DURING the recent visit of a high-powered Pakistan delegation to Beijing, China apparently did not commit to Pakistan’s proposals directed at easing the immediate economic pressure, but it did at long last seal the deal on industrial cooperation which is considered vital to operationalise the second phase of China-Pakistan Economic Corridor (CPEC).

Pakistan had signed a memorandum of understanding (MOU) on industrial cooperation with China back in 2018 as the first phase of CPEC advanced and many mega-infrastructure and power projects neared completion. The political change in Pakistan and the pandemic disrupted the process, having a negative impact on the CPEC pace.

Besides the framework agreement on industrial cooperation between CPEC partners, Pakistan wished to engage the mighty power to garner support to ease the mounting pressure on the country’s external accounts, some flexibility to stretch the space for new borrowing, and support to resolve the lingering bank credit issues for CPEC-induced private projects.

To this end, Pakistan proposed to China to extend the limit of the currency swap facility from the current $4.5billion to $10bn, contribute to establishing China-Pakistan Industrial Cooperation Fund and roll over the repayment of the $4bn Chinese loan due this year.

The extended currency swap facility will allow the government to creatively manage the country’s debt profile by shifting the Chinese loan liability from the federal government books to those of the State Bank, opening up the much-needed space for fresh loans.

To cater to the funding needs of private projects under the CPEC umbrella, the Industrial Cooperation Fund can serve well, especially because the local commercial banks, citing higher risks, are reluctant to lend. Finally, the repayment rollover may contain the haemorrhage in terms of foreign exchange reserves that is threatening currency stability.

The recent trip to China may not have created immediate financial space, but the framework agreement on industrial cooperation is, indeed, crucial

To make China more receptive to Pakistan’s request, the government, prior to the trip, approved compensation worth $11.6 million for the Chinese affectees of the Dasu Dam terrorist attack. The cabinet signed for Rs100bn payment against Rs230bn pending dues to the Chinese power plants and ordered the release of Rs50bn immediately. The government also directed the creation of a revolving bank account with a minimum balance equal to 22 per cent of the power purchase deal with Chinese companies. In addition, Pakistan decided to include the 300MW Gwadar Power Plant in its high-priority scheme in terms of swift payment of invoices.

The government has projected the four-day visit a great success, with the hierarchy playing up engagements with the leadership and the prospective private investors. Responding to Dawn’s request for comments on the trip, Finance Minister Shaukat Tareen was clear and precise. “Of course, the visit was highly productive,” he said in a text message.

Khalid Mansoor, Special Assistant to the Prime Minister on CPEC, sounded excited. “Absolutely outstanding trip, Alhamdulillah. Couldn’t have been better,” he wrote. Over the phone, he told Dawn that the landmark framework deal has set in motion a journey that can change the country’s fortunes. “We went well-prepared and reaped the benefits for the hard work. The interactions with the relevant interfaces were rewarding. They took note of all our proposals. The atmosphere of the meetings was very positive.”

He termed the time-lapse in the signing of the framework after about years of the MOU on industrial cooperation a ‘force majeure’, blaming the delay on the global health crisis. Clarifying the reports on the exemption to Chinese investors from 37 approvals for investment projects announced after the return from China, he said the facility would be available to all local and foreign investors in the special economic zones across the country.

On their part, the business leaders expressed some nervousness over what they perceive to be a gradual shift of the country towards the emerging anti-US/West camp. Exporters oriented towards markets in the West argued in favour of striking a balance in diplomatic relationships. Most top-tier business leaders approached probably did not wish to be seen on the wrong side of the government or their overseas partners and avoided discussing the topic altogether.

Musadaq Zulqarnain, Chairman and CEO of Interloop Ltd. and its associated companies, advised to wait and watch before taking a position over the government’s desperation to court China. Commenting on the Chinese stance vis-a-vis Pakistan’s high expectations, he said “It is difficult to assess the outcome of the China trip at this stage. Chinese are known to take time to decide. The current discussions were held on the sidelines of Winter Olympics, a global sports event held in challenging times during the pandemic”.

“Pakistan is in a difficult situation. The government must balance the diplomatic relationship with China, Russia, the USA and Europe. Our economic interests are also closely tied with the West.

“The focus should be on investment by Chinese companies. Pakistan should become the natural choice of Chinese investors compared to Bangladesh, Vietnam, Cambodia and African destinations,” he said. He was worried over the wave of terrorism in Pakistan in this context.

Messages were dropped for Board of Investment (BOI) Chairman M. Azfar Ahsan, and Secretary Fareena Mazhar for their input on the subject, but their response did not reach Dawn till the filing of this report.

“Bending backwards will not be enough to make the Chinese private sector relocate its plants to Pakistan. I don’t know of a country that became the choice destination of foreign investors where locals are reluctant. The government needs to mobilise local investment if it wishes global investors to take an interest,” said a Karachi businessman apparently irked by unstable gas supply to his plant.

Published in Dawn, The Business and Finance Weekly, January 14th, 2022