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‘CPEC is not a gift’: Professor Jia Yu at the CPEC 2018 Summit

Pakistan should not take CPEC for granted, writes Dr. Jia Yu. Both public and private sectors must take ownership of the opportunities.

 

The economic relations between the two countries have been phenomenal, especially since the turn of the century. Early economic cooperation was based on political and security interests, like Karakoram Highway, nuclear capability, arms trade etc. Also, it was focussed on energy and mining, but there is now a need for diversification. Pakistan has to take advantage of China’s rise on the global scene. There is a tendency towards having even better economic relations based on market forces and there is a lot of under-exploited potentials.

When it comes to win-win cooperation, of course, there is a lot at stake for both countries. Pakistan’s interests lie in promoting growth, private sector investment, employment, exports, technology and transfer of skills as well as in the relocation of Chinese firms. China’s interests lie in overseas production bases, new export markets, energy cooperation, and its need for production capacity relocation.

A successful execution of CPEC will ensure economic progress and stability for both the countries, particularly along the border region.

The two countries signed the FTA in 2006 which came into effect a year later. The FTAs play a major role in the general tendency of increasing trade. Surprisingly, the trade has been relatively low compared to the other neighbors (India, Vietnam, Philippines etc.). And there is a large and widening trade imbalance that needs to be worked on.

There has been a considerable increase in FDI since 2014 which is a positive sign for both China and Pakistan. The main FDI sectors by priority are: power, construction, financial services, and communication. There is, however, very little FDI in the light manufacturing sector.

The Belt and Road Initiative (BRI) is a $900 billion investment, with finance channels targeting green development. It connects more than 60 countries, 60pc of the global population, 30pc of global GDP, and 35pc of global trade.

CPEC, a central link of BRI, cuts 10,000 miles of shipping by sea, and connects ports from Shanghai to Africa and Europe through Gwadar.

PAKISTAN AND CPEC

If things work out smoothly, Pakistan could use the FDI in its power and transport infrastructure and then in the manufacturing sector with the experience of leveraging SEZs to unlock this trio’s potential for rapid gains in job-rich industrialization. This can be done without unrealistic pre-requirements as the work to lay the foundations for industrialization has already begun.

The potentials are outlined below along with policy options needed to convert them into actions. At a regional level, Pakistan has been growing steadily in terms of GDP per capita since 2010, according to the World Bank. Investors are very keen to a growing economy. Consistent growth of purchasing power (GDP per capita) really matters for domestic consumption; therefore the growth rate must be maintained to catch up with competitors.

Pakistan is one of the world’s largest reservoirs of human capital and has a tremendous potential consumer base. In 2016, the country was home to 193,203,476 people, being the world’s 6th most populous country. World Economic Forum estimates that it will be among the top five populous countries in the world by 2060.

However, a large population is necessary but not sufficient to attract investors. The population has to be equipped with adequate skills to meet industrialization needs. An effort is also needed to attract global buyers.

Thirdly, China and Pakistan have long hailed each other as “all-weather friends”, or “iron brothers” as close as “lips and teeth” in the words of The Economist. There is already solid trust between the two countries, but the Pakistani officials need to visit China more often to convince the private investors for investment opportunities in Pakistan.

The CPEC will improve road, air, sea, and energy infrastructure. It will ensure land, sea and air security. It will enhance trade and investment facilitation and will establish free trade areas that meet high standards, maintain closer economic ties, and deepen political trust. Also, it will enhance cultural exchanges and promote mutual understanding, peace, and friendship between the people of the two countries.

Having said that, the CPEC should not be considered just a ‘gift’ from China, but the Pakistani government should also establish an FDI Advisory Board that shall promote the new image of the country. This includes visiting China more often and ensuring that investors understand the opportunities and benefits available under the CPEC.

Besides, according to the State Bank of Pakistan in November 2017, the country received net FDI worth $207 million out of which $206 million came from China. Potential investors pay significant attention to first movers, other Chinese investors may follow and eventually stay in Pakistan if the government helps the pioneers to be successful.

In terms of binding constraints, a study case of Malaysia estimates that FDI can effectively contribute to growth if it is at least 3.14pc of GDP. Pakistan should be able to compete. This requires overcoming the binding constraints by addressing security issues and risks, hard infrastructure challenges, especially SEZ-specific constraints like energy, roads to SEZs etc. Soft infrastructure challenges include corruption, rule of the law, coordination among institutions, inadequate capacity and cultural biases. Absorption capacity can be adjusted by setting yearly realistic targets of FDI amount.

