Chinese Review

Pak- China Trade Relations

by Dr. Noor Ahmed Memon.
China and Pakistan are close and friendly neighbors. Pakistan has treated China as its most important economic partners. Rapid economic development in China and consequent inter-regional activity has caused increased demand for raw materials, exchange of parts, components, intermediate products and development of cross country production works and processes. Consistent growth in economic relations amplifies the strength of their relationship. China and Pakistan also have witnessed steady growth in mutual investments in recent years. The Chinese have invested in Pakistan in telecommunications, energy, infrastructure, heavy engineering, IT, mining and defense related industries. Pakistan and China are already co-operating closely in the development of Gwadar Port, which would help economic activity in Pakistan and provide an important access route to the sea for Chinas Western regions, Afghanistan and Central Asian states. A large number of important projects such as the up-gradation of Karakoram Highway, Thar Coal Mining, up-gradation of Pakistan Railways and Power Generation Projects both nuclear and non-nuclear are some of the examples of this expanding economic cooperation. Free Trade Agreement: Pakistan and China signed a Free Trade Agreement in 2006. The base year for tariff reduction/elimination for China was 2006 and for Pakistan fiscal year of 2006-2007. Pakistan received market access at zero duty on industrial alcohol, cotton fabrics, bed-linen and other home textiles and other goods. China also reduced its tariff by 50% on knitwear and woven garments. Bilateral trade had reached US$ 5.79 billion in 2011. The balance is, however, in favour of China. The balance of trade increased from US$ 2.34 billion in 2007-08 to US$ 2.5 billion in 2010-11. Important factor of trade deficit with China is growing exports of Chinese products to Pakistan including raw materials and capital goods. Since these are more economical, businessmen are inclined to buy more from China. Pakistan, therefore, should be looking at China not simply as an export market, but as a primary source for import of capital goods and industrial raw material. Table-1 shows trade balance between Pakistan and China. It is however encouraging that over the last five years, average rate of growth in exports from Pakistan has been 33% while average increase in imports from China was 19%. Pakistan and China will enter Phase II of FTA in 2013 when the present FTA will conclude by the end of 2012. Exports: Exports from Pakistan to China increased from US$ 685 million in 2007-08 to US$ 1.64 billion in 2010-11, thus showing an average increase of 33% per annum. The main items of Pakistans exports to China are cotton fabrics, cotton yarn, bed wear, surgical instruments, tent and canvas, marble, fish and its preparations and leather. Unfortunately, the variety of Pakistans products exported to China is very narrow. Almost around 80% of its exports consist of cotton yarn and other textile products. Export of textile and other items from Pakistan to China is given in Table-1. The FTA between Pakistan and China does not include some major value added textile categories such as woven and knitted garments.

Table 2: Import of Textile Machinery from China to Pakistan (Rs. 000) (Major Items) Machinery
Carding Machines Drawing / Roving Machines Blow Room Machinery

2010-11
1,273,960 100,653 188,202

2009-10
660,418 10,007 39,399 13,972 362,621 157,077 9,775 25,485 13,521 113,036 35,565 247,477 1,978 14,347

2008-09
88,993 14,914 42,886 197,058 255,450 75,867 2,607 14,954 57,958 125,080 719,60 31,612 17,039 46,393

Machinery Preparing Textile Fibre 199,184 Textile Spinning Machines 539,225

Textile Doubling /Twist Machines 150,323 Weft Winding Machines 6,682

Cone / Bobbin Winding Machines 14,702 Textile Winding Machines Textile Fibre Machinery 44,719 401,324

Weaving Machines/Power Looms 133,425 Weaving (Shuttleless Looms) Circular Knit Machines Flat Knitting Machines 165 mm Embroidery Machines Circular Knitting Machines 423,171 27,467 10,307

2,619,091 2,861,692 1,121,603 321,556 93,364 160,698 136,572 275,938 189,986 30,453 197,056 9,667 109,661 90,008 45,740 111,912 105,356 179,627 194,141 48,813 157,582 5,915 71,506 71,256 28,590 73,495 101,134 2,527 142,540 39,270 93,322 11,068 43,862

Dobbies Jacquards

Table 1: Pak-China Trade (Value: US $ Million) Year

2005-06 2006-07 2007-08 2008-09 2009-0 2010-11

Top and Flat Card Clothing Other Card Clothing

Exports
437 548 685 661 1211 1645

Imports
1,843 2,321 3,029 2,708 3,284 4,145

Trade Balance
- 1,406 - 1,773 - 2,344 - 2,344 - 2,073 - 2,500

Spindles Textile Machines Spinning Rings Reeds for Looms

Healds and Healds Frame

Shuttles
Parts of Weaving Machinery

Source : State Bank of Pakistan.

