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Pakistan, China trade set to flourish under mega CPEC

Since the signing of China-Pakistan free trade agreement in 2007 and the launch of China-Pakistan Economic Corridor (CPEC) in 2013, the bilateral trade volume and investment have soared.

China is Pakistan’s largest trading partner and foreign investor. Pakistan had vastly benefited from both China’s economic development and Belt and Road initiative proposed by Chinese President Xi Jinping.

Pakistan’s 1,320-megawatt Sahiwal and 660-megawatt Port Qasim coal-fired power plants had been completed and Peshawar-Karachi highway, upgrading of Karakoram Highway and Lahore Orange Line Train were in final stages.

China-Pakistan Economic Corridor (CPEC), a flagship project of Belt and Road Initiative (BRI), will create new business opportunities for not only Pakistan but also other countries in South Asia and adjacent areas.

The CPEC has become a reality with the first shipment of Chinese goods through the Gwadar Port in southwest Pakistan in 2016. The CPEC has helped Pakistan occupy an important position in the trade route linking China and the West.

Nepal is expected to extend an olive branch to Pakistan to enhance cooperation, Afghanistan has also shown an interest in being involved in the CPEC projects.

Pakistan offers zero duty on 6,000 items from China

Pakistan has offered zero duty on almost 6,000 tariff lines out of the total 7,000 that might endanger many major industries in Pakistan. The FBR has vehemently opposed the revised FTA with China. It has argued that Pakistan does not possess exportable surplus. Therefore Pakistan’s exports could not get a boost in a big way even if it gets reciprocal incentives from China.

Pakistan and China had agreed for granting tariff reduction on 75 percent tariff line under the proposed revision in the FTA. Pakistan is going to increase the number of items with zero duty from 2,600 tariff lines to 6,000 tariff lines, which will have a much larger negative impact on the country’s industries.

There is clear cut difference between the Ministry of Commerce, FBR and Industries. Pakistan made a special request to Beijing to take remedial measures in the wake of eroded exports by granting concession on products so revised FTA could give boost to our exports on immediate basis.

 

Pakistan trade deficit with China

Pakistan trade deficit increased from $2.9 billion to $12.66 billion over the last decade. Pakistan’s imports from China increased from 18 percent to 28 percent of its global imports.

Pakistan’s imports from China are 36 percent of Pakistan’s non-oil imports while China’s imports from Pakistan are 0.1 percent of the country’s global imports. Pakistan’s imports from China are greater than 50 percent of global imports in 44 percent tariff lines.

China’s exports to Pakistan increased from $4 billion in 2006-07 to $14.56 billion in 2016-17. Pakistan’s exports increased from $0.5 billion to $1.47 billion during the same period. The maximum decline is registered in textiles led by cotton yarn which contributed 59 percent of decline in total exports.

In agriculture sector, oil-cake has registered the maximum decrease and contributed 9 percent of decline in total exports. Following increase in investment-led imports Pakistan’s global trade deficit has increased to $30.9 billion in 2016-17.

The CPEC and infrastructure investment related balance of payment (BOP) outflows for Pakistan are expected to rise in the next several years, peaking at about $3.5–$4.5 billion by fiscal year 2024-25.

With an investment of $9.5 billion under CPEC in 2016-17, imports increased by $5.51 billion. If imports continue to rise in the same proportion with incoming CPEC investment, it is anticipated to increase to $58.7 billion dollars in 2017-18.

If exports deteriorate the trade deficit would increase from $30.9 billion in 2016-17 to over $40 billion in 2017-18. There is an urgent necessary for containing a balance of payments crisis which depends upon strong export recovery to strengthen Pakistan’s external sector position.

The government had devised a strategy in the light of impact on domestic industry. China has been asked to liberalize to reduce tariff on 75 percent tariff lines, reduce sensitive list to 10 percent while retaining and deepening preferences.

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