Chinese Review


Pak-China Trade Relations
by Professor Dr. Noor Ahmed Memon, Dadabhoy Institute of Higher Education.

Pakistan and China entered into trade relations in 1950s, and have signed various agreements so far the first formal bilateral trade agreement was signed between them in 1963. In 1982, Pakistan-China Joint Committee was established, which was aimed at facilitating trade and technology. Nevertheless, the start of this millennium witnessed a new era of trade relations, as both countries signed multiple agreements and MOUs.

For instance, both countries signed six MoUs on trade in May 2001; established cooperation on Gwadar seaport in May 2002; and signed seven agreements in the areas of trade, communication and the energy sector in December 2004. This paved the way for enhancing mutual cooperation on other important areas, when both countries signed 21 agreements and MoUs in April 2005 on defines energy, infrastructure, social sector, etc. The trade relations between Pakistan and China further strengthened with signing of agreement on Early Harvest Program (EHP). This agreement was the first step towards establishing a free trade area, as both countries provided enhanced market access to each other on items of significant commercial interests.

CPFTA Pakistan signed a free trade agreement with China in 2006. The key objective of CPFTA was to strengthen the mutual friendship, encourage expansion and diversification of trade, eliminate barriers to trade, facilitate the cross-border movement of goods, provide fair condition of competition for trade, establish a framework for further bilateral economic cooperation to expand and enhance the benefits of the agreement. Further, the agreement was also expected to uplift the living standard of masses, create new job opportunities, and promote sustainable development in a manner consistent with environmental protection and conservation.

Pak-China Trade

Due to these numerous agreements, Pakistan’s volume of bilateral trade expanded and reached US $ 13.2 billion in 2017-18, up from US $ 8.7 billion in 2013-14. The trade balance has been skewed in China’s favour ever since both the countries entered into trade agreements. Comparing the trade between the two, Pakistan’s exports to China decreased from US $ 2.69 million in FY 14 to $1.74 billion in 2017-18. Against this, China’s exports to Pakistan have grown at an unprecedented rate, reaching from US $ 5.98 billion in 2013-14 to US $ 13.20 billion in 2017-18.  The rise in the Chinese exports to Pakistan has been a  result of many factors; rise in need for machinery and equipment in the wake of development activities, diversion of imports from other countries to China, increase in local demand for raw material and high demand for cheap goods. Pak-China trade are given in Table 1.

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

 Year

Exports

Imports

Total

Trade Balance

2013-14

2,688

5,980

8,668

- 3,292

2014-15

2,321

7,005

9,326

- 4,684

2015-16 1,905 8,824 10,729 - 6919
2016-17 1,624 10,077 11,701 - 8,453
2017-18 1,745 11,457 13,202 - 9712

  Source: State Bank of Pakistan - Annual Reports.

Exports

China is amongst the top importers of Pakistani cotton yarn followed by Turkey. 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 2018, 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 cotton yarn, cotton fabrics, fish and fish preparation, raw hides and skin surgical instruments, fruits, etc. Exports from Pakistan to China are given in Table 2.

Table 2: Export of Textile and Other Products
from Pakistan to China
                                                                 (Value: US$ 000)

 Item

2018-17

2017-16

2015-16

  Raw cotton

1,324 580 150

  Cotton yarn

869,780 801407 836,105

  Cotton fabrics

122,449 116794 154,364

  Ready made garments

20,440 20829 19,759

  Knitwear

25,136 17623 14,173

  Textile made ups

5,159 6187 4,896

  Bed wear

18,184 15202 10,383

  Towels

1,395 1591 1,424

  Art Silkand synthetic textile

3,523 3435 1,292
  Rice 127,786 107821 271,369

  Apparel and clothing

1,489 1049 803
  Surgical instruments 21,178 12165 7,301
  Fish and Fish preparation 71,961 57769 44,020
  Fruits 21,886 14383 24,377
  Machinery and transport
  equipment’s
1,404 158 77
  Marble and Stone 27,897 32174 40,585
  Furniture 156 143 113
  All others 403,853 414663 473,809
Total 1,745,000 1,624,000 1,905,000

  Source : Trade Development Authority of Pakistan

Imports

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. Imports of textile machinery (Major items) from China to Pakistan are given Table 3.

