Chinese FDI Soars as CPEC Projects Begin in Pakistan

Pakistan is seeing soaring foreign direct investment (FDI) with improving security and the start of several major energy and infrastructure projects as part of China-Pakistan Economic Corridor (CPEC), according to the UK's Financial Times business newspaper.

A New High in FDI:

The year 2015 was a bumper year for foreign investment  pouring into Pakistan, says the Financial Times. The country saw 39 greenfield investments adding up to an estimated $18.9 billion last year, according to fDi Markets, an FT data service. This is a big jump from 28 projects for $7.6 billion started in 2014, and marks a new high for greenfield capital investment into the country since fDi began collecting data in 2003.

Pakistan FDI Source: FT.com

The number of projects in 2015 is the largest since Pakistan attracted 57 greenfield projects back in 2005 on President Musharraf's watch.  China is now the top source country for investment into the country, surpassing the second-ranked United Arab Emirates, primarily due to its investments in power.

Top 10 Destinations of Chinese FDI 2012-14. Source: UNESCAP

Major CPEC Projects: 

China's Shanghai Electric, a power generation and electrical equipment manufacturing company, announced plans last year to establish a 1,320 megawatt coal-based power project in Thar desert using domestic coal, scheduled to launch in 2017 or 2018. Traditional energy and power projects made up two-thirds of last year’s total greenfield investment into Pakistan at $12.9 billion with alternative energy bringing in a further $1.8 billion.

CPEC Projects

Among the more notable projects, UAE-based Metal Investment Holding Corporation announced plans to partner with Power China E & M International to invest $5 billion to build three coal-fired plants at Karachi’s Port Qasim. In addition, the transportation sector is also showing promise, with 12 projects totaling $3 billion being announced or initiated last year.

Special Economic Zones:

Beyond the initial phase of power and road projects, 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.

Key Challenges:

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.

Summary: 

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.

Related Links:

Haq's Musings

Chinese to Set New FDI Record For Pakistan

Pak Army Completes Half of CPEC Western Route

IPPs Enjoy Record Profits While Pakistan Suffers 

Can Pakistan Say No to US Aid?

Pak-China Defense Industry Collaboration Irks West

President Musharraf Accelerated Human & Financial Capital G...

China's Investment and Trade in South Asia

China Signs Power Plant Deals with Pakistan

Soaring Imports from China Worry India

China's Checkbook Diplomacy

Yuan to Replace Dollar in World Trade?

China Sees Opportunities Where Others See Risk

Chinese Do Good and Do Well in Developing World

Views: 1643

Comment by Riaz Haq on March 13, 2016 at 10:36am

Civil nuclear deal helps #Pakistan overcome energy crisis: #China Daily. #loadshedding http://www.pakistantoday.com.pk/?p=499051 via @ePakistanToday

China’s civil nuclear power support to Pakistan is meant to help the time-tested friend to overcome its energy crisis, said Chinese scholar in an article published in China Daily.

While setting aside the misperception and unfounded allegations in regard to Sino-Pak nuclear deal, an associate professor at Peking University’s School of International Studies said that some vested interest groups were pointing a finger at China over the two-country cooperation in nuclear field issue.

He clarified that the sale of nuclear reactors to Pakistan was part of their long-term nuclear cooperation agreements reached in the late 1980s. Chinese companies joined Pakistani side to build a nuclear plant at Chashma in 1991, he said. By 2000, the first reactor at Chashma was ready to generate electricity. Five years later, Chinese companies began building Chashma 2, which is scheduled to be operational next year.

China and Pakistan both assert that the proposed sale is not only in line with the Nuclear Suppliers’ Group (NSG) rules, but it is also transparent and peaceful in nature. It has already been clarified officially that the “China-Pakistan cooperation on civilian nuclear energy is consistent with the two countries’ respective international obligations, and is for peaceful purposes and subject to IAEA (International Atomic Energy Agency) safeguard and supervision”.

