As Prime Minister Imran Khan departs for what will be his first meeting with Xi Jinping in 2 years (the last in-person meeting taking place in October 2019) and likely the last meeting before Pakistan’s 2023 general election. assuming that whatever he says and does in Beijing will set the tone for the coming year and a half in Pakistan-China relations. From the outset, the Prime Minister’s visit to Beijing is in itself a declaration of solidarity and support for China at a time when the United States and its partners are calling for a boycott of the Beijing Olympics, wrapped in a veneer of justice and alleged human rights abuses by Beijing, but containing a rising China.

As the Prime Minister continues his first visit on the occasion of the Chinese New Year of the Tiger, it is important that Pakistan engages Beijing with strategic clarity on two fronts: economic and political, where the expectations of both parties are identified, rationalized and managed.

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What is the main purpose of the Prime Minister’s visit to China?

The Prime Minister is going there with the aim of asking the Chinese government to convince its companies to relocate to Pakistan. Although it looks like a great “get out of jail card” for Pakistan, Pakistan “Do more” approach to Beijing is not sustainable and rational and wastes the finite goodwill that Beijing has for Pakistan. As a flagship project of the Belt and Road Initiative, China has committed a whopping $62 billion to Pakistan, about half of which has been spent since the launch of the China-Pakistan Economic Corridor in 2013 So far, an investment of such magnitude and scale in such a short period of time remains unmatched by China in any country.

Rather than asking China to relocate industry to Pakistan’s many high-potential sectors, Pakistan should consolidate and completed existing projects and commitments in the CPEC, make them successful with results, and then move on to new projects and cooperations. For example, for the second phase of CPEC, there are 3 key special economic zones in CPEC: i) Rashakai (KPK), ii) Allama Iqbal Industrial Zone (Punjab) and iii) Dhabeji (Sindh). In Gwadar, there is an industrial zone which would also serve as a potential place for foreign investors to relocate and settle. These four areas, which are CPEC projects, have been placed as high priority projects in CPEC Phase II.

What’s the problem?

  1. The China Road and Bridge Corporation has signed the concession agreement for Rashakai SEZ (the next stage of the framework agreement has not yet taken place), while a Chinese company called Century Steel has established a warehouse and hasn’t got electricity yet. connection and configure the real factory.
  2. Allama Iqbal Industrial Park, located in Faisalabad, has received Chinese investment, compared to other SEZs, from about 5 Chinese companies, however, these companies have been unable to manufacture their products due to different bureaucratic bottlenecks such such as slow processing of gas hookups, no government e-bike policy for e-bike manufacturers, difficulty in acquiring an electric hook-up, etc.
  3. Dhabeji: The bidding process for the SEZ development was challenged in court by a company that participated in the bidding process. At present, the project is stalled as the case is in court and therefore there is no specific timeline for the development of the SEZ.
  4. Gwadar: Free Trade Zone I has attracted the interest of 40 local and foreign investors who have established their preliminary warehouses and offices in Gwadar, but have yet to successfully manufacture and export their products. While Free Trade Area-II was inaugurated on 5and July 2021, it has not yet been developed. One of the major missing prerequisites for the free trade zones and Gwadar as a whole is sufficient and uninterrupted power supply.

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What Not to Do: Learn from China’s Hainan and Shenzhen SEZs

The highly acclaimed Shenzhen SEZ was launched in May 1980, while the Hainan SEZ was launched in 1988, both less than a decade after the opening-up and reform policy unveiled by Deng Xiaoping, which meant the China’s strategic shift towards a more liberal economic system. Shenzhen’s greatest advantage was its site, being next to Hong Kong which had existing and mature business clusters, this enabled it to grow from a local fishing village to an international SEZ. Hainan, on the other hand, did not enjoy proximity to any major business center like Hong Kong and was unable to achieve resounding success despite other preferential policies it received, unlike Shenzhen.

Some of the policies that Hainan extended to investors were: providing a 70-year lease for foreign investors, general tax exemption on all projects related to technology investment, companies making profits could transfer their money to out of province without payment of income tax. Also, unlike Shenzhen, Hainan was unable to attract investment in the manufacturing sector, and most investment in the real estate sector inevitably led to a speculative bubble that finally collapsed in 1993. .

In Pakistan, have we studied successful and less successful SEZs in China and the rest of the world and developed a scientific plan to undertake those in CPEC? Considering that much of our export-oriented growth is tied to CPEC SEZs, do we have a timeline for each SEZ with key performance indicators against specific timelines? How long will Chinese companies invest in Pakistan because we are “iron brothers”? If Pakistan is to be taken seriously by China and other investing countries, it must present a bankable, high yielding and safe investment environment for potential investors.

As of this writing, the Chinese-owned SEZs of Sihanouville, Cambodia, and the industrial parks of Mekelle and Hawassa in Ethiopia continue to host Chinese industries wishing to relocate due to rising production costs in China. The Cambodian and Ethiopian SEZs exported $372 million and $142 million worth of products, respectively, in 2018. China has many options to relocate its industry, and Chinese companies are exercising those options as the Belt and Road Initiative the Route” extends to different parts of the world. It’s time for Pakistan to step up their game and seize the opportunity knocking hard at their door.

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What needs to be communicated to Xi and his team: the 3 Rs

  1. Pakistan must reassure Beijing that it has the ability and capacity to manage and execute existing CPEC projects while honoring its part of the terms of the contracts. This is critical as there have been: a) delays in full payment for energy projects, b) bureaucratic hurdles such as a two-year delay in the issuance of the No Objection Certificate by the environment for the 300 MW CPEC energy project in Gwadar which prevented the company from starting work.
  2. The visit to Beijing is also an opportunity to renew the all-weather strategic partnership with China, enhancing Pakistan’s strategic clarity regarding China in the context of the new Cold War that Beijing is facing from the West. Although Pakistan has made it clear that it will not choose sides, it must remain clear internally and in its communication to Beijing that Pakistan’s relationship with China has been and will remain strategic, i.e. rooted in a people-to-people bond, comprising intertwined and shared strategic, security and economic interests, while Pakistan’s relationship with Washington is tactical and often transactional.
  3. During his visit, the Prime Minister is expected to inform Chinese leaders that Pakistan reverse and resolve the challenges China has faced in Pakistan. Most glaring/important is the security of Chinese personnel and projects in Pakistan that have been targeted by terrorists. The second challenge is the lack of a true one-stop solution to solve the problems of Chinese investors, as our government continues to work in silos and investors have to go from pillar to post to obtain authorizations and approvals. For example, the Kohala 1,124 hydroelectric project in the AJK faced a 3-year issue regarding the settlement of offshore purchase withholding tax which is the responsibility of the AJK government to resolve, while the federal government has given all the approvals for it to go ahead.

The strong political will of the government and consensus among all stakeholders on the special partnership with China should translate into tangible and action-oriented follow-up by troubleshooting bottlenecks, creating systems that institutionally address CPEC problems regardless of their location and nature, and focus more on results and outcomes than on optics and memorandums of understanding.

Mustafa Hyder Sayed is currently the Executive Director of the Pakistan-China Institute and is involved in producing research, conducting bilateral and multilateral dialogues and formulating policy recommendations in partnership with Pakistani, Chinese and regional stakeholders.

The opinions expressed by the authors do not necessarily represent the editorial policy of Global Village Space.