by Zhou Rong; Li Jingfeng

Prime Minister Imran Khan has successfully concluded a friendly visit to China. During his visit, Mr. Khan not only had a cordial meeting with President Xi Jinping and Premier Li Keqiang, but also signed a series of cooperation agreements. As of the end of April 2019, 11 of the 22 early harvest projects in the China-Pakistan Economic Corridor (CPEC) have been completed, and the remaining 11 projects are under construction. It is particularly worth mentioning that about 70% of the 870 MW Suki-Kinari Hydropower Project (SKHPP) constructed by China Energy Engineering Group Co. has been completed. It is Pakistan's largest independent hydropower project, and is expected to generate 3,081 KWh of electricity per year. It can be said that the CPEC continues to move forward at a solid and steady pace.

The visit of Prime Minister Imran Khan to China marked the official launch of the second phase of the CPEC. So what are the contents and characteristics of the second phase of cooperation?

Firstly, the direction of cooperation in the second phase of the CPEC has been determined.

During the visit of Prime Minister Imran Khan, China and Pakistan reached a series of cooperation agreements on expanding bilateral relations, including:

(1) China and Pakistan will cooperate to upgrade the railway line from Karachi to Peshawar;

(2) The establishment of the first special economic zone in Rashakai;

(3) China will provide 20,000 education scholarships to Pakistan;

(4) Determination of cooperation at the technical level for the ML-1 railway;

(5) China Railway Construction Corporation (International) Limited and Fastrack Silverlink (Pvt) Ltd in conducting railway cargo business;

(6) Memorandum of Understanding (MoU) between the Government of Pakistan and China Overseas Port Holding Company (COPHC) Ltd under the Clean Green Pakistan movement;

(7) MoU for setting-up the first cloud computing center in Pakistan for the finance and media industry in collaboration with Huawei Technologies and Airlink Communication;

(8) Theatrical distribution agreement between M&D Films Pakistan and Fire International Media of China for release of the film 'Parwaz Hay Junoon' in China;

(9) Framework investment agreement between China-Pak Energy Investment (Suzhou) Co Ltd, Sinohydro Corporation Ltd and Pakhtunkhwa Energy Development Organisation (PEDO) of KP government for Toren More Kari hydro power project (350 MW) in Chitral and Jameshill Toren More hydropower project in KP;

(10) Joint investment agreement with Beijing Jingneng Power Co Ltd, Power China International Group Limited and Oracle Power PLC for 2x600MW Thar Coal Based Power Project at Thar Block VI, Sindh (CPEC Project);

(11) Cooperation agreement in renewable energy between Power China International Group Limited and Atlas Power Limited;

(12) Signing of a joint venture with Sansheng Group for development of Industrial Zone in Pakistan;

(13) MoU for establishment of an Agri platform at Qingdao City;

(14) MoU for Bei Da Huang Group and JW SEZ Group Pakistan;

(15) Textile industry agreement between Shanghai Yuanyui Industry Co Ltd, China Railway 20 Co Pakistan (Private) Limited, Board of Investment of Pakistan and Pak China Investment Company Limited;

(16) Agreement for modern agricultural comprehensive development between China Machinery Engineering Corporation (CMEC) and the Government of Balochistan;

(17) Signing of a financial agreement between HUBCO and Thalnova for development of 330MW coal fired power plant in Thar Block 2;

(18) MoU for joint venture of K-Electric 700MW Coal Based Power Project in Partnership with CMEC;

(19) MoU for Modern Agriculture Comprehensive Development Project with Fatima Group Co Ltd;

(20) Agreement between China Road and Bridge Corporation (CRBC) and Khyber Pakhtunkhwa Economic Zone Development and Management Company, Pakistan (KPEZDMC).

It is observable that the agreements signed by the two sides mainly focused on agriculture, industrial park development, IT cooperation, capacity cooperation, and the cooperation in establishment of cloud computing centers. At the same time, cooperation on energy infrastructure and transportation infrastructure projects was also selectively promoted.

Secondly, China-Pakistan bilateral trade will enter into the fast track of development.

China and Pakistan have fully expanded bilateral trade. The two countries signed the second phase of the Free Trade Agreement (FTA). The Chinese government will provide Pakistan with market access similar to ASEAN countries. Under the FTA, China will also offer Pakistan 90% of its market access, and in return, gain 65% of Pakistan's market access. At present, the Chinese government has agreed to immediately waive 313 tariffs on Pakistani goods. Pakistan will give 60% tariff discounts to Chinese products. The signing of the protocol is a milestone in promoting the rapid development of bilateral trade between China and Pakistan and also in reducing the trade deficit of Pakistan. In the future, as long as Pakistani companies prepare a good supply of goods, more and more high-quality Pakistani goods will enter the Chinese market smoothly according to the preferential terms in the free trade agreement. In addition, more and more Chinese companies will enter Pakistan and establish jointly funded cooperation and joint ventures with Pakistan. In the future, Pakistan’s exports will have more elements featuring China-Pakistan friendship. Goods that are made by CPEC, China-Pakistan jointly manufactured or made in Pakistan under cooperation with China will all enter international markets as well as the market in China. It can be expected that Pakistan's trade deficit with China will gradually decrease, and more and more Pakistani high-quality products will enter the Chinese market.

