China to Invest in Pakistan's Export-Oriented Industries, Buy More Pakistani Products

The bulk of Pakistan's exports consist of low value commodities like chadar, chawal and chamra (textiles, rice and leather). These exports have declined from about 15% to about 8% of GDP since 2003. Pakistan's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable.  What must Pakistan do to improve it? What can Pakistan do to avoid recurring balance of payments crises?  How can Pakistan diversify and grow its exports to reduce the gaping trade gap? How can Pakistan's closest ally China help? Can China invest in export oriented industries and open up its huge market for exports from Pakistan? Let's explore answers to these question. 

Exports as Percentage of GDP. Source: World Bank

East Asia's Experience:

East Asian nations have greatly benefited from major investments made by the United States and Europe in export-oriented industries and increased access to western markets over the last several decades. Asian Tigers started with textiles and then switched to manufacturing higher value added consumer electronics and high tech products. Access to North American and European markets boosted their export earnings and helped them accumulate large foreign exchange reserves that freed them from dependence on the IMF and other international financial institutions. China, too, has been a major beneficiary of these western policies. All have significantly enhanced their living standards.

Pakistan Among World's Top 10 Textile Exporters. Source: Statista 

Chinese Investment and Trade:

Pakistan needs similar investments in export-oriented industries and greater access to major markets. Given the end of the Cold War and changing US alliances, it seems unlikely that the United States would help Pakistan deal with the difficulties it faces today.

China sees Pakistan as a close strategic ally. It is investing heavily in the Belt and Road Initiative (BRI) which includes China-Pakistan Economic Corridor (CPEC). A recent opinion piece by Yao Jing, the Chinese Ambassador in Pakistan, published  in the state-owned China Daily, appears to suggest that China is prepared to offer such help. Here are two key excerpts from the opinion piece titled "A community of shared future with Pakistan":

1. China will actively promote investment in Pakistan. The Chinese government will firmly promote industrial cooperation, expand China's direct investment in Pakistan, and encourage Chinese enterprises to actively participate in the construction of special economic zones. Its focus of cooperation will be upgrading Pakistan's manufacturing capacity and expanding export-oriented industries.

2. China will also actively expand its imports from Pakistan. In November, China will hold the first China International Import Expo in Shanghai, where, as one of the "Chief Guest" countries, Pakistan has been invited to send a large delegation of exporters and set up exhibitions at both the national and export levels. It is hoped that Pakistan will make full use of this opportunity to promote its superior products to China. The Chinese side will also promote cooperation between the customs and quarantine authorities of both countries to facilitate the further opening-up of China's agricultural product market to Pakistan. China will, under the framework of free trade cooperation between the two countries, provide a larger market share for Pakistani goods, and strengthen cooperation and facilitate local trade between Gilgit-Baltistan and China's Xinjiang Uygur autonomous region. And China will take further visa facilitation measures to encourage more Pakistani businesspeople to visit China.

Pakistan's Role:

Pakistan needs to take the Chinese Ambassador Yao Jing's offer to increase Chinese investments and open up China's market for imports from Pakistan.  Pakistan's new government led by Prime Minister Imran Khan should take immediate steps to pursue the Chinese offer. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen to develop a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries. Pakistan must make full use of its vast network of overseas diplomatic missions to promote investment and trade. 

Summary:

 Pakistan's exports have declined from about 15% of GDP to about 8% since 2003. The nation's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. Chinese Ambassador Yao Jing has offered a helping hand to increase Chinese investment and trade in Pakistan.   Pakistan's new government led by Prime Minister Imran Khan should take the Chinese Ambassador's plan seriously. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen on a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries.

Views: 457

Comment by Riaz Haq on January 4, 2019 at 7:51am

#Pakistan asks #China to diversify #investments, PM adviser Razzak Dawood says. Country wants more #Chinese money in #agriculture, #industrialization and #education. #CPEC https://asia.nikkei.com/Spotlight/Belt-and-Road/Pakistan-asks-China...

So far, most CPEC projects have focused on power and infrastructure. But Dawood said the country has actually canceled some power projects due to them being "too large and unnecessary."

"Now, we are saying, 'No thank you.' Pakistan is asking China to look at industrialization, agriculture and education in line with the CPEC," he explained.

