Missed opportunities

LAHORE: For over a decade, Chinese trade delegations have visited Pakistan with intentions of relocating industries, yet progress remains limited compared to Southeast and South Asian countries. It is time to examine why Pakistan has been overlooked in favour of these regions.

China began relocating industries to countries like Vietnam, Cambodia and Bangladesh in the late 2000s and early 2010s, driven by rising labour costs, US-China trade tensions, and appealing incentives from these nations -- such as low-cost labour, political stability, favourable trade agreements (like Vietnam’s FTAs with major economies), and established infrastructure.

Among these, Vietnam has been a key beneficiary, attracting significant Chinese investment in electronics, textiles and machinery manufacturing under the ‘China Plus One’ strategy. This has transformed Vietnam and similar destinations into robust manufacturing hubs that primarily serve Western markets. In other Southeast Asian countries, Chinese investments have focused mainly on relocating textile production units.

While Pakistan’s CPEC initiative has centred on infrastructure and energy, it has not prioritised developing fully equipped industrial zones to facilitate relocations. Incomplete infrastructure, coupled with an underdeveloped business environment, hinders Pakistan’s ability to match relocation hubs like Vietnam.

To date, CPEC-related industrial relocation is minimal, with investments totalling around $25 billion, largely dedicated to infrastructure instead of manufacturing. Despite being a major cotton producer, Pakistan’s hopes for significant investment in value-added textiles have not materialised. Infrastructure improvements from CPEC are limited, with ongoing power shortages, slow special economic zone (SEZ) development, and inadequate logistics further deterring investment. In contrast, countries like Vietnam and Cambodia boast well-established industrial parks and efficient transport networks.

Pakistan’s business climate -- marked by bureaucratic delays, inconsistent policies and security concerns -- renders it less appealing than Southeast Asian competitors. Streamlined regulations, faster approvals, and stable policies have made Vietnam and Bangladesh particularly attractive. Pakistan’s workforce productivity lags behind these nations, where training programmes focus on enhancing skills that improve profitability for relocated industries.

Southeast Asian countries benefit from free trade agreements (FTAs) with the US, EU, and Japan, making them prime export hubs. Lacking similar trade access, Pakistan is less attractive as a base for export-oriented industries. Negotiating favourable trade agreements with Western markets could enhance Pakistan’s appeal as an export hub, mirroring the advantages seen in countries like Vietnam.

To attract Chinese relocation, Pakistan must fast-track SEZ development under CPEC, ensuring dependable utilities, efficient logistics, and supportive regulations to draw industries. Reducing bureaucratic delays, enhancing transparency, and implementing a single-window system for investors would simplify Chinese firms’ entry into Pakistan.

The government should prioritise training programmes in manufacturing skills, such as machine operation, maintenance, and quality control, to improve labour productivity. Tax incentives, relaxed labour laws, and long-term land leasing policies for Chinese firms could also bolster Pakistan’s competitiveness.

To leverage CPEC’s potential for Chinese industrial relocation, Pakistan needs to complete SEZs with comprehensive facilities, improve the business environment, enhance workforce productivity, and negotiate better trade agreements. Coupled with the existing CPEC infrastructure, these measures could make Pakistan a viable destination for Chinese industries.