Haier is deemed as a case study for private players at home for joint ventures with Chinese companies under the umbrella of China Pakistan Economic Corridor. It is a success story of entrepreneurial partnerships between the two friendly nations, established 13 years ago in Lahore.
Haier Pakistan’s turnover was Rs46 billion last year employing around 5,000 workers and managers, and it is the top Air conditioning brand in the country. The complex started with assembling home electronic appliances and within a couple of years backward integration took place to improve the supply chain by producing parts as well, BR Research learned in its recent visit to Haier factory at Raiwind Road.
The vacant area in the complex is dedicated to a special economic zone created for Chinese investment in Pakistan with local partners. The Chinese government has created numbers of SEZs across the globe and Haier-Ruba is one of them which means Sino official machinery is supporting and promoting this SEZ in Pakistan. The idea was initiated in 2006 but the development could not expedite due to poor law and order situation at home and lack of concentration on SEZs.
Lately, Chinese President’s visit to Pakistan emphasized on two SEZs – one is in Gawadar to develop a port for shortening Chinese goods shipping route to the rest of world, and the second one is Haier-Ruba. The existing land available at the complex visited by BR Research has 300 acres which are too short for the kind of Chinese investment (loans) sought in the region. The group is in the process of acquiring land of 2,000-5,000 acres near motorway exit of Faisalabad to provide ample space for Chinese ventures.
In the initial stage, the idea is to build space for construction material to cater the need of industrial, power and road infrastructure development. The premises will not only spur industrial activity but will also provide vocational training space for developing requisite skilled workers for respective industries.
One primary objective of these SEZs from Pakistan’s perspective is to bridge the trade gap between the two countries. According to Shah Faisal, CEO Ruba SEZ, Pakistan’s import from China (including unofficial numbers) is $13 billion while exports are only $ 2billion. The FTA between the two countries is further exacerbating the trade deficit.
China has given multi-product access under SEZs to Pakistan and upon capitalizing the opportunity, Pakistan can produce at home and send it to China. The need of the hour is to seek opportunities of producing goods that don only substitute imports but can also be exported to China.
Haier-Ruba SEZ is eyeing to develop those industries that can substitute imports from China. Another idea is to nurture industries adding value to Pakistan’s own raw materials which can enhance export potential within the country. The third stage is to have buyback agreements from China to bridge the $10 billion-plus trade deficit from China.
Over ten thousand MOUs have been signed between Pakistan and China since the inception of the country. Exceptions aside, the majority remained on paper.
Here is hoping some of the projects envisaged in $45 billion Chinese money will be executed in the coming years irrespective of whosoever is ruling the country. The few projects which are likely to commence soon include Lahore Metro train (orange line) mass transit system. The cost is estimated at $1.6 billion but experts fear that it may well escalate to $2.7 billion. The first phase of 27 KM is likely to complete within a year.
The Industrial and Commercial Bank of China operating in Pakistan has signed $4.32 billion worth of financial agreements (not MOUs), enthusiastically proclaimed by Shah Faisal who is also president of Pakistan China Joint Chamber of Commerce.
The SEZ has worked on the maiden assembly line of Laptops and Mobile Phones which is expected to be commenced this calendar year. The next in line is the manufacturing of Chinese branded cars in Pakistan. This will give competition to existing Japanese brands and the first car to be launched will be in the 660 CC category, which is likely to be priced at less than Rs0.6 million per unit. Let the game begin.
This article was originally published in Business Recorder (BR) Research on May 8, 2015.
