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Pakistan Attempts To Reset Economic Ties With China

Pakistani Prime Minister Imran Khan (L) chats with Chinese Premier Li Keqiang (R) during a signing ceremony at the Great Hall of the People in Beijing, on October 8.
Pakistani Prime Minister Imran Khan (L) chats with Chinese Premier Li Keqiang (R) during a signing ceremony at the Great Hall of the People in Beijing, on October 8.

Pakistan has offered new concessions to China in a visible effort to revive economic relations with the neighboring giant.

Islamabad is offering Beijing tax breaks and has established a new organization to improve coordination for the multibillion-dollar Chinese investments in energy and infrastructure collectively called the China-Pakistan Economic Corridor (CPEC).

“This [the issue of giving concessions to Chinese companies] has been going on for seven years and nobody actually did it, and we [this government] have done it within our first year [in office],” Ali Haider Zaidi, Pakistan’s minister for maritime affairs, told Radio Mashaal.

Zaidi said Islamabad has agreed to give a 23-year major tax break to a Chinese company. He said the break will give incentives to the China Oversees Ports Holding Company (COPHC) to “set up industry and import goods” in the southwestern port of Gwadar.

Since 2013, Beijing has invested some $60 billion to link its western region of Xinjiang with Gwadar through more than 2,000 kilometers of rail and road links. CPEC, as the trade corridor is known, also includes other energy, infrastructure, and manufacturing projects across Pakistan.

While CPEC projects rapidly moved along under the previous Pakistani government, they appeared to have stalled after Prime Minister Imran Khan assumed office in August 2018.

Khan now appears keen on reviving CPEC. As Khan met with senior Chinese officials during a trip to Beijing on October 8, Pakistani President Arif Alvi promulgated two ordinances on October 8. The CPEC Authority Ordinance 2019 established a China-Pakistan Economic Corridor Authority (CPECA) to oversee and swiftly implement CPEC projects. The Tax Laws (Amendment) Ordinance 2019 grants tax exemption to COPHC, according to the reports in Pakistani media.

"The completion of CPEC will not only benefit Pakistan and China, but also the entire region," Khan noted in August. He termed CPEC a clear example of joint efforts and partnership between Islamabad and Beijing.

Zaidi noted that COPHC will be able to set up industry and import goods. “They have an income tax break, the sales tax break, and a customs duty break inside the port area for goods that are going to be reexported,” he said.

Opposition political parties, however, are not convinced. Lawmaker Pervaiz Rashid, a leader of Pakistan Muslim League-Nawaz (PML-N), told Radio Mashaal that establishing CPECA was “unnecessary” because the previous government had “implemented many projects” without the establishment of a separate entity.

Farhatullah Babar, a senior leader of the Pakistan Peoples Party (PPP), said the move was aimed at handing over CPEC to the country’s powerful military because of speculations that the military will have a major role in the new organization. “We don’t want the militarization of civil society,” he told journalists on October 8.

CPEC is part of the Belt and Road Initiative (BRI). Beijing has invested hundreds of billions of dollars in infrastructure investments, regional connectivity, and energy to revive the ancient Silk Road and aims to plug countries and economies in Eurasia, the Middle East, and Africa into China.

Since its inception in 2014, CPEC has come under criticism inside Pakistan and internationally. Some officials, fearing a debt-trap, hinted at rethinking some of the projects. In 2018, cash-strapped Pakistan halted work on several CPEC projects.