KARACHI: Pakistan’s foreign trade settlement in Chinese currency surged 2.5 times year-on-year to RMB 11 billion in the first 11 months of this calendar year, but the figure accounts for only five percent of bilateral trade, a foreign bank’s executive said on Friday.
Chen Yuncheng, chief executive officer of Industrial and Commercial Bank of China (ICBC) said businessmen are inclined towards using renminbi when trading with Chinese. But, there are still “enormous space and chances for all businessmen and banking industry”.
Yuncheng was addressing office bearers of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).
ICBC entered Pakistan in 2011 after the two countries signed a currency swap agreement to facilitate bilateral trade and strengthen economic ties. Currently, it operates three branches: Karachi, Islamabad and Lahore. The second one was Bank of China.
ICBC was the first Chinese bank to start operation in Pakistan. It is the largest foreign bank and the only renminbi clearing bank designated by the State Bank of Pakistan (SBP).
China is Pakistan’s biggest trade partner. Average bilateral trade volume is about $20 billion a year with imports from China standing at $18 billion and exports to it merely $2 billion. There is a huge export surplus in favour of China.
Yuncheng acknowledged the policy-related measures taken by the SBP to ensure that imports, exports and financing transactions are denominated in RMB. “All public and private sector enterprises (both of Pakistan and China) are free to choose RMB for bilateral trade and investment activities,” he said.
The bank’s executive, however, said China has no intention to replace dollars in foreign trade transactions in Pakistan, but it provides an alternative currency through its banking channel to the traders.
Yuncheng said the bank is not forcing Pakistani businesses to open bank accounts while trading with China. He said expansion in the bank’s branch network would depend on trade growth in future. “Since its inception, the branches have been facilitating Pak-China business by supporting financial tools and intelligence.”
The bank is continuing to deepen the local market by relying on China-Pakistan Economic Corridor (CPEC) framework, funded by Chinese government under Road and Belt initiative.
Guo Chunshui, commercial counselor at Consulate General of China said Pakistan is a very important country along the Belt and Road routes and an important economic and trade partner of China in South Asia.
He said the two governments recently signed the second phase of the free trade agreement after more than eight years of negotiation.
Chunshui said bilateral trade has increased to $19.08 billion in 2018 from $5.25 billion in 2006.
Daroo Khan Achakzai, president of FPCCI underscored the need of further use of RMB as trading currency between Pakistan and China. Currency swap is mutually beneficial and will go a long way in strengthening economic ties between the two neighbouring countries, he said.
On trade deficit with China, Achakzai said the two countries signed bilateral currency swap arrangement to reduce pressure on foreign exchange reserves and give a quantum jump to bilateral trade.
“Opportunities for China in Pakistan are endless,” he added.
Ikhtiar Baig, chairman of FPCCI standing committee on banking, credit and finance said Pakistan and China would be able to replace the dollar for transactions after complete yuan adoption.
“Rupee-yuan swap amount has doubled from 10 billion yuan to 20 billion yuan,” Baig said.
Pakistan has so far signed currency swap agreements with China, Turkey, Russia and Iran to rebuild reserves buffer.
“This will help ease off pressure on forex reserves and [bring] exchange rate stability,” Baig, who’s also senior vice president of FPCCI said. “Import and export in renminbi could broaden access to Chinese markets.”
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