BoI's reservations

Yes, the Board of Investments (BoI) did have its disagreements and reservations on China's approach to industrial cooperation, but that's water under the bridge after prime minister Imran Khan's successful visit to Pakistan's all-weather friend. This visit has injected a much-needed dose of clarity into various facets of ongoing economic cooperation that Beijing has been extending to Islamabad. A Business Recorder news report of November 3, 2018, had brought under sharper focus BoI's "serious" reservations that it had expressed vis-à-vis China's purportedly backing out of commitments on proposed industrial cooperation. The report had appeared at a time when Prime Minister (PM) Imran Khan was still in China receiving assurances from President Xi Jinping downwards of help for what the PM has described as a 'very difficult' economy. BoI's draft framework is to have focused on promoting Pakistan's industrial competitiveness through transfer of technology and market access. However, the proposed Memorandum of Understanding (MoU) for industrial cooperation by the Chinese side focuses on domestic demand in the Pakistani market. BoI is not opposed to relocation of industries from China to Pakistan. On the contrary, it is in the process of devising an additional incentives package for relocation of industries from abroad, and this point was given significant importance in the BoI's framework agreement. However, the relocation aspect is conspicuous by its absence from the Chinese MoU (implying reliance on more imports from China to meet domestic demand). The BoI's framework agreement was devised to bring more industrial sectors into the scope of industrial cooperation under the China Pakistan Economic Corridor (CPEC). The Chinese MoU however only supports cooperation in their preferred areas, i.e. iron, steel, textiles, petrochemicals, mines and minerals. A significant exclusion was that of agriculture and other industrial sectors agreed to in the long-term plan. A financing mechanism for specific projects was also proposed to achieve the goal of increased investment from China for improved industrial competitiveness of Pakistan, but has failed to find even mention in the Chinese MoU. As any student of economics and finance knows by now, Pakistan has a huge trade deficit with China, which the BoI sought to address through enhanced bilateral trade to narrow the trade gap. But this too has been excluded by the Chinese side. Nor does the Chinese MoU mention the proposed mechanism for cooperation in the agreed priority sectors. The framework agreement proposes enhancing Pakistan's industrial competitiveness through not only technology transfer, higher degree of access to the huge Chinese market, but also skill development and labour productivity. But the Chinese thrust seems more focused on meeting Pakistan's domestic market demand, exploration of the international market through industrial cooperation based on various Special Economic Zones (SEZs), attracting investment from world companies and promoting industry concentration in Pakistan. While the Chinese MoU does mention skill development and labour productivity, these aspects have been missing from the experience of Chinese entities' entry into Pakistan so far. Most if not all Chinese entities working in Pakistan overwhelmingly bring their own workforce to projects in Pakistan, with hardly any employment for local labour, let alone skill enhancement.
Perhaps one of the main reasons for these divergences to have emerged in the policy framework and implementation process of CPEC is the fact that since this massive project began, the bulk if not almost all Chinese entities entering the Pakistani economic firmament have not been state-owned but rather private companies, a phenomenon that has surged since China embraced capitalism some three and a half decades ago. Whereas state-owned enterprises function under the strict discipline of the Chinese Communist Party that sees Pakistan as an all-weather friend, the mushrooming private companies bring to the table a rougher culture of self-interest than Chinese state-owned entities and even private companies from round the globe. Our economic policymakers in particular must not lose sight of the fact that only a few CPEC projects enjoy Chinese government's lending against which the government of Pakistan has pledged sovereign guarantees. The recently-concluded visit of prime minister Imran Khan has underscored the need for the relevant ministry to instruct BoI to draft more carefully the contracts we sign with Chinese private companies so that the aspects discussed as missing from the Chinese proposals are addressed and clauses added where necessary to ensure cast-iron guarantees of performance, terms and conditions so that various complaints that have emerged so far of Chinese private companies not adhering to these can also be overcome. Niggling complaints regarding Chinese private companies' performance in Pakistan should not however distract from the strategic criticality of Chinese investment in our economy, not exactly a destination of first choice for global capital.