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Caution and optimism at CPEC conference


4/24/2018
KARACHI: Federal Commerce Secretary Mohammad Younus Dagha said free trade agreements (FTAs) are the main reason behind surging trade deficits of the country and after various projects under CPEC the trade balance has substantially tilted in favour of China due to massive increase in imports.
 
“If imports are growing under capital goods then this is not a serious concern,” he said while addressing the two-day CPEC Summit, organised by Dawn Media Group in collaboration with Ministry of Planning, Development and Reform and Pakistan-China Joint Chamber of Commerce and Industry.
 
He said there is a need to resolve the issues which are responsible in ballooning trade deficit under FTAs. Till 2014, the country’s trade deficit was on lower side but it started crawling up after CPEC, he added.
 
Dagha said CPEC should help improve the country’s balance of payments and also reduce the trade deficit with China.
 
“Loan repayments will increase our balance of payments deficit with China, however, we can persuade Beijing to set up industries in Pakistan instead of other countries which would help bridge the gap,” he added.
 
There are many areas where Pakistan can attract Chinese investment, especially labour-intensive industries, he said, adding that investments in trade should be at high priority instead of brick and mortar investments.
 
China Harbour Engineering Company Chief Executive Wang Xioping said there is a need to upgrade technology in the industries of Pakistan besides changing business models towards latest communication technology.
 
He said Pakistani industries need to focus to improve their exports to China.
 
On number of challenges, he said security in Pakistan is vital for foreign investment coupled with friendly business environment as the country had been in negative list among foreign investors.
 
Expressing concern over lack of continuity of political leadership, he said any change in political set up sometimes create hurdles for agreements entered into with the outgoing government.
 
Wang said election’s in Pakistan take place after every five years and no prime minister had completed his five year tenure which is quite risky for the foreign investors.
 
He said taxation rates in Pakistan are also high which is also not suitable for investors as it raises the capital cost. He added there is a need for improving the taxation system, but did not offer pointers on how to go about this.
 
Board of Investment Secretary Samaira Nazir Siddiqui while addressing some of the myths regarding CPEC said that there are no preferential or additional benefits being provided to Chinese investors and not only investors from Pakistan and China but all over the world have same policies applicable to them and enjoy same incentives.
 
She said that nine sites have been selected for special economic zones (SEZ) and three of them are near completion.
 
Experts at the summit have also called for setting up a CPEC Advisory Council to clarify vision and policies and advise on how Pakistan can take maximum benefits from the project.
 
Dr Ishrat Husain, former governor State Bank of Pakistan, said that largest component of CPEC investment ie $35bn has been reserved for energy projects focused on fuel substitution to coal, LNG, solar and wind power.
 
“Power generation capacity will be doubled over the years while transmission capacity will increase from Matiari to Lahore and Matiari to Faisalabad transmission lines,” he said.
 
Enhancement in energy generation is good for exports which have been $36bn only as energy shortage is a major impediment, he said.
 
He said circular debt issue should be resolved on priority and is directly proportional to power generation and will give headaches when power generation increases if not countered by improving the performance of distribution companies to increase recovery.
 
Dr Ishrat said not only local but Chinese investors are also frustrated due to cumbersome approval processes and lack of departmental coordination which are not working in unison hence delaying the projects. The government must remove obstacles and simplify the processes not only to attract investments but to keep them focused on implementing their plans then to get mere paperwork done, he added.
 
Dr Ishrat said many local companies are worried that Chinese companies are being given preference over their Pakistani counterparts for industrial zones. “Their concerns should be addressed and a level playing field to Chinese and Pakistani investors should be provided,” he added.
 
Shaukat Tarin, chairman National Council of Economic Advisers, said Chinese universities should be encouraged to open campuses in Special Economic Zones that would help us train our youth on latest curriculum and technologies.
 
He said Pakistan must benefit from Chinese expertise in technological advancements like Artificial Intelligence, Robotics, and Big Data to ensure Pakistan does not fall behind as these are the technologies of the future.
 
Tarin said a Chinese bank in Gwadar should be opened to facilitate not only the Chinese companies but local companies also which are undertaking business activities in China.
 
Companies in Pakistan have a long-standing concern about infrastructure and security needed for industries to operate and thrive and the CPEC planners should address that, he suggested.
 
Dr Abdul Hafeez Sheikh, former federal finance minister, said that CPEC should be considered as a transformational exercise not just a mere transaction and should strengthen Pak-China relations which is possible only if it is implemented in the right way.
 
However, he warned that CPEC should not be taken as a substitute to sound economic management which is imperative for Pakistan. Moreover, Pakistan should not be entirely dependent on China if transformation is to happen, and use CPEC to lure in other countries also as hundreds of billions of US dollars are available beside the $50bn CPEC investments and the opportunities should be tapped strategically.
 
China’s per capita income now has increased to $9,000, from less than $300 four decades back whereas Pakistan could boost its per capita income to just $1,600 from $400.
 
Average annual GDP growth rate of China over last 40 years is almost 10pc which has not been achieved by any country. This was possible because China focused on leadership and team building, while also changing their policies to trade with every country, he added.
 
Pakistan on the other hand was mostly disturbed by war and conflicts in the region like Afghan war and the continuing war on terror which has hampered the country’s growth. Moreover, Pakistan does not like business with anybody and hardly any country likes to partner Pakistan. “Changes in government over the years have also led to change in policies thus hurting the country and investors’ confidence, Hafeez said.
 
Source: Dawn