Alert Sign Dear reader, online ads enable us to deliver the journalism you value. Please support us by taking a moment to turn off Adblock on Dawn.com.

Alert Sign Dear reader, please upgrade to the latest version of IE to have a better reading experience

.

Some Pakistani power firms stuck in slow lane on China's Silk Road

Published Mar 30, 2017 12:46pm

Email


Your Name:


Recipient Email:


A worker operates crane at copper wire unit at Pakistan Cables in Karachi.─Reuters
A worker operates crane at copper wire unit at Pakistan Cables in Karachi.─Reuters

Kamal Amjad Mian thought China's decision to invest $36 billion in the Pakistani power sector would benefit his electricity cable business, and, anticipating increased demand, his family spent nearly $30 million on a second plant to double output.

But Mian's Fast Cables and some other Pakistani manufacturers have yet to reap rewards from Beijing's huge “One Belt, One Road” (OBOR) project, a modern-day “Silk Road” network of trade routes across land and sea.

Power stations built as part of the China-Pakistan Economic Corridor (CPEC), a $57 billion project involving energy, road and rail infrastructure, are being kitted out with Chinese cables exempt from import duty and sales tax.

Kamal Amjad Mian, Director of Fast Cables, poses for a picture at plant in Lahore.─Reuters
Kamal Amjad Mian, Director of Fast Cables, poses for a picture at plant in Lahore.─Reuters

Such exemptions, more generous for CPEC projects than others, threaten to undermine local industry, according to Mian, one of a growing number of executives now questioning an initiative long portrayed as the key to Pakistan's prosperity.

“The government, instead of giving us a level playing field, gave them an advantage,” Mian said in the eastern city of Lahore.

A Water and Power Ministry official, who declined to be named because he was not authorised to speak to the media, said “there were question marks about whether the local cable industry could fulfil the demands under CPEC and we worried it would slow down projects.”

Beijing's CPEC splurge and a drop in militant violence have reinvigorated Pakistan's sluggish economy, driving growth to about 5 percent for the first time since 2008.

The public and political parties broadly support Chinese investment, while cement and steel companies who bagged early CPEC contracts are embarking on aggressive expansion.

Executives also say Chinese investors are poised for an acquisitions spree in Pakistan.

A worker monitors automatic copper wire unit at the Fast Cables plant in Lahore.─Reuters
A worker monitors automatic copper wire unit at the Fast Cables plant in Lahore.─Reuters

Trojan horse or saviour?

But not everyone is happy. Critics say CPEC projects are opaque and expensive, and question Pakistan's ability to repay the costs over time.

Some firms fear they will struggle to compete with Chinese companies with deeper pockets, economies of scale and vastly cheaper credit lines.

“We have to make sure (CPEC) doesn't become a Trojan Horse and start hurting existing industry,” said Ehsan Malik, chief executive of the Pakistan Business Council.

There is plenty still up for grabs for local players. The next phase of CPEC involves the creation of Special Economic Zones where Chinese state-run enterprises would open factories and help develop Pakistan's industrial base.

Fahd Chinoy, general manager sales & marketing of Pakistan Cables, poses during an interview with Reuters at plant in Karachi.─Reuters
Fahd Chinoy, general manager sales & marketing of Pakistan Cables, poses during an interview with Reuters at plant in Karachi.─Reuters

But Fast Cables' Mian said that, while domestic producers have been benefiting from broad economic growth, he fears his business will end up “dying a slow and painful death” if Chinese rivals setting up in Pakistan receive preferential tax breaks.

Mian and other cables makers are reviving a defunct industry association in order to lobby Islamabad, amid concerns Beijing will use its leverage over Pakistan to obtain those sweeteners.

“Very soon, if we are not nimble enough to recognise the issues, we could be in trouble,” said Fahd Chinoy, whose family runs Pakistan Cables.

China, for which CPEC is a key part of its Silk Road ambitions, sought to assuage such fears.

“The dividend, the well-being delivered by the corridor will benefit the people of both China and Pakistan, as well as of the region,” Foreign Ministry spokeswoman Hua Chunying told a regular briefing, when asked about concerns in Pakistan.

The government in Islamabad was also keen to reassure domestic producers.

“We are not (so foolish) as to not protect our local industry,” said Miftah Ismail, a state minister charged with setting up CPEC Special Economic Zones.

“I want to assure people we will never give greater protection to our Chinese investing friends,” Ismail added. “It will never be an uneven playing field.”

The Pakistani government, citing local worries about being crowded out, said in January it would prioritise domestic companies over Chinese ones in the forthcoming sell-off of state-run companies.

Winners and Losers?

Pakistan's struggling textiles sector, which account for 60 percent of the country's exports, is watching nervously.