Table 3: Import of Textile Machinery from China to Pakistan
(Major Items)
                                                                                                 (Value: US$ 000)

 Machinery Unit Unit 2017-18 2016-17
Quantity Value Quantity Value
  Carding Machines. No. 19 119,381 79 394,487
  Drawing / Roving Machines. No. 28 90,619 22 91,041
  Blowroom Machinery. No. 46 299,405 45 300,474
  Machinery Preparing Textile Fibre. No. 17 59,612 43 51,934
  Textile Spinning Machines. No. 431 1,094,971 222 888,035
  Textile Doubling /Twist Machines. No. 78 189,618 137 366,796
  Textile Fibre Machinery. No. 178 554,391 369 979,879
  Weaving Machines/Power Looms. No. 287 336,597 251 202,204
  Weaving (Shuttleless Looms). No. 158 192,642 247 326,652
  Circular knitting Machines. No. 251 299,382 328 198,885
  Flat Knitting Machines. No. 305 118,859 141 63,015
  Multi head embroidery machines No. 4,936 5,965,936 3801 3,783,708
  Circular Knitting Machines. No. 549 237,701 295 263,307
  Dobbies Jacquards Machines. No. 53 47,102 120 58,435
  Auxiliary machines No. 333 579,422 970 811,654
  Top and Flat Card Clothing. 000 kg 41 30,048 38 106,384
  Spindles Textile Machines. 000 kg 65 195,802 58 139,470
  Spinning Rings. 000 kg 56 164,276 53 160,036
  Healds and Healds Frames. 000 kg 22 69,126 28 97,914
  Washing machines ( full auto) No. 53,668 694,305 3,096 366,420
  Machine built centrifugal drier No. 28,238 222,840 18,398 118,358
  Machine dry line CAPA No. 31,640 142,306 12,816 46,024
  Source: Pakistan Bureau of Statistics.

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.

On the other hand, with increasing imports from China, Pakistan’s local industries and SMEs have become the major losers of these trade deals. The economy of scale operations in China have decreased the cost of production which has become impossible to compete with for Pakistani local manufacturing sector. Ceramics, electric machinery and equipment, chipboard and a number of small scales have also been affected immensely due to low cost imports from China.

Today, CPEC is considered to be the game changer not only for the two countries but for the entire region. The project is a planned network of roads, railways and energy projects which is aimed to link Pakistan’s Gwadar Port to China’s Xinjiang province. In return for helping Pakistan get out of her energy shortages, China gets an alternative sea route in return via Gwadar which passes directly through Straits of Malacca.

For China, this short route can also serve as an alternative to the sea route that passes through the Straits of Malacca. In this regard, both the countries are focusing on enhancing trade interaction with world through this new route.

CPEC progress is satisfactory and as desired. The early harvest projects have been finished within the timeline set in most cases. At the same time, CPEC is entering the next phase, where Pakistan will launch Special Economic Zones (SEZs) and China will shift its industry into Pakistan. The Pakistani private sector is gearing up for joint ventures with Chinese counterparts. Industrialization will generate an abundance of job opportunities and increase national productivity. Industrial output will meet the requirements of the domestic market eventually, reducing our import bill as well as excess products will be exported reducing our trade gap and become a major source of foreign exchange.

References:

  1. Jafar Riaz Kataria: Pakistan-China Social and Economic Relations-A Research Journal of South Asian Studies, December 2014. 
  2. Pakistan Bureau of Statistics. 
  3. Preliminary study on Pakistan and China trade Partnership post FTA. The Pakistan Business Council, Trade Study, Karachi.
  4. Trade Development Authority of Pakistan.

 

 
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