He said Pakistan have to diversify CPEC projects. After being criticized about its loan shark-like tactics related to the Belt and Road Initiative, China has been reconsidering its approach. An expert in Chinese politics pointed out, "Now the Chinese leadership is reviewing CPEC by mobilizing their research institutes. They are paying much more attention to the situations in recipient countries and their sentiment toward China."

Pakistan is going through hard times. The country has suffered a severe financial crunch due to huge expenditures on infrastructure, especially in the power sector, and too many imports of electrical equipment, steel products and other necessities related to the CPEC. As a result, its current-account deficit has skyrocketed and foreign reserves have dropped to their lowest level in four years.

In its latest outlook, the International Monetary Fund sees Pakistan's economic growth slowing to 4% in 2019. But Finance Minister Asad Umar recently pointed out that the economy is already on the road to recovery.

Dawood explained that Umar is not talking about growth rate, but about stabilizing the economy. "We will go through a period of lower growth for one or two years, then our economy will pick up," Dawood said.

Now, both domestic industrialists and foreign investors are closely watching the country's negotiations with the IMF over an $8 billion bailout package.

Dawood stressed, however, that Pakistan is not relying solely on the IMF. "We are approaching friendly countries, that is, Saudi Arabia, the United Arab Emirates and China, " he said. Pakistan has already confirmed receiving aid packages from Saudi Arabia and UAE.

According to Dawood, Pakistan "will make necessary arrangements" to overcome its current difficulties.

The country is also trying to meet the IMF's call for tax reform. Dawood noted Pakistan has introduced a reform package that includes simplification of tax layers and the rebalancing of direct and indirect taxes. "The informal sector does not pay tax, so widening the tax net is important," he said.

This autumn, the country launched the "Make in Pakistan" initiative to boost exports, cut the trade deficit and develop the country's skills. "We are giving incentives again to manufacturing in Pakistan. We also reduced custom duties, and are talking a lot to get market access to China, Indonesia, Malaysia and so on," he said.
Pakistan is pinning its export hopes on manufactured goods like motorcycles, tractors, refrigerators, washing machines and transformers. It also hopes to tap into the global demand for information technology products and workers. "We have around 35,000 technical graduates every year," Dawood pointed out. "We know competition is very tough, but now Pakistan is exporting $3 billion of IT services and software annually."

Regarding foreign investment in Pakistan, Dawood gave some examples. "Unilever, Coca-Cola, Telenor and Suzuki Motor have made investments. Now, Exxon Mobile has re-established its office in Pakistan after more than 20 years, and announced a $250 million investment."

Comment by Riaz Haq on July 12, 2019 at 4:19pm

#Chinese businesses pledges US$ 5 billion #investment in #Pakistan in next 5 years in sectors including #construction, #machinery, glass, #automobile, electrical, $power, #transportation, information #technology and #telecom among others. #CPEC #China https://www.business-standard.com/article/pti-stories/chinese-busin...

Over 55 executives and CEOs of leading Chinese companies on Friday called on Pakistan Prime Minister Imran Khan and pledged to invest USD 5 billion in the cash-strapped nation over the next five years, according to an official statement.

The visiting Chinese business delegation represented various sectors including construction, machinery, glass, automobile, electrical, power, transportation, information technology and technological research among others.


"Chinese business executives expressed confidence in the business friendly policies of the government and committed to invest USD 5 billion over a period of five years in various small and medium size industrial sectors," the statement said.

Pakistan has so far received billions in financial aid packages from friendly countries like Saudi Arabia, China and the UAE during the current fiscal year.

During the meeting, Khan welcomed the Chinese delegation and stated that China has always been a trusted partner of Pakistan.

The sagacity, wisdom and vision of the Chinese leadership for peace & development, good governance and poverty alleviation is highly impressive and worth emulating, said Khan.

He added that the interest of Chinese companies towards investment and relocating business and industrial units to Pakistan reflected the trust of the Chinese side in the growing economy of Pakistan.

He said the Chinese side have a strong desire to translate Pak-China equation into a win-win economic partnership.

Our Government is facilitating investors and reducing impediments in ease of doing business'. Partnership with Chinese companies and their investment will reap multiple benefits for both the countries including employment generation, transfer of technology and economic growth," he said.

