How CPEC phase II will galvanize industrialization and employment in Pakistan?

Introduction

Pakistan-China friendship is often described as "higher than the mountains, deeper than the oceans, stronger than steel and sweeter than honey." The China-Pakistan Economic Corridor, launched during President Xi Jinping's visit to Islamabad in April 2015, was meant to give that friendship an economic foundation. Its first phase built power plants, motorways and the Gwadar port. Its second phase, announced around 2019-20, is meant to turn that infrastructure into factories, farms and jobs. If implemented well, CPEC Phase II could help Pakistan move from an economy based on consumption and imports to one based on industry and exports, providing work for millions of young people.

Overview

Phase I

(2015-2020) focused on energy and transport infrastructure: it added thousands of megawatts of generation capacity, built sections of motorways and the Karakoram Highway (Thakot-Havelian) realignment, the Orange Line metro in Lahore and the early development of Gwadar. Phase II shifts the focus to industrial cooperation, special economic zones, agriculture, socio-economic development, the ML-1 railway and new areas such as IT and science. The CPEC Authority, created in 2019 and given a legal basis by the CPEC Authority Act 2021, coordinates implementation.

How CPEC Phase II will galvanize industrialization

1. Special economic zones.

Nine priority SEZs, including Rashakai (Khyber Pakhtunkhwa), Dhabeji (Sindh), Allama Iqbal Industrial City (Faisalabad) and Bostan (Balochistan), offer tax holidays, duty-free import of machinery and ready infrastructure to attract industry. (Reference: Special Economic Zones Act 2012 and its 2016 amendments; CPEC Authority, Special Economic Zones progress reports.)

2. Relocation of Chinese industry.

Rising wages in China are pushing labour-intensive industries such as textiles, garments, footwear and electronics to relocate. Pakistan aims to attract a share of these industries to its SEZs. (Reference: Long Term Plan for China-Pakistan Economic Corridor (2017-2030); Justin Yifu Lin, The Quest for Prosperity, Princeton University Press, 2012, on industrial relocation from China.)

3. Export-oriented manufacturing.

Industries in SEZs can produce for export to China, the Middle East and Africa, helping Pakistan reduce its trade deficit and diversify beyond basic textiles. (Reference: Ministry of Commerce, Strategic Trade Policy Framework 2020-25; China-Pakistan Free Trade Agreement Phase II, effective January 2020.)

4. Technology transfer.

Joint ventures with Chinese firms can bring modern machinery, management practices and technical knowledge to Pakistani industry, raising productivity. (Reference: Long Term Plan for CPEC (2017-2030), section on industrial cooperation; Board of Investment, joint venture policy.)

5. Agricultural modernisation and agro-processing.

Phase II includes cooperation on high-yield seeds, mechanisation, livestock, fisheries and processing industries, which can turn raw farm output into higher-value exports. (Reference: CPEC Joint Working Group on Agriculture, minutes, 2020-2021; Ministry of National Food Security and Research.)

6. Mineral and marble industries.

The Mohmand Marble City SEZ and mineral cooperation in Balochistan and Gilgit-Baltistan can develop processing industries rather than exporting raw stone and ore. (Reference: CPEC Authority, list of priority SEZs; Pakistan Mineral Development Corporation reports.)

7. ML-1 and logistics.

Upgrading the Main Line-1 railway from Karachi to Peshawar would cut freight costs and transit times, making industrial production more competitive. (Reference: Ministry of Railways, ML-1 Project documents; ECNEC approval, August 2020.)

8. Gwadar as an industrial port.

The Gwadar Free Zone and planned industrial estates aim to turn the port into a centre of manufacturing and trade linked to the Gulf and Africa. (Reference: Gwadar Port Authority; Gwadar Smart Port City Master Plan, 2019.)

How CPEC Phase II will generate employment

1. Jobs in special economic zones.

Each fully developed SEZ can employ tens of thousands of workers in factories, services and supply chains, as SEZs did in China, Vietnam and Bangladesh. (Reference: World Bank, Special Economic Zones: Progress, Emerging Challenges, and Future Directions, 2011; Board of Investment, SEZ employment estimates.)

2. Construction and logistics.

Building zones, railways, roads and housing creates construction jobs, while expanded freight and port operations create permanent jobs in logistics. (Reference: Ministry of Planning, Development and Special Initiatives, CPEC employment data; ML-1 project feasibility.)

3. Agriculture and value chains.

Modern farming, cold storage, processing and export chains can raise rural incomes and create jobs in villages. (Reference: CPEC Joint Working Group on Agriculture; National Food Security Policy 2018.)

4. Skills and vocational training.

Phase II includes vocational training institutes and Chinese-language training, such as the Pak-China Technical and Vocational Institute in Gwadar, preparing workers for industrial jobs. (Reference: CPEC Joint Working Group on Socio-Economic Development; NAVTTC, CPEC skills programmes.)

5. SMEs and joint ventures.

Pakistani small and medium enterprises can become suppliers to large Chinese and Pakistani factories, multiplying employment beyond the zones. (Reference: SMEDA, SME Policy 2021; Long Term Plan for CPEC.)

6. IT and services.

Cooperation in IT, including the Pakistan-China fibre optic cable and plans for IT parks, can create jobs for educated youth in software and digital services. (Reference: Special Communications Organization, Pakistan-China fibre optic project, completed 2018; CPEC Joint Working Group on IT.)

7. Jobs in less developed regions.

SEZs in Balochistan, ex-FATA (Mohmand), Gilgit-Baltistan and AJK can bring employment to regions that have long felt neglected. (Reference: CPEC Authority, regional distribution of SEZs.)

8. Women and youth.

Labour-intensive industries such as garments and electronics typically employ large numbers of women and young people, which could raise female labour force participation. (Reference: World Bank, Pakistan Gender Assessment; International Labour Organization studies on garment-sector employment in Asia.)

Conditions for success

Phase II has moved more slowly than Phase I because of security threats to Chinese workers, delays in utilities for SEZs, energy costs, circular debt, tax disputes and political instability. Its promise will be realised only if Pakistan provides security, affordable energy, policy consistency, quick approvals through one-window facilitation and skilled workers, and if local communities, especially in Balochistan, share the benefits.

Conclusion

During his Southern Tour of 1992, Deng Xiaoping summed up the lesson of China's rise in four words: "Development is the hard truth." CPEC Phase II is Pakistan's chance to apply that lesson. By shifting from power plants and roads to special economic zones, agriculture, technology and skills, it can galvanise industrialisation, raise exports and create jobs for millions of young Pakistanis. Whether it does so depends on Pakistan's ability to provide security, affordable energy and consistent policies, so that the corridor becomes a highway of prosperity rather than just a road.