://en.rian.ru speaks of "a recent poll conducted by the Institute for Complex Social Studies of the Russian Academy of Sciences". It showed that Russians mainly saw private property in terms of consumer products.

"Someone who neither has nor can afford a stake in an oil major, which is the case with most Russians, does not perceive these papers as private property. After all, few apartments, cars, or TVs have ever been confiscated in post-Soviet Russia, whereas grabbing production assets has become a commonplace practice. Now the state is doing what only businessmen did in the past. People think the state grabs shares and factories because it does not perceive them as private property," is a comment by Mikhail Delyagin, director of the Institute for Globalisation Problems posted on the Web site.

By contrast, the news from China seems encouraging, with many SOEs or state-owned enterprises converting into limited liability shareholding companies, and also listing in domestic and overseas stock exchanges. It may take sometime, though, for the State to shed its role as the major shareholder.

In 2003, the top 10 export goods had textile garments in No. 1 slot, closely followed by automatic data processing machines and units.

Footwear, yarn, radiotelephone sets, furniture and toy rank next. "Only eight sensitive products, including crude oil, finished oil, chemical fertiliser, basic food, cotton, vegetable oil, sugar, and tobacco are reserved to state trading management." About a year ago, China lowered the export tax rebate to 12 per cent. With a restructured import-export strategy, the country expects more of agricultural products, chemical fibre, automobiles, iron and steel to be imported, while less of raw materials and low value-added products to be exported.

About seven years ago, the country completed its lattice-type optical cable network, "linking all the provincial capital cities and over 90 per cent of counties and cities". By the end of 2003, optical cables ran to 2.71 million km. "China initiated the construction of the 27,000 km Asia-Europe Land Optical Cable, which starts from Shanghai in the east and reaches Frankfurt in Germany in the west, passing through 20 countries," says the books of the longest land optical cable system in the world.

Other technological advancements that China can boast of are 350 million gates in office exchanges, 20,000 satellite circuits, digital microwave routes stretching to 60,000 km, automatic roaming facilities with over 120 countries and regions, 80 million Internet users accounting for the number two position in the world and two in five of them using broadband.

The chapter on China's financial system explains the country's regulatory framework. For instance, SAFE or State Administration of Foreign Exchange manages the forex reserves, while CIRC is an insurance regulator. In banking, there is the `big four' comprising ICBC, CCB, BOC and ABC — that is, Industrial & Commercial Bank of China, China Construction Bank, Bank of China, and Agricultural Bank of China — accounting for more than half of the sector's total assets.

"Development is the practical way to go," is a line from Deng's famous Spring Speech in 1992 that acted as the turning point in foreign investment, opines the book. On setting up business, there is a chapter that hands out helpful hints and charts, and another looks at taxation issues.

Don't miss China Knowledge Rating System inputs, assigning ratings to industrial parks "based on five broad factors, subdivided into 17 attributes" to guide foreign investors.

Those who wind up in China to build their factories with all the guidance that the book offers, may soon learn that `Hen Gao Xing Yu Xian Ni' means `pleased to meet you'.

And those who think that China doesn't exist may look up this phrase on http://ecis.seattleu.edu: `Dui Bu Qi', meaning `sorry'. For, as an ancient Chinese proverb cautions, "If the wind comes from an empty cave, it's not without a reason."

Economics@TheHindu.co.in

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"If the wind comes from an empty cave, it's not without a reason"