The article further said: “India, seen as a long-time foe of Pakistan, seems to be using diplomacy to block the Sino-Pakistani deal, even though it signed a similar deal with the US in 2006. Most China-baiters, particularly in the US, allege Chashma 3 and 4 violate NSG guidelines, which prohibit nuclear states from exporting nuclear technology and materials to non-nuclear states which, like Pakistan, are not signatories to the Nuclear Non-proliferation Treaty (NPT) and have not adopted IAEA safeguards for nuclear establishments.”

Ever since China joined the NSG in 2004, some critics have been saying it has to fulfill its non-proliferation commitment and comply with the group’s rules and guidelines. And because Chashma 3 and 4 were initiated after 2004, they have to be approved by NSG, most probably by seeking an “exemption” solution from its 46 member states as the US-Indian nuclear deal did in 2008.

Non-proliferation proponents have expressed concern over the Sino-Pakistani nuclear deal. But some doubt whether it could be blocked like the 2006 US-Indian nuclear deal was for setting “a dangerous precedent”, because if Washington opposes it openly, it would face charges of exercising “hypocrisy” in non-proliferation.

Ashley Tellis, a senior associate at Carnegie Endowment, who as part of the George W Bush administration played a key role in negotiating the nuclear deal with India, draws a line between the US-Indian and Sino-Pakistani nuclear deals, saying the latter is not the outcome of a public debate in Washington or in NSG. But the fact is that “integrity” of the shattered global non-proliferation regime was already breached when India, which is outside NPT, NSG and other non-proliferation regimes, was “exempted” and the US-Indian nuclear deal was allowed to go ahead.

Pakistan faces severe electricity shortage leading to economic difficulties. The BBC, citing Pakistani government sources, said Pakistan faced an energy shortfall of 3,668 MW per day. Expanding the nuclear energy industry is one way Pakistan can meet its electricity shortfall, which in turn causes social unrest and extremism. At present, nuclear power comprises just 2.34 per cent of Pakistan’s total energy generation, it said. 

Comment by Riaz Haq on March 14, 2016 at 10:32pm

#India’s #trade deficit with #China swells to $51.9 billion in 2015 http://toi.in/3T-HFY via @timesofindia

India's trade deficit with China increased to $51.86 billion in 2015, Parliament was informed on Monday.
"Increasing trade deficit with China can primarily be attributed to the fact that Chinese exports to India rely strongly on manufactured items meeting the demand of fast-expanding sectors like telecom and power while India's exports to China are characterized by primary products, raw material and intermediate products," commerce and industry minister Nirmala Sitharaman said in a written reply to the Lok Sabha.
She said India's trade deficit with China stood at $51.86 billion, with a bilateral trade of $71.22 billion in 2015. During this period, India's exports to China came in at $9.68 billion while imports were $61.54 billion.

Comment by Riaz Haq on March 17, 2016 at 4:24pm

Three Gorges Corp (TGC), #China's leading #hydropower company, to invest in #Pakistan http://www.pakistantoday.com.pk/?p=500670 via @ePakistanToday

A consortium, led by China’s Three Gorges Corp, the world’s largest hydropower producer, plans to invest in Pakistan, building both state-owned and private hydropower stations.

” We want to take an active part in the expected auction of the state-owned hydropower stations in the brotherly country,” said Wang Shaofeng, executive vice-president of China Three Gorges International Corporation, the Beijing-based unit of CTG.

There are several large hydropower projects in Pakistan with a total installed capacity of about 3,000 MW, Wang said in an interview with China Daily.

“These could be our top choices for acquisition, but we will also consider acquiring small and newly built private hydropower projects,” said the senior executive, who has previously worked in Pakistan for more than a decade.

The projects that the group has in Pakistan are worth $9 billion. It has signed an agreement with Pakistan for a series of projects that can increase the figure to $50 billion.