There are six steps to identify the right industries, as narrated by Prof. Justin Lin. They include identifying countries with consistent growth, with GDP per capita three times as Pakistan’s or was at the same level as Pakistan 30 years ago.

Next comes investigating the existing private investment in those target industries and encourage its development by leasing the market regulations. Attracting global investors into the target industries which lack existing domestic private investment is the third step, followed by paying attention to new enterprises and supporting innovation in the target industries.

Establishing and developing SEZs to eliminate entering barriers, attracting foreign investment, and encouraging industrial cluster. And, finally, providing policy incentives for the first movers, including tax reduction, foreign exchange access, etc.

THE WAY FORWARD

Development can start from ‘low-hanging fruit’ through SEZs. The government should attract first movers to invest and help the pioneers succeed.

CPEC should not be taken for granted. A proactive and systematic approach is needed for attracting investors, together with strong market factors.

Despite long-term and solid trust at the government level, more mutual dialogues and exchanges need to be enhanced in the private sector. Let the peoples get to understand each other.

CPEC and SEZs are open for all investors, including those from other countries beyond China.

The writer is a professor at the Institute of New Structural Economics (INSE), Peking University, China.

SOURCE: https://www.dawn.com/news/1409721

 

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China signs deals worth USD 390 bn with ‘Belt and Road’ countries

China has inked trade deals worth USD 390 billion with the countries participating in its ambitious Belt and Road Initiative in the first four months of this year, the Chinese Ministry of Commerce has said.

China has inked trade deals worth USD 390 billion with the countries participating in its ambitious Belt and Road Initiative in the first four months of this year, the Chinese Ministry of Commerce has said.

The Belt and Road Initiative (BRI), a pet initiative of Chinese President Xi Jinping was proposed in 2013, and five years on, over 100 countries and international organisations have supported and got involved in this initiative.

The BRI aims to build trade and infrastructure networks connecting economies around the globe along the ancient Silk Route.

 “China and countries participating in the Belt and Road Initiative inked trade deals worth USD 389.1 billion in the first four months. It represented a growth of 19.2 per cent year on year,” Commerce ministry spokesperson, Gao Feng was quoted as saying by state-run Xinhua in a Global Times report.
 China’s non-financial investment in those countries increased 17.3 per cent from the same period a year ago to USD 4.67 billion, the spokesperson said, adding that business volume of outbound contract projects came in at USD 24.2 billion, up 27.7 per cent year on year.

China held the first round of free trade agreement (FTA) negotiations with Mauritius and the second round of FTA talks with Pakistan. It also signed an economic and trade cooperation pact with the Eurasian Economic Union. The FTA reached between China and Georgia has become effective.

“Construction of major projects have progressed well with a range of railways and infrastructures going smoothly,” Gao said.

By the end of April, China had built 75 economic and trade cooperation zones along the Belt and Road countries with accumulated investment of USD 25.5 billion, the report said.

More than 3,800 companies have joined the cooperation zones, paying nearly $1.7 billion in tax revenue and generating nearly 220,000 jobs, it said.

Pakistan-China Free Trade Agreement (FTA) on verge of finalization

ISLAMABAD: Rising disparity in bilateral trade and revenue losses will be witnessed as both Pakistan and China have reached an agreement to offer zero percent duty on 70 percent tariff lines to each other under the revised Free Trade Agreement (FTA).

A senior official aware of the developments revealed Pakistan and China are expected to sign a deal soon, reported Dawn.

The effort from Pakistan to get unilateral concessions from China failed as China showed reluctance to open its market unilaterally and demanded similar compromises from Islamabad.

This will add to Pakistan’s woes, as it will be divested from customs duty collections. Pakistan suffered losses of Rs32 billion in FY 2016-17 due to duty exemption on imports from China.

Pakistan’s revenue losses could double in case of provision of further exempt duty on imports considering the government is facing challenges on budget deficit front.

In a high-level meeting conducted on Thursday in Commerce Division, all the relevant parties were apprised regarding the details of the deals.

This understanding between the two sides was reached recently in 9th round of negotiations on China-Pakistan Free Trade Agreement (FTA) in Beijing recently.

The source shared China agreed to requite zero percent duty on 70 percent tariff lines under the second phase.

According to the suggested plan, Pakistan would decrease customs duty to zero percent on 70 percent tariff lines over 15 years, while China would reciprocate the same to it in five years’ time.

Although, the source stated the timelines weren’t finalized and will be debated further.

A written query has been forwarded to the Commerce Division regarding exact number of tariff lines to be offered for duty decreases.

Mohammad Ashraf, Commerce Division Spokesman stated that talks were still being conducted and details would be provided at a relevant time.

