There is growing concern in Pakistan’s manufacturing sector over Chinese investment and the lack of interest in the country by American and European investors.
Local entrepreneurs are also concerned about trying to compete with Chinese business titans.
The latest Chinese investment, a US$500 million venture by e-commerce giant Alibaba, which acquired 100% equity of leading online retailer Daraz Group, has caused a stir. The venture raised apprehension in business circles about the dumping of Chinese products and the closure of small startups, which could have a devastating impact on local trade and industries.
Daraz, established in Pakistan in 2012, posted sales of more than Rs3 billion (US$26 million) last year with its Big Friday event.
“Dumping is a serious issue because the market is flooded with Chinese products and that does not augur well for the local industries,” Shaikh Mohammad Shafiq, the Central Chairman of Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), told Asia Times.
He added that e-commerce had great potential in Pakistan and the expertise of Alibaba would definitely diversify e-trading, but the government needed to take tax and non-tax measures in a way that would secure the local manufacturing sector.
Chinese dominance in budding sectors
With massive funds being pumped in the energy and transport sector under the China-Pakistan Economic Corridor (CPEC), China is now casting its eyes on the e-commerce and banking industries through Alibaba, Bank of China and Industrial Commercial Bank of China (ICBC).
Local investors are finding it hard as the Chinese get a foothold in the budding economic sectors of Pakistan in the absence of any guidelines aimed at saving the interests of local entrepreneurs.
“A committee, formed with representation from the Ministry of Commerce and Ministry of Information Technology, is currently deliberating the ‘e-commerce framework’ that will provide the guidelines for IT-related investment in the country,” Saghir Anwar Watto, Director (PR), of the Ministry of Information Technology and Telecommunication (MITT), told Asia Times.
Watto, who is also a spokesperson for the federal minister for IT, Anusha Rehman, said the e-commerce framework was almost finalized and it will standardize the operation of e-commerce companies, including Alibaba. It will also attract other global e-commerce companies to invest in Pakistan’s IT sector.
Speaking about the Daraz Group deal, he said it would have a positive impact on the business environment. Watto brushed aside apprehensions about dumping and said China had even penetrated the US market because the global market always remains competitive and China wants to proliferate its market share in global trade.
The manufacturing sector does not buy the government line on Chinese investment, fearing that Chinese inroads into the Pakistani market will make a dent in the economy.
Leading industrialist Muhammad Ishaq, a former director on the Khyber Pakhtunkhwa Board of Investment & Trade (KPBOIT), told Asia Times that the Alibaba deal would put pressure on Pakistan’s foreign currency reserves due to heavy outward flow and monopolization of the e-commerce industry.
“The local players do not have the means to compete with Alibaba’s huge resources and will eventually die out,” he said, adding that local manufacturers will be unable to match low-priced Chinese-manufactured goods.
Pakistan’s economic growth touched the 5% mark – the highest in a decade – with the Chinese investment. Besides the investments, Beijing’s influence in Pakistan also increased at a time when the country has not been on good terms with the US due the country’s mishandling of militants and the Afghan issues.
The Pakistan-China economic tryst
With a net inflow of foreign direct investment (FDI) of $2.09 billion during July-March 2017/2018, the net Chinese contribution in the FDI adds up to more than 60%. The FDI from China registered an impressive growth of more than 300% in the first 10 months of the current fiscal year.
A well-placed source in the commerce ministry told Asia Times that most Western and US investors preferred to stay away due to “exclusive advantages” and “concessions” granted to Chinese companies by the government, which they thought would not allow an even playing field. “There is a perception in the West and the US that the Chinese are taking over,” he said.
“There should have been some restrictions on the Chinese investments and they should be bound to enter into joint ventures with their Pakistani counterparts before they are allowed to own businesses in the country,” said Ashfaq Paracha, a board member of the Khyber Pakhtunkhwa Economic Zones Development & Management Company.
He added that he appreciated the involvement of Chinese giant Alibaba in Pakistan’s e-commerce sector, but hastened to add that the government should strengthen the anti-dumping laws to safeguard local industry. Local products, he said, cannot compete with Chinese products as the cost of doing business in Pakistan was higher.