Pak-China Economic and Trade Relations

by Professor Dr. Noor Ahmed Memon, Dadabhoy Institute of Higher Education.

Pakistan and China enjoy exemplary friendly ties, which have not only sustained changes of governments and the ups and downs in the regional and global situation, but, in fact, have been expanding and becoming even deeper. It is in the interest of both the countries to keep an eye on the new and emerging regional and global scenario and come up with appropriate strategy to meet the challenges.

The bilateral relationship between the two neighboring countries is characterized by feelings of mutual trust, respect and goodwill towards each other. There is a regular exchange of visits at the highest level between the two countries. The strategic cooperation between Pakistan and China has grown over the past several decades. China is Pakistan’s largest trading partner and a major investor, especially in infrastructure and energy sector. During 2019-20, bilateral trade between the two countries are US$ 11 billion. With the official launch of China Pakistan Economic Corridor (CPEC), the bilateral relationship has been elevated to a higher level.

China and Pakistan are situated in an area that has great geographical importance and hosts almost half of the world’s population. Along with the human resources, the area is also rich in natural material resources. This speaks volumes about the importance of stability in the region and of amiable relations between the countries situated here. The growth in the economic ties started with signing of free trade agreement between the two countries.

China-Pakistan economic corridor project (CPECP) will be another milestone in the development of their bilateral relations. The leadership of the two countries attached top priority to its early implementation.

Besides the trade, there was also unprecedented increase in China’s investment in Pakistan. According to the data by the Chinese Embassy in Pakistan, a total of 46 CPEC projects are under construction or have been completed, and the corridor has brought US$ 25.4 billion in foreign direct investment to Pakistan and created 75,000 jobs for the locals, serving as a focal point for China and Pakistan to drive practical cooperation.

There is a manifold increase in number of Chinese companies working in Pakistan. Currently, around 10,000 Chinese workers are engaged in various projects, undertaken in Pakistan.

Both countries are giving much importance to their mutual relations in their foreign policy. Pakistan supported Chinese point of view on one China policy, Tibet and Taiwan issues. China always gives defence and economic assistance to Pakistan. In Pakistan, there is huge Chinese investment which is likely to invest in the development of infrastructure, roads,

Table 1: Pak-China Trade (Value: US $ Million)

Year Exports Imports Total Balance of Trade

2015-16 1,905 8,824 10,729 -6,919 2016-17 1,624 10,077 11,701 - 8,453 2017-18 1,753 11,472 13,225 -9,719 2018-19 1,859 10,165 12,024 -8,306

2019-20 1,664 9,566 11,230 -7,902 Source: State Bank of Pakistan - Annual Reports.

highway, ports, and energy and communications sectors.

The CPEC energy projects have added thousands of megawatts of installed capacity to the grid of the country and the electricity shortage which was there for the last 20-25 years is no more.

Pakistan welcomed the Chinese investment for social and economic development. Chinese investment in Pakistan is gradually increasing which is very important for economic development.

Since the establishment of diplomatic ties between the two countries in 1951, China and Pakistan have developed an allseason friendship that is based on equality, brotherhood and overall cooperation. In past years, the two countries have carried out multi-dimensional cooperation in various fields. Despite the unstable international situation, the China-Pakistan friendship has remained strong and vibrant. Recent years have witnessed a frequent exchange of visits between the leaderships of the two countries to further promote the cooperation.

In the last ten years, there has been a regular exchange of high-level visits between the leadership of both countries. Each of these visits has reflected in clear terms the desire for consolidation of economic relations. Pakistan was the first country to receive donations of a Chinese COVID-19 vaccine, reflecting the countries’ warm bilateral relationship.

China and Pakistan have witnessed steady growth in mutual investments in recent years. A large number of Chinese companies are presently working in Pakistan in different sectors. Chinese goods are very much in demand in Pakistani markets.

Both countries have continued with their planning to undertake mega economic projects like the China-Pakistan Economic Corridor (CPEC) connecting the Pakistani port of Gwadar with Kashgar (Xinjiang region) in China. Other projects include construction of dams and Chinese investment in Pakistani textile, energy, banking, commerce and industry sectors and numerous other development projects. The government of Pakistan plans to develop nine special economic zones across the country under the CPEC to promote its industrialization. Pakistan also pins high hope on the CPEC and Gwadar port in particular to transform itself into a regional trade hub.

