China’s demand to employ the use of the Yuan for transactions in the Gwadar Free Zone under China-Pakistan Economic Corridor (CPEC) has been ruled out.
The reason behind this decision was the concern for Pakistan’s economic sovereignty.
According to officials, who attended the Senior Officials Meeting (SOM) on Monday 20th November 2017 in Islamabad, the Chinese authorities were made clear of Pakistan’s stance on the use of foreign currency.
According to Pakistani officials, “China wants to introduce its currency in Pakistan as part of its policy to internationalize the renminbi (RMB) – the official name of its currency.”
The Joint Cooperation Committee (JCC), the body in charge of making decisions for CPEC, will have its 7th meeting today, 21st November 2017.
The issue for the $2 billion Karachi Circular Railway (KCR) project will be discussed at today’s meeting by Planning Minister, Ahsan Iqbal, with Vice Chairman of the National Development and Reform Commission.
The officials suggested, “If a consensus is achieved on the KCR at the political level, only then will both the sides sign the Framework Agreement.”
The reason behind China’s demand was to avoid exchange risks involved in using US dollar and Pak Rupee. Both Ministry of Finance and the State Bank of Pakistan rejected this demand.
However, both the sides were on board with the decision to make financial arrangements under the existing bilateral Currency Swap Arrangement. The arrangement, which was to expire next year, has been extended and the maximum currency swap limit has also been increased up to $500 million.
According to the original LTP draft sent to Beijing for vetting earlier this year, “Pakistan shall promote the construction of the Gwadar Port Free Zone by drawing on the experience of China (Shanghai) Pilot Free Trade Zone and other Pilot Free Trade Zones in China, and explore RMB offshore financial business in Gwadar Free Zone.”
However, some pending issues still remain to be finalized before the signing of the final draft of the LTP by China and Pakistan on Tuesday (today).
On the other hand, Beijing’s demand for Islamabad to establish the Customs Special Supervised Areas along the CPEC route for facilitating its investments in Special Economic Zones (SEZs) was accepted by Pakistan.
“Another issue that may hamper the final signing and release of the LTP document on Tuesday is the eleventh-hour demands put forth by Khyber-Pakhtunkhwa to add in the LTP,” said the officials.
As suggested by officials, the federal government would prefer to consider the K-P concerns to make the LTP a consensus document, although the Chinese were not in favor of it.
The LTP final document will be made public after today’s meeting as claimed by Ahsan Iqbal.