Second Phase of CPEC and Protection of Local Industry

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Dr. Muhammad Munir and Ayesha Urooj

Imran Khan’s recent visit to China has been making quite a few headlines all over the media. There have been a lot of speculations as well as concerns surrounding the visit with development over aid, cooperation and development projects i.e. China-Pakistan Economic Corridor (CPEC). Pakistan-China relations have always stood to the test of time and flourished over the years. The newly elected Prime Minister Imran Khan paid his first visit to China from 2-5 November 2018. The agenda of the visit was to review the on-going projects of development between the two countries, discuss issues of mutual interest and solidify the friendly relationship between the two countries.  The highlight of Imran Khan’s visit to China was none other than the economic corridor projects between the two countries i.e. CPEC. In a joint statement issued by the two countries concluding the visit talked about developments over CPEC. It is important to note here that CPEC is near ending its first phase of development and entering its second phase. First phase of CPEC will be completed by the end of this year. The first phase of CPEC concentrated on building trade routes across the country and energy production.

According to the statement released by Ministry of Planning, Development and Reform; the completion of first phase of CPEC will augment 10,000 Megawatts of energy that will help to alleviate the energy crisis by the end of 2018. The statement further went on to conclude that the construction of trade routes across the country will link Chinese western provinces and the Gwadar Seaport in Pakistan. Industrial zones built in major cities of all provinces of Pakistan will be linked through corridors to the main industrial hubs. These economic corridors will provide fast and safe passage for trade and economic exchange for both countries.

The second phase of the CPEC project includes building economic zones and industrial estates across Pakistan to uplift industrial development and boost the economy. These include constructing special economic zones (SEZ) in Dhabeji, Faislabad, Rashakai, Hattar, Keti Bander and Sheikhupura. Furthermore, industrial estates will be built in Vehari, Chunia and Rahim Yar Khan. There has been not much debate about the consequences for already existing industry in Pakistan, after the installation of these economic zones and industrial estates, neither in parliament nor in media. The vagueness of policy about the impact of CPEC on local industry could bear serious consequences on the economic condition of the country in the long term to the extent that it could bring degradation rather than improvement on the economic challenges faced by the country.

The start of CPEC was marked by haste and was finalized without detailed homework. A little astonishing display of that haste will be the fact that Baluchistan is yet to submit its feasibility report over the second phase of CPEC. Both the governments in Pakistan and China changed before the second phase was initiated which brought about further changes and complexity to the execution of the project.

Building economic zones and industrial estates would cause an increase in imports from China to Pakistan in the form of raw material and machinery. No efforts had yet been made by the Pakistani policy makers to convince their Chinese counterparts to shift their industry to Pakistan utilizing local raw material and human resource. Considering the fact that Pakistan is facing a crisis with an expected trade deficit of more than $ 40 billion, an increase in imports will add to the predicament of the country’s fiscal situation. If China relocates some of its industry to Pakistan, this would give an instant boost to local exports without causing further dent in the trade deficit. It was very tactless of the Pakistan’s government to not think about the collaboration of local industry with the CPEC. The policy makers should make an effort to propose investment agreements where using of local raw material and human resource be given their due share in building the economic zones under second phase of CPEC.

The second phase of CPEC puts up a challenge for the policy makers to formulate an industrial policy that ensures the collaboration of local industry with the CPEC project. It would be prudent for the policy makers to devise a strategy that advises China to relocate its industry in Pakistan and help Pakistan produce high value exports. Another policy strategy that required immediate attention is the transfer of technology to the local industry. This will help bring innovation in the industrial sector. The government should also consider removing tariff and barriers over agriculture trade for the promotion of agriculture trade with China. It will help the local farmers if a policy is devised that could protect their rights and local agriculture and livestock sector in the context of new developments in CPEC.

Policy makers need to make practical decisions before the second phase can kick start. It would be more prudent for Pakistan to concentrate on industrial sectors that will help the local economy, for example, prioritizing textile over other industrial sectors. Similarly, the level of quality in industrial product should also be decided, for example, choosing between high-end goods or low-end goods manufacturing depending upon the export market and raw material.

Another important factor that requires immediate attention of the policy makers is human resource development. It is the most determining factor which is crucial to the success of economic development in any country. With all economic experts elaborating the benefits of CPEC, the topic of technical labor, executives and professionals has been neglected. Most of the policy makers have neglected the fact that without a pool of well-developed human resources, economy and citizens both won’t be able to reap the fruit of any economic development that is facilitated by CPEC. As per the prestigious Pakistani scientist, Atta-ur-Rehman, CPEC should be called “China-Pakistan Economic and Knowledge Corridor. Technical training programs should be set up at existing institutions and new institutions should be opened devoted to the cause to fully capitalize on the opportunities generated by the CPEC.

A positive outlook from Imran Khan’s recent visit to China is the interest of both countries in cooperation over agriculture sector in Pakistan. Agriculture has pivotal role to play in the economy of Pakistan as it contributes to over 21 percent of the current GDP and is supporting more than 45 percent of the country’s population. In a recent statement issued by the Prime Minister, he said that agriculture cooperation with China is a priority as the sector has been sitting stagnant for decades as far as the research and innovation is concerned. Pakistan has great opportunity to learn from Chinese research over gaining maximum yield per acre, pesticides and seeds. Additionally, the inclusion of agriculture associated resources such as livestock, water, bio-gas and fertilizers into developing economic zones and industrial zones would alleviate the grievances of farmers and improve their standard of living.

It is the need of the hour that newly elected government should encourage debate about CPEC, its policy details and how it will affect the local industry. Economic experts, civil society members, industry leaders and farmers associations should be consulted to allow the debate to evolve and local issues to be highlighted. Only then the vagueness about the consequences of CPEC over the economic situation of Pakistan could be cleared.

It is important to formulate a detailed industrial policy for the local sector in relation with the CPEC because these policies will have consequences in the long term for the local agriculture and industrial sector. Furthermore, a detailed industrial policy will help Pakistan capitalize on the opportunities presented by CPEC.

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