Trade deficit with China grows by 34pc

KARACHI: Pakistan’s trade deficit with China grew by 34 per cent in the first eleven months of FY2024 as compared to the same period last year.

Against the deficit of $7.15 billion in July-May 2023, Pakistan recorded a deficit of $9.6 billion in 11MFY2024. Financial experts see this deficit as a sign of the country’s lack of preparedness at the domestic level, its limited exports basket, and its structural, economic, and policy-related issues.

According to the SBP’s data, Pakistan’s trade deficit with China has been the case for at least 10 years. This, according to Head of Sustainable Development Policy Institute (SDPI) Dr Abid Qaiyum Suleri is not unusual. In his conversation with The News, he says, “the entire world has a trade deficit against China, and Pakistan is not an exception.” However, he adds, it is important to assess “what Pakistan has to offer to China. Unfortunately, our export basket is extremely limited and in many of those commodities, we are not compatible. We need to diversify our export basket to reduce our trade deficit with China.”

Pakistan’s imports from China for 11MFY2024 stood at $12 billion. On China’s export potential, Suleri adds, “China has both comparative and competitive advantages and knows the art of turning trade challenges into opportunities by quickly shifting its goalposts and keep on diversifying its niche products. For example, today when the world is grappling with the problem of greening its economy, China has mastered in producing electrical vehicles, solar system, storage batteries, and other green products.”

Former adviser to the Ministry of Finance Dr Khaqan Najeeb also points to Pakistan’s “structural, economic, and policy-related issues” for its dismal exports. He says the country’s “export weakness is due to its small industrial base and weak technological prowess compared to China. Pakistan’s goods are thus less competitive with low-value additions compared to Chinese production and in competing countries.”

China is the second-largest exports destination of Pakistan. The country has also entered with free trade agreements with the Asian power. Yet, exports to China have barely nudged over these years, with the deficit becoming a constate feature of trade relations between the two countries.

Khaqan Najeeb adds that while “Pakistan has a free trade agreement with China, non-tariff barriers including high-quality standards and regulatory challenges in the Chinese market are hard to overcome for our exporters.” Suleri agrees and says: “The biggest gaps are our inability to ensure quality and quantity. Pakistan has signed multiple MOUs/agreements with China with little follow-ups.”

China is one of the largest meat importers in the world, but, per Suleri, “we could not export meat to China due to our inability to check the spread of foot and mouth diseases in our cattle.” According to figures released by the Trade Development Authority of Pakistan (TDA), Pakistan’s total meat exports declined by 2.6 per cent in May 2024 as compared to the same period last year.

“Many trade barriers discourage Pakistan’s exporters from entering Chinese markets. These include a higher tariff on some products and non-tariff barriers including quality conditions, quarantine and traceability when it comes for livestock sector, lack of understanding of Chinese markets, and inaccessibility to distribution networks.” Khaqan Najeeb explains.

Suleri adds: “China imports $50-60 billion worth of soybeans from Brazil and the US. Pakistan, despite its fondest relations with the country has not developed a niche to grow soybeans.” Entering the Chinese market could be cumbersome, per Suleri, who explains that “besides our lack of domestic preparedness, language barriers, complicated documentation, and insufficient business to business connections discourage exporters to enter the market.”

In June, when government officials visited China, there were suggestions for Pakistani exporters to explore Asian markets and reduce their reliance on the West. But is the trade gap reflective of exporters’ preferences. Suleri does not think so. “The trade gap is reflective of our limited export baskets. Our major exports items are: textile, yarn, rice, mangoes, and leather products. We don’t have competitive advantage over China for these products.”

Khaqan adds: “Pakistan’s ongoing trade deficit with China is not primarily due to Pakistani exporters leaning more towards the West. Instead, the trade deficit seems to be the outcome of Pakistan’s structural issues. On the other side, dependence on Chinese imports for machinery, intermediate goods continue to drive imports and trade deficit.”

So, how can this trade gap be reduced? Per Khaqan: “To close the trade gap Pakistan can support SMEs, improve quality standards and help businesses with market access. [Special Economic Zones] SEZs can be made into a successful story with a focus in areas where Pakistan has an inherent competitive advantage including agriculture and food processing; textiles; pharmaceuticals, minerals and chemicals.”