Chinese firms to retain 50% proceeds

ISLAMABAD:

Pakistan is exploring concrete steps to ensure Prime Minister Shehbaz Sharif's upcoming visit to China yields tangible results, with cabinet members urging resolution of longstanding issues hampering Chinese investment instead of merely signing more MoUs.

To remove a major obstacle in relocating Chinese industries to the Gwadar Free Zone, the government has decided to allow Chinese firms operating there to retain 50% of their export earnings to settle dues, according to government sources.

To ensure a productive visit, a ministerial committee has been formed to oversee planning, and called Pakistan's ambassador to Beijing, Khalil Hashmi, for further consultations. The committee has held several meetings thus far.

Discussions are being held to assess whether hosting a Business Conference in Tianjin would help attract investment or if efforts should instead focus on addressing deeper concerns that have discouraged Chinese private sector participation over the past decade.

PM Sharif will be visiting China to attend the Shanghai Cooperation Organisation's Heads of State Council meeting at the end of August. Pakistan's embassy has proposed a Business Conference on September 2, but some officials believe it may not help achieve the desired results.

One of the main hurdles in populating the Gwadar Free Zone has been facilitation of foreign currency operations. The issue has been discussed at various levels, including twice in the Cabinet Committee on Chinese Investment in Pakistan (CCoCIP).

In March, the CCoCIP directed the finance, commerce, industries ministries, the Board of Investment, and the State Bank of Pakistan (SBP) to implement a foreign currency facilitation pilot in Gwadar.

Sources confirmed that the short-term solution now agreed upon is to let companies retain half of their export proceeds. Planning Minister Ahsan Iqbal confirmed this to The Express Tribune.

"For the short term, companies in Gwadar Free Zone can retain up to 50% of their export proceeds in Special Foreign Currency Accounts," said Iqbal. "These funds can be freely used for payments abroad of a current account nature, without prior SBP approval."

However, Iqbal stressed that for long-term facilitation, the Gwadar Port Authority law will have to be aligned with other laws.

As per sources, the SBP has maintained that legal changes are necessary for broader foreign currency use. It has recommended bringing Gwadar Free Zone in line with Export Processing Zones by amending the Gwadar Port Authority Act to waive relevant sections of the 1947 Foreign Exchange Regulation Act. Until then, the 50% retention policy will remain in place.

Another issue highlighted by the sources remains the consistent provision of electricity and water to Gwadar, which has lingered for nearly a decade. Pakistan aims to attract Chinese industries seeking to relocate amid the China-US trade war, officials said.

To address power issues, the cabinet committee directed the energy ministry to coordinate with the Pakistan Navy to ensure interim electricity supply to Gwadar's desalination plant from the naval grid. It also instructed the Power Division to fast-track revisions in electricity supply for Rashakai Special Economic Zone (SEZ) and submit a progress report to the CCoCIP.

The ministerial committee's discussions have revolved around facilitating industrial relocation and evaluating the value of the proposed business conference. Another meeting of the committee was held Monday.

The committee is co-chaired by SAPM on Industry Haroon Akhtar Khan and Commerce Minister Jam Kamal Khan, with Planning Minister Ahsan Iqbal and the national coordinator of the Special Investment Facilitation Council (SIFC) also on board.

Its mandate includes reviewing progress on agreements and MoUs signed during Sharif's 2023 China visit and subsequent roadshows.

Sources said that during one of the meetings, Pakistan's ambassador briefed members on the rationale behind the proposed business conference. He shared that in the previous event, about 150 MoUs were signed and 1,000 B2B meetings took place.

However, some committee members expressed concern that the MoUs never materialised into real investments. According to sources, one co-convener told the committee that the prime minister is just not interested in signing more MoUs.

Cabinet members also discussed ongoing real investor concerns, including inconsistent policies, difficulty in profit repatriation, exchange rate volatility, and security issues.

To address these, it was suggested that Pakistan offer China ready-to-operate industrial zones and SEZs with long-term land leases. It was also recommended that electricity be provided at regionally competitive rates.

The SIFC has requested concrete suggestions from the Pakistani embassy in Beijing to make the business conference more impactful. The embassy has proposed exploring cooperation under government-to-government, government-to-business, and B2B models.

The committee will also engage with Chinese business representatives to understand their needs and expectations, and identify ways to facilitate project-based investment, new industry development, and the relocation of Chinese production units.

In coordination with provincial authorities, the committee will recommend legal facilitation measures and identify steps to remove bottlenecks to Chinese investment.

The committee will also monitor the finalisation of a sector-specific investment "pitch book." Key sectors where Pakistan is seeking Chinese investment include chemicals, petrochemicals, iron and steel, copper, electric vehicles, auto parts, solar panel manufacturing, power storage, software development, ICT, and food processing.