Pakistan is China’s second largest trading partner in south Asia, while China is Pakistan’s second largest source of imports and seventh largest exporting market. From China, Pakistan imports, polyester and silk fabrics, polyester staple fabrics, fertilizers, tyres, mobile communication equipment, gas turbines, motorcycle parts, combustion piston engines, electrical appliances, iron and steel products, and various other forms of machinery. In fact China has multiplied its investment in Pakistan over the past one decade.
No sector of the country’s economy has left where China has not made investments. The Pakistani market is flooded with Chinese brands. Whether it is telecom, IT, automobile or fashion industry Chinese brands have captured a sizeable consumer market. The demand for low-cost Chinese motorcycles, cars, water heaters and various home appliances has increased manifold in the local market over past one decade. In February 2017, Xiaomi, a Chinese brand and the world’s third largest smart-phone maker made entry into the Pakistani market, a booming market of mobile consumers worth 40 millions. China’s most popular smartphone brand has partnered with a Pakistani company ‘Smart Link Technologies’ for distribution and after-sales service, according to officials of company. Xiaomi plans to launch popular smartphones Redmi Note 4 and the Redmi Note 4A, and bezel-less arge Mi Max in the Pakistani market. Vivo, another Chinese brand, plans to enter Pakistan this year. The Chinese company manufactures and designs smartphones, mobile accessories, online services and software. The software development by Vivo include its App Store, proprietary Android-based operating system called Funtouch OS and iManager. With entry of new smartphone players in the market, users will get huge variety of mobile phones. A new era of price-war will get start.
It was in November 2006 when China and Pakistan signed Free Trade Agreement (FTA), which came into effect on July1 2007. Under the FTA deal, the two sides agreed to implement the first phase of customs duty reduction from July 1, 2007. The five years tariff predictability provided a level-playing field to Chinese investors for making investment in various sectors of Pakistan’s economy. Islamabad announced incentives for Chinese entrepreneurs investing in the Industrial Park through a Protocol under FTA. Under FTA deal, the China began selling Pakistan more and more goods ranging from household items to textile plants and highly-sophisticated and latest technology items, besides getting cheap raw material and easy access to Pakistani ports for onwards export of its goods to world destinations at reduced freight rates. The FTA covers 85 percent of the goods traded between the two countries. In 2009, Pakistan and China agreed to allow market access for bilateral trade in 11 services sectors.
In 2006, Ruba and Haier signed a memorandum of understanding (MoU) to set up a Haier-Ruba zone, the first overseas industrial zone established by China. Haier-Ruba joint venture enjoyed all the financial incentives designed for the economic zone. Under the incentives package for the joint venture, the service delivery to complete required processing/ procedures within the CPEC was provided at the doorstep of the investors.
Some 15 years back, Japan was dominating the motor bike market in Pakistan. Local manufacturing of motorcycles has affected the monopoly of Japanese manufacturers in the Pakistan market. Local manufacturers are actually using the Chinese technology, which has gradually been transferred to them over the past seven years. Chinese motorcycles are making fast inroads in the local market against the Japanese brands. Japanese bike makers have lost their share of the Pakistani market to 51 percent to the Chinese.
The Chinese bike makers are the key players in the rapid growth of the local bike industry as they are offering bikes at competitive rates as compared to Japanese makers. The strong point of the Chinese bike assemblers has been the difference of Rs 20,000 to Rs 25,000 as compared to Japanese bike makers coupled with attractive colors, extra features and galore of designs. The Chinese bikes are now running side-by-side with the Japanese counterparts on the roads in Pakistan. Even the imported Chinese bikes are also racing neck to neck with Japanese bikes. Owing to the rising competition with their Chinese counterparts, the Japanese bike makers have slashed prices of various models for improving their sales volume, which have been on the decline for the last many years. The Japanese makers of Honda, Yamaha and Suzuki motorcycles are losing their sales to Chinese bikes, which have started improving their quality. By offering bikes at very competitive rates, the Chinese have captured market in Karachi, the country’s financial and commercial hub. The sale share of Chinese bikes in Karachi has been more than 80 percent.
Market people link the cut in prices of Japanese bikes to the entry of Chinese bikes which created a healthy competition, thus proving beneficial for the end-users to select the bikes as per their pockets and savings. Japanese bikes are still more popular in rural and urban areas of the country but if the Chinese bike makers also reduce prices, they are likely to capture more markets in the country and prove a hard competitor to Japan in motorcycle manufacturing. In past five years, the Japanese bike-manufacturers have been making downward adjustments in their prices. The Japanese bike-makers had begun slashing the prices of their products in September 2004 to attract more buyers. The move was aimed at improving market share and customer base at a place overjoyed over entry of the Chinese bikes, both local and imported. Chinese motorcycles initially attracted customers because of lower rates. The Japanese initially ignored the threat from Chinese brands, but they were then forced to revise downwards their prices. The Chinese brands have now proved their reliability and quality as well that has kept check on the rates of Japanese brands.
Presently, the Chinese products have penetrated deep into Pakistani market, raising concerns of local private sector, as cheap Chinese products have driven many local manufacturers out of domestic market. A weaker country is always given some advantages to protect its industry from adverse impact making the free trade agreement really beneficial for both the signatories. But in Pakistan’s case the status of China as supplier of most of consumer goods has further got a boost as cheaper Chinese goods almost of all kinds presently dominate the local market. Definitely China would see expansion in their business and its trade surplus will further rise to new horizons as Pakistan has less to offer to the economic giant and importing more from there.