China is offering vast incentives and ploughing billions of dollars into the Western region of Xinjiang to build a textile industry, which will rely on CPEC road and rail links to export goods via Pakistan's Arabian sea port of Gwadar.

The Karachi Chamber of Commerce & Industry and other organisations worry that Pakistan will become a dumping ground for Chinese goods once the Xinjiang-Gwadar transit route becomes operational and traffic volumes soar.

A worker monitors automatic copper wire unit at Pakistan Cables in Karachi.─Reuters
A worker monitors automatic copper wire unit at Pakistan Cables in Karachi.─Reuters

“If those products end up on the domestic market without duties, it will devastate the local industry,” said Aamir Fayyaz, chairman of the All Pakistan Textile Mills Association (APTMA).

Wang Zihai, president of the Pakistan-China Joint Chamber of Commerce and Industry, compared Pakistan to China three decades ago, when its nascent industries faced competition from more advanced Japanese and American companies.

“Chinese companies did not die,” Wang said. “Chinese are not here to take over everything, they want partners. They need a local party to work together.”

And for early CPEC winners, optimism abounds.

Hussain Agha's family-run steel business has bagged several CPEC contracts and is planning an initial public offering (IPO) to raise cash to expand.

“Those who are geared for the economic renaissance of Pakistan will thrive, and those who are not will miss the bus,” said Agha, an executive director at Agha Steel Industries.

“We are getting ready for the 'Roaring 20s'.”

Email


Your Name:


Recipient Email:



Comments (14) Closed



tahir saleem Mar 30, 2017 12:56pm

With the advent of CPEC in Pakistan, all the Pakistani businessmen have to upgrade their style of work. Now you have to compete with international vendors for which you have to improve on every aspect of your products. Gone are the days when you were selling substandard products which our innocent people were forced to buy. initially it will be hard but in the long run, you will be the winner.

Akram Mar 30, 2017 01:08pm

Economic renaissance sounds about right!

KHALID YOUSAFZAI (UK) Mar 30, 2017 01:10pm

@tahir saleem . sir, from where will you bring the honesty ???

Sameer Mar 30, 2017 01:56pm

“We are not (so foolish) as to not protect our local industry,” said Miftah Ismail, a state minister. I am sorry, but time has proved we are selfish for our commission cuts making most; easily corrupt.

vikas Mar 30, 2017 02:08pm

The government gave them advantage? They, took advantage, Sir! That is why they are here in the first place. What did you guys think before investing USD 30 million? The Chinese firms which have already made that investment in their own country will obviously yield benefit first.

Arshad Mar 30, 2017 03:38pm

"...................exempt from import duty and sales tax".This will be the last nail in the coffin of Pakistani Manufacturing Industries !

BAXAR Mar 30, 2017 04:35pm

@Sameer "“We are not (so foolish) as to not protect our local industry,” You missed his "OUR" part of the comment. It make perfect sense from the perspective I see his comment.

truth hurts Mar 30, 2017 04:36pm

Time for Pakistan to wake up. It is still not too late. China is controlling the US through making US consumer market dependent on Chinese manufacturing. US is in no position to anger China since US has no manufacturing left in the country. Same thing is going to happen to Pakistan when Pakistan's dependence on Chinese manufacturing become so severe Pakistan will not be in any position to question China. India is smart. India is keeping China at the arm length.

imran ali Mar 30, 2017 05:26pm

@tahir saleem - correctly put. Pakistani business's at are stuck in the darkages. They need to embrace competition,

®®®®® Mar 30, 2017 06:12pm

Hope Pakistan gets a good deal out of cpec

Seedoo Mar 30, 2017 06:34pm

@truth hurts "US has no manufacturing left in the country". Are you serious? I live in the US. While it is true that some sectors have been badly hurt, US is still the manufacturing hub of the world. The manufacturing has shifted from low and medium tech industries to high tech as US has moved from industrial to information age. In some cases, even the medium tech manufacturing is coming back to the US. Even Airbus, the European Airliner, sources 20% of its parts from the US. Don't underestimate US, I know it's easy to do that while sitting in Pakistan.

imran ali Mar 30, 2017 09:27pm

gradually all the industries will be closed.... Chinese are well known in giving kickbacks.....by this method they are getting exemption in taxes..

Ash20 Mar 31, 2017 03:45am

Most of world including US, Europe were not able to compete Chinese manufacturing due to economy of scale, etc. Reason so how Pakistani industry will compete with them when they are getting extra tax benefits, etc.

Naim Khan Mar 31, 2017 04:17am

You should blame the government of Pakistan, they should have included of Pakistani manufactures produced, in the CPEC. And also you must learn to compete in the world market and change the way of working.