The Chinese company chose Pakistan as the first stop of its overseas investment due to close ties between China and Pakistan, a country that faces great challenges in meeting its energy demand. Wang said the 1,100-MW Kohala hydropower station, the group’s biggest project in Pakistan at the moment, is expected to start construction this year and will be completed in six years.

The Chinese company also plans to set up a facility jointly with Dongfang Electric Corporation in Pakistan to support the local market as well as other neighbouring countries.

The company is also preparing to bid for a contract to build and operate an 8,000-MW power station in Brazil.

When bidding opens for the hydropower dam on the Tapajos River, the Chinese consortium will be a strong contender. Wang said his group’s participation in the project would involve capital investment.

The Tapajos dam will become one of the world’s 10 largest hydropower projects after completion, he said.

The builder of the world’s largest dam has also set up a Hong Kong-based company named Hydro Global Investment Ltd with the Portuguese power company EDP – Energias de Portugal – as a platform to explore business opportunities of small and medium-sized hydropower projects in the region.

“When we are doing global projects, we are looking at the long-term development and investment, so we are very careful in selecting the projects and conducting them,” Wang said.

The executive said the biggest challenge the company faces right now is to deal with the exchange rate fluctuations to prevent risk and increase profit in overseas countries.

China itself has embarked on an ambitious plan of dam building to combat air pollution. The Three Gorges Power Plant, the world’s largest hydropower project, has generated more than 800 billion kilowatt-hours of electricity since its first turbine was connected to the grid in 2003.

The world’s largest energy consumer possesses more than half the large-scale hydroelectric plants on earth – that is more than all the plants in Brazil, the United States and Canada combined.

Comment by Riaz Haq on March 31, 2016 at 9:02pm

#Pakistan #China to interconnect national grids as Pak becomes #electricity surplus nation in next 3 years. #CPEC http://tribune.com.pk/story/1076852/pakistan-china-interconnecting-...

The Ministry of Water and Power and the State Grid Corporation of China are working closely to build an interconnecting electricity grid between the two countries to enable them to utilise each other’s energy potential.

Water and Power Secretary Muhammad Younus Dagha stated this at the Global Energy Interconnection Conference in Beijing where more than 700 delegates were present.

According to a statement issued by the ministry, the secretary said the building of the interconnecting grid would allow Pakistan to meet its growing energy demand according to the requirement.

On the other hand, China will benefit from the clean energy potential in Pakistan, especially the hydroelectric power generation along the Indus River cascade, which is on the route of the China-Pakistan Economic Corridor.

Dagha said Pakistan was very much positioned to become an energy corridor for the region and facilitate the exchange of clean energy in South Asia, Central Asia, the Middle East and China. Speaking about the Central Asia-South Asia (Casa) 1,000 power supply project, Dagha stressed that Pakistan had a unique geographical position as it was strategically located at the confluence of South Asia, Central Asia, the Middle East and China.

He noted that Pakistan was moving fast to bridge the deficit and become an energy-surplus country in the next three years.

“We hope to become self-sufficient in power generation by 2018, still we will be left with an untapped potential of more than 60,000 megawatts of hydroelectric power,,” he said.

Pakistan also has an untapped potential for more than 90,000MW of wind power in its south and an unlimited solar power potential across 850,000 square km of its area.

Comment by Riaz Haq on April 1, 2016 at 8:46am

Report: #Pakistan Sees 40 Percent Drop in Violence in 2015. #Terrorism http://www.voanews.com/content/report-pakistan-sees-fourty-percent-...

A leading rights group in Pakistan says deaths due to violence-related incidents, including bombings and other militant attacks in the country, fell 40 percent in 2015.

In its annual report released Friday, the independent Human Rights Commission of Pakistan (HRCP) documented 4,612 deaths compared to 7,622 fatalities in the previous year.

