Pak-China economic relations

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    Sardar Aminullah Khan

    ARTICLE (February 20 2009): The world of rapid economic globalisation and regionalization continues to intensify since the last decade involving phenomenal change in the international economic spectrum, particularly after establishment of WTO. Countries are looking for the business opportunities abroad. Free trade and investment agreements have become almost the need of the hour.

    While international trade has been there throughout much of the history, its economic, social, and political importance has also increased. Industrialisation, ICT revolution, advanced transportation, globalisation, growth of MNCs' and outsourcing etc had major impact on it. Trade is regarded as a major source of economic revenue, investment and modern technology. Pakistan and China are two friendly countries and partners in international trade and investment. Consistent growth in economic relations amplifies the strength off their relationship.

    THE STRUCTURE OF TRADE: There is high demand for Chinese goods in Pakistani market. Their experience of growth in trade is positive due to convenient trade flows and openness measures. Trade and investment policies are liberal since 80s' and generally WTO compliant. The pattern has merchandise bias but with high volume of manufactured items.

    China has become one of the top five import sources of Pakistan. Major imports from China are machinery, chemicals, garments and other textile products, stationery, construction materials like tiles, sanitary wares and crockery, etc. Machinery and electrical appliances are the major parts of overall exports. Bilateral trade had reached around dollar 7 billion in 2008. The balance is, however, in favour of China due to lesser exports by Pakistan. Efforts are under way for correction of this situation.

    Trends of trade are very positive as volume of bilateral trade has increased exponentially during the last seven years. Pakistan enjoys huge export potential to China due to advantages in agriculture, mineral, chemical, textile and leather products. Besides, Pakistan has comparative advantage in oil seeds, fruits, base metals, plastic goods and perfumery etc. China has static advantage over Pakistan in machinery, transport equipments, chemical products, precious instruments, stone and plastic articles, home appliances, pearls, precious/semi-precious stones etc. Man-made filaments, space crafts and aircrafts provide dynamic comparative advantage to China.

    Under the 5 years programme launched in 2006 for strengthening of economic relations, the existing trade is to be enhanced to 15(b) US$ by 2012. Besides, different projects have been identified in the programme for co-operation and investment in various economic fields. Permanent and enduring factors that may prove effective and successful in the demand and supply dynamics need to be enforced through mutual co-operation. Some restrictions on free movement of goods and services are occasionally reported and are often discussed for removal to further enhance the volume of trade and significant increase in investment. Both countries can benefit greatly from further expansion in economic and trade relations under this 5year programme.

    INVESTMENT: China and Pakistan have witnessed steady growth in mutual investments in recent years. In the last few years, investment of more than 1.3 billion USD was made by China in Pakistan. A large number of Chinese companies are working in Pakistan in oil and gas, IT and telecom, power generation, engineering, automobiles, infrastructure and mining sectors. These include names like, ZTE, Huawei Technologies Co Ltd, China National Machinery Imp/Exp Corporation, Metallurgical Construction Corporation of China, China International Water and Electric Corporation, China Petroleum, and Haier.

    OTHER INVESTMENT OPPORTUNITIES: There are possibilities of active co-operation in the sectors like oil and gas, mining, financial sector, infrastructure, power (coal, hydel, gas based) IT and telecom, chemicals, fertiliser, glass, polymers, textile manufacture (value added), engineering goods, textile machinery, assembling of automobiles, electronics, automotives, agricultural implements, agricultural and agro-based industry, food and fruit processing and packaging, livestock and dairy farming and pesticides.

    Relocation/mergers in a large number of complementary units are also possible. A few most ambitious projects for the future are the high altitude railway link, energy corridor, trade corridor by using KKH as alternate trade route and collaboration in major infra structure projects like development/processing of coal on a large-scale and construction of big dams etc.

    MEMBERSHIP OF ECONOMIC FOR A: On account of the familiarity and common understandings, developed over a long period of economic co-operation, China and Pakistan have signed many bilateral agreements, like Free Trade Agreement, Bilateral Investment Treaty, Double Taxation Agreements, Customs related agreements/procedures, Pak-China Joint Investment Company, bilateral contracts, 5-Year Framework, MOUs in various fields/ministries/divisions and other agreements.

