In a surprising move, Pakistan Stock Exchange (PSX) announced on December 22, 2016 that a Chinese consortium, led by the Shanghai and the Shenzen Stock Exchanges, has become the "top bidder" to purchase 40 per cent shares in the leading bourse in this region. The consortium also included Pakistani companies -- Pak-China Investment Company Limited and Habib Bank Limited (HBL).

According to the PSX management total 16 bidders contested in the process, out of which the Chinese consortium’s offer of Rs28 per share was higher. The other interested bidders for the deal were from London, Turkey, Qatar and some Middle East countries.

Chinese investment in stock market has been welcomed by brokers, members of Stock Exchange and investors, but some development economists do not consider it a ‘big thing’. Some are worried about the growing financial interest of China in the Pakistani economy.

It is another major development after the merger of three share markets of the country in Karachi, Lahore and Islamabad into PSX in January 2016. Since the merger, the PSX management was looking for a "strategic investor" to buy its 40 per cent stack to run it on modern lines. The 40 per cent (about 320 million shares) transfer means the management would also be transferred to the China-led consortium. The potential deal is expected to bring Rs8.96 billion investment in Pakistan. The brokers see an excessive flow of foreign investment in Pakistan through equity market after the Chinese takeover, which would take a couple of months to be completed.

This bidding process for selling 40 per cent of PSX shares is part of the major corporatisation and demutualisation of the stock exchanges initiated since 2012, under which the stock exchanges’ structure was to be converted from nonprofit, mutually-owned organisations to a for-profit public limited company, owned by shareholders.

"It is a landmark development," said Mohammad Sohail, CEO of Topline Securities. "We expect the strategic investors would bring positive changes in shares trading through transfer of technology and induction of professional management, bringing PSX at par with the leading international stock markets. Currently, it is a brokers-run market and it is expected the market would be converted into a professionals-run market," said Sohail.

Currently, only Bombay Stock Exchange (BSE) is being run on these modern lines in the South Asia region and PSX would be the second one in this region. In Asia, Philippines, Turkey and Thailand are some other countries, where stock markets are operating on these modern lines. But PSX has got a distinction among all these emerging markets of Asia as it is performing very well for many years now and has been declared one of the best performing stock markets in Asia this year, leaving behind many older players and competitors like Vietnam, Bangladesh and Sri Lanka.

Stock markets in Pakistan were earlier not-for-profit companies, which, after the merger, are now registered with Securities and Exchange Commission of Pakistan as profit earning company.

At present, 40 per cent shares of the Pakistan Stock Exchange are owned by the members of all former three stock exchanges with their trading right entitlement certificates (TREC), 40 per cent shares would now go to the strategic buyer, whereas the remaining 20 per cent shares would be offered to the public through Initial Public Offering (IPO).

Independent economists are not surprised by this deal. They are also less optimistic about an improvement as a result of the Chinese investment pouring in the Pakistani Stock Market. Some others see China as technologically less advanced country as compared to other developed countries in Europe and North America. Also China is known for copying technology of the West and producing inferior quality products.

Similarly, some political workers fear the growing Chinese influence in the economy and takeover of public corporations and utilities like Karachi Electric. They view it as economic colonisation. Leasing out Gwadar port to the Chinese companies is also an attempt to relax rules with provision of additional advantages of tax holidays and exemptions in local levies to the Chinese investors. This is not considered as healthy competition and loss to the revenue for provincial and local governments.

The unprecedented advantage in taxes to the Chinese companies has also made many Pakistani investors, port users and traders uncomfortable.

Economists believe that stock market has never been a barometer to judge economic growth of a country. There are no signs of growth in industries and exports as a result of pouring in of Chinese investment in the country. Pakistan’s trade imbalance is already growing these days and the key export-oriented textile industry is suffering huge losses due to various factors including growing input costs, freezing of exchange rate and cut-throat competition in the international market.

"Normally, Chinese companies copy the European or American companies in technology, so I do not see it bringing any sophisticated technology in Pakistan," said Dr Asad Sayeed, a development economist and a Senior Research Associate at the Collective for Social Science Research (CSSR).

"I think it can be a ‘strategic’ decision to sell 40 per cent shares in stock exchange to a Chinese consortium, but it will not benefit the overall economy of the country very much."

According to Dr Asad Sayeed, there would be no increase in revenues for Pakistan and the deal would not help reduce unemployment rate in the country. "Normally, Chinese bring their manpower along with them and only lower staff is recruited locally on daily wage basis. This decision would not cause an unusual growth in the overall GDP as Pakistani economy is currently not performing well and this Chinese investment would not cause any big improvement on any front."

On the other hand, people involved in shares trading are quite optimistic as they hope foreign investors, other than from China, would also be attracted to the market as a result of new management. The Chinese companies are already making huge investment in infrastructure and energy generation under the China-Pakistan Economic Corridor (CPEC) and the brokers see this deal as a part of the CPEC investment.