China may relocate labour-intensive industries to Pakistan: Reports

However, Pakistan has so far failed to woo Chinese industries as many have gone to Cambodia, Laos and even Ethiopia, though their cost of labour is higher than the cost in Pakistan and their markets are far smaller in terms of population, reports The Exports Tribune.

Pakistan Business Council (PBC) – a business policy advocacy platform – has published a detailed study titled “Catalysing Private Investment in Pakistan: Leveraging Chinese Investment in CPEC” in May 2022 to highlight the hurdles to foreign investment in Pakistan, the newspaper reported.

Pakistan and China are considered as allies.

Pakistan may welcome some Chinese industries – and foreign investment from other global destinations – as Beijing is shifting its industrial units beyond borders to remove the “Made in China” label from many products to win back US markets, reports The Express Tribune.

Washington has increased import duty on scores of Chinese products under a trade war.

The PBC study says it is aimed at providing guidance to policymakers on addressing the fundamental issues, which have resulted in low investment in Pakistan.

It makes comparison of key indicators with Pakistan’s peer economies and highlights the obstacles faced by Chinese investment under the China-Pakistan Economic Corridor (CPEC) framework.

The study says Chinese manufacturers appear to have moved part of their capacity offshore to avoid the “Made in China” label, most notably to the countries in Southeast Asia such as Vietnam, Thailand, Indonesia and Malaysia.

“Smaller countries in the region, such as Cambodia and Laos, also appear to have received significant amounts of Chinese FDI (foreign direct investment).”

The trend of relocating offshore among Chinese manufacturers presents a significant opportunity to Pakistan. This opportunity (of attracting Chinese factories) is centred round textile and apparel manufacturing.

Interestingly, China’s investment in the Belt and Road Initiative (BRI) countries has grown steadily since 2013.

“Pakistan’s share in China’s OFDI (outward foreign direct investment) in BRI countries since 2013 stood at 5.1%, with total gross inflows amounting to $7.1 billion over this period,” said the study as quoted by The Express Tribune.

Pakistan attracted FDI worth $1.8 billion in 2020 compared to $5.1 billion by Laos, $3.6 billion by Cambodia and $5.5 billion by Vietnam. Bangladesh, however, received lower FDI at $1.5 billion, according to the study.

PBC CEO Ehsan Malik said China had been the largest foreign investor in Pakistan over the past two to three years amid CPEC projects.

“The flow of FDI from Beijing, however, has slowed down in the wake of growing unfavourable working environment in Pakistan,” he told the newspaper.