Pakistan’s SEZ Performance - Copying the Chinese Model, Missing the Momentum

Globally, Special Economic Zones (SEZs) have emerged as dynamic engines of economic transformation. They contribute significantly to diversifying economies, reducing regional disparities, fostering industrial clustering, and nurturing human capital through skill development and technology transfer. Moreover, SEZs often serve as incubators for innovation and conduits for integrating local industries into global value chains. 

Pakistan, too, embarked on establishing free economic zones with similar aspirations. However, most initial efforts faltered due to persistent operational challenges and systemic inefficiencies. Despite ambitious beginnings, these zones failed to catalyze meaningful industrial progress.

Since the launch of the China-Pakistan Economic Corridor (CPEC) in 2013, bilateral cooperation between the two nations has intensified. China has not only remained Pakistan’s leading trading partner but also the most prominent source of foreign direct investment. Inspired by China’s global success in developing compact, well-equipped SEZs, with advanced infrastructure, streamlined administration, and eco-friendly production techniques, Pakistan envisioned a comparable trajectory through CPEC-linked zones.

Under CPEC, SEZs were heralded as the cornerstone of a new industrial era in Pakistan. With an eye on replicating China’s proven model, Pakistan planned to foster resilient and efficient industrial clusters, anchored by joint ventures with Chinese firms. Memorandums of Understanding signed between the two governments led to the proposal of nine SEZs:

1.    Rashakai Economic Zone (M-1, Nowshera)
2.    China Special Economic Zone (Dhabeji)
3.    Bostan Industrial Zone (near Quetta)
4.    Punjab-China Economic Zone (M-2, Sheikhupura)
5.    ICT Model Industrial Zone (Islamabad)
6.    Industrial Park at Pakistan Steel Mills Land (Port Qasim)
7.    Bhimber Industrial Zone
8.    Mohmand Marble City
9.    Moqpondass SEZ (Gilgit-Baltistan)
Despite these efforts, the rollout of SEZs under CPEC has been riddled with difficulties. 

A major impediment lies in the mismatch between the technological requirements of modern SEZs and the competencies of Pakistan’s labor force. Human capital in Pakistan is inadequately trained to operate sophisticated Chinese machinery and lacks exposure to cutting-edge industrial processes. Policy harmonization is another critical challenge. Bridging the gap between Chinese and Pakistani SEZ policy frameworks, especially in areas such as cost-efficiency and ease of doing business, has proved elusive. Implementation delays, lack of clarity in regulations, and bureaucratic inertia have further hampered progress.

The persistence of deep-rooted systemic flaws that have consistently impeded the successful development and performance of SEZs in Pakistan. These include a lack of adequate infrastructure and poor logistical connectivity, which hamper industrial growth and investor confidence. Fragile law and order conditions further complicate business operations, particularly in remote or conflict-prone areas. 

Bureaucratic inefficiencies and red tape create layers of administrative obstacles that deter foreign and domestic investment alike. Gender disparities and the underutilization of women’s potential represent a significant loss in human capital and economic participation. Moreover, Pakistan faces a shortage of skilled labor and technical proficiency, resulting from limited investment in human resource development and vocational training.

The nation’s innovation ecosystem remains underdeveloped, with minimal support for research and technology diffusion, both crucial for modern industrial competitiveness. Weak judicial enforcement and outdated legal frameworks compromise contract enforcement and investor protection. Compounding these issues is the absence of tailored support for small and medium-sized enterprises (SMEs), which are often sidelined despite their critical role in employment generation and supply chain integration.

Finally, rent-seeking behavior and elite capture of industrial policy divert resources away from productive sectors, reinforcing a cycle of inefficiency and exclusion. Together, these structural weaknesses form a complex barrier to unlocking the full potential of SEZs in Pakistan.

At present, SEZ development in Pakistan largely follows a one-size-fits-all approach focused on physical occupancy rather than strategic industrial growth. For these zones to truly thrive, each must be guided by a tailored vision and mission, supported by coherent policies and a robust regulatory framework.China stands as the global leader in SEZs, having pioneered their extensive use to drive industrial development. But in contrast Pakistan has yet to cultivate an ecosystem that mirrors these attributes. Without deliberate reforms and sustained commitment, the country risks replicating past failures rather than pioneering future success.

China’s success, home to nearly half of the world’s SEZs, rests on a relentless pace of technological innovation and value-added industrialization. Yet, the success of these zones has been far from uniform. Despite China’s longstanding enthusiasm for SEZs, empirical evidence suggests their overall effectiveness remains inconsistent. As noted in a special UNCTAD report, “The performance of many zones remains below expectations, failing either to attract significant investment or to generate economic impact beyond their confines.”

SEZs were framed as catalysts for industrial growth and export expansion, bolstered by relaxed regulatory environments and promises of streamlined economic governance. So inspired by China’s SEZ models in cities like Shenzhen and Shantou, Pakistan has sought to emulate this approach to attract foreign investment—particularly from Chinese enterprises. However, the outcomes have been far from promising. Allegations of corruption and the presence of illicit activities, including the proliferation of black-market weapons, have clouded the zones’ reputations. Moreover, the anticipated wave of private Chinese investment has yet to materialize. Islamabad had hoped that Chinese firms would echo Beijing’s example and invest heavily in Pakistan’s SEZs. That expectation, however, remains largely unmet.

Written by: Md. Monir Hossain (Journalist)