New strategic dimensions of Pak-China friendship

Mehmood-Ul-Hassan Khan

The recent visit of the Chinese prime minister Wen Jiabao has given new strategic dimensions to Pak-China friendship. During his three day official visit from December 17-19 both the countries signed 17 agreements, four MoUs and one joint venture worth $US15 billion for investment in various sectors of the macro-economy. Both the countries have agreed to initiate a new 5 year development plan. China also donated $US229 million to help the country recover from the floods as well as granting Pakistan a soft loan of $US400 million.

(a) Public-private sector collaboration

A 260 member business Chinese delegation and 150 Pakistani businessmen actively participated under public private partnership, a MoU worth $US6.5 billion was also signed between the alternative energy development board (AEDB) of Pakistan and China international water and electric corporation for power generation through wind and solar energy. A framework agreement of $US3.5 billion was also signed between the national transmission and dispatch company (NTDC) of Pakistan and China development bank along with Shenyan transformer company for up-gradation of transmission lines in power sector of Pakistan. Moreover, a joint venture between Sindh government and Chinese private sector would be undertaken to improve irrigation system in the province to set up small dams on canals for power generation. The two countries agreed to conduct currency swaps, which will help to promote bilateral trade, while the Industrial and Commercial Bank of China (ICBC), the world’s second-largest bank. The Trade development authority of Pakistan (TDAP) launched a web portal to link businessmen and traders of Pakistan and China by providing information on various trade issues.

Chinese investment in Pakistan has increased across many sectors of the economy, including port development, roads, railways, mobile telephony, communication technology, hydro and thermal power, mining, electronics, and nuclear energy. The number of Chinese companies in Pakistan is about 60, involved in 122 projects.

(b) Details of the agreements/MOUs and different sectors of economy

In recently held Pak-China business cooperation summit different agreements and MoUs of $US5 billion were signed between the private sectors of the two countries. It was decided to extend cooperation in fishing, financial sector, machinery import, textile, chemical, services, mining, livestock, yarn import, medical equipment, etc. The state bank of Pakistan (SBP) has granted licence to Chinese Bank “Industrial and Commercial Bank of China (ICBC), to commence its operations in Pakistan. ICBC is China’s largest bank with a market capitalisation of $US300 billion.

The securities and exchange commission of Pakistan (SECP) and China securities regulatory commission (CSRC) have also signed a MoU to exchange information on investment companies, brokerage houses, take-overs/mergers of listed companies and discovery of insider dealings, market manipulation, other deceptive marketing practices and supervision as well as monitoring of stock exchanges.

(c) Strategic location of Pakistan and benefits for China

Pakistan offers liberal, business and investment-friendly policies in different sectors of the macro-economy and provides unlimited opportunities to private/business sectors of China to interact for boosting economic relations. Pakistan is located in the heart of Asia. It can act as a conduit connecting western China to the Arabian Sea, South Asia and West Asia. It is in the process of creating a national trade corridor connecting the North and South of the country that would connect China through the Karakoram Highway. Furthermore, both the countries have free trade agreement (FTA) and the joint five year economic programme, and are now jointly moving to establish closer financial and banking cooperation.

Pakistan has announced special economic incentives for Chinese investors including duty-free import of plant and machinery, exemption from sales tax and income tax. The Pakistan China joint investment company (JIC) the first such company established by China outside world is operational in Pakistan. Both the countries also agreed to establish trans-border economic zones in the other country for investment promotion. In this regard, the ministry of industries and production (MoI&P) offered Chinese government to establish electric cars manufacturing plant in export processing zones (EPZs) in Karachi or Gwadar.

Pakistan has proven deposits of coal, copper, chromite, lime-stone, gem-stones and huge opportunities in oil and gas exploration. Pakistan steel and cement industry is witnessing a boom and there is a huge demand for housing and construction which will not only require further investments in the cement and steel industry, but also other related industries. So, China being a trustworthy friend has unlimited opportunities of joint ventures and investments in Pakistan.

(d) Energy cooperation

Pakistan is suffering from acute power shortage. It is expected to go up from the present 20,000 megawatts to more than 160,000 megawatts by the year 2030. Capacity will be added to all power sectors including hydel, coal, nuclear, renewable, gas and oil and power generation and China would have the edge to other countries to invest in energy sector of Pakistan which would be win-win position for both the countries. Moreover, Pakistan has 185 billion tons of coal reserves and any Chinese investment will be more than appreciable. Hydro-power, dams, agriculture, manufacturing sectors, building of infrastructure including road and rail networks as well as airports, sea ports and other facilities present limitless opportunities of close collaboration between the two countries. In recent visit the Chinese premier reaffirmed that China would continue to cooperate with Pakistan for peaceful use of nuclear energy and help it exploit power through renewable means. China has also agreed to assist Pakistan in the construction of Bhasha-Diamir multipurpose dam.

