Pak-China Relationship

The relationship between Pakistan and China is a geopolitical cornerstone for both countries. The solidarity between us and the unanimity of views that we demonstrate is unmatched by any relationship between two sovereign states. The strategic partnership between our two countries is the bedrock of all other partnerships. Sometimes it is said that economic relationship does not match the depth of our strategic proximity. The leadership on both sides has taken a conscious decision to fill this gap. President Asif Zardari has visited China nine times since assuming office.

Former Prime Minister visited China five times since early 2008. Prime Minister Raja Pervaiz Ashraf will be in Tianjin this week. Premier Wen Jiabao paid a historic visit in December 2010. In all these visits, the overarching accent has been on economic partnership. Let us start with our strengths. Our economic relations are growing fast. We have a good architecture for economic and trade cooperation. A Joint Economic Commission (JEC) oversees progress in the implementation of the projects under the Five Year Development Programme (FYDP) for Economic and Trade Cooperation.

The first cycle of the programme was concluded last year and we have launched the second five year programme that will end in 2016. Under this plan, 36 projects valued at $14 billion, and covering energy, transport, ICT, industrial, agricultural, health care and education sectors have been identified. The Economic Cooperation Group (ECG) monitors implementation at the working level. We have signed Free Trade Agreements (FTAs) on goods, services and investment. The bilateral trade is increasing. Since 2008, the total volume of trade has grown by 70 percent; whereas Pakistani exports increased two-fold from $1 billion to $2.

2 billion during the same period. Last year, the trade growth rate was about 22 percent. Modest but encouraging! This takes us nearer to our goal of $15 billion by 2015. China is now Pakistan’s largest trading partner; and Pakistan is China’s second largest trading partner in South Asia, though the gap between the first and second trading partner is big. Last year, we also established a Joint Energy Working Group, which now coordinates implementation of all energy projects, including hydro, thermal, coal-fired, alternate and civil nuclear energy.

A Pak Rupee-Renminbi Currency Swap Agreement for $1. 6 billion has been signed. The ICBC has opened branches in Islamabad and Karachi. We are exploring with the CBRC the possibility of opening a subsidiary of a major Pakistani bank in China. Strong private Chinese enterprises are entering into Pakistani market. They will invest in the energy sector and infrastructure development. This is happening as we speak. Chinese state and non-state enterprises have years of cumulative experience of doing business in Pakistan’s defence and civilian sectors.

For them, ease of doing business in Pakistan is higher than for any other country. Pakistani enterprises, though on a modest scale, have made entry into the Chinese market. Netsol – a software developer based in Lahore – is one such example. In addition to the EPC contracting, partnering between Pakistani and Chinese enterprises and entities is growing. Pakistani businesses are looking increasingly towards China. A healthy appetite in Pakistani educational and professional institutions to learn the Chinese language and to understand Chinese culture reinforces this trend.

This is a new wave in Pak-China relations. We have established a Pakistan-China Entrepreneurs Forum. We are working on starting a young entrepreneurs’ forum. These effective initiatives need leadership from the corporate sector. There is, however, no room for complacency. We need to work harder with a sharper focus. We need to demonstrate ingenuity and resilience. We need to work on synergy. There are no shortcuts to accelerating the economic partnership between the two countries. Due diligence has to be done, even if the enabling environment in both countries is supportive and hospitable.

Pakistani entrepreneurs and enterprises need to understand how Chinese state and non-state enterprises work. Chinese corporate sector has unique characteristics, which have to be studied, comprehended and assimilated. In this regard, Chinese Confucius Centres and Chinese language departments in schools and universities will give a strong impetus to our economic partnership. Early this year, a higher learning institution held a Pakistan-China economic forum, which brought together officials, businessmen and academics to define a broader space for economic ties.

We have been discussing with the Chinese government ways to increase trade, because our actual potential should not be less than $50 billion given our geographical contiguity and economic complementarity. The trade between Pakistan and China will remain uneven for quite some time to come because that is China’s equation with even most developed economies. But we will continue to make efforts to reduce the trade deficit in Pakistan’s favour. China is ready to help us. The total volume of Pakistani exports last year was $2. 2 billion, out of which 2. 2 billion came to China.

This is not bad! If we have more goods and services to export, I am sure the vast Chinese market would be able to absorb them. Chinese government will send official purchase missions to enhance our exports. Pakistani traders are attending China’s trade and investment expos and fairs in larger numbers. We are also working on Chinese assistance for helping us with value addition and capacity building in textiles, leather products, minerals, gems and jewellery and light engineering. At the moment, the bulk of Pakistani exports are raw materials or semi-finished goods.

China can help us to build our manufacturing capacity and improve the quality of our products. After decades of economic cooperation, Pakistani and Chinese entities are mature for joint ventures and equity participation. For a developing country, Pakistan has a fairly developed industrial and infrastructural base. We have disciplined workforce and we here professionals with high managerial skills. Chinese enterprises’ partnership with Pakistani counterparts would be profitable than, let us say, with East Asians. Pakistan has a very liberal and attractive investment regime. Besides, lifestyles in Pakistan are changing fast.

Two hundred million people of Pakistan are a promising market for investors and businessmen. China is already deeply involved in Pakistan’s energy sector. We need to address two issues to speed up completion of the ongoing and new projects. One, special Chinese financing mechanisms and credit lines for Pakistani projects. Two, streamlining of Pakistani bidding and approval processes, which take longer duration to mature. In this regard, Joint Energy Working Group’s two recommendations are significant: (a) establishment of an Energy Infrastructure Fund; and (b) study of overall planning for energy resources in Pakistan.

Enhanced Chinese investment will also contribute to social stability in Pakistan. Right now security for Chinese professionals and businesses in Pakistan is a priority for us. The real potential of Pak-China economic cooperation is held back because of the ongoing war against terrorism and the perceptions it creates through the media; although vast parts of Pakistan are as safe as Beijing or Shanghai. So we have to correct the misperception about Pakistan through increased use of the traditional and modern media, particularly social media.

We know that today, a vast number of Chinese form their opinion through the Internet and micro-blogs. Finally, a rail link between Pakistan and China, oil and gas pipelines, and connecting Xinjiang and rest of China to Strait of Hormuz and West Asia are not pipedreams. These are strategic directions, which we must take to revive the Silk Routes passing through Pakistan. In the beginning, I said there is no shortcut. But on second thoughts, there is one. China is developing its western region, especially Xinjiang, with immense speed.

Khorgos and Kashgar will be Shanghai and Shenzhen of tomorrow. Pakistan has a natural affinity with this region. Already every year hundreds of Pakistani traders participate in the Kashghar trade fair and the Urumqi China-Eurasia Expo. If Pakistan is integrated into this region, the economies of Gilgit-Baltistan, Khyber Pakhtunkhwa, and of the southern parts of Pakistan would take off simultaneously. My final comment is this: China is big. It is getting bigger by the day. To accelerate Pakistan-China economic partnership, Pakistan has to think big, with its feet still on the ground.

We in Pakistan need to develop competencies and adopt efficient implementation strategies. As we do that, China – our brother and partner – may step forward to help us develop these competencies. Only then we will have a fuller interface between the two economies. I once again congratulate you on organising this round table and wish you success in your deliberations. The article is based on the keynote address by Pakistan’s Ambassador to China, at Roundtable on “Accelerating Sino-Pakistan Economic Partnership” organised by China Development Research Foundation in Beijing on September 7, 2012