In China, entrepreneurship occurs in the shadow of an efficient state. The incentives of party members are broadly aligned with the promotion of economic activity, and they are evaluated through promotion and enhancement of local economic activity. Multinational corporations have greater options in China. Provinces vie for their investment. Infrastructure is widely available and often better than in the so-called developed West. The relatively limited capabilities of local enterprises are a blessing in disguise for them. Investor’s options are also unique.
A foreign financial investor would either invest directly in a physical facility or indirectly through one of the many Western multinational enterprises actively involved in China. Since China’s domestic markets were left undeveloped, it actively organized and relied on Chinese emigrants to provide capital. The wooing of overseas Chinese paid many dividends. Today rural China is the source of much unrest, and its development lags behind the coast. As in the urban sector, enterprise in rural China is driven by state-led action.
Why are entrepreneurs looking towards China?
Most multinational companies in China are successful because they are stellar at execution. They are attracted by China’s economy of scale and scope. Some high-tech and consumer electronics companies are starting to develop products first for China and then world markets. CPEC, in this vein, could help Pakistani entrepreneurs and local companies learn from Chinese enterprises and become a premium source of industrial talent and capabilities.
As more products get developed in China, they will acquire global status. The practices and industrial processes adopted for their production will eventually become international standards. The ability to establish a Chinese talent pool alongside Pakistani youth will be critical across all fields. As a strategic ally of Pakistan, China could quickly help leverage our industry in different production sectors. Given the scale of its markets, gaining a preferential share of a market in China will deliver a global structural advantage. Astute execution in China will deliver a telling worldwide advantage, and it is not one that companies can afford to concede.
Alongside the large-scale CPEC projects, a great advantage of CPEC would be to support education, agriculture, poverty alleviation, healthcare, and vocational training.
Fixing the economy
The current account is one of the two components of the balance of payments, the other being the capital account. It is important to note that trade in goods and services represents a significant portion of the current account; that is why a deficit in trade balance results in a deficit in the current account. Primary income comprises compensation of employees, investment income, etc. CPEC could help bring down the current account deficit and create a sustainable trade system between Pakistan and China. Furthermore, the Independent Power Producers would not be the primary energy source in the country as hydel power plants become more streamlined. Until 2020, 5000 Megawatts of capacity had been added to the national grid, representing a total investment of more than USD 9 billion. In the fiscal year, 2018-19 CPEC power projects accounted for 14.5 percent of the total output in the NTDC system. The share of the CPEC project’s total generation is likely to go up as more power plants come online. Institutionalization of joint decision-making has meant that there has been ongoing dialogue as both countries seek to optimize investment.
Circular debt, which stands at USD 10.6 billion, can also be managed via CPEC projects as investment pours in. As local investors and organizations enter into contracts with the Chinese, the businessmen in Special Economic Zones (SEZs) could quickly pay back the circular debt. A case in point is the Sialkot airport, whereby the businessmen constructed an airport using indigenous resources. The same could be done for other areas of the country using the CPEC investments. The same is true for external debt, which could be cleared using the indigenous resources and CPEC project investments.
The ‘all-weather friend’
Pakistan must realize that China has been a loyal and long-lasting ally of the country, and CPEC is just a by-product of that long-lasting partnership. Furthermore, since China has become a powerhouse for manufacturing different types of technology worldwide, it would be of great importance to create a system of managing projects whereby the transfer of technology among youth and technocrats becomes a by-product of the alliance. CPEC investments will alleviate supply-side bottlenecks, which will help structural problems that continue to affect the economy. The Chinese experience of creating SEZs as a dynamic source of growth could further strengthen Pakistan’s economy.
Mahvesh Mahmud is a Shell-Chevening-DFID-Noon (2007-2008) scholar to the Judge Business School, the University of Cambridge UK where she was awarded the Lucy Cavendish College’s Kate Bertram Prize for distinction in Management Studies. The views expressed in this article are the author’s own and do not necessarily reflect Global Village Space’s editorial policy.