Talking about China-Pakistan Economic Corridor (CPEC), Khan reiterated that ambitious project will prove to be a game-changer with respect to enhancing trade activities and further cementing Pak-China relations.

The CPEC, which connects Gwadar Port in Balochistan with China's Xinjiang province, is the flagship project of Chinese President Xi Jinping's ambitious Belt and Road Initiative (BRI).

"Fast-track implementation of the CPEC projects is our priority for which a special unit is overseeing implementation of various projects in Planning Division," he said.

China's Ambassador Yao Jing said that Chinese investors have observed fundamental improvement of policies and facilitation of foreign investors in Pakistan.

"Chinese government will extend all possible support towards realising the vision of a strong, stable and prosperous Naya Pakistan, Yao said.

Comment by Riaz Haq on September 4, 2019 at 7:39am

#China to provide duty-free market access to 90% of #Pakistani goods. It is estimated this will increase Pakistan’s #exports to China by $500 million, under the free trade agreement phase-II between two countries.https://www.thenews.com.pk/print/521491-china-to-provide-market-acc...

China will provide market access to 90% of Pakistani commodities at zero duty to help the latter correct trade imbalances. It is estimated this will increase Pakistan’s exports to China by $500 million, under the free trade agreement phase-II between two countries.


According to a China Economic Net’s report, China will invest $1 billion in 27 projects in education, health, agriculture, irrigation, human resource development and poverty alleviation sectors.

Official statistics show that the CPEC initiative has created 70,000 direct jobs for the locals in the past five years, and per capita income has increased by 23%. Based on incomplete statistics, 17 projects under CPEC paid taxes of $930 million to the Pakistan government. Pakistan’s GDP growth in the 2013-2014 fiscal year after the start of the construction under CPEC increased from 3.7% in the previous fiscal year to 4.14%, and has since then maintained growth, hitting 5.79% in the fiscal year 2017-2018. According to a recent report by the Economic and Commercial Counselor’s Office of the

Chinese Embassy to Pakistan, under second phase of CPEC, promotion of industrial cooperation on the basis of special economic zones will be a priority area, and investment in private sector and establishment of joint ventures will be encouraged. Recently, while meeting with Yao Jing, Chinese Ambassador to Pakistan, Muhammad Hammad Azhar, the newly-appointed Federal Minister for Economic Affairs of Pakistan, has reaffirmed his support for China and the China-Pakistan Economic Corridor (CPEC).

The envoy stated that Minister Azhar has rich experience in financial and economic work, and believed that he will lead the Economic Affairs Ministry to play an important role in the economic and social advancement of Pakistan.

China-Pakistan cooperation in energy has progressed rapidly in the past five years, seeing the completion and roll-out of seven energy projects which meet the electricity demand of 8.6 million households. In 2018, the Port Qasim Power Station and the Sahiwal Power Station combined to generate more than 16 billion kWh of electricity, accounting for a quarter of Pakistan’s generating capacity.

The Sahiwal Power Station was dubbed by the Pakistan government as a miracle in the country’s history of electric power. In the field of infrastructure, the Pakistani “Orange Line” rail transit project undertaken by the Chinese enterprise was put into operation in 2018, and it reduces travel time from two-and-a-half hours to 45 minutes, thus saving about 70% of the time for locals.

Comment by Riaz Haq on September 9, 2019 at 9:39am

#CPEC 2.0 Focus on Boosting #Exports: Promotion of business to business relationship for #technological, #industrial investment & development to augment #Pakistan’s capacity to #export products, Says #Chinese Envoy to #Islamabad https://www.app.com.pk/pakistans-capacity-of-export-to-be-augmented... Associated Press Pakistan

Chinese Ambassador in Pakistan Yao Jing on Friday said that under second phase of China Pakistan Economic Corridor (CPEC), promotion of business to business relationship for technological and industrial development in order to augment Pakistan’s capacity to export was a priority area for the Chinese government.

He was speaking to Federal Minister for Economic Affairs Muhammad Hammad Azhar here at the minister’s office, said a press release.

The envoy congratulated Hammad Azhar on his elevation as Federal Minister.

