What China's Shenzhen Can Teach Indian Cities

Shenzhen, a major city in China's Guangdong Province, was in the news recently as the district authorities plan to invest $200 million in ZTESoft's Gujarat smart city project. Shenzhen, which was once a tiny fishing village, now houses nearly 15 million people. The Chinese city flourishes while the districts that were once far more prosperous and bigger floundered. Shenzhen is one of the rare startup cities in the world to have tasted success. Policies that are successful in key cities often influence policies throughout a country and that is why Shenzhen success played an important role in shaping China's economic policy.

Economist Paul Romer points out that if Shenzhen were a city-state, it would have seen an economic growth rate greater than that of any country on earth in history. Shenzhen's economic policies were more export-oriented, and allowed greater foreign investment and more entry-level jobs in the manufacturing sector. If the smart city projects in Gujarat learn the right lessons from Shenzhen, India may see economic reforms that would transform the country beyond our imagination.

Taking lessons from the city

Implementing reforms successfully in major cities are highly likely to spread across a country. India is no exception. We have seen evidence in this favour. When Indian states competed to improve their performance in the World Bank's “Ease of Doing Business” index, their respective performance improved. As 95 per cent of India's national income can be attributed to these states, this is of great importance. Gujarat cities, such as Ahmedabad, have policies that are extremely inefficient.

But is has its drawbacks.

Under its floor space index (FSI) policy, the city has higher levels in the periphery than in the central city. This misallocates land. 

This also forces the poor to live in the periphery because homes are not affordable near the city centre. 

As low-income households cannot afford to travel, the costs this imposes on them is enormous. 

Moreover, as economically feasible real estate development is considered illegal by the government, not enough real estate development happens. 

According to the World Bank, nearly 32 per cent of the developable urban land is idle or under-utilised, and is under the government control. 

Land parcels that belong to mills and defunct industrial outlets lie idle.

Ahmedabad is not alone. Similar policies have been behind hindering the growth of major Indian cities. Here are a few lessons Indian cities can learn from Shenzhen:

Romer thinks that special economic zones (SEZs) and smart cities should fulfil two conditions:    

A. The policy measures imposed should be reforms and not concessions. This means that companies and other entities in an SEZ should not get benefits that would hurt the interests of firms in other regions. 

B. If the policies of one SEZ are implemented throughout the country, it should lead to greater prosperity.

Shenzhen meets these conditions to a great extent.

Deng Xiaoping, the most powerful figure in the China from the late 1970s till his demise in 1997, carried out reforms without waiting for a broader consensus to emerge. As many decisions that govern Indian cities are taken on a state of central level, the implementation of valuable reforms rarely happen. The Greater Mumbai Draft Development Policy 2034, for example, proposes important reforms. Experts across the world consider it the most important urban policy proposal in the world at this point in time. But, as it came under much criticism, the draft is being revised and is not likely to be implemented any soon. Similarly, the Mumbai-Trans Harbour Link (MTHL) Bridge, on which a report was first written in 1962, is yet to be constructed. Recently, environmental activists claimed that the bridge violates coastal regulatory zone regulations. 

Urban policy experts argue that it is better to improve existing large cities like Mumbai, Bengaluru, Kolkata and Delhi than creating new cities. But, implementing reforms in such cities is difficult because of enormous political constraints. But, in a newfound city like Shenzhen, it is much easier as political constraints are far less. This is true of Indian cities like Gurgaon, where much of the land that was barren with low-agricultural productivity made it easier for the government to allow faster acquisition of land. In Noida, FSI is much higher than in Delhi and in other parts of the National Capital Region. In Shenzhen, employing Chinese citizens for foreign firms was more permitted and this led to reforms throughput the country. Once such reforms are implemented, smart cities with a better regulatory framework will attract people from across the country. 

Shenzhen allowed the Chinese government to test market-oriented reforms in a small area and find out whether it would threaten political stability in the country. Even though in the initial phase, Shenzhen was known for many social-political woes, its role in the economic evolution of China is great in the long run. 

In Shenzhen's initial phase of development, the city was responsible for its own expenditure. This led to greater prudence in spending. Shenzhen also had greater autonomy in its functioning. When compared to other Asian SEZ's, the level of autonomy that is prevalent in Shenzhen is among the highest. Cities in Gujarat will witness similar growth, and will play a crucial role in India's economic progress, if it takes a cue from Shenzhen.