Both the countries are engaged in the joint production of Thunderstorm fighter aircrafts and recently Pakistan has also acquired submarines from China. A project to generate 2,300MW of electricity through wind turbines and solar panels has turned out to be the most important agreement reached with China during the recent visit of Premier Wen Jiabao. The project would involve an investment of $US6.5 billion and wind power projects of 1,000MW each would be set up in Punjab and Sindh. A 200MW solar power project would be set up in Punjab and another of 100MW in Sindh. China should also help exploit the rich natural resources of Pakistan, which will better the national economy and provide ample job opportunities.

(e) Chinese investments in Pakistan

China has become 2ND leading economic partner of Pakistan and Chinese entrepreneurs are investing in Pakistan from motorcycle manufacturing to banking and finance. China mobile company has made an investment of $US1.7 billion and providing employment to 7,000 people in Pakistan. The Chashma power plants, heavy mechanical and electrical complexes and Gwadar deep sea port are the prime examples of our strategic friendship.

(f) Bilateral trade volumes

The bilateral trade volumes between the two countries was $US6.8 billion in 2008 which was higher 30 per cent by pervious year. It is expected that trade volume between Pakistan and China is likely to surge to $US18 billion in the next 5 years. China has a $US3.26 billion trade surplus with Pakistan. China is Pakistan’s second-largest source of imports and seventh-largest export market.

Pakistan

Table-1 ($US million)
Year Exports Imports Balance
2001-01 228.63 575.37 -346.74
2002-03 244.59 839.00 -594.41
2003-04 288.259 1,153.514 -865.25
2004-05 354.092 1,842.270 -1488.18
2005-06 463.967 2,706.159 -2242.20
2006-07 575.903 3,533.794 -2957.89
2007-08 684.739 4691.813 -4007.02
Source: Federal board of statistics and WTO (2009)

The table-I clearly indicates the balance of trade heavily in favour of China but in his recent visit to Pakistan the Chinese prime minister Wen Jiabao promised to resolve it gradually. In this regard, both the countries signed a unilateral tariff concession on 268 items which would strengthen the country’s balance of payments and job creation and give impetus to the country’s economic development.

Major Pakistan’s exports (commodities) to China

Table-II ($US million)
Commodities 2003-04 2004-05 2005-06 2006-07 2007-08
Cotton yarn & woven fabrics 157.358 206.767 213.133 379.219 352.867
Organic chemicals 33.427 8.487 37.718 19.911 24.71
Leather & leather manufacturers 15.08 14.55 28.132 31.639 39.27
Ores, slag, ash 3.641 9.909 25.615 22.092 27.42
Fish and its products 18.659 19.604 22.252 29.767 34.94
Source: Federal board of statistics and WTO (2009)

It is evident from the table-II that there is no diversification of Pakistan’s exports to China which is indeed a major policy issue in order to enhance volumes of bilateral trade between the two countries. Currently, 70 per cent of Pakistan’s exports to China are cotton yarn and cotton fabric. Pakistan is also keen to promote its other products ranging from mangoes to footballs. Pakistan’s mangoes are the best in the world.

Major Pakistan’s imports (commodities) China

Table-III ($US million)
Commodities 2003-04 2004-05 2005-06 2006-07 2007-08
Boiler machinery & appliances 161.208 257.74 483.87 618.937 808.22
Electrical appliances & parts 114.668 171.332 327.49 449.72 587.25
Organic chemicals 62.03 77.838 104.672 128.508 167.81
Petroleum products & oil 6.47 22.96 66.83 97.596 127.428
Misc. products 44.458 74.50 81.773 75.735 98.89
Source: Federal board of statistics and WTO (2009)

All the chambers of commerce, Pakistan showed great excitement that new business ties Pakistan and China would provide win-win position to both the countries.

Concluding Remarks

Pakistan and China has strategic friendship which provides ample opportunities for us to increase bilateral trade, enhance socio-economic interaction and start of joint ventures. The time-tested relations also bring hope for energy, defence, and private sector cooperation and collaboration in the days to come. Pakistan must rectify issues of deteriorating law and order, good governance, and the last but not the least continuity of polices in order to enter a new phase of Pak-China friendship.

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