Abstract

This paper examines the possibility of the China-Pakistan Economic Corridor (CPEC) and Belt and Road Initiative (BRI) and their impact on industry relocation and export performance. It defines promising industries based on features such as cost advantage, infrastructure, trade environment enhancements, and customs modernization. Enhanced infrastructure, Special Economic Zones (SEZs), and transport and energy projects underpin industrial relocation and trade. Thus, using Industrial Revolution 4.0 (IR4.0) auto innovative technologies integrated into Gwadar Port enhances productivity and plays strategic importance. The research outcomes can help policymakers and investors leverage CPEC and BRI prospects to improve Pakistan's exports.

Key Words

China-Pakistan Economic Corridor (CPEC), Belt and Road Initiative (BRI), Export Promotion, Special Economic Zones, Infrastructure Development, Gwadar Port, Industrial Revolution 4.0, Advanced Manufacturing

Introduction

The speech delivered by His Excellency Mr. Muhammad Nawaz Sharif, the Prime Minister of the Islamic Republic of Pakistan, the China-Pakistan Economic Corridor (CPEC) is the most important project of the One Belt One Road (OBOR) for connecting the neighborhoods of East and West Asia (China-Pakistan Economic Corridor (CPEC) Secretariat Official Website, n.d.). The China-Pakistan Economic Corridor is a bilateral initiative aimed at improving infrastructure within the geographical boundaries of Pakistan to encourage free trade between Pakistan and China and to integrate the entire region of South Asia. It is a part of China's global Belt and Road project launched in 2013 to improve the links of trade, communication, and cooperation between the Eurasian countries (Britannica, n.d.). The CPEC has been hailed as a transformative force for Pakistan's economy due to its potential to modernize transportation systems, including road, rail, air, and energy networks. Additionally, it aims to establish overland routes connecting the deep-sea ports of Gwadar and Karachi in Pakistan to China's Xinjiang Uygur Autonomous Region and beyond. However, the initiative seeks to develop sezs to enhance investment and growth while adopting REV:4 technologies for efficiency and innovation (Drishti IAS Academy Editorial Team, n.d.; Khan, Z.H.,2022; CSIS Report, n.d.).

However, like all other projects, the CPEC has its fair share of obstacles, including security issues, political unrest, and environmental effects. However, social impacts, legal issues, and rivalry at the regional levels become other hurdles (Drishti IAS Academy Editorial Team, n.d.). Thus, it is essential to determine which sectors are closely related to the CPEC and have a high potentiality of industrial shift and export phenomenal. It will also help inform policymakers and investors of the best approaches and strategies to realize these opportunities fully.

This paper provides an introductory understanding of industry relocation and export promotion under the CPEC and BRI initiatives. The study will address the following research question: How do export promotion and industry relocation look to industries under CPEC and BRI, and what are the potentials and challenges?

This research investigates and briefly describes sectors with a high likelihood of industrial migration and export diversification under the context of CPEC. To accomplish this aim, this study will compare existing best practices in other prosperous countries, learning from which factors influence the cost competitiveness for infrastructural expansion, access to the market, trade efficiency, custom services, tariff reforms, and market diversification. This research will also analyze how SEZs, infrastructure, better access, Gwadar Port, and IR4.0-related technologies help to bring industrial relocations and export developments. Last, a policy implication of the research will be derived to enhance the understanding of policymakers and investors on how best to un-hammer obstacles and limitations that emanate from the CPEC and BRI initiatives while at the same time benefiting from the opportunities that come with these initiatives.

This paper develops four hypotheses regarding industry relocation and export promotion under the CPEC/BRI framework. Firstly, it assumes that CPEC can play a positive and significant role in industry relocation and export promotion within the BRI framework. Secondly, sectors that include textiles and garments, leather and footwear products, sports and sporting goods, sportswear, and surgical instruments have a high propensity for industry relocation/export promotion under these processes. Thirdly, the study reveals that incentives for attracting relocations are offered through Special Economic Zones (SEZs), intended to facilitate industry relocations/export promotions under CPEC/BRI projects. Last but not least, the fourth hypothesis identified infrastructure development, which has paramount importance in facilitating industries' relocation through the development of rail/road/seaport/airport, etc., to boost the supply chain efficiency at a lower transportation cost and give impetus to Industry 4.0 technologies increasing productivity thereby creating employment opportunities for value-added products/services, and have positive impacts on sustainable economic growth of all sectors involved and also maximizing benefits, thereby promoting.