The Ambassador reiterated commitment of his government to the strategic relationship with Pakistan and hoped that appointment of Federal Minister for Economic Affairs will further strengthen relationship between the two countries.

The Ambassador updated the minister on the progress made on account of implementation of CPEC related projects.

The envoy stated that in the second phase socio-economic sector projects, with grant financing for direct benefit of common man were also priority areas.

The minister stated that the CPEC is a flagship programme of Belt and Road initiative which is now entering into a new phase. He reiterated commitment of his government for implementation of next phase of CPEC for the benefit of people of Pakistan.

He acknowledged the historic relationship with China and the generous support it has been extending to Pakistan.

The minster also acknowledged the economic and financial assistance provided by China to Pakistan during difficult times. China’s position on the current situation in occupied Kashmir was vehemently appreciated.

Comment by Riaz Haq on February 10, 2021 at 12:44pm

China has given immediate duty-free access for 3,707 (45%) tariff lines. A further 30% of tariff lines will have duty-free access by 2030. Tariffs on 412 tariff lines will be reduced by 20% in five years while tariffs will remain at base year (2013) levels for 1,867 (20%) tariff lines.

https://tribune.com.pk/story/2266948/china-pak-ties-fta-ii-a-signif...

CPFTA-II will significantly improve Pakistani exporters’ access to the $2 trillion Chinese import market and thus help address the country’s trade deficit.

The tariff structure applicable to Pakistan under CPFTA-II shows a marked improvement over CPFTA-I. On over 80% of CPFTA-II product lines that China imports, Pakistan is now offered tariffs that are lower than or equivalent to those applied to China’s main trade partners.

Tariffs on nearly 40% of CPFTA-II products that China imports have been reduced compared to CPFTA-I and 45% of the tariff lines are now being offered duty-free access to China. Potential items that Pakistan could export to China include seafood, garments, synthetic blankets and knitwear shirts.

“Focus on these items in exports to China can provide Pakistan with easy gains in the short to medium term,” said Khalil. In the long term, “Pakistan needs to export those items which China imports but Pakistan does not export at present,” he said.

As a starting point, Pakistan can gain market access for export of machinery, mechanical appliances, electrical equipment and parts, mineral fuels, optical, photographic and surgical equipment, plastics, vehicles and essentials.

Industrialisation in the country and production of these goods must be the top priority of the government in a bid to ease the burden of imports and gain access to the Chinese and other global markets.

Market demand

With this opportunity, a question arises whether Pakistan can produce goods according to demand in the Chinese market?

“In order to evaluate Pakistan’s ability to produce good-quality goods as per Chinese market demand, it is important to see it in the context of Pakistan’s trade performance in general,” suggested Khalil.

Pakistan’s global export performance has declined over the past two decades – reasons for this include low competitiveness and exports of low value-added and non-unique products.

Apart from the textile sector, Pakistan has largely lost the world market over the past five years. Low value-added products are the main hindrance in the way of meeting Chinese market demand.

“Industrialisation is the need of the hour for building capacity to produce sufficient goods, which can satisfy domestic and international demand,” said Khalil.

“There is also a substantial information deficit facing Pakistani businesses. Factors behind this include a lack of research on China, identifying Chinese partners and meeting regulatory requirements,” he said.

“In order to translate the improved tariff concessions into sustained exports, the government must address the issues related to capacity building amongst Pakistani businesses and issues pertaining to ease of doing business – both of which affect the ability to deliver orders of the scale required in China within the specified time,” said the former KCCI official

Comment by Riaz Haq on February 15, 2021 at 12:40pm

For the first time in over two decades, Pakistan is not a foreign-policy priority for a new US administration.

https://www.atlanticcouncil.org/blogs/new-atlanticist/biden-needs-a-new-pakistan-policy-this-is-what-it-should-look-like/

The United States cannot match China’s economic investment in Pakistan or in the region for that matter, but it can influence the direction Pakistan takes. That possibility is greater now than at any time in recent memory as there are significant changes to fundamentals that have long defined Pakistan’s strategic calculus.

