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Measures to Safeguard Local Businesses of Pakistan from CPEC

× May 3, 2018

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As a Business Consultant, it is my observation that CPEC is creating threats for local businesses of Pakistan. It is a fear that it won’t be a win-win situation for both countries. Since Chinese companies are tax-exempt they will bring everything from China and hence they will have no reliance on Pakistani businesses to fulfill their demands. The Chinese, with their massive exporting capacity usually dominate bilateral trade with every country including India and the US. India imports five times as much as its exports to China. In Pakistan the CPEC would make it easier for China to move its goods in an endless traffic from its relatively underdeveloped western province. However, the trucks and other vehicles heading from Pakistan to China would have very little to carry by way of exports, say observers. Further, CPEC would bring the 40/50 million strong Pakistan middle class within close reach of the Chinese manufacturers.

By keeping in view the above situation, following are some of the suggestions for policy makers to safeguard Local Businesses of Pakistan from CPEC;

1. Tax Exemptions and Subsidies not only for Special Economic Zones (SEZs)
We are in the second phase of CPEC initiative: Special Economic Zones (SEZs). Pakistani Manufacturers can take advantage of investments in these zones if government of Pakistan ensures that whatever benefits are given in these industrial zones are available to everybody. Moreover, these benefits should be devised in such a way that these don’t put industries outsides these SEZs at a disadvantage. The existing industries at Landhi or SITE area in Karachi or in Faisalabad should not suffer because of the SEZs being created under the CPEC cooperation. The Pakistan Business Council (PBC) has also urged economic managers to ensure that the existing industry is not undermined by Special Economic Zones (SEZs) being set up under the China-Pakistan Economic Corridor (CPEC).

2. Smuggling-Free Corridor
Referring to the experience with the Afghan transit trade that involved “leakages” now repeating the same mistakes in the transit of Chinese goods can wipe off many domestic industries. Therefore, the China-Pakistan Economic Corridor must be made a ‘smuggling-free corridor’ and must not fall to illegal imports and under-invoicing as observed under the Afghan Transit Trade route. Strong security system to monitor exchange of goods via the CPEC route must be established.

3. Safeguarding Local Industries
Government of Pakistan is overly optimistic about CPEC and its potential benefits, but the local goods manufacturers, and industry appeared to be seriously concerned about their future. The textile industry, for instance, feared a glut of textile goods from the Chinese region of Xinjiang that may ruin textile businesses of Pakistan. Therefore, policy makers must safeguard major industries of Pakistan like Textile, Retail, Construction, and Cement in a way that policy must not allow those Chinese industries to operate in Pakistan, in which Pakistani businesses are already doing well. Further, policy makers must especially develop policy to save the textile sector of Pakistan, as Pakistan Bureau of Statistics (PBS) data showed that textile industry, which accounts for over 60 percent of the country’s exports, fetched $5.12 billion in export revenue during the year 2017/18.

4. Labor Development & Management
In the context of CPEC, policymakers should consider the labor factor. First, stipulate a minimum level of domestic labor for all industrial initiatives. Second, create a model that improves working conditions and thereby workers’ productivity. Third, ensure that all industrial zones and joint projects automatically include training facilities, with a minimum proportion of these devoted to training women. Fourth, make it mandatory for all industrial zones and joint projects to provide their workers with insurance benefits. In doing so, CPEC could revolutionize a new model of labor in Pakistan.

5. Promote Joint Ventures
Pakistani businesses find the Chinese too mechanical and rigid to deal with. Pakistani companies in joint ventures with Chinese reported a lack of warmth in partners. “Unlike the business partners of the Middle East, the Far Eastern regions, Japan, Europe and America, the Chinese are just keen to complete the project on hand. They don’t seem to care about capitalizing on subsequent business opportunities unraveled over the course. Policy makers must develop the policies regarding compulsion of Joint Ventures between Chinese and Pakistani organizations so that the Pakistani companies can get benefit in terms of learning, management systems and technologies from Chinese organizations.

6. Pakistan’s National Industrial Policy
From last several years the government has not announced industrial policy. But it’s a time to develop national industrial policy in context of CPEC. The government has been emphasizing on demand management policies, where economic management and targets are based on the monetary and fiscal mechanism. The determination of the rate of interest, taxation policies, subsidies and raising the public debts are the major tools of demand management policies. The supply-side polices are required for sustainable growth in the present regime, where much emphasize is required on investment and labor policies. The government should cover the labor, investment, production, energy, education and training, research and development based industrialization in its industrial policy. These are components of the supply side economics which should be incorporated in the industrial policy.

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