CHINA'S FIRST-EVER OVERSEAS SPECIAL ECONOMIC ZONE IN PAKISTAN

SYED FAZL-E-HAIDER
July 21 - 27, 2008

Pakistan Prime Minister Syed Yousuf Raza Gilani has vowed to extend all possible help to establish the first-ever Chinese overseas special economic zone (SEZ) at Kala Shah Kako, near Lahore in Pakistan. The establishment of the Chinese overseas SEZ would go a long way in facilitating Chinese investment in the south Asian country. Nearly two dozen Chinese companies have already committed to invest in the proposed SEZ, which is exclusively being established for Chinese investors and Pak-China joint ventures. The joint venture of Ruba Group of Pakistan and Haier Group of China has already brought in an initial investment of $35 million.

In a recent meeting with officials of Chinese Haier Group, and Pakistani Ruba Group, the Prime Minister Gilani said the government would encourage more joint ventures to promote economic cooperation between the two countries. The special economic zone is being established under the Free Trade Agreement (FTA) between Pakistan and China and all goods manufactured in this zone have tariff-free entry into Chinese market which would boost country's exports. The proposed SEZ would comprise an industrial park, a science and technology park, supply chain industry, a skill development centre and a research and development centre.

Free Trade Agreement, Co-operation Agreement and establishment of Pak-China Joint Investment Company (PCJIC) between Pakistan and China has actually paved way for further strengthening the existing trade between the two countries. The Chinese SEZ is being established as a part of bilateral trade development plan in which bilateral trade between Pakistan and China will be enhanced to US $ 15 billion in five years. Recently established with paid up capital of $200 million (equally shared by both sides), the PCJIC will play the role of a bridge between Pakistani and Chinese entrepreneurs and help boost economic activities in Pakistan. It would facilitate investors for setting up joint ventures in various fields.

The under-construction SEZ is the first Chinese industrial zone outside China in which leading Chinese groups would make investment and establish various projects. Last year, the Metallurgical Construction Corporation (MCC) of China joined the Pakistani market with a capital of about $20 billion, the MCC's first and biggest overseas investment. The projects or joint ventures can be set up in the zone by the Chinese, Pakistanis and investors from other countries in accordance with the Pakistan's investment policy. Last year, the Ruba and Haier had signed a memorandum of understanding (MoU) to set up a Haier-Ruba Economic-Industrial Development Zone. The service delivery to complete required processing/procedures within the Chinese SEZ will be provided at the doorstep of the investors. Pakistan's Board of Investment (BOI) plans to establish its office in the SEZ to provide "one window" facility to Chinese investors while provincial government will construct approach roads and other infrastructure.

Haier-Ruba joint venture will enjoy all the financial incentives designed for the economic zone. Haier, the China's largest home appliance-maker, entered Pakistan with an initial investment of about US$35 million to create a joint venture, called Haier Pakistan, with Ruba General Trading Company. The Haier Pakistan plant is expected to produce 900,000 pieces of household appliances per year, with plans to export to the Middle East and Asia. As the 5th largest producer of home appliances in the world, Haier brought its global expertise to work for Pakistan market. The company's plant in Pakistan spreads over a vast area of 63 acres with a covered area of 0.6 million square feet including a workers' colony in Lahore. In the first year of its operations, Haier will generate employment opportunities to 600 individuals with potential to grow up to 1200 within the next 5 years. Furthermore, Haier will supplement income of 1000 to 1500 families providing indirect earning and employment possibilities.

Former government of Prime Minister Shaukat Aziz had announced a special package, which included a five-year tax holiday for the projects in the CPEZ from the date of starting commercial operations. The import of plant, machinery, equipment and accessories for Zone development and projects in the zone were fully exempted from duties and taxes. Moreover, existing initial depreciation allowance of 50 percent was to be enhanced to 100 percent. The normal incentives for exports as available to projects established anywhere in the country were made applicable to exports from the projects in the zone.

In November 2006, the Chinese President Hu Jintao at the inauguration ceremony of the Pakistan Haier-Ruba Economic Zone had remarked, "the Haier-Ruba Economic Zone is among the first overseas industrial zones established by China. It is not only the largest production base of home appliances in Pakistan, but also the first industrial zone jointly set up by China and Pakistan. In just four years, Haier (Pakistan), as a Chinese-Pakistani joint venture, has achieved impressive results by producing quality and innovative products. The company is the largest air-conditioner producer, the second largest washing machine producer and the third largest producer of refrigerators in Pakistan. Haier is becoming a household name in Pakistan".

The Chinese investment has witnessed an increase in the different industrial estates of Punjab province over the last three years. Pakistan has proposed separate industrial zones for Chinese investors in Lahore, Faisalabad and other industrial estates of the biggest Pakistani province of Punjab with maximum facilities. The land has already been provided for the establishment of separate industrial zone for Chinese investors in Chinese Industrial Park on Lahore-Rawalpindi Motorway, Lahore Sundar Industrial Estate and Faisalabad Industrial City. The government has allocated 500 acres of land for the establishment of industrial zones by Chinese investors in Faisalabad Industrial City where China National Power Company is also setting up a power plant. The work on the M-III Industrial Estate in Faisalabad is also in progress in which the Chinese plan to invest $200 million. The industrial estate will spread over 4,500 acres. About 500 acres of land at M-III Industrial Estate in Faisalabad have been allocated for the Chinese investors. Similarly, a separate industrial zone has also been proposed for Chinese investors in Lahore Sundar Industrial Estate, which has been established on an area of 1,600 acres of land.