SPECIAL ECONOMIC ZONE IN THE MAKING

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Dec 5 - 11, 20
11

The first-ever Chinese overseas special economic zone (SEZ) is being established under the free trade agreement (FTA) between Pakistan and China at Kala Shah Kako near Lahore in Punjab.

It is also called China-Pakistan Economic Zone (CPEZ). The groundbreaking ceremony of the CPEZ was performed in December 2006 in the presence of Chinese President Hu Jintao and former prime minister of Pakistan Shaukat Aziz.

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 CPEZ, 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.

The under-construction CPEZ is the first Chinese industrial zone outside China in which leading Chinese groups would make investment and establish various projects.

In 2008, 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.

The proposed CPEZ would comprise an industrial park, a science and technology park, supply chain industry, a skill development centre, and a research and development centre.

The CPEZ is being established as a part of bilateral trade development plan between Pakistan and China.

The FTA facility, cooperation 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 goods manufactured in Chinese SEZ would have tariff-free entry into Chinese market, which would boost Pakistan's exports.

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 2006, Ruba and Haier signed a memorandum of understanding (MoU) to set up a Haier-Ruba zone.

Haier-Ruba joint venture will enjoy all the financial incentives designed for the economic zone.

Pakistan's board of investment (BOI) plans to establish its office in the CPEZ to provide "one window" facility to Chinese investors while provincial government will construct approach roads and other infrastructure. Under the incentives package for the joint venture, the service delivery to complete required processing/ procedures within the CPEZ will be provided at the doorstep of the investors.

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.

In the first year of its operations, Haier planned to generate employment opportunities to 600 individuals with potential to grow up to 1200 within the next five years. Furthermore, Haier plans to supplement income of 1000 to 1500 families providing indirect earning and employment possibilities.

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 DOLDRUMS

The Haier-Ruba zone is presently in doldrums over the issue of land acquisition and financing. The project has been considerably delayed on the issue of sharing cost of land, as Haier-Ruba has refused to buy 4218 acres of land from its own pocket.

Haier-Ruba has been insisting that land should be provided free of cost, or at subsidized rates. The government has proposed acquisition of about 3,000 acres of land in the name of federal government for development of economic zone for leasing out to Haier Ruba.

Federal government plans to buy land from the Punjab government through National Industrial Parks (NIPs), a wholly owned company of the Government of Pakistan, as if Haier-Ruba backs out, other investors should be invited to acquire land. In February 2009, it was decided by the federal government that NIPs would purchase approximately 4200 acres of land and develop it for use by Haier Ruba as a SEZ.

The country has also proposed separate industrial zones for Chinese investors in Lahore, Faisalabad and other industrial estates of Punjab with maximum facilities.

The land has already been provided for the establishment of separate industrial zones for Chinese investors in Chinese Industrial Park on Lahore-Rawalpindi Motorway, Lahore Sundar Industrial Estate and Faisalabad Industrial City. The Punjab government has taken special measures for the benefit of Chinese investors.

The government 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.

About 500 acres of land at M-III Industrial Estate in Faisalabad have been allocated for the Chinese investors. M-3 Industrial City will extend over more than 17.7 million square meters of prime land. It is strategically located on Motorway M-3 South near Faisalabad City, Faisalabad International Airport, Value Addition City, and Faisalabad dry port.

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 on which an investment of over Rs9 billion in connection with factories and the provision of infrastructure had been made by the end of 2006.

Last year, Teng Zhong Group of China agreed to set up an economic zone over 100,000 acres in Punjab to promote industrial activities and improve the standard of local products with the help of Chinese experience and technology. The Chinese group also proposed to separately set up Pak-China Economic and Technological Development Zone, Real Estate Economic Zone and Tourist Economic Zone in the province.

The chairman Teng Zhong Group of China signed an MoU with Punjab government under which the Chinese will set up an economic zone in the province.