The CPEC’s Special Economic Zones story no one’s telling: ambition, challenges, and what’s next!
CPEC Special Economic Zones were meant to transform Pakistan’s economy. This article digs into the promises and the expectations.
Launched with optimism and diplomatic fanfare in 2015, the China-Pakistan Economic Corridor (CPEC) was envisioned as a transformative initiative that would redefine Pakistan’s economic flight. Central to this vision are the Special Economic Zones (SEZs)—designated industrial areas aimed at catalyzing local manufacturing, boosting exports, attracting foreign investment, and ultimately reshaping Pakistan’s position in the regional and global economy.
As of 2025, the SEZs stand at a pivotal juncture. They represent both the enduring promise of Pakistan’s strategic alliance with China and the sobering realities of development delays, and underutilized potential. MT team speaks to Dr. Erfa Iqbal, Additional Secretary from Board of Investment for a comprehensive view on the origin, challenges, and prospects of SEZs in Pakistan.
History of SEZs
The concept of Special Economic Zones (SEZs) began with Ireland’s Shannon Free Zone in 1959, developed to revive regional employment after a decline in aviation-related activity. This pioneering initiative offered tax incentives, customs exemptions, and infrastructure support to attract foreign manufacturers. Although modest in scale, the Shannon model became a blueprint for economic zones worldwide, showcasing how regulatory flexibility and strategic planning could foster economic revitalization.
China took the concept further in the 1980s, transforming SEZs into a central pillar of its economic reform strategy. Beginning with Shenzhen, China scaled the model with vast zones, substantial infrastructure investment, and administrative autonomy. These zones attracted foreign direct investment, encouraged export-led industrialization, and created millions of jobs. China’s SEZs didn’t just replicate Shannon—they redefined the model by aligning it with national priorities, propelling the country into its role as the “world’s factory” and laying the foundation for decades of unprecedented economic growth.
Unlocking Potential: The Promise and Pitfalls of Pakistan’s Special Economic Zones under CPEC
Originally inspired by China’s successful SEZ model, Pakistan designated enclaves for developing hubs of industrial excellence—offering attractive incentives, streamlined infrastructure, and a business-conducive environment.
While industrial estates did exist in Pakistan, the concept of Special Economic Zones (SEZs) had not yet taken root. It was only during early discussions around CPEC that the need to establish SEZs emerged—primarily to attract foreign investment. However, in practice, there was little distinction between the existing industrial estates and the proposed SEZs under CPEC, as the initiative did not introduce a fundamentally new model.
As a longstanding and reliable partner, China’s collaboration under CPEC, it was a rare opportunity for Pakistan leap beyond diplomatic ties and learn to modernize its economy. The concept of SEZs under CPEC emerged from bilateral discussions between China and Pakistan, during which China introduced its tried-and-tested SEZ framework. In China, these zones—often called “centers of excellence”—have been instrumental in the country’s rapid economic growth, attracting foreign direct investment and fostering industrial innovation.
In China multiple models are prevalent for SEZs. Dr. Erfa’s research paper is based on these models and so she explains that the township versus housing model.
Unlike a conventional housing model, the township model offers a far more integrated and self-sustaining approach to development. Within such a model, zones are meticulously designated for upstream and downstream industries, large-scale manufacturers, small and medium enterprises (SMEs), and research and innovation centers. Parallel to this, residential areas are thoughtfully demarcated to cater to diverse socio-economic groups, from laborers to executives, ensuring inclusivity in habitation.
This “township model” ensures that workers, managers, and investors alike have everything they need within a self-contained ecosystem. It is a stark contrast to Pakistan’s approach, which continues to reflect the outdated “housing model”—focused on roads, boundaries, and plot allotments, with minimal integration of the broader ecosystem needed to support thriving industrial activity.
From Vision to Implementation: A Misalignment
The essence of the SEZ framework lies a shared ambition to industrialize Pakistan by leveraging its geographical advantage, China’s manufacturing expertise, and mutual economic interests.
Of the 54 SEZs approved across the country, only 39 are formally notified, and a mere 20 are operational. Within CPEC, just 9 zones were designated, and of these, only 3—Allama Iqbal (Punjab), Rashakai (KP), and Dhabeji (Sindh)—are currently operational, with 4th one, Bostan (Balochistan) still grappling with foundational issues.
Allama Iqbal SEZ stands out as a relative success. Conceived from the outset as a true SEZ, it benefits from strategic proximity to urban centers, labor markets, and road networks. In contrast, Rashakai, while accessible, faces security concerns, and Dhabeji suffers from poor location planning—selected largely due to the availability of government land rather than any strategic criteria. Bostan, converted from an industrial estate, has design limitations and availability of land.