Thirdly, the China-Pakistan People's Livelihood Corridor and Capacity Cooperation Corridor Have Been Launched

China solemnly promised Pakistan that China is willing to link the BRI with Pakistan’s development strategy, jointly building a community of shared future for China and Pakistan. China will also continue to promote the construction of CPEC, and expand cooperation in energy, environmental protection, industry, and people’s livelihood. China has positively affirmed and responded to the new direction proposed by the Pakistani side in the construction of the CPEC.

In fact, the CPEC has started cooperation in promoting Pakistani people's well-being, production capacity and third-party cooperation. Over the last one and half year, in the China-Pakistan Fraternity Emergency Care Center in Gwadar, the concerned Chinese departments have provided 2,921 health checks free of charge, and distributed more than 4,280 medicine packs to the local people. China-Pakistan Faqeer primary school, which was built with help from China, has been operating free of charge, and the enrollment scale was increased from 150 to 503 students. The Social Welfare Working Group of the Corridor has sorted out a number of “short and fast” and “small and beautiful” well-being projects covering six major areas in agriculture, poverty alleviation, water supply, sanitation, education, and vocational training. Such projects include the construction of agricultural demonstration centers, the establishment of poverty alleviation demonstration villages, the increase of scholarships for study in China, and the construction of vocational training schools and hospitals. The Chinese government's focus is on extending the people's livelihood projects to the underdeveloped provinces such as Balochistan and Khyber Pakhtunkhwa, and is making the CPEC a real "corridor of people’s well-being."

In terms of industrial cooperation that Pakistan is most concerned about, the CPEC is also advancing rapidly. Last year, China Chang’an Automobile and Pakistani local enterprise Master Motors Ltd set up a factory in Karachi, with an estimated annual output of over 30,000 units. Aanhui Deli Household Glass CO., LTD and Pakistani JW Group started a glass manufacturing joint venture project. Alibaba's Ant Financial Services cooperated with Pakistani mobile payment company Easypaisa to build it into the local version of Alipay. Moreover, the first industrial park in the corridor, the Rashakai Industrial Park, will begin construction in the near future.

Finally, the new highlights of the future cooperation in the CPEC

There are still some potentials for the CPEC that are yet to be explored. For example, the cooperation between SMEs in China and Pakistan has not yet been fully rolled out. Whether it is Pakistan or China, the central government faces the challenge to manage and develop major state-owned enterprises and large private enterprises. The support from both governments for cooperation between SMEs still needs to be enhanced.

We believe that the prosperity and cooperation between SMEs in China and Pakistan should focus on the following aspects. The first is trade cooperation between SMEs. At present, the non-governmental trade between China and Pakistan has improved. Lahore’s current Chinese-funded enterprise service center is such an institution. With the active participation of non-governmental trade between the two countries, it is then possible to promote the bilateral exchanges of SME enterprises between the two countries. Secondly, it is about joint ventures. At present, the capacity cooperation between China and Pakistan is still at a low level. The main reason is that Sino-Pakistani joint ventures and cooperative enterprises are too few. The two sides have not yet formed a mutually bonded community. Then there is the problem of IT upgrading of Pakistani SME enterprises. Pakistani SME enterprises need to adapt to the globally acceptable technology levels. They should use modern business models to replace traditional business models. Their office equipment and IT capabilities need comprehensive assistance from Chinese SMEs. In addition, the China-Pakistan SME Cooperation will drive the transformation and renewal of the existing labor force in Pakistan, especially on the job training. The technical labor force in Pakistan needs to increase substantially, and the technical level of the skilled labor force needs to be fully uplifted. Finally, there is a need for innovative cooperation between SMEs in China and Pakistan, and innovation is the focus of cooperation between the two countries.

Currently, the concept of “the corridor of people’s livelihood” has started to gain popularity. We need to create employment, generate profits and support innovation through projects in the corridor of people’s livelihood, so that the flagship project of the Belt and Road Initiative can better satisfy people's well-being. The Pakistani people have realized that China sincerely hopes for Pakistan to become more developed, prosperous and stronger. China is also involved in making every effort to help our Pakistani friends to enjoy a good life through CEPC.

Zhou Rong, Senior Fellow, Chongyang Institute of Financial Studies, Renmin University of China

Li Jingfeng, Assistant researcher, Sichuan Academy of Social Sciences