Policy shift in Currency Reform targets Chinese investment
To ensure meaningful outcomes from Prime Minister Shehbaz Sharif’s upcoming visit to China, Pakistan has approved a key currency reform allowing Chinese companies in Gwadar Free Zone to retain 50% of export proceeds for overseas payments.
Staff Report
Islamabad: In a significant step to remove investment bottlenecks and deliver concrete outcomes during Prime Minister Shehbaz Sharif’s anticipated visit to China, the federal government has approved a short-term foreign currency retention policy for Chinese firms operating in Gwadar Free Zone.
Official sources confirmed that companies will now be allowed to retain up to 50% of their export earnings in Special Foreign Currency Accounts to facilitate international transactions without requiring prior approval from the State Bank of Pakistan (SBP).
Planning Minister Ahsan Iqbal, speaking to The Express Tribune, confirmed the move:
“These funds can be freely used for payments abroad of a current account nature, without prior SBP approval.”
The step is part of a broader initiative to revive stalled Chinese investment and ensure Prime Minister Sharif’s visit to the Shanghai Cooperation Organisation (SCO) summit in August yields measurable gains beyond symbolic agreements.
Gwadar reforms tied to broader legal overhaul
While the 50% retention rule is an immediate fix, authorities acknowledge that long-term investment facilitation in Gwadar hinges on aligning the legal framework. The SBP has recommended amending the Gwadar Port Authority Act to bring it in line with Export Processing Zone (EPZ) regulations.
Legal changes would require waiving certain provisions of the Foreign Exchange Regulation Act, 1947, a hurdle that has repeatedly delayed ease-of-doing-business reforms in the strategic port city.
SBP sources told Business Recorder that the existing legal restrictions make it difficult for foreign firms to repatriate profits or pay suppliers abroad, a key deterrent for relocating industries from China.
Policy tied to PM’s strategic China trip
The urgency stems from Prime Minister Sharif’s visit to China later this August, where he will participate in the SCO Heads of State Council meeting and engage with Chinese leadership.
A special ministerial committee formed to steer preparations has called Pakistan’s Ambassador to China, Khalil Hashmi, for consultations. The committee has debated whether holding a Business Conference in Tianjin on September 2 would attract the right investment, or if it would be more prudent to focus on resolving operational concerns in Gwadar.
Internal divisions within the cabinet have emerged over the utility of such conferences, with some ministers skeptical that another promotional event will succeed in attracting serious Chinese investment unless fundamental issues are resolved.
Persistent power, water shortages still unresolved
Despite the currency retention breakthrough, Gwadar’s chronic power and water supply issues remain unresolved. These infrastructural deficiencies have deterred Chinese private-sector interest for nearly a decade.
Officials familiar with the discussions told Geo News that unless basic utilities are stabilized, the relocation of Chinese manufacturing—especially amid the China–US trade tensions—will remain aspirational.
The Cabinet Committee on Chinese Investment in Pakistan (CCoCIP) had earlier directed multiple ministries and the SBP to implement pilot facilitation reforms, but tangible outcomes have been minimal until now.
Meaningful or symbolic visit?
Analysts say the foreign currency concession could signal seriousness to Chinese stakeholders if coupled with sustained policy follow-through. However, skepticism remains about whether the government can implement deeper structural reforms ahead of the visit.
According to a recent Dawn editorial, unless Pakistan moves “beyond ribbon-cutting optics,” its ambition to become a relocation hub for Chinese industry will fall flat.
“The world’s eyes are on Gwadar, but investors are watching what Pakistan does—not just what it says,” said an editorial in The News.
As the clock ticks down to the August summit, all eyes will be on whether Islamabad can translate diplomatic engagements into actionable economic outcomes.