The findings support official claims of a reduction in casualties because of successes in the army's counter-militancy operations against bases of the anti-state Pakistani Taliban near the Afghan border.

The report comes after Sunday’s suicide bombing in a park in Lahore that killed at least 72 people, including members of the minority Christian community, who were celebrating Easter.

Speaking to reports at the launch of the report in Islamabad, HRCP’s Kamran Arif told reporters his organization recorded 706 militant attacks in Pakistan, the lowest number since 2008.

Comment by Riaz Haq on April 1, 2016 at 9:52am

#China-#Pakistan logistics complex construction. #CPEC #Internet #Ecommerce #Warehouse #Transport #Manufacturing http://www.business-standard.com/article/news-ians/construction-of-...

Construction on a logistics complex that will deepen bilateral trade between China and Pakistan began in Xinjiang on Friday.

According to the government, the project that began in Tashkurghan Tajik county covers an area of 883 mu (about 58 hectares) and will take a total investment of 3 billion yuan ($464 million), Xinhua reported.

The first stage of the three-stage project includes an internet service administration centre, a cross-border e-commerce enterprise incubator, and a modern warehousing and logistic centre, Xinhua reported.

In the meantime, a comprehensive transportation system, especially for cross-border and cold-chain logistics, will be further developed. RMB settlement will be introduced as well.

Further stages will see the completion of a commodity exhibition centre, manufacturing and assembly factories, hotels, entertainment facilities and vehicle maintenance station.

The county of Tashkurghan sits 3,200 metres above sea level in the Pamirs, linking Xinjiang's Kashgar and the port city of Gwadar in Pakistan.

The county's Karasu Customs, China's only land port open to Tajikistan and an important post along the planned China-Pakistan Economic Corridor, officially opened last year after 10 years of preparation.

Comment by Riaz Haq on April 1, 2016 at 10:26pm

#Pakistan economy picking up, inflation low, says State Bank of Pakistan. #LSM #CPEC http://www.thenews.com.pk/print/109358-Economy-picking-up-inflation...

SBP says strong LSM output to bolster growth

KARACHI: Pakistan’s economy will pick up further during the second half of the current fiscal year thanks to the stable growth in large scale manufacturing sector on the start of multibillion rupees resource projects and a good winter rains this season that will bolster agriculture production, the central bank said on Thursday.

“Despite challenging global economic conditions, Pakistan’s overall macroeconomic outlook appears stable,” the State Bank of Pakistan said in its ‘Second Quarterly Review on the State of Pakistan’s Economy’. “Growth is likely to pick up… fiscal position is strong; inflation is likely to stay low and ricks on the external front have been moderate to a large extent.”

The bank, however, kept its growth forecast unchanged at 4-5 percent for the current fiscal year of 2015/16. The SBP’s growth forecast is still below than the government target of 5.5 percent. The economy grew at a rate of 4.2 percent in the last fiscal year ended June 2015.

The central bank said a stable macroeconomic environment means that the economic growth would maintain the momentum.

“We expect GDP growth during the FY16 to be higher than the last fiscal… We are optimistic on the industrial sector’s performance but cannot firmly assess the final outcomes in agriculture and services,” the SBP said.

It said the growth momentum in large scale manufacturing (LSM) continued to remain strong in the first half of the current fiscal year, supported by better energy supplies, lower commodity prices and accommodative polices.

The LSM sector grew 3.9 percent in the first half of the current fiscal against 2.7 percent in the previous year of the same period. Major contribution to LSM growth came from auto, fertiliser and construction allied industries.

On the agriculture sector performance, the central bank said the prospects of surpassing targets in wheat and value addition in livestock are strong. “While initial estimates suggest a decline in area under wheat cultivation, a marked improvement in yields has increased hopes for a bumper for a third year in a row; timely rains and better input availability have reported improved the per-acre harvest,” the bank said.

