Pakistan and China are to sign a five-year Industrial Cooperation Framework Agreement to revitalize the China-Pakistan Economic Corridor (CPEC).
In addition, Islamabad would also seek the renewal of $4 billion in Chinese loans and an increase in the size of the trade finance facility by $4.5 billion.
General talks will be held in Beijing as Prime Minister Imran Khan began a four-day official visit to China on Thursday. During the visit, he will join other world leaders at the opening ceremony of the Winter Olympics to be held on Friday.
According to the text of the framework agreement, Pakistan has agreed to take responsibility for the lives and property of the Chinese, in addition to providing “special beneficial support for the supply of water and electricity which are necessary to develop SEZs (Special Economic Zones) and provide efficient services”. and favorable policy support for Chinese companies that intend to invest or have already invested in Pakistan’s SEZs”.
During Prime Minister Imran’s visit, the Pakistani authorities will seek a larger fiscal package, including a contribution to a new fund – the China-Pakistan Industrial Cooperation Fund – to facilitate the relocation of Chinese industries to Pakistan, according to the sources and the draft agreement.
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On the fiscal side, the government is seeking to roll over $4 billion in loans and increase the size of the trade finance facility from the current $4.5 billion to around $10 billion, they added.
But the final decision would depend on a meeting between Prime Minister Imran Khan and Chinese President Xi Jinping, the sources said.
“The Federal Cabinet on Thursday approved the Industrial Framework Agreement, which will be signed during the Prime Minister’s visit,” Fareena, Secretary of the Board of Investment (BoI), confirmed to The Express Tribune.
The cabinet approved the draft agreement on the day Prime Minister Imran left for Beijing with the aim of bringing the two countries closer together economically and commercially.
Just before leaving for Beijing, Finance Minister Shaukat Tarin lifted another irritant in bilateral relations by agreeing to open a revolving bank account that would have a balance equal to 22% of power purchase payments to be made to Chinese power plants. This was a major Chinese request to save its investors from the circular cycle of debt.
The government has also agreed to release an additional 50 billion rupees for Chinese power plants to reduce their dues to the government. He has already approved the payment of $11.6 million to Chinese nationals who died or were injured in a terrorist attack.
“CPEC’s progress has been greatly affected by the International Monetary Fund program which has put many controls by imposing limits on the government’s primary fiscal deficit and issuing sovereign guarantees,” sources told The Express Tribune.
The signing of the CPEC industrial cooperation framework agreement is seen as a “serious” first step by the government over the past three and a half years to get President Xi’s multi-billion initiative back on track. Pakistan has been trying to get the deal done for the past two years.
The framework agreement will be signed by BoI Chairman Muhammad Azfar Ahsan and Chairman of China’s National Development and Reform Commission (NDRC).
The agreement will be in effect for five years and is automatically extendable if neither party notifies the other not to extend it at least three months before the expiration date.
According to the draft agreement, China has advantages in terms of experience, technology, finance and industrial capacity, while Pakistan enjoys favorable conditions in terms of natural resources, adequate manpower. , labor, quality infrastructure, access to international markets and optimal industrial development policies.
The main objective of the framework agreement is to enhance Pakistan’s industrial competitiveness by encouraging Chinese companies to build factories and set up businesses in the country. The objective of the partnership is to improve skills development, increase labor productivity and encourage joint research and development.
The principle of the partnership is to respect companies as responsible entities on market-oriented guidelines and to follow international trade rules and practices.
The two countries will also discuss the establishment of the China-Pakistan Industrial Cooperation Fund to support projects within the framework of industrial cooperation and other relevant fields.
Pakistan would not be required to create a new fund management structure and would instead use the existing Pak-China Investment Company to regulate the industrial fund, former BOI chairman Haroon Sharif said.
He said the purpose of the newly proposed fund was to provide long-term financing to Chinese industries moving to Pakistan, as commercial banks did not have such appetite.
Sharif said there is also a need to develop a one-stop solution for Chinese investors, such as the DIFC financial center offered to investors in Dubai.
China will contribute to promoting industrialization, developing and populating economic zones, improving the competitiveness of the service sector, forecasting the demand for human resources, ensuring the required training of the workforce. work ; and for the initiation, planning, execution and monitoring of projects, in accordance with the text of the agreement.
It is important to note that the two countries have agreed to attach great importance and priority to the development of nine priority SEZs under CPEC, with three SEZs being at an advanced stage of development, namely Rashakai SEZ, Allama Iqbal (M-3) SEZ and Dhabeji. SEZ.
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The two countries will carry out research on the priority development of Bostan SEZ and also formulate joint strategies to attract third-party participation within the framework of industrial cooperation.
China will encourage its enterprises to establish industries in the SEZs for export-led growth and industrial concentration, while utilizing local raw materials and labor, including labor, as well as professionals.
Pakistan will facilitate Chinese companies effectively in accordance with national legislation. It will also improve the national business environment, provide policy support to Gwadar Free Zone, Rashakai SEZ and other SEZs, protect the security of companies and employees investing in the country, provide special beneficial support for the supply of water and electricity which are necessary to develop the SEZ, and to provide effective and favorable policy support to Chinese enterprises which intend to invest or have already invested in the SEZ.
China has agreed to use its advantages in equipment, technology, management and finance to support the development of industry in Pakistan, in addition to focusing particularly on the development of the technology sector. information and communication (ICT).
Similar provisions will also be made in other sectors (pharmaceutical, engineering, agriculture, light industry, household appliances and building materials) mentioned in the long-term plan or in any other mutually agreed area, according to the text. of the agreement.
Pakistan is also seeking to renew $4 billion in Chinese loans that come due in the coming months, including $2 billion at the end of March, sources said.
Also, the main focus will be to increase the size of the currency swap facility from $4.5 billion to $10 billion. The net additional financial support the government could request is around $5.5 billion, sources added.
The currency swap agreement is a Chinese trade finance facility that Pakistan has been using since 2011 to service its external debt and maintain its gross foreign exchange reserves at comfortable levels rather than for trade-related purposes.
The advantage of this arrangement is that the additional Chinese loan will not reflect on the federal government’s book and will not be treated as part of Pakistan’s external public debt.
On a question, the Governor of the State Bank of Pakistan (SBP), Dr Reza Baqir, said on Thursday that the $4.5 billion funding under the Chinese currency swap deal was the responsibility of the SBP.
To another question about increasing the size during the Prime Minister’s visit, the SBP Governor maintained that only the Prime Minister’s spokesperson could answer in this regard.
In the last fiscal year, China raised the aggregate limit from $3 billion to $4.5 billion for another three years against the rupiah with maturity tranches of three months to one year.
Pakistan had paid Rs 26.1 billion in interest on the outstanding balance at agreed rates.