Spearhead Analysis – 28.04.2016
By Hassaan Khan
Research Analyst, Spearhead Research
The groundwork for CPEC has started. This project needs no introduction and it will not be farfetched to say that the domestic economy’s strength for better or for worse will be determined by the success of this project and its associated externalities. A measure of Pakistan’s good terms with China can be measured through the increase in trade volume between the two countries rising by 18.2% in the last outgoing fiscal year, despite a global economic slowdown.
Even for the first three months of this fiscal year bilateral trade between the two countries has registered a 10% increase for the first three months of this fiscal year. The numbers confirm China’s emergence as Pakistan’s most significant trade volume between the two sides has grown from a lowly $5.7bn to $100.11bn during a 15-year period from 2000 to 2015 while total value of contracts signed between the two in this period has gone up from $1.8bn to $150.8bn.
To make financial transactions smoother across the board local financial institutions have started to set up shop in China with Habib Bank Limited the first mover having successfully gained licensing to open a branch in China making it not only the first Pakistani bank to operate in the dragon nation but also the first South Asian Lender to do so. The bank plans to open a branch in Urumqi, the largest city in the province of XinJiang, which lies along the traditional Silk Route and borders Pakistan. The Industrial Bank of China is already well established in Pakistan with branches in Islamabad, Karachi and Lahore so we can expect most of the funds to come through these two banking channels
In addition to gaining the license to bank in Urumqi HBL has also signed a $500 million accord, the first of its kind, with the China Development Bank under which medium and long term financing will be provided to local financial institutions Under the agreement, the CDB will provide $300m to HBL for long-term financing of energy projects in Pakistan and $200m for offshore working capital financing needs. It will also allow HBL to provide much-needed foreign currency liquidity to finance the development of projects in Pakistan, including those under China-Pakistan Economic Corridor.
On the political front Politicians are courting Chinese companies for investment and even amidst the fracas created by the Panama Leaks the Premier invited Chinese companies to explore investment opportunities in Pakistan. The Prime Minister personally extended the invitation to Shandong Group to invest in various projects particularly road, rail, power, dams, pipelines, airports and the financial sector of Pakistan. Sun Liang chairman of the Shandong group has already reciprocated this gesture of goodwill and appreciated the economic policies of the government and attributed Pakistan’s economic turnaround to the sound vision of the Prime Minister and strict financial discipline of the government.
Pakistan Railways is working on a proposal to lay down a railway track between Hawalian and Khunjrab. The railway track project is about 682 kilometer long and is part of the CPEC project and will pass through Abbottabad, Mansehra, Batgram, Besham Chilas, Daso, Gilgit and Hunza.
All of these developments signal that the ball has started rolling and despite the political risk associated with Pakistan the groundwork for CPEC is being doled out in full force. Project CPEC has begun and all we can do know is hope that CPEC delivers on its manifold promises.