The SBP, however, also said overall growth does not portray a very encouraging picture in agriculture sector. “Preliminary estimates suggest that all Kharif crops have missed their respective targets; cotton and rice did not achieve last year’s production level.”

The central bank highlighted the public debt servicing obligations, which were not more than six billion dollars per annum until 2020. “Debt servicing of $5 billion due on 2016 are well within manageable level considering the present level of foreign exchange level,” the central bank said.

The SBP estimated the current fiscal year’s inflation at 3-4 percent below the target of six percent. “The global commodity prices are not expected to recover anytime soon, and on the other, a stable Pak Rupee is likely to keep inflation expectations further at bay,” it added.

The central bank maintained the lower inflation estimates on the government move to reduce domestic petrol prices by 6.6 percent and 11.9 percent in February and March 2016, respectively, following the freefall of oil prices to a 12-year low level in the international market.

The bank said measures taken by the government in October 2015 would help the Federal Board of Revenue to maintain revenue collection growth. Expenditures will remain within target, it added.

---
It said that the decline in oil prices allowed a 39.8 percent fall in the country’s oil import bill, helping reduce the trade deficit by 1.6 percent in the first half. Furthermore, the pass-through of low prices by the government has contributed in pushing down the consumer price index inflation to a multi-decade low.

Comment by Riaz Haq on April 3, 2016 at 9:05pm

From United Nations Industrial Development Organization (UNIDO):

Pakistan Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$135.03 in 2005 to $143.84 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 18.05% in 2005 to 17.41% in 2014

http://www.unido.org/Data1/IndStatBrief/A_Industrial_Performance_MV...

India Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$155.73 in 2005 to $168.42 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 15.10% in 2005 to 13.85% in 2014


http://www.unido.org/Data1/IndStatBrief/A_Industrial_Performance_MV...

China tops the list of world's 10 largest industrial producers. It is followed by the US, Japan, Germany and South Korea, according to United Nations Industrial Organization (UNIDO).

India ranks 6th in the world in terms of total manufacturing output in 2013, up from 9th place in 2008,

http://economictimes.indiatimes.com/news/economy/indicators/india-j...

India's manufacturing value added (MVA) per capita of 161.7 in 2013 is among the lowest in the world. It's up from 131.9 in 2008.

In fact India's 2008 MVA per capita of 131.9 was lower than Pakistan's 141.1. Since 2008, Pakistan's MVA per capita has slipped to 139.1 in 2013 while India's has increased to 161.7 in this period.

Bangladesh's MVA per capita has jumped from 82.2 in 2008 to 118.3 in 2013.

On UNIDO’s industrial competitiveness index, most industrialized countries lost ground in the last three years. Among the five most competitive are four high-income countries (Germany, Japan, the Republic of Korea and the United States), along with China ranking fifth. The four are among the world’s most industrialized countries and, with China, account for 59 percent of world MVA.

https://www.unido.org/fileadmin/user_media_upgrade/Resources/Public...

Comment by Riaz Haq on April 4, 2016 at 7:54am

SeekingAlpha on Pakistan:

Terrorist attacks are coming down.

Reclassification into Emerging Markets is highly probable.

Growth rate is on an upward trajectory.

In this article, I would apprise investors about the latest developments in Pakistan's economy, effecting NYSE: PAK ETF. Further, I would also give my opinion and analysis based on that development.

One of the biggest news items that poured out of Pakistan was the suicide attack in Lahore, the second largest city of Pakistan, killing more than 70 people and rendering more than 100 injured. In my view, attacks like these are desperation on the part of militants as they are being denied space from all quarters within Pakistan. I believe, after the successful completion of on-going military operations in FATA (Federally Administered Tribal Area), the security environment will become much more conducive as compared to current situation.

if we compare the number of bomb blasts to those which occurred during 2008-2013 era, then the security environment has improved remarkably. As the above graph shows, the trend is on downward trajectory. However, it is incumbent on the law enforcement apparatus of Pakistan to halt even sporadic incidents that have been happening lately.