    China and Pakistan have recently concluded an agreement on trade in Services. This involves a wider impact than the other trade and investment agreements. The volume is going to increase after the implementation of this agreement, particularly in financial and technical services.

    Simultaneously, they have been participating actively in regional as well as multilateral organizations and supported the reforms for regional and multilateral liberalisation and expansion of trade. Both maintain good co-operative relations and play active role in multilateral contexts in capacity of members of important international and regional economic clubs like WTO, SCO, ECO, SAFTA, ASEAN, WIPO and APTA etc.

    SHARING OF EXPERIENCES: China's impressive economic achievements over the past two decades have made its development experiences quite distinct from those of many other economies and even the conventional development models.

    Important areas are creation of social safety nets, subsidy distribution mechanism, disaster management, regional development, management of Forex reserves, integrated agricultural development promotion of Foreign Direct Investment and Economic Zones.

    Since there are considerable similarities in the composition of the poor-rich /rural-urban populations in Pakistan and China and on account of other economic similarities, Pakistan can utilise the Chinese experience to its economic benefit.

    Challenges in the process include infrastructure, communication and co-ordination, trade related visible/invisible barriers, understanding the new trends/global realities, exchange of information on exports, documentation of informal trade, implementation and monitoring of progress, visa related problems, timely implementation of decisions/ agreements, professional approach and enlargement of the trade basket.

    CONCLUSION AND RECOMMENDATIONS: The aforementioned challenges are certainly impeding the speedy growth of investment and trade as per the potential. They can effectively be turned into opportunities through comprehensive medium and long-term collaborative joint efforts.

    The measures that may facilitate the achievement of desirable goals include timely implementation of the agreements, creation of enabling environment, person-to-person contacts to provide confidence and encourage the potential investors, operationalization of Transit Trade Agreement, regular exchange of information to enable the stakeholders to realise the ground realities, co-operation in business laws and procedures between the businessmen of the two countries and a dispute resolution mechanism to avoid any trade disputes and misgivings, improvement of security environment, engaging the Chinese private sector on long-term basis for sustainable economic relations, revamping the processing technologies with mutual co-operation in potential sectors like seafood and leather products, value addition in cotton yarn and fabric, chrome and copper ores and other industrial minerals and precious stones, relocation of industries through restructuring, improvement of institutional frameworks for better communication and co-ordination between the government agencies and representative trade and industry bodies, which is essential for better understanding of business houses.

    EPILOGUE: China and Pakistan are close and friendly neighbours. Pakistan has treated China as its most important economic partners. Rapid economic development in China and consequent inter-regional activity has caused increased demand for raw materials, exchange of parts, components, intermediate products and development of cross-country production networks/processes.

    Such outward linkages are beneficial for resource rich Pakistan in the Chinese context. It can be supplanted by policy of diversification of risk through investment in Pakistan. It will increase trade and spur investment through deepening of all-round co-operation for mutual prosperity.

    The economy of Pakistan is deeply linked to the Chinese economy. Pakistan highly appreciates the assistance that China had provided for infrastructure development/other projects. The development must be carefully synchronised and we must share information to facilitate and assure the investors of the good returns and results.

    They need to very actively and forcefully promote and facilitate economic co-operation with high zeal and spirit. The measures undertaken include the aggressive economic diplomacy. Many companies have signed agreements and MOUs worth millions of dollars to cooperate and undertake joint ventures in various sectors, such as infrastructure, mass transit, communication network, finances, chemical, fertiliser, automobile energy, and agro-based industries.

    A few other agreements are likely to be signed during the upcoming visit of the President of Pakistan to China. Prospects of further consolidation of economic relations are bright as the two sides have a lot of potential for further developments in a number of fields. Moreover, as active supporters of regional economic integration, both countries can help establish an open and integrated regional market also through regional economic fora.

    (The author is Economic Minister in the Embassy of Pakistan, Beijing and can be contacted on Sardar.ameen@gmail.com)