Oct 27 - Nov 02, 2008

Pakistan and China agreed to fully tap the potential and comprehensively deepen mutually beneficial cooperation in the economic field by accelerating the implementation of the Five Year Development Programme on Economic Cooperation and making full use of the free trade agreement (FTA) in goods and investment and Pakistan-China Joint Investment Company. The two countries agreed to convene a meeting of Pakistan-China Economic Cooperation Group under the Five Development Programme on Economic Cooperation at an early date, according to the Joint Statement issued on October 16 on the first state visit of Pakistan's President Asif Ali Zardari to China. The two countries on October 15 also signed eleven agreements and MOUs at the Great Hall of the People in Beijing to enhance bilateral cooperation in infrastructure, energy, telecommunication, agriculture, industry, minerals, trade, disaster relief and space technology.

The visiting President Zardari and his Chinese counterpart Hu Jintao declared the increased trade and economic cooperation as centerpiece of their bilateral relationship.

Beijing views China-Pakistan relations from a strategic and long-term perspective, and is committed to lift its strategic partnership with Pakistan to a new height, according to the joint statement. During his visit, President Zardari interacted with the heads and chief executives of major Chinese companies operating in different sectors including banking, steel, mineral, cement, trade and other important segments of the economy. In the given security situation seeking more Chinese investment in the country has however become a challenge for Islamabad.


China is a leading source of investment and arms supplies for the south Asian country. President Zardari's visit was mainly aimed at rustling up crucial Chinese investments and Bejing vowed to do what it could to help cash-strapped Pakistan avert financial disaster. China International Water and Electricity Corporation (CWE), a Chinese power generating entrepreneur has assured that it will make investment to the tune of $ 1.7 billion for generating low cost hydel electricity at Bhasha and Kohala Dams in Pakistan. The assurance for investment was given to President Zardari when a delegation of CWE held a detailed meeting with him last week. Recognized as one of the major state-owned enterprises in China, CWE has been working on water resources and hydropower engineering for over 50 years. By the end of September 2007, the company had completed over 600 international contracts in more than 60 countries and regions.

Chinese have been the specific targets of the terrorists in Pakistan since May 2004 when three Chinese engineers were killed in Gwadar. Strategically located on the mouth of Persian Gulf and on the opposite end of the Gulf of Oman, Gwadar port has become the China's most favorable choice for oil trade, as the present choke point of oil trade at Strait of Hormuz is becoming congested and it could affect global energy security as well as regional peace. So far China has been the biggest investor, and hence the major stake-holder in the development of Gwadar port city. The two-phase program of port construction is being supervised by Tianjin Zhongbei Harbour Engineering Supervision Corporation of China (TZHESC). The total cost of the project is estimated at $1.6 billion. While China has so far contributed about $198 million, Pakistan has allocated US$50 million for the project.

China Harbour Engineering Company (CHEC) is currently involved in the construction of an international airport at Gwadar at a cost of US$ 70 million. China has also invested another $200 million to build a coastal highway, which has been completed, connecting Gwadar port with Karachi. The US$12.5 billion petrochemical city project at Gwadar is also being undertaken by Great United Petroleum Holdings Company Limited (GUPC) of China. China-funded oil refinery will have a total capacity to refine 21 million tons of oil per annum. The petroleum products so refined in Gwadar refinery may be transported to Kashghar on Pakistan's North through a pipeline. The proposed refinery and the oil pipeline is a part of the proposed energy corridor. Last February, the Pakistan Railways and China's Dong Fang Electric Supply Corporation had signed an agreement for establishing rail link between Havelian and Khunjerab. By extending its East-West Railway from the Chinese border city of Kashi to Peshawar in Pakistan's northwest, China can receive cargo to and from Gwadar along the shortest route, from Karachi to Peshawar.


Under the FTA both countries have eliminated or substantially reduced customs duty to enhance market access. The critics in Pakistan view that under FTA a weaker country is always given some advantages to protect its industry. In Pakistan's case however the status of China as supplier of most of consumer goods is likely to get a further boost 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.

The two countries need to take special initiatives to enhance Pakistan's exports to China in order to improve the trade balance which is heavily tilted in favor of China. The major Pakistan's imports from China include all sorts of machinery, steel products, industrial chemicals, synthetic yarn and fabrics, tyres and tubes. The exports from Pakistan to China include cotton yarn and fabrics, ores and non-ferrous metals, leather, fish and fish preparation, chemicals, and cotton waste.

Pakistan's trade gap with China increased to US$2.045 billion during July-March 2006-07, prompting the Pakistani authorities to come up with an effective plan to reduce the deficit by substantially increasing exports. According to an estimate, the trade deficit with China had increased by 24 per cent during July-March 2006-07 if compared with the trade gap Pakistan suffered during the same period of financial year 2005-06. However, the trade volume between the two countries during the period had increased to $2.859 billion, up by 22 per cent when compared with $2.325 billion trade registered during the same period of the previous fiscal. Imports from China in the first nine months of 2006-07 increased by 23.5 per cent to $2.452 billion over $1.986 billion in the same period of 2005-06.