Pakistan and China have been trading partners for quite long and both the countries have also signed a Free Trade Agreement (FTA). Over the years, the mutual trade between these two countries has increased gradually but the balance of trade has always remained in the favour of China.
Last year the volume of bilateral trade between Pakistan and China was estimated to be around $16 billion. This year the estimate is around $18.9 billion as hinted at by none other than Ahsan Iqbal, Federal Minister for Planning and Development, during a seminar. An interesting phenomenon in this connection is that there is a glaring difference between the figures quoted by both the countries. One main reason for this is that under-invoicing is quite a common practice in Pakistan, adopted by importers to save on taxes.
However, one major concern is that imports from China are increasing while exports from Pakistan are decreasing. According to the figures quoted by the State Bank of Pakistan (SBP), in 2015-16 the trade deficit with China rose to $6.22 billion, which was the highest deficit that Pakistan had with any country that year.
This situation calls for a detailed study of why Pakistan has not been able to explore its full potential regarding exports to China and what venues can be explored in future to improve the situation.
Salahuddin Hanif, Secretary General Pakistan China Joint Chamber of Commerce and Industry (PCJCCI), based in Lahore, says though Pakistan and China have signed an FTA, there are issues that have stopped Pakistan from making best use of it. He says China imports many products from countries like Bangladesh and those in Africa at zero import duty while there are duties on the same products if imported from Pakistan. “These duties are imposed at the rate of 5 per cent, 10 per cent and even more that make these uncompetitive in the international export market.”
Hanif tells TNS that this perception is wrong that Pakistan does not have enough products to import to China. In fact, he says, this is the right time for Pakistan to set its direction and benefit from the opportunities that are arising. “China is fast transforming into a consumer economy and today its people have sufficient disposable income to spend. Besides, with affluence becoming common among the masses, the labour costs have increased and labour-intensive trades are becoming non-viable. This may lead to shifting of such trades to other locations and increase in demand for consumer products.”
Hanif shares that as China has hardly 10 per cent arable land left, it will depend on import of agricultural products from abroad. “They are just producing staple food that leaves scope for export of vegetables, fruits and flowers that are in high demand there.”
He says there is a major surge in demand for halal food, halal meat and mutton and beef in general as the Chinese have upgraded their eating habits. “Today they are eating more mutton and beef than ever. Meat from Pakistan is going to China but through Vietnam because there are no quarantine facilities here as per requirements of China.”
Earlier in October 2016, the scribe got a chance to meet Zhang Shaoyun, Deputy Director General, Commerce Department at Xinjiang Uyghur Autonomous Region (XUAR) in Xinjiang, China. What he said there puts things in right perspective. He said though the mutual trade between the two countries has increased over the years, the exports from Pakistan have plummeted mainly for the reason that it mostly exports raw goods without or little value-addition.
Besides, he said, as different products have to be collected from different areas of Pakistan and then sent to China through a long and uneven land route, the transportation costs become too high and non-viable. “If there is rail link between Pakistan and China, the former will be able to export more,” he added.
However, he pointed out that a delegation of businessmen from Xinjiang province had visited Gilgit-Baltistan sometime back and found there was a great scope of investing in gems and precious stones in this region.
At the moment, the situation is that Pakistan exports handmade items, food seasonings, dry fruits, razor blades, carpets, seafood, raw textile products like cotton yarn, chromite, minerals including marble, rice, raw hides and skins and a few other items to China. On the other hand, its imports from China include plastics and plastic material, textiles, shoes, steel, construction material, electronics, engineering goods and many more products.
Wang Zihai is President PCJCCI and Chairman, Association of all Chinese companies working in Pakistan. Talking to TNS, he says Pakistan is likely to get myriad opportunities to export a bigger range of products to China and increase the quantity of what it is already exporting. He shares China is a major importer of Pakistani marble with a share of almost 85 per cent.
The quantity can be increased if modern techniques are employed for its extraction and techniques. Pakistan is the sixth largest extractor of marble and granite but unfortunately its share in global market is less than one per cent.
On prospects of exporting halal meat, Salahuddin explains the demand for halal meat is high in China as there are around 150 million Muslims and secondly because there is an understanding that meat of slaughtered animal meet the phyto-sanitary standards very well. He says the chamber organised a special seminar to apprise Chinese businessmen of the prospects of importing meat from Pakistan and advised them to set up their own quarantine facilities here. They were told that the quality of meat in Pakistan is of very high standard.
Hanif says it is an encouraging fact that Pakistani honey, rice and kinnows (oranges) have made way to China. Besides, chromite is a major export but in raw form just like gemstones that are also sent there without value addition. If Pakistan exports products in finished form, the export earnings can increase manifold and the trade deficit between the two countries will definitely decrease.
He says China has developed a technology that helps dehydrate vegetables and plants to increase their shelf life. “Now it will be possible to keep these products in this form for months and reclaim their original shape by just adding water to these. So, you can keep dehydrated tomatoes at room temperature for months without the fear of their rotting.”
He hopes with the help of this technology, perishable products will become non-perishable and this transformation will increase possibilities of their export at a good price. Pakistan being an agriculturally rich country must become a benefactor of this technology and work on exporting agricultural products to China, he suggests.
Leading businessman Shah Faisal Afridi, the president and CEO of the Haier-Ruba Group, says a lot of potential also exists in handicraft manufacturing industry as China might shift it to foreign destinations. He says the handicraft manufacturing industry of China has 30 per cent share of world trade but it is facing major challenges due to the increase in cost of labour.
Afridi says as the demand of traditional handmade products is constantly on the rise, this industry can be shifted to Pakistan on the basis of buy-back guarantee that will give employment to a huge population of rural women.
The PCJCCI secretary general also highlights that China has capped extraction of minerals from its mines and will import these to meet its demands. For the time being, he says, it has decided to save its own deposits for extraction in distant future. He says Pakistan can benefit a lot from this situation as it is quite rich in mineral wealth. “But this will be possible only if we stop exporting them in raw form and at throw-away prices. Value-addition is a must that can be ensured by entering joint ventures,” he concludes.