First, the United States is no longer fixated on terrorism, which means it is no longer paying attention to Pakistan in the ways it did after the 9/11 attacks. Pakistan is keen to find new ways to engage the United States. These sentiments, exhibited at the highest levels of military and civilian leadership in Pakistan, are motivated by the pragmatic realization that the country can no longer take US interest for granted as the United States shrinks its presence in Afghanistan.

Pakistan has offered a new approach based on economic security that seeks collaboration with the United States on climate change, technology, and a host of other non-security issues. Translating this new approach into a reality is going to take a lot of work, as Pakistan falls short in keeping its own economic house in order.

This is related to the second fundamental change: the economy. Dwindling foreign aid, dips in labor remittances owing to the collapse of Gulf Cooperation Council economies, and decreases in Pakistan’s textile and manufacturing exports have put the country in dire straits. Pakistan has long borrowed to finance existing debt. That is no longer possible, and payments on its short- to medium-term debts are converging. Pakistan needs international assistance, preferably via loans and economic aid, and it must grow its exports to boost its economy. The United States should take note that under these circumstances Pakistan will be more open to policy compromises that could provide relief on these fronts.

Third, Saudi Arabia no longer serves as Pakistan’s strategic depth. After nearly five decades of close ties, Saudi Arabia is decisively distancing itself from Pakistan. Last year it canceled a three-billion-dollar loan after Islamabad complained about lack of Saudi support for Pakistan over Indian suppression in Kashmir.

---
Fifth, the paradigm for India-Pakistan relations is changing. With Saudi Arabia, China, and the United States de-linking conflict between India and Pakistan from their respective relationships with those countries, Pakistan is being forced to reevaluate how it engages its traditional partners on the defining feature of its foreign relations with many countries: competition with India.

The cumulative effect of these five developments has been to unmoor Pakistan’s strategic calculus, leaving the country somewhat adrift and unsure of its standing and future direction. The changes introduce serious questions for policymakers. For example, what will the end of an Islamic foreign-policy paradigm mean for Pakistan-based militancy, which has long enjoyed the patronage of financiers based in Persian Gulf states? What will the distancing of China and Saudi Arabia from India-Pakistan tensions mean when the two neighbors come to the brink of nuclear war?

------------

----
Pakistan’s trade agreement with China, for example, makes it an ideal re-exporting hub. US companies can build manufacturing facilities in Pakistan and add value to American goods there, enabling those goods to access the Chinese market as Pakistani exports. There is also room for the United States to engage Pakistan’s private sector in Afghanistan. Already Pakistani construction and consumer-goods companies are looking to take advantage of a peace dividend in Afghanistan. Islamabad is also hoping to export food and agricultural goods across the border. Investment and trade can anchor relations between the United States and Pakistan in economics.

Comment

You need to be a member of PakAlumni Worldwide: The Global Social Network to add comments!

Join PakAlumni Worldwide: The Global Social Network

Pre-Paid Legal


Twitter Feed

    follow me on Twitter

    Sponsored Links

    South Asia Investor Review
    Investor Information Blog

    Haq's Musings
    Riaz Haq's Current Affairs Blog

    Please Bookmark This Page!




    Blog Posts

    Biden's Gaza Ceasefire Veto Defies American Public Opinion

    Aaron Bushnell, an active serviceman in the United States Air Force, burned himself to death in front of the Israeli Embassy in protest against the US policy in Gaza. Before setting himself on fire in what he called an "extreme act of protest", he said he would "no longer be complicit in genocide". Polls show that the vast majority (63%) of Americans want an immediate end to the carnage being perpetrated by Israel in Gaza.  …

    Continue

    Posted by Riaz Haq on February 27, 2024 at 5:30pm

    Pakistan Elections: Imran Khan's Supporters Skillfully Used Tech to Defy Powerful Military

    Independent candidates backed by the Pakistan Tehreek e Insaf (PTI) party emerged as the largest single block with 93 seats in the nation's parliament in the general elections held on February 8, 2024.  This feat was accomplished in spite of huge obstacles thrown in front of the PTI's top leader Imran Khan and his party leaders and supporters by Pakistan's powerful military…

    Continue

    Posted by Riaz Haq on February 16, 2024 at 9:22pm — 1 Comment

    © 2024   Created by Riaz Haq.   Powered by

    Badges  |  Report an Issue  |  Terms of Service