CPEC:

Opportunities for Pakistani Businesses in a Bigger Picture

Since Chinese president visit to Pakistan in April 2015 which kick-started the China Pakistan
economic Corridor (CPEC) projects, a lot has been said and written about the corridor and the
economic revolution it ushers in the region. While there is no dearth of general discussion on
the macro and overall dynamics of CPEC, targeted discourse as to how Pakistani businesses
can benefit from it, remains lacking. The need is to discuss and analyze the business
opportunities that CPEC will bring with it, for all the stakeholders. For this, there is need to
understand the reasons that triggered the change in Chinas economic and strategic policies
especially in the aftermath of 2008 global economic crisis.
The fast growth of Chinese economy since 1979 economic reforms has resulted in China
being the worlds largest economy. But, with the passage of time, this also caused some
glitches for Chinese economic strength like overcapacity in some sectors, domestic
restructuring and social implications. Other issues include its growing appetite of raw
material and regional re-balancing. Presently Chinese policy makers are trying to steer the
economy to a new normal of slower but more stable and consistent growth.
The other driving force behind enormous change in Chinas economic policy is the year 2049
which includes the two targets to be worlds technological hub and leading nation in
innovation and scientific development and be in the ranks of innovative nations by 2020. The
vision is also reflected in the seminal report which was published by World Bank in
collaboration with Chinese Development Research Center of the State Council in 2013
entitled China 2030: Building a Modern, Harmonious and Creative Society. President Xis,
speech in Kazakhstan in 2013 where he announced the New Silk Road, which is now
popularly known as Belt part of One Belt, One Road (OBOR) is also a reflection of the
same strategy. In the same year, during his address to the Indonesian Parliament, president Xi
announced the Road Part of OBOR strategy, commonly known as Maritime Silk Road
(MSR)1. Combining these visions there are huge expectation from year 2049 for China as
well as for rest of world as its spillover effects will be enjoyed by rest of world too.

Prepared by an IPS Task Force, the brief also draws from the proceedings of an IPS seminar CPEC
Opportunities and Impediments: Prospects for the Business Community held on August 26, 2016.
1
Speech by Chinese president Xi Jingping to Indonesian Parliament, 2nd October, 2013, Available at:
http://www.asean-china-center.org/english/2013-10/03/c_133062675.htm Accessed on: 14th November, 2016.
China will propose the establishment of an Asian infrastructure investment bank that would give priority to
ASEAN countries needs. Southeast Asia has since ancient times been an important hub along the ancient

There are other changes in international economic spectrum simultaneously like new
technologies and knowledge intensity as driver of growth, integration of value chains,
declining skilled population or work force in developed world, growing concerns about
energy and food security throughout the world and big population bulge in countries such as
Pakistan as well as emergence of India and other countries as fast growing economies. There
is a huge increase in economic activity throughout the world as it is evident in increased
global trade volume including the maritime trade activities. The Organization of Economic
Cooperation and Development (OECD) figures suggest that international trade grew in
second half of 2016.2 The same report states that for the first time since early 2014, a modest
growth was evident in trade among 19 members of G20 countries representing 85% of global
GDP.3
CPEC, when seen in this larger context becomes even more significant and a benefit historic
opportunity for Pakistans business community. Nevertheless, the opportunity may get lost if
Pakistans business community does not prepare itself to be part of CPEC- as a project of
connecting new international value chains and consequently invest in research and
development to enhance its capacity to meet the challenges and reap the prospects that the
Chinese initiative is set to create in the near future. Traders and industrialists need to augment
their production competency and capacity by improving their design and development on
research-based model. They need to realize the potential associated with CPEC, as being the
most important of the components of the greater One Belt One Road (OBOR) initiative.
as well as its relations with other sister components which include the 21st Century Maritime
Silk Route, Bangladesh-China-India-Myanmar Economic Corridor, China-Mongolia-Russia
Economic Corridor, China-Central Asia-West Asia Economic Corridor (Eurasian Land
Bridge) and China-Indochina Peninsula Economic Corridor.
If CPEC is seen as part of the bigger picture of these global initiatives which were aimed,
along with other objectives, at creating the global value chain regionally and internationally,
the prospects of growth and expansion for any business in Pakistan increase manifold. With
Maritime Silk Road. China will strengthen maritime cooperation with ASEAN countries to make good use of
the China-ASEAN Maritime Cooperation Fund set up by the Chinese government and vigorously develop
maritime partnership in a joint effort to build the Maritime Silk Road of the 21st century.
2
G20 total international merchandise trade, seasonally adjusted and expressed in current US dollars, grew
modestly, in the second quarter of 2016, the first increase since early 2014, but remains significantly below
post-crisis highs. Exports rose by 1.5% and imports by 2.0%, following seven and eight consecutive quarterly
falls, respectively, mirroring the rise in oil prices (to almost $50 a barrel in June 2016, compared with around
$35 a barrel in December 2015). Exports in Q2 2016 grew in almost all G20 economies except Argentina,
Canada and China. For Canada, exports have fallen for seven consecutive quarters, and now stand at their
lowest level in over six years. India, South Africa and Turkey on the other hand, all recorded export growth of
more than 5.0% in Q2 2016, although like in all other G20 economies, export levels remain around 15% below
post-crisis highs.
All G20 economies recorded growth in imports in Q2 2016, except Argentina, France, India, Indonesia, Mexico,
with marginal falls, and Russia, where imports fell by 5.0% in Q2 2016. China recorded 6.6% growth in imports
in Q2 2016 but levels remain around 20% below recent highs.
International
trade
statistics:
trends
in
second
quarter
2016
Available
at:
https://www.oecd.org/std/its/international-trade-statistics-trends-in-second-quarter-2016.htm
3
Ibid.

