Industrial parks and special economic zones are part of the China-Pakistan Economic Corridor memoranda of understanding recently agreed between the leaders of the two countries. The key pre-requisites for the establishment of these zones are resolution of the energy crisis and building of a competitive infrastructure in Pakistan.
Energy and Infrastructure:
The first phase of the economic corridor is focused on $45.6 billion worth of energy and infrastructure projects. China's state-owed banks will finance Chinese companies to fund, build and operate $45.6 billion worth of energy and infrastructure projects in Pakistan over the next six years, according to Reuters. Major Chinese companies investing in Pakistan's energy sector will include China's Three Gorges Corp which built the world's biggest hydro power project, and China Power International Development Ltd.
Under the agreement signed by Chinese and Pakistani leaders at a Beijing summit recently, $15.5 billion worth of coal, wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts of energy to the national grid. An additional 6,120 megawatts will be added to the national grid at a cost of $18.2 billion by 2021.
The transport and communication infrastructure—roads, railways, cable, and oil and gas pipelines—will stretch 2,700 kilometers from Gwadar on the Arabian Sea to the Khunjerab Pass at the China-Pakistan border in the Karakorams.
Starting in 2015, the Chinese companies will invest an average of over $7 billion a year until 2021, a figure exceeding the previous record of $5.5 billion foreign direct investment in 2007 in Pakistan.
Special Economic Zones:
Beyond the initial phase, there are plans to establish special economic zones in the Corridor where Chinese companies will locate factories. Extensive manufacturing collaboration between the two neighbors will include a wide range of products from cheap toys and textiles to consumer electronics and supersonic fighter planes.
The basic idea of an industrial corridor is to develop a sound industrial base, served by competitive infrastructure as a prerequisite for attracting investments into export oriented industries and manufacturing. Such industries have helped a succession of countries like Indonesia, Japan, Hong Kong, Malaysia, South Korea, Taiwan, China and now even Vietnam rise from low-cost manufacturing base to more advanced, high-end exports. As a country's labour gets too expensive to be used to produce low-value products, some poorer country takes over and starts the climb to prosperity.
Once completed, the Pak-China industrial corridor with a sound industrial base and competitive infrastructure combined with low labor costs is expected to draw growing FDI from manufacturers in many other countries looking for a low-cost location to build products for exports to rich OECD nations.
While the commitment is there on both sides to make the corridor a reality, there are many challenges that need to be overcome. The key ones are maintaining security and political stability, ensuring transparency, good governance and quality of execution. These challenges are not unsurmountable but overcoming them does require serious effort on the part of both sides but particularly on the Pakistani side. Let's hope Pakistani leaders are up to these challenges.
Pak-China economic corridor is a very ambitious effort by the two countries that will lead to greater investment and rapid industrialization of Pakistan. Successful implementation of it will be a game-changer for the people of Pakistan in terms of new economic opportunities leading to higher incomes and significant improvements in the living standards for ordinary Pakistanis. It will be in the best interest of all of them to set their differences aside and work for its successful implementation.