Latest news reports indicate that the Chinese businesses aim to move labour-intensive industries like textiles to Pakistan to benefit from lower manufacturing costs. The Express Tribune reported that Beijing is moving its industrial units outside of national borders to remove the “Made in China” label from a variety of products in an effort to regain US markets. Pakistan may, however, still welcome some Chinese industries as well as foreign investment from other global locations.
The study highlights roadblocks in Pakistan such as law and order, labour productivity, and failure to attract Chinese industries. Many Chinese industries have instead moved to Cambodia, Laos, and even Ethiopia, despite the fact that these countries have higher labour costs and smaller populations than Pakistan. A business policy platform, Pakistan Business Council (PBC), published a detailed study named “Catalysing Private Investment in Pakistan: Leveraging Chinese Investment in CPEC” in May 2022 to emphasise the barriers to foreign investment in Pakistan, reported The Express Tribune.
According to the PBC study, its goal is to give policymakers advice on how to address the basic problems that have led to low investment in Pakistan. In addition to highlighting the challenges faced by Chinese investment under the China-Pakistan Economic Corridor (CPEC) framework, it compares key metrics with Pakistan’s peer economies. The paper identifies several significant problems that Pakistani investors face. These include the political risk that prevents long-term investment, a business-unfriendly tax and regulatory system, low labour productivity, weak intellectual property rights, uncompetitive energy prices, high logistic costs, and limited comparative advantage in accessing external markets through bilateral or regional trade agreements, among others.
According to the study, Chinese manufacturers have reportedly relocated some of their production abroad in order to escape the “Made in China” designation, particularly to Southeast Asian nations including Vietnam, Thailand, Indonesia, and Malaysia, according to The Express Tribune. Smaller nations in the region, including Cambodia and Laos, appear to have benefited from sizable inflows of Chinese FDI. In comparison to the spike in investment in peer nations, the flow of FDI into Pakistan has remained modest as a proportion of its gross domestic product (GDP) and in relation to the size of its market.
- Advertisement -
In contrast to Laos ($5.1 billion), Cambodia ($3.6 billion), and Vietnam ($5.5 billion), Pakistan got FDI totalling USD 1.8 billion in 2020.The survey found that Bangladesh received less FDI, at USD 1.5 billion.
The labour productivity in Pakistan has been declining for a considerable amount of time. In comparison to Bangladesh, Cambodia, and Laos, it is now lower. The productivity level is far lower when compared to China and Vietnam. Additionally, the nation lacks the allure to attract high-potential investors to use it as a platform for regional production. Pakistan is falling behind its peer countries in several investment-related metrics, and the gap has grown over time.
Progress of China–Pakistan Economic Corridor
Earlier this year Pakistan signed a new agreement with China in order to start the second phase of the USD 60 billion China-Pakistan Economic Corridor. Pakistan had talked about including the Taliban-run Afghanistan in the massive infrastructure initiative known as the China-Pakistan Economic Corridor (CPEC). The development and industrialization of Special Economic Zones (SEZs) is the main focus of the second phase.
CPEC is a 3,000 km network of infrastructure projects linking the Gwadar Port in Pakistan’s western region of Balochistan with the Xinjiang Uygur Autonomous Region in northwest China. It is a bilateral initiative between Pakistan and China that aims to improve connectivity throughout Pakistan by building a network of roads, railroads, and pipelines along with other infrastructure development initiatives in the energy, industrial, and other sectors.
Pakistani exports to the US and UAE two of the top three trading partners of both nations compete directly with those of India in the textile and construction material sectors. Pakistan will be well-positioned to overtake India as the region’s export market leader in these areas as the supply of raw materials from China becomes more straightforward.
Negative impact of CPEC
The China-Pakistan Economic Corridor, or CPEC, was hailed by Pakistan as a game-changer for the faltering economy of the nation, but the reality is that Chinese megaprojects are having a negative impact on the environment of Gilgit-Baltistan, causing uncontrollable pollution and irreversible depletion of aquatic ecosystems. Mega-dams, oil and gas pipelines, and the extraction of uranium and heavy metals in Gilgit-Baltistan are all projects that Pakistan and China are starting to collaborate on under the CPEC banner.
According to Global Order, Gilgit-Baltistan also supplies more than half of the water it uses for irrigation and drinking to large-scale projects in Pakistan and China, but these projects are having a negative impact on the region’s climate, causing uncontrollable pollution and irreversible depletion of aquatic ecosystems. The main cause of the recent glacial lake breach in Pakistan’s Hasanabad, which washed away homes and destroyed a significant bridge on the Karakoram Highway, is climate change.