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Huge CPEC initiative set to enlarge Pakistan’s economy

At least 40 projects have been identified under the $47 billion China-Pakistan Economic Corridor (CPEC) framework. Pakistan recorded a gross domestic product growth of 4.7 percent in the last fiscal year that ended in June 2016, and the country’s economy is predicted to expand by 5 percent. Pakistan’s security situation has improved in recent years after the Army has driven out militants and organized crime. The Overseas Investors Chamber of Commerce & Industry conducted a security-related survey of its members last June that showed 90 percent of respondents perceived general threats to business to have declined since August 2013.

China is helping fund of total $51 billion worth of projects, including ports, power plants and highways, under the China-Pakistan Economic Corridor (CPEC) framework. The successful completion of the International Monetary Fund’s loan program has also allowed Pakistan to restore the confidence of international investors. The number of foreign companies doing business in Pakistan has increased.

The biggest foreign investment in Pakistan is through China-Pakistan Economic Corridor, a China-led initiative to build roads, railroads and energy infrastructure across Pakistan. More than 40 projects have been identified under the CPEC framework while some other projects are already underway. They include building coal-fired power plants at Port Qasim in the suburbs of Karachi and near the Thar coal mines in southeastern Pakistan, as well as extending and upgrading railroads and highways.

More than $35 billion of the CPEC investment will be allocated to energy projects. Power generation projects will help Pakistan overcome its impaired power shortages. China acknowledges that the CPEC initiative will help secure the speediest trade route connecting the country’s western Xinjiang region and other landlocked areas to the Arabian Sea, which could facilitate economic development in the Chinese hinterland. The infrastructure development initiative will also allow China to lessen the problem of overcapacity at home by exporting materials and equipment to Pakistan. Power plant, an airport and highways and other facilities particularly around the port of Gwadar on the southwestern coast of Pakistan, is important for China as it provides the country easy access to the sea.

China’s state-run industrial companies, such as Sinohydro and China Machinery Engineering Corp, have been assigned roles as investors in individual CPEC projects and as infrastructure developers. CPEC is anticipated to increase further as new projects, such as improvement of mass transit systems in major cities like Karachi and Peshawar, are proposed.

A Chinese-led consortium decided to take a 40 percent important stake in the Pakistan Stock Exchange, and Shanghai Electric Power acquired a controlling stake in Pakistani utility K-Electric. A Chinese company is said to have expressed interest in buying the state-run Pakistan Steel Mills. Chinese companies are in talks to grab more businesses and land in Pakistan after sealing two major deals. China’s steel giant Baosteel Group is in talks over a 30-year lease for state-run Pakistan Steel Mills.

Some Pakistan’s biggest firms say that Chinese companies were looking mainly at the cement, steel, energy and textile sectors. The interest shows Chinese firms are using Beijing’s ‘One Belt, One Road’ project. Pakistan is a key part to help expand abroad at a time when growth has slowed at home.

The Chinese are looking for major investment in Pakistan. Muhammad Ali Tabba, chief executive of two companies in the Yunus Brothers Group said it is eyeing up other joint ventures as part of a 2 billion expansion plan over the coming years.

The Chinese charge is in contrast to Western investors, who have largely avoided Pakistan in recent years despite fewer militant attacks and economic growth near 5 percent. Foreign direct investment was $1.9 billion in 2015-2016, far below the 2007/2008 peak of $5.4 billion.

At the stock exchange signing ceremony, Sun Weidong, China’s ambassador to Pakistan, said the deal “embodies the ongoing financial integration” between Chinese and Pakistani markets.”This will facilitate more financial support for our enterprises,” Sun said.

CPEC will connect China’s Western region with Pakistan’s Arabian Sea port of Gwadar through a network of rail, road and pipeline projects. This will be funded by loans from China, and much of the business will go to Chinese enterprises.

In Karachi, Pakistan’s financial center, Chinese appear to outnumber Westerners in hotels, restaurants and the city’s airport.

Skyscrapers confirm to a construction boom in the city, businesses are printing Chinese-language brochures and salaries demanded by Pakistanis who speak Chinese have heightened.

Chinese companies were interested in investing in the telecoms and auto sectors, with FAW Group and Foton Motor Group planning to enter Pakistan.FAW said the Pakistan project is going through internal approvals.

Doing business may not be easy for some. Security remains a concern despite a drop in Islamist militant violence, and in the World Bank’s ease of doing business index, Pakistan ranks 144 out of 190 countries. Pakistani technocrats are drafting plans for special economic zones which would offer tax breaks and other benefits to Chinese businesses.

Oxon was in talks with two state-run Chinese companies and a wealthy Chinese businessman to purchase and develop land for high-end residential and commercial properties. They are seeking land in prime markets such as Lahore, Karachi, and Islamabad.

Yunus Brothers’ Tabba urged Western investors to overcome their ‘phobia’ of Pakistan.

$700 million of the $1.1 billion spent on CPEC-related projects in the July-September period last year was financed by loans from the China Development Bank. The amount is mainly earmarked for importing materials and equipment from China, which are needed to complete the projects.

Pakistani intellectuals have voiced concern over the country’s rising debt obligations to China. Chinese companies typically bring their own engineers and workers in large numbers to do work in Pakistan. Companies from Germany, Denmark and Saudi Arabia are also showing interest. The CPEC projects are a high priority for Chinese companies because they can expect good returns. Even though the Chinese economy is slowing down, the companies still have huge cash reserves.

Many Japanese companies also think the best thing to do now is to take advantage of Chinese-built infrastructure in Pakistan to expand their own business. Pakistan is becoming the next big emerging market by gradually leaving out terrorism and corruption. Beijing is set to invest more than $55 billion, building power plants, roads and railways to give its infrastructure a much-needed upgrade as it seeks to emerge from years of political instability.

Estimates from the Pakistan Business Council suggest the projects could account for 20 percent of the country’s GDP over the next five years and boost growth by about 3 percentage points. Pakistan’s policymakers also hope the relationship last month provided more than $1 billion loans to help Islamabad stave off a currency crisis — will insulate it from the possibility that China will use its investments as a way to grab resources, profits and political power from its smaller, poorer neighbour.

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