the emergence of OBOR which CPEC is an integral part of the future will witness
removal of investment and trade barriers with FTAs, avoidance of double taxation, and
investment protection agreements; customs cooperation and information exchange; mutual
recognition of regulations, inspections, quarantine certification and accreditation, standard
measurement, statistical information, etc.; single window for clearance at entry and exit
points; enhanced trade liberalization; lower non-tariff barriers and division of labor and
industrial chains.
With investment avenues, kind of saturating in Chinas own domestic manufacturing sector,
chances for establishment of joint ventures with Pakistani counterparts and phasing of some
industry into Pakistan are also an area to benefit Chinese industrialists and businessmen in
these Economic Zones. It has already led to Chinese businessman showing interest in
investment in many new areas within Pakistan including small and medium enterprises.
Entrepreneurs from different arenas like international logistics, building materials, high-end
clothing production, supply-chain process, furniture, steel structure and the export-import
business have already shown keen interest in joint ventures4. However, to cope with these
upcoming opportunities and challenges, there is need to modernize and up-grade SMEs and
various sectors like textile5. With companies like Zonergy Company Limited dealing with
whole cloud-computing industry chain, R&D of Solar PV technology and project contracting,
bio-energy, Palm Cultivation and oil- processing trade6, its surely opening new arena for
Pakistan business man to expand their investments.
Automobile industry is yet another sector. The low labor cost in Pakistan will facilitate the
assembling of Chinese origin vehicles locally in Pakistan with little investment. Companies
like FAW (First Automobile Work) and Defong already have their assembling plants in
Karachi7 while Corporations like JAC, Zotye, Foton Group and China Auto are in talks with
government in investing in Pakistan automobile industry.8 It may be pointed out here that
National Logistics Cell (NLC), considering the need for heavy vehicles in the years ahead in
the wake of CPEC projects, is starting a production plant in Karachi with the help of a
German company.
Currency swap agreements, Renminbis inclusion in the SDR basket of IMF, bond market in
Asia (Renminbi bonds in China), Asia Infrastructure Development Bank, BRICS New
Development Bank, SCO financing institutions, Silk Road Fund, China-ASEAN Inter-Bank
Association and equity investment funds are the key features of this great Chinese leap. In the
4

China
eyes
Pakistan
as
potential
market,
29th
June,
2016,
Available
at:
http://tribune.com.pk/story/1132446/china-eyes-pakistan-potential-market/
5
Joining hands: Garment industry, China Chamber sign cooperation deal, 29th March, 2016, The express
Tribune, http://tribune.com.pk/story/1074573/joining-hands-garment-industry-china-chamber-sign-cooperationdeal/
6
China
eyes
Pakistan
as
potential
market,
29th
June,
2016,
Available
at:
http://tribune.com.pk/story/1132446/china-eyes-pakistan-potential-market/
7
Report, Competitive Analysis of Auto Sector in Pakistan and China 2016, Institute of Business Administration,
Available at: https://iba.edu.pk/News/industrial-note-automobile-sector.pdf
8
Chinese Foton Group to invest in manufacturing of automobiles in Pakistan, 24 th September, 2016,Availble at:
https://www.automark.pk/chinese-foton-group-invest-manufacturing-automobiles-pakistan/

given scenario, Pakistani business, trade and industry by taking timely initiatives, can
minimize its dependence on the government, and start putting in the hard yards beforehand to
prepare itself to avail best of the opportunities when they arrive.
Through joint ventures with Chinese businesses we can enhance our capacity, productivity
and revenues manifold. Chambers of Commerce and Trade and Industry Associations need
to conduct comprehensive studies to realize the benefits offered by the CPEC to in their
respective areas.
Similarly, energy, food, agro-based industry, livestock, construction, steel, transport and
logistics, light engineering, plastics, value-added textile, mining and ore, non-ferrous metals,
assembly operations and IT services are some other key sectors in the country which may be
identified as potentially beneficial areas. Focusing on less developed areas, adjacent to CPEC
routes less developed areas of Pakistan will accrue long term benefits to, not only the
concerned areas but the overall national development. This can be done by making more
educational institutions and skills development and training programs at the grassroots level.
The CPEC by altering Pakistans economic outlook it is also expected to stimulate a wave of
foreign investment from other countries, including the United States. Many countries
including Central Asian States (CAS), Iran, Afghanistan and Turkey have shown keen
interest in getting involved in economic activities that will be generated by CPEC. While
political nuances cannot be ignored the decision making at all levels should give due
consideration to economic gains and multiplier impact on the economy.
Last, but the most important aspect, all stakeholders must have good understanding of
Chinese considerations9, being the investor in the project. Among the most important of
their considerations are secure and uninterrupted energy supply chain as well as managing the
shortages of raw material; notably, it was announced openly by Chinese government officials
that by 2020 China will encounter serious shortages in twenty five different raw material
items.
With countries like Turkey, France and Iran showing keen interest in CPEC, it is definitely a
game changer for Pakistan and it is up to Pakistans business community to make the best
use of this opportunity in their favor with well-timed and research based initiatives.
Indeed, timing is the key.

Fulco Mathew, Solving the Prickly Issue of Overcapacity in China, China-focused Leadership and Business
Analysis, 14th June, 2016 Available at: http://knowledge.ckgsb.edu.cn/2016/06/14/chinese-economy/solvingthe-prickly-issue-of-overcapacity-in-china/ Accessed on: 20th October, 2016. for example Aluminum
production capacity reaches 40 million ton exceeding global consumption by 9 million and steel production
volume is more than double of next four leading producers combined i.e. Japan, India, US and Russia
9