China-Pakistan joint venture to help Pakistan produce all-steel radial tire for the first time

LAHORE: The Service Industries Limited and Chaoyang Long March Tyre Company on Monday signed a joined venture worth $250 million to produce all steel radial truck and bus tyres, with likely $100 million exports in the first year of production.

The ceremony was witnessed by visibly elated Commerce and Trade Advisor Razaak Dawood, who said after a long wait, the Chinese had agreed to invest in a venture that not only has unlimited potential for exports, but would also save millions of dollars spent yearly on the import of heavy tyres.

He said for the first time Pakistan would be producing steel radial tyres. “This project spread over an area of 50 acres has been granted the status of Special Exporting Zone that was in line with the government policy of facilitating important investments,” Dawood added. He hoped that when the China-Pakistan Economic Corridor (CPEC) becomes fully operational all trucks passing through the entire route would be using these Pakistan-made tyres. He thanked Li Qingwen, chairman of Chinese partner Chaoyang Long March Tyre Company, for establishing the first joint venture outside Pakistan.

The joint venture negotiated after a long and patient discussion between the two partners was in fact a learning experience for the Pakistani entrepreneurs in holding negotiations with Chinese entrepreneurs. It took almost a year to conclude, and was facilitated by Zafar Mehmood, a Pakistani expert in Chinese business affairs. He assisted both the Chinese and Pakistani partners in overcoming snags during the negotiations. Pakistan needs such experts to overcome the hurdles that it faced in attracting Chinese business partners.

We have seen hundreds of small and medium Chinese entrepreneurs visiting Pakistan on daily basis for the last four years, but could not agree on any joint venture worth noting. In fact, the problem might have been more on Pakistan’s side as we have not seen Pakistanis entering joint ventures with entrepreneurs from other countries as well.

The prerequisite for joint venture basically requires full disclosures by the negotiating partners. Tendency to overstate the financial health of the company makes even its genuine financial status doubtful.

Another factor impeding foreign investment in Pakistan is the state itself, which, instead of standing with the industry, acts as a stumbling block in businesses, admitted Board of Investment Chairman Zubair Gilani.

“We are trying to break this attitude,” he said. Irritants for industry include high energy cost to involvement of numerous state actors in business regulations. This government has been making efforts to address these issues, he added.

Omar Saeed, head of Services Tyre Division, said the Service Industries would have 51 percent share in the joint venture company and Chinese counterpart Chaoyang Long March Tyre Company would have 49 percent share. “It will start producing bus and truck tyres in 2020. Initially 600,000 tyres would be produced annually.”

After the project is fully operational, the tyre producing capacity would be enhanced to 2.4 million pieces per annum. Initial investment would be $100 million that would reach $250 million as the capacity enhances, he added.

Services Industries Limited CEO Arif Saeed said Service itself was in tyre business for the last 50 years. But was restricted to bicycle and motorbike tyres. It was the largest tyre exporter of the country as well.

“We recently started making tractor tyres,” he revealed. The joint venture would be a game changer for the country, he said, adding that in Long March “we have found a top notch partner”.

Saeed said 70 percent of the production in the company would be consumed domestically, while 30 percent would be exported. He said first year’s export was expected to reach $100 million.

Li Qingwen said Long March was a global brand. He said his company exports to 90 countries, including United States and Europe. It was already the largest seller of truck and bus tyres in Pakistan, he boasted.

Qingwen said his company was looking for global expansion, and after exploring many countries, Pakistan looked the best opportunity with sizable domestic market and investor friendly policies.