Source: Federal Bureau of Statistics, Government of Pakistan.

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Chinese Review
Despite this exclusion Pakistan has ben able to show remarkable increase in the exports of these categories. Imports: China has become one of the top five import sources of Pakistan. Major imports from China are machinery, chemicals, garments and other textile products, stationery products, construction materials like tiles, sanitary wares and crockery, etc. Imports from China also increased from US$ 3.03 billion in 2007-08 to US$ 4.14 billion in 2010-11, thus showing an average increase of 9% per annum. Textile machinery and electrical appliances are the major parts of overall exports. However, amongst other reasons, one of the reasons for improvement in trade and investment from China is the Chinese governments persuasion of its state-controlled enterprises to import Pakistani products in order to improve the trade balance and make more project specific investments. Statistics regarding the import of textile machinery from China to Pakistan is given in Table-3. The excellent political and strategic partnership between Pakistan and China has contributed in increased trade and economic cooperation, enhanced investment and mutual economic prosperity. Pakistans exports to China represent only 0.65% market share of a range of products constituting 13% of Chinas total imports. This share is very low in view of the US$ one trillion Chinese market. However it reflects the potential which exists for Pakistans exports to China. In the negotiations for the Phase II of FTA Pakistan should get the same preferential tariff as given to the ASEAN countries and the categories should include high value added textile products particularly ready made garments.

Table 3: Export of Textile and other products from Pakistan to China (Major Items) (Value : US $000) Item
Raw Cotton Cotton Yarn Cotton Fabrics Knitted FABRICS Ready made garments Textile made ups Bed wear Tents and Canvas Synthetics textiles Leather Tanned Leather gloves Sports goods Carpet and rugs Surgical instruments Petroleum and its products Fruits Vegetables Chemical and its products Marble and Stone

2010-11
75,819 914,594 137,339 1,264 2,654 3,359 16,349 347 2,035 47,862 158 1,177 599 3,194 18,067 6,892 267 61,609 30,677

2009-10
29,836 634,029 77,474 87 1,019 1,519 7,422 2,140 41,891 128 1,101 259 2,163 2,037 3,342 28 22,809 15,760

Source : Trade Development Authority of Pakistan

Chinese Textile Machinery: Exports reached US$ 2.25 billion in 2011

by Dr. Noor Ahmed Memon.
The textile industry is one of the largest industries worldwide. Textiles have varied applications in industries, medicine, household activities, construction of roads, defence, manufacture of automobiles, etc. The Chinese textile production and trading strongly influenced the development of the textile industry in Medieval Europe. Through Modern times, England, Italy, France, Spain, Germany and Scandinavia developed sophisticated clothing markets. Until the 19th century, China was the worlds largest and most advanced economy. In the textile industry it was not different. During the industrial revolution, textile production was mechanized leading to mass production and assembly line organization. Sewing machines emerged in the 19th century reshaping clothing production. During this period, parts of Europe and especially England, achieved great efficiency gains and Chinese competitiveness lagged behind. relocated, for example, to South East Asia and Latin America. However, initially China hardly participated in this process due to its restricted access to foreign markets.

Export of Chinese Textile Machinery Year

2006 2007 2008

Value (US $ billion)

1.24

2009 In the end of last century, the textile industry was shaped by the effects of global2010 ization. Lower transportation costs, reduced 2011 commercial barriers and better information flows facilitated the relocation of manufacturing activities in many sectors. The textile industry is highly labour intensive, thus it benefited greatly from lower labour costs. As a consequence, many textile manufacturing facilities were

China occupies an important share of total exports of traditional industries, textile machinery exports are the fastest 1.50 growing sector in the past five years. . From the growth rate in 2006, that is, 1.57 the Eleventh Five-Year in the first 1.21 year, textile exports break billion-dollar mark, reaching US$ 1.237 billion is the 1.60 fifth during the export. These exports 2.25 continue to grow in 2007, to more than US $1.50 billion; despite the global financial crisis, from 2008 to 2009 the export volume, down from US $1.567 to U$1.211 billion. But by 2010, Chinas textile exports picked up again, and reached US $1.60 billion.

PTJ August 2012 41