Granted, Pakistan has a law and order issue, which is largely limited to its western border but global financial markets have already incorporated its turbulent situation by jacking up the CRP (country's risk premium). I assume Pakistan's CRP would come down, given improving security landscape.

Further, MSCI has started discussions on possible reclassification of MSCI Pakistan index from frontier to emerging markets. Market participants expect $500 million of foreign investment to flow into Pakistani equities, if Pakistan reclassifies into an EM index. I think, the market has started factoring in the highly probable reclassification as there is a sudden surge in the volumes and index points. On Friday, the benchmark index broke the psychological barrier of 33,000 points with a rebound in volumes which clocked in at ~204 m against the CYTD (Calendar year to Date) average of ~125 m. http://seekingalpha.com/article/3962824-pakistan-resilient-ever

Comment by Riaz Haq on April 18, 2016 at 10:26am

#Pakistan's #Habib Bank granted #Chinese licence to operate in #China. #CPEC #Gwadar https://www.geo.tv/latest/104170-Habib-Bank-Limited-granted-Chinese...

The Habib Bank Limited said on Monday it had won a licence to operate a branch in the Chinese city of Urumqi, the first South Asian bank to be granted such a licence.

The opening of the Pakistani bank in Urumqi, the capital of the violence-prone far-western region of Xinjiang, which borders Pakistan, will deepen ties between the two countries that last year signed a $46 billion agreement for infrastructure and energy projects.

“HBL will be establishing banking operations in Urumqi, the largest city of the province of Xinjiang, which borders Pakistan along the traditional Silk Route,” the bank said in a statement.

Up until April Pakistan’s government held a 42.5 percent stake in Habib, the country’s oldest bank.

But it sold off its shares as part of Prime Minister Nawaz Sharif’s plan to privatise 68 public institutions, bringing in more than $1 billion.

Pakistan last year signed an agreement for projects worth $46 billion with China to set up a China-Pakistan Economic Corridor (CPEC), in a boost to Pakistan’s crumbling infrastructure and energy sector.

In return, China will get a free trade zone in Pakistan’s Gwadar port and access to the Arabian Sea.

New Pakistani roads will open up routes for Chinese goods into Europe and the Middle East from landlocked Xinjiang, which borders Pakistan.

Comment

You need to be a member of PakAlumni Worldwide: The Global Social Network to add comments!

Join PakAlumni Worldwide: The Global Social Network

Pre-Paid Legal


Twitter Feed

    follow me on Twitter

    Sponsored Links

    South Asia Investor Review
    Investor Information Blog

    Haq's Musings
    Riaz Haq's Current Affairs Blog

    Please Bookmark This Page!




    Blog Posts

    Biden's Gaza Ceasefire Veto Defies American Public Opinion

    Aaron Bushnell, an active serviceman in the United States Air Force, burned himself to death in front of the Israeli Embassy in protest against the US policy in Gaza. Before setting himself on fire in what he called an "extreme act of protest", he said he would "no longer be complicit in genocide". Polls show that the vast majority (63%) of Americans want an immediate end to the carnage being perpetrated by Israel in Gaza.  …

    Continue

    Posted by Riaz Haq on February 27, 2024 at 5:30pm

    Pakistan Elections: Imran Khan's Supporters Skillfully Used Tech to Defy Powerful Military

    Independent candidates backed by the Pakistan Tehreek e Insaf (PTI) party emerged as the largest single block with 93 seats in the nation's parliament in the general elections held on February 8, 2024.  This feat was accomplished in spite of huge obstacles thrown in front of the PTI's top leader Imran Khan and his party leaders and supporters by Pakistan's powerful military…

    Continue

    Posted by Riaz Haq on February 16, 2024 at 9:22pm — 1 Comment

    © 2024   Created by Riaz Haq.   Powered by

    Badges  |  Report an Issue  |  Terms of Service