Monday May 27, 2024

Waiting for more concessions, Chinese hold off textile investment in Pakistan

By Mansoor Ahmad
April 20, 2018


LAHORE: There’s no sign of the much-hyped Chinese investment that was expected to end up in the basic textile sector of Pakistan, which, being the fourth largest cotton producer and home to low-cost skilled labour, should be the most ideal country for the relocation of that industry.

The Chinese, on the face of it, are adhering to a wait and see policy as Pakistan’s basic textiles are under severe stress and in all likelihood they may be waiting for more units to die so that they could acquire them for peanuts.

In Punjab alone the number All Pakistan Textile Mills Association members has dropped to 204 from 296 a year back.

More than 115 textile mills have closed for good and many have disposed of their machines at junk rates. Still their deserted sites are ideal for establishing modern textile units. They closed because they were operating on obsolete technology and lacked resources to bring in the new one. Apart from that they have the basic infrastructure to operate a modern unit.

They have sheds and storage space and gas, power, and water connections. If interested, the Chinese can enter into joint ventures with the sponsors of the closed mills.

The infrastructure and the facilities available could be assessed by any reputable financial consultant and be considered the share of Pakistani partner in the joint venture. The Chinese could chip in with the state-of-the-art spindles. The average cost of 25,000 spindles would be Rs2 billion that Pakistan spinners do not have.

The mills could be started within six months of investment and would be viable from day one. This is because the modern spindles consume 40 percent less power and require only one-third of the workforce than that working in most of the existing spinning mills in Pakistan. It makes business sense for Chinese to start spinning yarn in Pakistan.

It is indeed strange that they have entered into joint ventures in spinning in Vietnam their Far Eastern neighbor that lacks skilled basic textile workers, does not grow cotton and wages in Vietnam are three to four times higher than Pakistan.

Many Pakistani basic textile entrepreneurs including the close mills have shown keenness to enter into joint venture with the scores Chinese entrepreneurs that have been visiting Pakistan for this purpose.

Why are the Chinese stalling on a lucrative opportunity? They seem to be in no hurry. They are perhaps waiting for Islamabad to grant concessions to the textile sector particularly for power tariff. The Chinese know that if the basic textile industry is not provided this support then it would not be possible for the mills that are still operating to go on for long.

They are perhaps waiting for few more closures and then start making low offers to the sponsors of closed mills. Instead of entering into joint ventures they would try to buy the entire facilities minus obsolete machines at very low rates and then install modern spindles as sole owners of the facility.

The Chinese know that Pakistan is the only destination where they could establish low value-added basic textile units, but they are practising patience as they do not want to increase the value of existing basic textile facilities. They have investment in hand.

They would demand concessions from the government to bring it in, but they would first want the state to spell out its concessions for the existing place so that they could ask over and above those concessions.

It would be prudent for the planners to make it absolutely clear that no foreigner including the Chinese would get any additional concession that is not available to the local investors.

Pakistan is the only destination available to the Chinese for investment in textile including basic textiles. Pakistani entrepreneurs should woo investors from developed economies for joint ventures in basic textiles. The day we entered into one joint venture we would see scores of Chinese companies following the suit within a week.