Therefore, the two major initiatives of CPEC and BRI indicate that this research is opening up a new horizon for industrial relocation to Pakistan and export improvement of quality products. It opens up possibilities for further study by enunciating potentials concerning industry relocation and export promotion under CPEC and BRI processes using the analysis framework (Drishti IAS Academy Editorial Team, n.d.; Khan, Z.H.,2022; CSIS Report, n.d.).

Literature Review

The CPEC is a landmark project under BRI that seeks to upgrade connectivity, commerce communication, and coordination for the countries of Eurasia. The CPEC started in 2015 when Chinese President Xi Jinping and Prime Minister of Pakistan Nawaz Sharif inked 51 agreements and MoUs worth $ 46 billion. (The Emerging Dimensions of China–Pakistan Economic Cooperation and CPEC, n.d., para. 1). The CPEC consists of four components: energy projects, transport infrastructure, industrial cooperation, and social development" (McCartney, 2020), para. 1) as shown in Figures 1 and 2.

Figure 1

Joint regional transportation projects in Pakistan, as part of China's global Belt and Road Initiative (BRI)



Figure 2

Joint regional energy and communication projects in Pakistan, as part of China's global Belt and Road Initiative (BRI)



The CPEC is expected to transform Pakistan's economy by modernizing its road, rail, air, and energy transportation systems, connecting the deep-sea Pakistani ports of Gwadar and Karachi to the Xinjiang Uygur Autonomous Region in China and beyond by overland routes, opening several special economic zones (SEZs) to attract investment and spur growth, and harnessing Industrial Revolution 4.0 technologies to enhance productivity and innovation" (Anwar et al., 2022).

The literature on the CPEC can be broadly divided into three perspectives: Chinese, Pakistani, and Western. Chinese scholars consider the CPEC as a symbol of cooperation between China and Pakistan under the BRI and as a strategic project that serves China's national interests in terms of developing its western regions, diversifying its energy sources, enhancing its regional influence, and countering its rivals (The Emerging Dimensions of China–Pakistan Economic Cooperation and CPEC, n.d., para. 5).

Pakistani scholars view the CPEC as a game-changer for Pakistan's economy, as it offers unprecedented opportunities for infrastructure development, energy security, industrialization, regional integration, poverty alleviation, and social welfare (The Prospects of the China–Pakistan Economic Corridor (CPEC): the n.d., para. 3).

Western scholars are more skeptical and critical of the CPEC, as they question its feasibility, transparency, sustainability, inclusiveness, and impact on Pakistan's sovereignty, debt burden, environment, security, governance, and regional stability (The resilient economic effects of CPEC and future of MNCs, n.d., para. 3).

However, despite the extensive literature on the CPEC, there is a lack of systematic and comprehensive analysis of its implications for industry relocation and export promotion within the BRI framework. This is a significant gap to fill because industry relocation and export promotion are vital drivers of economic growth and development in both China and Pakistan. Industries relocation refers to transferring production activities from one location to another due to various factors such as cost reduction, market access, resource availability, policy incentives, or competitive advantage. On the other hand, export promotion involves a move aimed at boosting the export level by enhancing quality destinations, removing barriers, putting in place efficient transport means, or offering incentives such as subsidies. Thus, both industry promotions can invite relocation and export promotions and, in turn, can provide positive externalities, such as employment generation.

Data and Methodology

This study uses a mixed research design incorporating both quantitative and qualitative research approaches and data and analysis. The methodology comprises four main steps: Environmental scanning techniques, literature review, secondary research analysis, primary data collection and analysis, and data integration and comparison.

The literature review involves a review of literature regarding the China-Pakistan Economic Corridor (CPEC) and its impact on industry relocation and export promotion under the Belt and Road Initiative (BRI). A framework for a conceptual review is built regarding the theme, the gaps, and controversies mentioned in the literature.

Secondary data research entails identifying and using existing trade, investment, production, and competitiveness information in reports, databases, and websites. Through quantitative and qualitative analysis, feasibility and issues related to industry relocation and export promotion under CPEC and BRI are analyzed.

Primary data gathering and analysis entails conducting interviews and questionnaires with policymakers, investors, business people, and employees. Closed-ended questions are used to get quantitative data, and open-ended questions are used to get qualitative data. While qualitative tools focus on ways and means of understanding and describing participants' views and perceptions, quantitative tools facilitate hypothesis testing or research question answering.