The Infrastructure Conundrum
Despite the promise of well-equipped zones, critical infrastructure—particularly utilities such as electricity, gas, and water—has often failed to reach even the gates of these SEZs. According to policy, the government is responsible for providing utilities up to the SEZ entrance, while internal infrastructure falls to the developer. Yet delays, red tape, and coordination failures have left investors in limbo.
In some instances, like Allama Iqbal SEZ, developers were able to leverage nearby facilities to bridge utility gaps quickly. However, in most zones, especially Dhabeji and Rashakai, power provision remains an unresolved issue—hindering the transition from allotment to actual production.
Developers and Partnerships
SEZ development models vary. Allama Iqbal is managed by Faisalabad Industrial Estate & Management Company (FIEDMC), a state-owned entity. Rashakai operates under a public-private partnership (PPP) between the KP Government and the Chinese firm China Road and Bridge Corporation (CRBC). Dhabeji follows a similar PPP model between the Sindh Government and a local developer. Bostan, meanwhile, remains under direct provincial management. However, public-private models have not necessarily guaranteed better outcomes.
Why SEZs Haven’t Delivered
When you talk about SEZ, one aspect and one component is the development of SEG. And then the second aspect is to populate the SEZ. So, to populate it is interlinked with how you have developed it. There are several interlaced answers. First, the concept of SEZs was poorly understood by local stakeholders, leading many to treat them as real estate opportunities rather than production hubs. Massive tracts of land were acquired speculatively, and the intended industrialization failed to follow.
Second, Pakistan has long lacked a one-window facilitation mechanism. Foreign investors are left navigating a labyrinth of federal and provincial departments, often without resolution. Coupled with restrictions on foreign currency transactions and banking regulations, the business environment is more obstructive than supportive.
Third, serious structural weaknesses plague Pakistan’s industrial landscape: lack of skilled labor, weak supply chains, high energy costs, and unreliable access to raw materials. The result? A prohibitively high cost of doing business, rendering Pakistan uncompetitive in the regional export market.
The Missed Export Opportunity
Pakistan holds immense potential. With GSP Plus status in Europe, a free trade agreement with China covering 313 tariff lines, and various transit and preferential trade agreements, the export possibilities are enormous. And yet, without exportable products or surplus, the nation cannot take advantage of these agreements. SEZs were supposed to fill that gap. Instead, they remain underpopulated, underutilized, and underperforming.
Chinese Participation: A Silver Lining
Despite these challenges, Chinese investment remains a bright spot. Several Chinese enterprises operate in SEZs in Faisalabad and elsewhere. A Chinese firm, is establishing a private SEZ near Lahore. Another notable example is Service Long March Tyres—a joint venture in Nooriabad—that reached break-even in its first year and expanded operations in the second. Encouragingly, they are planning three more joint ventures.
These examples show that, when the fundamentals are right, success follows. Employment opportunities have risen, and vocational training is increasingly provided—often by the businesses themselves rather than government institutions.
Certification Deficits and Investor Confidence
ISO certifications are largely standardized across industries. For instance, even a simple plastic bottle must meet various international certification requirements — covering everything from the sourcing of raw materials, processing methods, and packaging, to temperature control and labor standards. The list is extensive and detailed.
In Pakistan, however, we have relatively few internationally recognized certifications. As a result, many manufacturers are forced to import certified raw materials to meet global standards. This lack of certification creates serious concerns for international investors.
Since COP 2019, environmental awareness has grown significantly. The global shift toward sustainability means that countries must align their manufacturing, agriculture, and industrial processes with environmentally friendly practices. Pakistan, unfortunately, lagged behind on key areas like carbon credits and achieving net-zero emissions. Without progress in these areas, we risk being excluded from the global value chain — simply because international buyers will not purchase products that don’t meet sustainability benchmarks. These gaps are a major deterrent for international investors.
Environmental Oversight: A Mixed Picture
Enterprises must submit environmental impact assessments during approval, and zones are theoretically required to have Combined Effluent Treatment Plants (CETPs). Implementation is relatively easier when there are clusters of industries. If Pakistan wants to become part of the global value chain, it must remain compliant with international environmental and labor standards.
The Way Forward: Reform or Regression?
CPEC’s SEZs represent both the promise and complexity of large-scale development through international partnership. They are not a silver bullet for Pakistan’s economic challenges, but they remain a viable strategy—if managed wisely.
True economic transformation requires integration of infrastructure, services, logistics, training, legal protections, and investor facilitation—all underpinned by a shared national vision for industrial growth.
CPEC’s SEZs remain a symbol of what could be. The question is not whether the model works—it does, and China’s success is proof.
