Providing countless benefits for Central and South Asia, the China-Pakistan Economic Corridor has reached another milestone with the development of special economic zones (SEZ).
Enhancing connectivity with more people-to-people business interaction and joint ventures, ultimately the trickle-down effect of the CPEC projects has the potential to reach 3 billion people living in the neighborhood and in Central Asian states.
In the first phase, development of Gwadar port on the Arabian Sea, and infrastructure involving transportation and energy were the main focus; now, however, the focus has moved to industrial co-operation under the CPEC.
Conceptually, the idea of SEZs was first started in New York in 1937. These were described as designated areas with special economic regulations such as tax incentives and lower tariffs to help attract foreign direct investment and boost industrial development.
Even though many countries subsequently employed this approach, it was China that achieved greatest success as it used its SEZs to attract foreign capital. The entire province of Hainan was declared an SEZ when usually the concept was limited to individual cities.
Offering tax incentives to foreign investors and allowing them to develop their own infrastructure, the economic liberal environment provided in the six Chinese SEZs greatly helped boost national innovation and advancement.
Greatly inspired by the success of Shenzhen, transformed from a remote fishing village to one of the world’s busiest cities with a GDP of over U.S.$230 billion, Pakistan has plans to establish nine special economic zones.
Providing special concessions in tax and economic policies for domestic and international investors, these zones will seek to promote industrial growth and target sectors that will help bridge the urban-rural divide and create an effective “zone of influence” improving standards of living and eradicating poverty.
In July, the Joint Industrial Working Group visited Pakistan to discuss incentives for investors and feasibility of the SEZs, as well as implementation of the ongoing Gwadar projects and industrial cooperation under the China-Pakistan Economic Corridor.
Delegation leader Du Zhenli, from the Department of Global Cooperation of China International Engineering Consulting Corp., explained: “We need to undertake the work step by step. Chinese companies are willing to develop SEZs in Pakistan. For that purpose, we must create a long-term mechanism for industrial cooperation.”
Having already established 77 industrial parks in 36 countries, China has fine-tuned development model and has the expertise required to provide a win-win outcome for each and every stakeholder.
Re-affirming the commitment to invest in Pakistan and move the initiative forward, the Chinese delegation devised a road map for industrial cooperation and finalized policies and planning along with Pakistani representatives from the Board of Investment.
SEZs have played an important role in the development of many Asian economies and created rapid industrialization. Strategic industry clusters planned to date include steel foundries and building materials, petrochemical, automotive and allied, light engineering and textile and garment entities.
Developed as a model for cooperation between China and Pakistan, the first SEZ at Dhabeji covers over 1,000 acres. Located in the province of Sindh, its annual industrial output is expected to exceed U.S.$2 billion.
Situated near the port city of Karachi and just 700 km from Gwadar, it is accessible to the Central Asian Republics, the Middle East, Europe and East Africa, making it the most viable SEZ for that particular region.
Primarily, the main success factors for a special economic zone are connectivity and access to a commercial center — in Dhabeji SEZ’s case, the city of Karachi. With two seaports and 90 percent of the multinational companies operating in Pakistan based there, Karachi provides Dhabeji with immense growth potential.
Likewise, China’s pioneering SEZ in Shenzhen used locational advantages to make it the principal access point for foreign investment into China’s mainland from Hong Kong. As a result, it has grown from a modest population of 30,000 in 1979 into one of the world’s most modern cities with more than 10 million residents.
In Pakistan’s case, Sindh Board of Investment Chairperson Ms. Naheed Memon announced that Dhabeji SEZ would create 100,000 direct and indirect jobs, when she spoke to the press after a meeting with Chinese investors, adding that the SEZ Authority of SBI is actively engaged with provincial industrial associations and China’s state-owned enterprises to promote the zone.
As it progresses, the CPEC is beginning to achieve its potential by transforming the regions it passes through into centers of economic activity. After all, practically generating economic opportunities with enhanced connectivity and mutual trade interests is what the Belt and Road Initiative is all about.