The China-Pakistan Economic Corridor (CPEC) is entering a new phase, touching more critical and sensitive areas of trade, industrialisation and financial settlement systems than did the first phase, which focused on developing power projects and road infrastructure.
The broad power policy was already in place when the two countries agreed to expand around 10,000 megawatts of generation capacity to remove energy bottlenecks. The Chinese made abundant funds available for investments and Pakistan offered generous tax concessions and exemptions along with guaranteed revenue stream for repayments.
While the quantum of investments in the power sector and loans for road projects currently under implementation is put at $27bn by the Planning Commission of Pakistan and $23bn by the Ministry of Finance for varying reasons, rough estimates suggest that these would add to foreign repayment obligations by $3bn to 3.5bn per annum over the next few years.
Going forward, the two governments have now formally shaped up the Long Term Plan (LTP) 2017-30, which sets the general direction for the next 13 years of engagement.
The private sector would be playing a greater role in bilateral trade and industrialisation, hence the need for financial mechanisms and arrangements including the treatment of the yuan or renminbi (RMB) – as an alternative to the US dollar.
This could be the most important phase of the CPEC that would determine its sustainability and depend on the actual planning, clarity and transparency of the arrangements to avoid mid-course challenges, say experts.
Economists say Pakistan has to draw wisdom from the experience of its free trade agreement with China, and preparedness of the private sector and the human resources to benefit from the special economic zones (SEZs).
The two governments have set up a joint expert group, in addition to existing sectoral joint working groups, to meet on a monthly basis and process feasibility studies and address issues that may crop up.
The main task for the expert group is to complete the planning phase of the SEZs and make sure it enters the implementation phase during 2018 that would, in the meanwhile, expected to complete the political transition in Pakistan. In this view 2018 will generally be a dull year for actual progress on ground.
The Board of Investment and the Planning Commission are engaging with prominent chambers of commerce and industry in Khyber Pakhtunkhwa, Punjab, Islamabad, Sindh, Gilgit-Baltistan (GB), Pakistan-administered Kashmir (AJK), and the Federation of Pakistan Chambers of Commerce and Industry, among others, for briefings about upcoming SEZs.