The source told Pakistan had been able to safeguard its interest by getting more items of its interest added in the suggested deal.

As per this suggested agreement, China would provide 90 percent tariff lines in value terms of Pakistan’s total exports for duty decrease.

And Pakistan would provide 60 percent tariff lines of total Chinese exports value to the country.

The source added that Pakistan had provided no assurance on levying of regulatory duties on items which come under purview of the FTA.

Source: https://profit.pakistantoday.com.pk/2018/03/17/pakistan-china-fta-on-verge-of-finalization/

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China agrees to accommodate Pakistan’s concerns on FTA

ISLAMABAD: During the 9th round of negotiations on China Pakistan Free Trade Agreement (FTA), the Pakistan delegation led by Commerce Secretary Mohammad Younus Dagha presented the demands of Pakistani exporters and industries for accommodating in the final draft of the CPFTA.

According to official sources, the demands included those from exporters to provide tariff concessions equivalent to the ASEAN countries. On the other hand, various industries and chambers had provided input to the Ministry of Commerce during pre-negotiations consultations, for protection of the local industry from Chinese imports by disallowing tariff concessions on several products.

Dagha also suggested incorporating clauses for safeguarding the industries and the economy from any undue pressure on the balance of payments position.

The Chinese side was led by Peoples Republic of China Ministry of Commerce Vice Minister Wang Shouwen and comprised of 16 officials of various Chinese ministries.

After intense negotiations for two days, the Chinese side agreed to accommodate these concerns and demands in the amended FTA which is expected to be signed in March when the Chinese vice minister will visit Islamabad along with his delegation.

It may be mentioned that these negotiations had started in 2012 to finalise the revised version of CPFTA.

Source: https://profit.pakistantoday.com.pk/2018/02/08/china-agrees-to-accommodate-pakistans-concerns-on-fta/

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Pakistan demands relaxed tariffs from China under ASEAN

ISLAMABAD: As Pakistan and China are going to hold another round of talks on revising Free Trade Agreement (FTA) next month, Pakistan has demanded relaxed tariff of Association of Southeast Asian Nations (ASEAN) from China to relatively balance bilateral trade.

China will extend every support to Pakistan treating it as a friendly and neighbouring country. We can give maximum relaxation on trade but to the extent of what the market allows,” Chinese ambassador to Pakistan Yao Jing said while addressing a news conference along with Minister for Commerce and Textile Industry Pervaiz Malik here on Tuesday. The envoy said Pakistan as a neighbour, definitely occupies a special position in China’s policy, adding that China will do whatever is required to promote Pakistan’s exports.

“The difficulty we face is to identify items to be imported from Pakistan. This is why I suggest Pakistani exporters to visit China for exploring its commodity markets. Similarly, China will like to send purchasing delegations to identify more items for the bilateral trade,” he further added.

“China will love to buy Pakistani products and will endorse whatever competitive products Pakistan introduces in the Chinese markets,” he said.

The Chinese ambassador said that “This year Pakistan and China will hold another round of FTA. I understand that there are concerns from private sector and manufacturers on Pakistan’s side on the FTA. China considers Pakistan a special partner and it will never like to damage its industry through this kind of bilateral agreement. Our intention is to have a more convenient and facilitating mechanism of bilateral trade. We want to encourage and facilitate trade cooperation on principles of following Pakistan’s convenience, concerns and satisfying its requirements.”

Yao Jing informed that he had discussed with the Commerce Minister some ideas to ‘ease and relax’ visa mechanism for Pakistani businessmen especially exporters so that they can have a better understanding about trade opportunities in China.

He further informed that the Chinese embassy and counsellor generals would have regular meetings with the Ministry of Commerce to encourage all exporters and businessmen to further strengthen the bilateral trade.

Answering a question, the envoy assured that the Chinese government would accommodate and extend maximum concessions possible to Pakistani products under the FTA.

The envoy said that in the long term, China will support Pakistan establish special economic zones which would help increase Pakistan’s capacity to manufacture quality products for export to international markets.

He also sought specific suggestions from Pakistan to attract Chinese manufactures to invest in Pakistan’s industrial sector.

Replying to a question, the Commerce Secretary Muhammad Younus Dhaga said that the last round of the FTA held in Beijing was very positive as the issues highlighted by Pakistan were taken well by the Chinese side. He said Pakistan has demanded the relaxation of tariff on a number of items as per the treatment given to ASEAN members by China.

Meanwhile, Chinese ambassador invited Pakistan to attend a six-day international ‘Import Expo’ scheduled to be held at its National Exhibition and Convention Centre, Shanghai from November 5 to 10 this year.

Source: Pakistan Today, 23rd January 2018.