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Pakistan Lures China Firms to Economic Zones After Bomb Attacks

Pakistan Lures China Firms to Economic Zones After Bomb Attacks

Pakistan is dangling tax incentives for Chinese companies, as Beijing’s closest ally in South Asia drums up interest for special economic zones months after terrorists were suspected to be involved in the explosion of a bus carrying workers from China.  

The country has seen an uptick in militant activity, which has complicated Prime Minister Imran Khan’s efforts to reassure Chinese businesses and investors. That’s a concern for Pakistan as it is a flagship destination for President Xi Jinping’s Belt and Road initiative that started almost a decade ago with projects valued at about $25 billion. 

The incentives would be equal or better than other competing destinations for Chinese companies looking to relocate such as Bangladesh, Sri Lanka, Cambodia and Vietnam, said the Chairman of Pakistan’s Board of Investment Muhammad Afzar Ahsan. 

The government is offering tax exemption on company income for a decade, duty-free imports of factory equipment and as well no taxes on on raw materials used for products that will be exported, Ashan added. While these incentives are available for companies from other countries, Pakistan is targeting Chinese firms given the massive presence of Belt and Road projects. 

Much of the funding for CPEC has been channeled to building power plants that have helped Pakistan resolve its electricity shortages that have dragged on the country’s growth for decades. There’s also the China-controlled port in Pakistan’s southwestern fishing town of Gwadar that has been promoted as a gateway to ship out products from western China. 

Pakistan’s push for these incentives come as Khan is set to make a three-day visit to China from Feb. 3 as a guest for the opening of the Winter Olympics, where he is also expected to hold bilateral meetings. China’s investments in Pakistan will be a key part of those meetings. 

Pakistan is just entering the second phase of the corridor’s development with a focus on special economic zones with one in each of Pakistan’s four provinces and another in Gwadar, Khalid Mansoor, Special Assistant to the Prime Minister on CPEC Affairs said in Karachi last week. China’s Century Steel Pvt. started construction last year for a factory costing $240 million in one of the zones.  

However, the strides made in these BRI-related projects have been marred by terrorist attacks on Chinese workers last year. A suicide bomber in August attacked a convoy of vehicles carrying Chinese nationals at Gwadar while another nine citizens where killed in July after a bus ferrying workers to a dam project exploded. 

The bus explosion shocked Beijing, with Foreign Minister Wang Yi calling on Pakistan to protect the BRI projects and Chinese citizens. Mansoor said the government has since established a new security unit to look into the protection of China-owned projects even though these facilities are heavily guarded and the vehicles ferrying people have security forces tailing them.

©2022 Bloomberg L.P.