Increasing bilateral trade

Pakistan and China have been historical trade partners with the balance of trade overwhelmingly in the favour of the latter

Pakistan and China have been historical trade partners with the balance of trade overwhelmingly in the favour of the latter. The average value of Chinese exports to Pakistan in a year has been around five to six times that of Pakistani exports to China. However, last year Pakistan’s monthly exports crossed $312.33 million in December, according to the data of the General Administration of Customs of the People’s Republic of China (GACC). This figure was 41 per cent higher than the figure recorded for Pakistani exports to China in December 2019. According to the same source, from January to December 2020, China’s imports from Pakistan stood at $2.12 billion whereas China’s exports to Pakistan were recorded at $15.36 billion.

According to Pakistan-China Joint Chamber of Commerce and Industry (PCJCCI), which reports slightly different figures, China was the second largest destination for Pakistan’s exports in 2020 after the US. The value of Pakistani exports to China according to the chamber was $1.86 billion last year. In term of imports, China was the biggest source for Pakistan as it exported goods worth $12.4 billion to the latter.

The question here is, what are the prospects of an increase in the two countries’ mutual trade and what is the possibility of an increase in Pakistan’s share of it? Also is the rise in Pakistani exports sustainable? Some argue that the balance of payment was only positive due to ships being stuck owing to Covid-19 restrictions.

Wali Zahid, a China-watcher who heads a China Centre and writes extensively on the China Pakistan Economic Corridor (CPEC), Belt and Road Initiative (BRI), is of the view that trade between the two countries has seen incremental decrease or increase over time and there has been no drastic change. It has remained sustainable, he adds. Zahid says a great opportunity for Pakistan has existed in its capacity to fulfill the agricultural needs of China without creating a food crisis for its own people. He says Pakistan has an agricultural landscape that can produce huge yields and rejects the notion that the recent wheat and sugar crises were because of exports to China. Pakistani seafood is high in demand and Chinse containers have carried it via the CPEC route. Zahid says that with quality of living improving, China is also becoming an importing country. Unfortunately Pakistan has not been able to claim a large share of its imports. If Special Economic Zones (SEZs) are developed in the country as planned and there is technology and skill transfer, Pakistan can attain quality and price that would help it export goods to China.

Economic journalist Khurram Hussain says trade volume between Pakistan and China is growing fast. However, the balance of trade is overwhelmingly in favour of China. The main reason in his opinion is that Pakistan mainly exports low-tech basic agricultural products like rice, raw yarn and cloth and dairy products; whereas China exports value added finished products, machinery, agricultural and industrial raw materials, consumer products, technological equipment to Pakistan. So, he says, it is clear that the Pakistani exports cannot bring enough revenues to reduce the trade deficit with China. “You cannot overcome the trade deficit while selling rice and buying machinery,” he says.

Hussain points out that different trade figures for Pak-China trade are quoted like those referred to by the State Bank of Pakistan (SBP) and the Pakistan Bureau of Statistics (PBS). There is often a difference between these figures as SBP depends on money coming through banking channels and PBS on the value of merchandise calculated at port. It is likely that the money coming through banking channels is on the lower side for reasons like under-invoicing.

The list of Pakistani products exported to China is long in length but short on value. These include frozen meat, poultry, dairy products in solid form, human hair, stomach of animals, cut flowers, flower buds, tea, saffron, turmeric, maize, rice, starches, sausages, tobacco and tobacco refuse amongst others. Pakistani imports from China, on the other hand include electrical and electronic equipment, machinery, nuclear reactors, boilers, consumer goods, organic chemicals, iron and steel, articles of iron or steel, manmade filaments, plastics, fertilisers and manmade staple fibers.

Analyst, critic and commentator Hasaan Khawar says that in the second phase of China-Pakistan Free Trade Agreement (CPFTA-II), China has bought down tariffs to zero for Pakistan on 313 high-priority tariff lines. These tariff lines (TLs), he says, previously had 3.5-35 per cent duties. Almost half of Pakistani exports to China are covered within these lines and these will benefit it. But much of Pakistan’s exports (covered under 313 Tariff Limes (TLs)) are concentrated on 10 TLs. On the other hand China imports $60 billion within these lines.

Khawar adds Pakistan’s narrow industrial base prevents taking full benefit of the CPFTA-II. It should promote diversification and look for new product for exports in addition to what it is already exporting. When asked about relocation of Chinese industries and joint-ventures between the companies of two countries, he says these are not covered under TLs, which pertain only to import and exports. He urges the need for Pakistan to develop capacity and expertise to produce high quality and affordable products to get a reasonable share in China’s imports from all over the globe.

The author is a staff reporter and can be reached at [email protected]

Pakistan-China relations: Increasing bilateral trade