Chinese investment in Pakistan

The PPRA rules are a hinderance

Dr Ahmad Rashid Malik

China is an engine of investment growth in Asia. Both Pakistan and China have a special strategic relationship but their relations in the field of investment are fairly weak. China made a radical shift in its investment policy in 1978 under Premier Deng Xiaoping, which has started luring huge foreign investment particularly drawn from its neighborhood. Today Chinese inbound foreign investment has been surpassing US$117.5 billion and its outbound investment has been going beyond US$90.1 billion.

In 2012, the Chinese invested in Canada, Australia and in some European countries. Singapore, Japan, South Korea, and the Philippines have also attracted bigger Chinese investment than other countries. In terms of size, oil, gas, and energy deals, China’s three energy giants, CNOOC, Sinopec, and SinoChem were the most noteworthy. Energy projects are already in the process of negotiations with Pakistan.

China has been planning to make a mammoth investment in Pakistan. If it happens, this would be the mother of all investments that have ever taken place in Pakistan. The amount is nearly US$22 billion – an eye opener. However, the question arises: Is it possible to attract such a huge investment under the prevailing rules of business in the country? The answer is somewhat in the negative node. The Chinese government wants to totally change the existing rules of business in Pakistan before this huge investment takes place.

China wants to invest directly and has been reluctant to take up projects through international bidding in Pakistan. For this, the Public Procurement Regulatory Authority (PPRA) needs to be amended. A legal procedure has to be adopted.

China demands that all mega projects to be taken or offered by Pakistan to China in which China would invest its capital should not be opened up for international competition/bidding.  If Pakistan makes such a change, it would lure huge Chinese investment but would the loss of competitive edge could be beneficial or it could negatively impact upon Pakistan’s economy? This has to be analysed.

The case of defective locomotives by a Chinese company to Pakistan Railways during the Musharraf period is a case in point. This, however, should not be interpreted that Chinese companies cannot meet the quality aspects of our projects. Moreover, the risk factor could be minimized depending on the ability of the company and friendly ties between the two Governments.

The contract of the Lahore-Islamabad Motorway (M-2) was solely awarded to Daewoo in the 1990s because the funding was provided by Daewoo and the First Bank of Korea. No other company was allowed to chip in. Japan and the World Bank raised their objections about the ‘feasibility’ of the project. The project has shown that it is strategically highly valuable.

The same logic could be applied to carry out mega projects to be funded by the government of China and its companies. Projects could be offered to Chinese companies on exceptional basis. To reap the benefits of strategic business cooperation between China and Pakistan, such exceptions could be allowed.

Addressing Pakistan’s myriad investment problems including terrorism and law and order, Pakistan should and must go an extra mile to accommodate Chinese business interests. In the nuclear energy sector, for instance, after Canada had offered to build the Karachi atomic energy plant (KANUPP) in 1972, no other country ever offered its cooperation to Pakistan except China.

With Chinese assistance, up to Chashma-5 will be built as well as KANUPP 2, 3, and 4. Taking the peculiar situation of Pakistan, the PPRA rules could be amended to address Chinese concerns for future investment in Pakistan. National interest of Pakistan permits to accommodate such feelings of a friendly and highly reliable partner of Pakistan.

Recently, Chinese companies such as Ruyi, SEPCO, and YEMA, have discussed business possibility in textiles, energy, and trading sector with Pakistani leadership. Sindh and Punjab offer huge opportunities to Chinese companies to investment in coal for power generation.

To convert Pakistan into a prosperous economy, a welfare State, and a hub for regional trade, investment cooperation and bold decisions should be made. China wants to share its development experience and phenomenal capital market rise with Pakistan. Investment is mutually beneficial. Pakistan offers best opportunities to get developed and connect the Western China with the Gulf.

Some countries have serious concerns about Pakistan-China growing investment relations. With Chinese assistance, the outlook of Pakistani economy would fundamentally alter with strategic implications in the region.

Along with a truly impressive investment policy, Pakistan also needs to address the investment concerns of Chinese companies and Government as mentioned above. World analyses have been appreciating the positive impact of Pakistani economy especially investment and privatization. It is good news for Chinese investors too.

About 4 percent economic growth is expected in 2014-15 in Pakistan. Construction and energy projects including inter-regional energy connectivity would soon boost Pakistan’s economy. If drastic measures were adopted, the growth may become much faster in the later months of the current fiscal year.

Unlike many predictions, Pakistan is not at the verge of collapse. Rather the future of Pakistan economy is truly bright. China is going to assist an economy, which is going to boost in the future. For instance, Jim O’Neill, a renowned British economist, has predicted that Pakistan has the potential to become the 18th largest economy of world by 2050 with a GDP rising to US$3.33 trillion, almost the same size as the current German economy, leaving behind many strong economies. It is strongly believed that this miracle could solely become possible with phenomenal increase of Chinese business and its outbound investment in Pakistan.

The writer is Senior Research Fellow at the Institute of Strategic Studies Islamabad.