China's growing stake in
Pakistan By Syed Fazl-e-Haider
QUETTA, Pakistan - Under the free-trade
agreement (FTA) signed last Friday between
Pakistan and China, the two countries will
implement the first phase of customs duty
reduction from next July 1.
A five-year
tariff deal is expected to provide a level playing
field for Chinese firms investing in various
sectors in Pakistan, and the two countries have
agreed to increase bilateral trade to US$8
billion by 2008.
China
has rapidly increased its stake in Pakistan in
recent years, and the country's Indian Ocean port
of Gwadar provides Beijing with a strategic base,
allowing it to extend its sphere of influence to
the Middle East and Central Asia.
During
the past four years, investment from China has
continuously risen in different sectors of the
Pakistani economy. More than three dozen Chinese
companies are operating in the oil-and-gas,
information-technology, telecommunications,
power-generation, engineering,
automobile-manufacturing, infrastructure and
mining sectors. In Karachi, as many as 30 Chinese
companies and about 400 Chinese engineers are
participating in various projects.
Scores
of formal agreements have increased the total
trade volume between Pakistan and China from less
than $1 billion in 2000-01 to about $5 billion by
the end of 2006.
Beijing believes there is
vast potential for Chinese companies to invest in
various sectors of Pakistan's economy. During a
visit to China by Pakistani Prime Minister Shaukat
Aziz in 2004, Islamabad announced "free market
economy" status for China, and Beijing pledged to
provide $150 million for Chashma Nuclear Power
Plant (Phase II).
Under the FTA signed
last week, Pakistan will gain access to the vast
Chinese market, while China will sell Pakistan
more and more goods, as well as get cheap raw
materials and the use of Pakistani ports for the
onward export of its goods to world destinations
at reduced freight rates.
The biggest
chunk of Chinese investment in Pakistan is being
spent on development projects in the country's
largest province, strategically located
Balochistan. The most important projects being
launched with Chinese assistance in Pakistan
include construction of the Gwadar deepsea port in
Mekran, the Saindak copper and gold project in
Chaghm, and the lead-zinc-mining project in
Balochistan's Lasbela district.
The
Chinese have invested about $230 million in the
Gwadar port and the Saindak copper project, which
is more than 50% of their total investment in the
country.
At present, Chinese firms and
engineers are helping develop key sectors of the
Balochistan economy, including infrastructure,
mining, and oil and gas exploration. Chinese
companies working in Balochistan include Tianjin
Zhongbei Harbor Engineering Supervision
Corporation of China, China Harbor Engineering
Company Group (CHECG), Metallurgical Construction
Corp and its subsidiary MRDL, and the Bureau of
Geophysical Prospecting. Some security
analysts believe that the real motive behind
China's provision of technical assistance,
personnel and funding for the construction of the
Gwadar port is that it wants to turn it into a
transit terminal for Iranian and African crude-oil
imports.
As a long-term strategic asset,
the port could provide access for its navy to
patrol Indian Ocean sea lanes, as well as an
alternative land-based route for crude-oil
imports.
The Chinese stake in Gwadar has
been growing since construction of the seaport
began in March 2002. The total cost of the project
is estimated at $1.6 billion. China has so far
contributed about $198 million and Pakistan has
allocated $50 million.
China has also
spent $200 million building a coastal highway
connecting Gwadar port with Karachi.
The
first phase has been completed by the CHECG.
During Pakistani Prime Minister Shaukat Aziz's
China visit in December 2004, an agreement with
Beijing was signed for the dredging of the Gwadar
port channel up to a depth of 14.7 meters,
allowing big vessels access to the port.
A
proposal for the establishment of Gwadar Economic
and Energy Zone (GEEZ) is being considered. The
proposed zone will comprise an oil refinery,
liquefied-natural-gas terminals and petrochemical
sites. The two countries will set up a
joint-venture consortium to finalize the
preferential policy and tax-incentives package for
the establishment of GEEZ.
China has also
expressed interest in constructing an oil refinery
in Gwadar. As Pakistan's biggest, it would refine
60,000 barrels per day. A feasibility study is
being considered by Islamabad and Beijing for an
oil pipeline from Gwadar port to western China to
transport China's oil imports from the Persian
Gulf rapidly. During his last visit to China in
February, Pakistani President General Pervez
Musharraf offered a "trade corridor" to meet
Beijing's energy requirements. Pakistan would help
China with the construction of the strategic
pipeline from Gwadar to its borders, enabling it
to import oil from Saudi Arabia.
On the
security front, the Chinese have paid heavily for
investing in Balochistan. A military operation is
being undertaken to quell a rebellion by Baloch
militants in the province. In May 2004, three
Chinese engineers lost their lives in an act of
terrorism in Gwadar. In the first quarter of this
year, two Chinese engineers were killed in an act
of terrorism in the Hub area of Balochistan.
Some experts believe that the FTA is
unlikely to increase bilateral trade volume to $15
billion, as Pakistan still needs to do a lot to
improve internal security, promote its exports and
encourage its business community to invest in
China.
Syed Fazl-e-Haider,
sfazlehaider05@yahoo.com, is a Quetta-based
development analyst in Pakistan. He is the author
of six books, including The Economic
Development of Balochistan, published in May
2004.
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