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Chinese ‘rigidity’ rattles businesses

Afshan SubohiAugust 28, 2017

Pakistani businesses find the Chinese too mechanical and rigid to deal with.

Accustomed to a Western business negotiation and partnership style they found the predetermined and strictly limited terms of engagement of our Oriental partners a bit unsettling.

It is not an accident that despite the scope and promise, the private sector’s share in projects under the CPEC umbrella is negligible.

Faced with a completely different style of doing business, the private sector finds it difficult to keep its head above water

Naheed Memon, chairperson of the Sindh Board of Investment, told Dawn recently that she expected a significant increase in the participation of the private sector once special economic zones become operational.

Khizar Hayat Gondal, federal secretary for industries, promised to share information but nothing was received till filing of this report. Board of Investment chairman Dr Miftah Ismail, who recently moved his office to Prime Minister House, was too busy to offer comments.

The representatives of the business class blamed the Chinese for the issue. “China, though not explicitly hostile to private sector participation in CPEC projects, implicitly prefers dealing with the government,” an executive commented.

The four-year track record of progress, since signing of the bilateral deal in July 2013, reflected China’s seriousness towards CPEC.

So far 59 projects have been identified (17 in energy, 11 Gwadar, eight infrastructure, two digital, four rail-based transit, six provincial road, port, water, mining, nine special economic zones, and two related to social development).

Of all, four projects in the energy sector are operational, with Sahiwal coal-fired power plant contributing 1,000 megawatts, Sachal wind farm in Jhimpir 50MW, UEP wind farm in Jhimpir 100MW, and HydroChina Dawood wind farm in Gharo 50MW.

The remaining are at different stages of progress monitored closely, according to details available on the dedicated government website.

China clearly appeared determined to push through investment in the agreed projects with or without private companies. It was not ready to wait for private investors to digest the initiative and neither did it seem to have an appetite for private sector tantrums.

For the Pakistani business community, therefore, it was a paradoxical situation. Cognisant of the scale and value of the gigantic investment drive under CPEC, they understand that they can’t afford to watch from the sidelines but the challenges of dealing with Chinese investors look insoluble.

“They are both reluctant and keen to enter into joint ventures with the Chinese,” commented an official at the CPEC directorate in Islamabad.

“The government of Pakistan will have to intervene to pave the way for a flow of local private capital and expertise in CPEC-related projects. The Chinese state-owned companies active so far lack the interest and flexibility required to attract private companies,” commented a top government functionary associated with CPEC.

“Weaned on government support and conditioned by a Westernised business culture, hopes for Pakistani tycoons to cut deals with Chinese in the immediate future are dim. The stories circulated by people already in a business relationship with the Chinese did not help either. The perception of bureaucratic bottlenecks in China has deepened during the past four years,” he added.

Talking about joint ventures with the Chinese, business circles mentioned Descon, Gatron and Al-Haj Group as leading the trend in power generation, engineering and the chemical sector. Outside CPEC, the Al-Haj FAW Motors rolled out its first car from their plant at Port Qasim in Karachi this month.

CEO of Engro Power­gen and Sindh Engro Coal Mining Company Shamsuddin Sheikh, who is partnering with two Chinese companies — State Power International Mendong and China Machinery Engineering Corporation — was perfectly satisfied with the progress and the relationship.

He did express a desire of a longer term relationship with some premium for experience of working together.

“Yes, business dynamics and the quality of relationship vary with different overseas partners. We have experience working with Japanese, European and US companies. For us the learning graph was steep. In the case of the Chinese, with their narrow focus on the bottom line and separate brief for each project, it is harder to capitalise on investment in trust between business partners,” he commented.

Another businessman commented, “When China chose Pakistan for a huge investment initiative under the ‘One Belt, One Road’ plan, it generated euphoria in the business circles. However, just four years later it seems to be giving way to despair. The inability of private Pakistani companies to match Chinese demands has frustrated tycoons.”

The businessmen are said to be approaching the government to mediate business deals with Chinese investors.

“Diplomatically, China’s support for Pakistan has been consistent. The sailing might not prove to be as smooth on the economic front under CPEC,” commented an investment officer.

“Last week China did not mince words and responded strongly in defence of Pakistan to President Trump’s harsh remarks. When it comes to economic interest its attitude is cold and calculating,” he said.

Other government officers involved in managing affairs related to economic cooperation between the two countries endorsed the view. “In contrast to the Pakistani stance of bending backward to accommodate the Chinese, their attitude is cut and dry. They dictate terms that promote their own material interest first and foremost.”

Pakistani companies in joint ventures with Chinese reported a lack of warmth in partners. “Unlike our business partners of the Middle East, the Far Eastern regions, Japan, Europe and America, the Chinese are just keen to complete the project on hand. They don’t seem to care about capitalising on subsequent business opportunities unravelled over the course,” an executive told Dawn.

CPEC-level cooperation is new. And while some anxiety on either side is natural, the difficulties are also rooted in political systems. The dynamics of a centralised monolithic government in China are grossly different from a multi-party democratic set-up here.

Published in Dawn, The Business and Finance Weekly, August 28th, 2017


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