The grant of duty-free access to Pakistan’s exports to the European Union under the bloc’s GSP Plus scheme may spur Chinese investment in the country’s textiles and clothing industry.

Conversations with several knitwear and garment manufacturers last week showed that many expect substantial relocation of downstream, value-added Chinese textile industry to Pakistan over the next couple of years.

For some, the proposed purchase by a Chinese firm of a majority shareholding in Maqsood Textiles in Faisalabad is indicative of the deep interest of Chinese investors in entering into joint ventures with local manufacturers to take advantage of the trade concessions allowed by the 27-member economic bloc to Pakistan from next year.

The European Union Parliament voted last Thursday to give duty-free access to most of its imports, especially textiles and clothing, from Pakistan.

“Many Chinese investors are already here looking for partners in the existing or new manufacturing plants,” Ijaz Khokhar, a leading garment exporter from Sialkot, said.

At present, they’re looking for joint ventures with local producers of value-added textile products “in order to test the waters here” rather than setting up new projects.

Chinese companies are said to be hunting for ‘closed capacities’ at cheaper prices. “At least 25 per cent of the total installed knitwear capacity is either closed or operating far below capacity. Such facilities should be a good opportunity for Chinese investors to start business here,” said Adil Butt, one of the country’s leading knitwear exporters.

China’s textile industry has expanded across many countries in recent years because production has become very expensive there on account of rising labour costs and appreciation of the Yuan against major world currencies.

“Per capita income in China has spiked to more than $5,500, compared with $1,300 in Pakistan. You will appreciate the opportunity Pakistan presents to Chinese investors. The EU’s approval of the new trade concessions under the Generalised System of Preferences Plus scheme for Pakistani goods offers further attraction for them,” argued a towel maker, requesting anonymity.

Both Sindh and Punjab are vying to woo Chinese textile and clothing manufacturers by offering them attractive packages. While Sindh has invited Chinese investors to set up their plants in the Garment City in Karachi, Punjab has recently approved a scheme to create its own garment city, to be spread over an area of 1,300 acres near Sheikhupura, some 35km from the Lahore Motorway.

The project is expected to be completed in two years at a cost of Rs5.7 billion, to be provided by the provincial government to the Punjab Industrial Estate Development and Management (PIEDMC) as a loan that would have to be returned in five years. The estate will also have its own 200MW coal-fired power plants to supply uninterrupted electricity to manufacturers.

“Chinese investors offered to set up 200 woven garment and knitwear plants in the garment city during a recent visit to China of officials of the Punjab Board of Investment and Trade (PBIT), provided they were leased land at $9,000 per acre per year and uninterrupted power at $0.12 a unit [compared with more than $0.14 per unit charged from domestic manufacturers],” said S. M. Tanvir, chairman of the PIEDMC.

A PBIT official said Chief Minister Shahbaz Sharif “had personally played a critical role in getting the deal between Maqsood Textile and Chinese firm done”.

But he agreed that it would be unrealistic to expect major Chinese investment in the textile sector without removing energy shortages and reducing power prices to an affordable level for the industry in the province.

Adil, however, was hopeful that Chinese investors would invest massively in the proposed garment city being developed by the Punjab government.

“That estate is being created with the aim of attracting Chinese capital. After Pakistan’s entry into the GSP Plus scheme, the textile and clothing sector has suddenly become more attractive for investors — domestic and foreign both,” he argued.

Like many others, a yarn producer was optimistic that the opportunity being offered by the GSP Plus trade concessions would help develop the apparel industry and create demand for more investment.

However, he added that “we could lose the opportunity if we do not get our priorities right.”