MARKETS FLOODED WITH CHINESE PRODUCTS

Chinese exports to Pakistan are much higher than what official statistics show

From: KHALID BUTT Lahore
Nov 14 - 20, 2005

A major jump in China's share in the country's total imports is visible since 2002-03, which resulted in worsening trade balance besides a substantial expansion in Pakistan's economy in the last two years, has created an additional demand for industrial raw materials and machinery imports from China.

According to the SBP's share analyses on various Chinese imports some significant increase in shares has been witnessed in automobiles, air conditioners, pharmaceuticals, railways, rubber, textile machineries etc. For instance, the share of automobiles has surged to six per cent in 2004-05, from 4.3 in 2002-03 and 3.3 in 2001-02; of air-conditioning machines to 43.7 per cent in 2003-04 from 24 per cent in 2002-03, and five per cent in 2001-02; of pharmaceuticals to 7.5 per cent in 2003-04 from 6.2 in 2002-03. In 2003-04, around 118,327 TV sets found way in local markets from China as compared to 53,235 units in the previous fiscal followed by arrival of 162,845 ACs as compared to 58,198 units. A total of 5,363 refrigerators arrived in 2003-04 as compared to 756 units in the last fiscal year. In automobiles, 27,604 bikes landed in Pakistan from China as compared to 7,338 in 2002-03.

In footwear, 793,962 pairs reached here as compared to 589,920 pairs in 2004-05. However, it may be noted here that the central bank's figures might have not reflected the actual volume of Chinese goods as the SBP in its annual report has not mentioned the arrival of finished footwear, toys, artificial jewelry, stationary items, children's readymade garments, fabrics, gents suiting, ladies clothing, computers, DVD, VCD, Hi Fi systems, telephones, mobiles, TV kits and parts etc., through the legal channel.

The report carried only those goods which are visible in official statistics and have impacted the balance of payment, as well as in the national economy. The items which have been missing in the report may have arrived in larger quantities but its impact on the balance of payments has been negligible. The Chinese goods which have captured the Pakistani markets by storm in the last two years have been arriving through illegal channels, by misdeclaration and under invoicing, etc.

Their entry may be rightly marked at the Chinese Customs but these are being cleared at our ports under the old practice of misdeclaration and under invoicing or finding way into Pakistan though different illegal channels. If these goods were cleared after payment of duties and taxes at the Customs, and strictly checked at borders then the State Bank's figures on Chinese imports might have been different. The Chinese diplomats in various meetings with local traders have been saying that the trade figures of two countries contradict each other as Chinese exports to Pakistan have been much higher which is not reflected in official statistics available here.

Local markets are now flooded with the Chinese stuff. Producers of fabrics and clothes are more worried over persistent rise in the market share of imported, smuggled, under invoiced and misdeclared goods which are over 50 per cent. Some market elements are happy in bringing clothes from China and selling them at exorbitant rates. Chinese fabric for trousers have captured 40 per cent market share, while children garments dominate 70 per cent market share. Footwear is well over 90 per cent, while foreign sweaters enjoy over 50 per cent share.

Chinese sweaters have captured 90 per cent share in contrast to 40 per cent share in ladies garments and five to 10 per cent in gents, and fabrics. Stationery products stand well over 60 per cent. The Chinese products have made deeper inroads in the hearts of Pakistani customers because of low price, though people know about its inferior quality. However, quality conscious buyers avoid buying these goods.

According to the State Bank, China is becoming a major supplier for imports to Pakistan. Since these goods are low priced, the surge in imports may not be a worrisome sign. But there are some concerns that need to be highlighted. Firstly, the central bank has said that import of goods that are also domestically produced e.g., electronic goods, footwear, ceramics, plastic items etc., can hurt the domestic industry. In fact, the continuous increase in supply of these goods at reduced prices is posing tough competition to relevant manufacturing units. However, the SBP has said that this competition is beneficial to consumers as they are enjoying the cheap items. Domestic producers, on the other hand, will need to increase their efficiency so that they could offer low priced goods to hold their market share.

This has happened in the domestically produced motorcycles. Second, in some cases, the Chinese goods have completely wiped out the branded foreign suppliers. In case of window/wall type air conditioners, the previously major supplier Korea seems to have lost its share to China due to its inability to compete in prices.

The unit value of comparison reveals that from Korea an AC unit carries a tag of Rs 16,800 as compared to Rs 11,600 from China. The substitution of expensive goods with the low priced imports has lowered the country's overall trade deficit. With a view to gain wider access to the Chinese markets, Pakistan signed a Preferential Trade Arrangement (PTA) effective from January 2004.