The last process involves synthesizing and validating the result of the secondary analysis with the result of the primary analysis. In the current study, triangulation is used to confirm and enhance the findings by adopting various sources and techniques. Thus, tables, graphs, and charts display the results, discussion, and interpretation to help put the findings in perspective and compare them with similar research done in the past. Finally, the author presents conclusions and practical recommendations based on the study's results and future research directions for policies and practices.

Figure 3

The main concepts and relationships that are considered in the study.



Results and Discussion

The paper's authors conducted a quantitative analysis based on the international trade data to define the priority industries and sectors that should be encouraged to migrate to the new Seoul Special Economic Zones (SEZs) under the CPEC project. They used trade statistics data from WITS and the UNCOMTRADE databases to find out that China's trade with Pakistan is similar to that of many other BRI participating countries.

The research analysis carried out in this study concerned the examination of sectors with low-cost production or manufacturing clusters in Pakistan and other Belt & Road Initiative (BRI) participating countries. The authors adopted several techniques to identify potential manufacturing clusters from the BRI nations, including Location Quotient (LQ). In addition, they evaluated the industrial value addition index alongside the potential relocation index of certain BRI countries such as Pakistan.

Therefore, with the help of this extensive structure, it was also noted that CPEC exists to transform the rest of the BRI corridors. It presents valuable possibilities for SMEs, local business people, and entrepreneurs from all BRI countries, including Pakistan. Moreover, the research study's authors revealed particular sectors and industries through which China could boost exports by relocating industries to Pakistan and other BRI economy countries.

Lastly, the authors quantitatively investigated international trade data to examine the priority industries and sectors that should be encouraged for relocation to new SEZs. They used approaches like the Location Quotients (LQ) in addition to analyzing the industrial value addition (IVA) to identify potential manufacturing clusters and possible relocation opportunities among some of the BRI countries.

This research study outlined numerous sectors and industries that can qualify for incentivized relocation under the auspices of the CPEC project. These sectors include:

Textile and Apparel: Given the current competitive labor market structure, the opportunity to relocate its textile and apparel industry units from China, Taiwan, and other economies is ideal. This sector has benefits such as access to cheap skilled labor, healthy government policies, and an FTA between Pakistan and the EU and Pakistan and China.

Electrical Equipment: The above analysis indicates that China must look for another Belt and Road economy like Pakistan to move its electrical equipment industry. It is believed that such a strategic outlook may help increase export levels and make China a part of the Global Value Chain.

Machinery: Moving the machinery industry to BRI economies like Pakistan can go a long way in facilitating sustainable economic growth under CPEC. This sector provides credible investment opportunities and, at the same time, improves China's trade with BRI countries.

Chemicals: Therefore, with the help of BRI, countries like Pakistan provide chemical industries for China to get low-cost, labor-intensive markets. This would help advance and enhance most participating nations' economic growth.

Vehicles: The segment for automotive, including vehicle manufacturing, could be encouraged to relocate to BRI economies through the CPEC project. This sector can potentially boost trade flow and thus promote sustainable economic growth.

Medical Equipment: Providing a conducive environment thus helps in the migration of the medical equipment industry to the BRI, which includes Pakistan, will create economic benefits while at the same time assisting China in expanding its export markets in these economies. Therefore, it can be argued that this sector can play a helpful role in establishing China's Global Value Chain in healthcare-related industries.

Iron and Steel: Therefore, a thought process should be undertaken to domesticize China's iron and steel industry to BRI economics, such as in Pakistan. Such a step can improve these economies' potential to develop local capacities and enhance competitiveness through local resources of iron and steel demand.

Plastics: Relocating the plastics industry to BRI economies will increase China's exports and enhance the economic growth of participating countries. From the above highlights, It can also be seen that BRI positively impacted the sector by enhancing overall cost advantage & availability of raw materials in the BRI Nations.

Mineral Products: China, with a view to unlocking low-cost, labor-intensive markets, should encourage the exploration of the location of its mineral production industry within BRI economies, including Pakistan. Such a location will facilitate the development of mining and trading activities between China and the BRI economies.

Agriculture: Thus, food security and economic development could be achieved by relocating agricultural industries to BRI economies. This sector covers opportunities for investment and cooperation between the participating countries on agribusiness issues.

Pharmaceuticals: China can consider shifting the production of medicines to BRI member countries such as Pakistan to address the soaring need for affordable, high-quality pharmaceuticals. This sector has promising features in supporting healthcare advancement and improving China-BRI Countries' trade relations.

