The Economic Co-ordination Committee of the Cabinet, in a major initiative to further bolster Pakistan-China economic relations, has approved an incentive-laden package for a 3,000-acre China-specific economic zone, to be established near Kala Shah Kaku interchange.
It will be one of the eight economic zones Beijing plans to set up across the world, and it will be the first such Chinese project in Pakistan. According to details announced by Dr Ashfaq Hasan Khan, Adviser to the Finance Ministry, the incentives to be exclusively offered to Chinese investors include tax exemption on import of equipment needed for setting up various industries as well as on import of accessories required for the zone. The federal government will arrange supply of electricity and water to the industrial zone, while the provincial government will construct approach roads.
Further, the Board of Investment will set up its offices within the economic zone precincts to provide one-window operational facilities to investors. A notable feature of the project is that the incentives announced by the government will be extended to Pakistan-China joint ventures as well. The zone is being set up as a follow-up to the five-year trade development plan Pakistan and China had signed last year.
A dry port will also be set up in the zone in order to facilitate imports and exports. According to preliminary projections, the Chinese exports to Pakistan will zoom to $15 billion, while Pakistan's exports to China too will be increased to $15 billion.
In this way a parity of sorts will be established in the Pakistan-China trade relationship, which will benefit both the countries. In another major initiative, the ECC has approved construction, by the Civil Aviation Authority, of a new Gwadar Airport on 4,300 acres of land, on a turnkey basis at a cost of $70 million. The airport will help make Gwadar a major trading hub in the region.
Allowing the establishment of a China-specific economic zone is reflective of Pakistan's wish to further strengthen its critical economic linkages with the neighbouring giant. Pakistan has been fairly successful in its attempts to transform its economic relations with China from a patron-client equation to a more balanced partnership. Thanks to joint efforts, the bilateral trade between the two countries steadily increased, with a 35 percent rise to $2.4 billion in 2003.
Although the trade imbalance has since been further rectified, the balance remains overwhelmingly in China's favour, whose exports to Pakistan amounted to $1.8 billion, compared to Pakistan's $575 million a couple of years ago. Though quite large, the gap has since been narrowed down considerably, and will be further bridged with the establishment of the China-specific economic zone at Kala Shah Kaku. Under the terms of Free Trade Agreement, Pakistan can export 777 items to China while China can export 217 items to Pakistan.
In 2005 over 70 percent of Pakistan's exports to China were cotton yarn or cotton fabric, and the rest were leather products, minerals and seafood. China's main exports to Pakistan include machinery, technical equipment, chemicals, electronics and footwear. Aside from a growing bilateral trade, approximately 60 Chinese companies have invested heavily in Pakistan, mainly in public sector utilities and infrastructure sector such as mining, telecommunications and energy. Incidentally, the federal government has pledged to ensure power and water supply to the proposed economic zone. However, with the existing crunch in both our water and power sectors, will it be possible for the federal government to meet the requirements of the newly established economic zone? The government should immediately start planning on these lines.
The ECC's move to approve incentive-laden package for the proposed Chinese economic zone can impart a powerful boost to Pakistan's industrial productivity and economic progress.
The government has done well to provide for one-window operational facilities on the premises of the proposed zone. This will not only help cut down the bureaucratic red tape; but will also save the prospective Chinese and local investors from needless harassment. Bureaucratic corruption, sloth and obstructionism have been the major factors in impeding the flow of FDI into Pakistan. The government should ensure greater efficiency in implementation of foreign-aided projects, and also allow the establishment of more such zones in the country.