Table 2: Export of Textile and Other Products from Pakistan to China (Value : US $000) Commodities 2019-20 2018-19 2017-18

Raw cotton 452 1,428 1,324

Cotton yarn

676,847 707,923 869,780 Cotton fabrics 63,783 89,744 122,449 Ready made garments 16,397 20,203 20,440

Knitwear 35,418 32,668 25,136

Textile made ups Bed wear 1,716 2,598 5,159

7,890 10,494 18184

Towels

Art Silkand synthetic textile 393 417 1,395

5,557 5,594 3,523

Rice 118,801 185,570 127,786

Apparel and clothing 2,291 1,062 1,489 Surgical instruments 18,614 19,105 21,178 Fish and Fish preparation 154,471 94,578 71,961

Fruits Machinery and transport equipment’s All others

2,797 9,301 21,886

1,369 1,928 1,404

557,204 706,387 439,906

Total

1,664,000 1,889,000 1,753,000

Source : Trade Development Authority of Pakistan Pak-China Trade

Due to various numerous agreements, Pakistan’s volume of bilateral trade expanded and reached US $ 11 billion in 201920. The trade balance has been skewed in China’s favour ever since both the countries entered into various trade agreements. Comparing the trade between the two, Pakistan’s exports to China decreased from US $ 1.88 billion in 2018-19 to US$ 1.66 billion in 2019-20. Against this, China’s exports to Pakistan also

decreased from US $11.47 billion in 201718 to US $ 9.57 billion in 2019-20. Pak-China trade are given in Table 1.

China is amongst the top importers of Pakistani cotton yarn and cotton fabrics. It may also be noted that the trade is not restricted to cotton only, as China is also ranked as one of the largest buyers of Pakistani rice. In fact, the dramatic increase in China’s rice imports in 2020, which was driven by strong domestic demand and low international prices, paved the way for Pakistani rice to enter Chinese markets. Other major Pakistani exports to China include fish and fish preparation, raw hides and skin, surgical instruments, fruits, etc. Exports from Pakistan to China are given in

Table 2.

On the other hand, Pakistan’s imports from China have been seconded by none. Pakistan imports largest percentage of goods from China, more than 29% of the entire imports come from China. The imports mainly include; textile machinery, electrical equipment, high-tech machinery, iron & steel, organic chemicals, manmade filaments etc. To put the number in context, more than half of Pakistan’s electronic and machinery imports come from China.

Pakistan is a major market for Chinese textile machinery manufacturers in Asia. The textile industry is the largest manufacturing sector in Pakistan, and machinery is required to keep it running. The country realizes the need to have good quality machines in its textile industries, and promotes its import in the Technology Upgradation Fund Scheme (TUFS). Imports of textile machinery (Major items) from China to Pakistan are given Table 3.

The low-cost imports have benefited the local retail industry tremendously not just the shopping centres but vendors residing in far flung remote corners of the country have also taken advantage of the low cost Chinese imports.

The socio-economic relations between Pakistan and China are playing an important role to attain their mutual concerns for the economic development. The CPEC will affect Pakistan’s trade flows through multiple channels.

Pakistan and China launched a critical partnership for the promotion of business alliances and sectoral match-making between private enterprises of textile sectors in the two countries.

The Board of Investment (BoI) organised a “CPEC Industrial Cooperation Textile Business to Business (B2B) Webinar” in collaboration with China Council for International Investment Promotion (CCIIP).

The webinar offered a platform for analysis of industry trends, bilateral investment opportunities and potential collaboration between companies of the two countries.

Table 3: Import of Textile Machinery from China to Pakistan (Major Items) Quantity: Number Value : Rs. 000 Machinery 2019-20 2018-19 Quantity Value Quantity Value

Carding machines 75 812,695 55 363,963 Drawing / Roving machines 72 402,545 59 164,676 Blow Room machinery 271 1,079,629 133 587,683 Machinery preparing textile fibre 14 114,449 30 58,573 Textile spinning machines 198 1,202,790 1,277 1,063,313 Textile doubling /Twist machines 262 576,143 117 243,926 Textile fibre machines 196 664,837 198 951,319 Weaving machines/Power looms 84 394,711 254 260,533 Weaving (Shuttleless looms) 129 199,872 176 287,687 Circular knitting machines 347 455,140 555 637,674 Flat knitting machines 145 121440 215 207,774 Multi head embroidery machines 1,311 2,559,159 2,721 4,730,212 Dobbies jacquards machines 26 78,647 33 44,802 Auxiliary machines 435 821,977 8,527 441,980 Washing machines (Full auto) 51 235,468 70 256,214

Source: Pakistan Bureau of Statistics.

Speaking on the occasion, BoI Secretary Fareena Mazhar said the webinar aimed to rejuvenate the process of enhanced B2B matchmaking between Pakistani and Chinese enterprises. She appreciated the overwhelming support of CNTAC and the Chinese ministry of commerce. Owing to the sectors financial gains many international companies, including Chinese enterprises, are already operational in the country. She disclosed that Challenge Apparel, a Chinese company, has been successfully operating in Pakistan for years and now it plans to expand with an additional investment of over US$ 150 million. The BoI official invited export-oriented hi-tech Chinese enterprises to make investments in Pakistan. BoI Project Director Asim Ayub informed the meeting that the Textile Diagnostic Study on Pakistan’s Textile Sector in 2019 was very well received by the Pakistani side. However, there exists a need for a follow-up action plan.

References:

1. Pakistan Bureau of Statistics 2. State Bank of Pakistan - Annual Report 2019-20. 3. Trade Development Authority of Pakistan. 4. various press releases.