Paper and Paperboard: There is a potential opportunity to encourage sustainable forest management practices and satisfy the increased demand for paper and paper boards through outsourcing manufacturing to the BRI economies. Such a move can help expand trade and result in economic growth.

These industries and sectors were ascertained after quantitatively comparing industries worldwide using international trade data. During this extensive evaluation, international conversion, average consumption goods and services from Chinese trade with other BRI nations like Pakistan, advantageous minimum production or manufacturing hubs in Pakistan and other BRI participating economies, and possible values, including trade advancement, were considered here.

Conclusion and Policy Implication

The study examines the potential of industry relocation and export promotion within the China-Pakistan Economic Corridor (CPEC) and the Belt and Road Initiative (BRI). Through analyzing successful case studies, the research identifies sectors with high potential based on cost competitiveness, infrastructure development, market access, trade facilitation, customs procedures, tariff reforms, and market diversification. Special Economic Zones (SEZs) are crucial in attracting industries to these areas, while infrastructure development, including transportation networks, logistics facilities, and energy projects, plays a pivotal role in facilitating industry relocations and export promotions. The strategic location of Gwadar Port offers immense potential as a trade gateway. Additionally, harnessing Industrial Revolution 4.0 technologies, such as automation, data exchange, and advanced manufacturing, is emphasized for productivity enhancement, employment generation, and value-added products and services.




Policy Implications

1. Sector-specific policies: The authorities should build sector-level intervention strategies and policies for sectors believed to be vulnerable to relocation and export promotion like textiles and garments, electrical equipment and machinery, chemicals, vehicles, and spare parts, medical equipment, iron and steel, plastics and mineral products, agriculture, pharmaceuticals, paper and paper board among others. The policies should create an investment environment, provide accessibility to markets and products, promote trade liberalization, and incentivize industries to shift under the CPEC and BRI frameworks.

2. Special Economic Zones (SEZs): Policymakers have to promote and expand SEZs as focal incentives for companies seeking to change the place of their activity. Such zones should include competitive policies, robust infrastructures, less bureaucracy, and attractive tax policies. Thus, measures can be equally effectively taken to support industry relocations and export-oriented activities. It is crucial for the government to collaborate with private companies and international investors to conduct policies to enhance the free business environment within SEZs.

3. Infrastructure Development: Political leaders must dedicate prioritized funds to developing transportation systems, logistic centers, the energy sector, and connectivity. Enhancing roads, railways, airports, and energy transportation networks not only assists the industry relocation but also the supply flow and simultaneously decreases transportation expenses. Besides, it will enhance regional integration as this will be done at a regional level. Such investment should be directed towards improving and developing facilities at the Gwadar Port, which has excellent prospects of becoming an apex trade center in the region.

4. Industrial Revolution 4.0 Technologies: Therefore, parliament and all the stakeholders need to effectively champion the early adoption of automation, data exchange, and advanced manufacturing technologies. Such advanced technologies are critical to fostering output since they establish functional employment alongside producing new-fangled products and services. It should focus on fundamental accreditations of technology transfer, developing an environment for innovation and entrepreneurial ecosystems, addressing the vocational skills gap through skill development programs, and encouraging businesses to invest in R&D concerning the fourth industrial revolution.

5. Stakeholder Engagement: Concerned policymakers should equally interact with the players, such as policymakers, investors, entrepreneurs, workforce, and associations. This engagement would facilitate capturing insights, experiences, expectations, and suggestions concerning industry relocation and export promotion. This will bring stakeholders on board so that challenges, barriers, and opportunities can be well understood, hence developing sound policies and strategies.

6. Addressing Challenges and Barriers: Policymakers must overcome constraints limiting industries' relocation and export promotions under CPEC and BRI plans. They may include security issues, political instabilities, environmental factors, legal issues, regional rivalries, transparency issues, and governance issues. Government policies should strive mainly to provide a healthy and stable investment environment and concurrently maintain and enhance corporate governance and transparency. It is also necessary to have proper regulatory support to offset these challenges, which could help the authorities encourage industry relocations and export-oriented activities.

Therefore, it offers valuable information to policymakers and investors about sectors with a high possibility of industry transfer and export push within the CPEC and BRI frameworks. Despite these revelations, the study highlights the need for relevant and special-purpose approaches and policies, SEZ infrastructure development and Industrial Revolution 4.0 technologies, and managing challenges and barriers to effectively exploit CPEC and BRI opportunities. The achievement of these policy implications will mean that Pakistan will be ready to accommodate exports and high-quality products, boosting the economy and growth in the region.

References

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