Rising Imports from China
By Syeda Majeeda Aqeel

TRADE policy 2006-07 set exports targets at $18.6billion. While federal budget 2006-07 projected the volumes of exports at $17 billion. The export volumes practiced mixed trends in 2006.

Between FYs 1999-2000 and 2005-06, exports have more than doubled from $8.0 billion to $16.6 billion. Pakistan exports are 13 percent of GDP whereas Chinese exports were 40 percent in 2005-06.

The government is keen on fixing new targets of exports like $28 billion during the next five years, $130 billion in 2020 and so on. But reality speaks the bitter truth and we are loosing our shares in global exports and trade by each day.

During the last five years, Pakistan’s economy as well as its manufacturing sector has undergone substantial expansion.

The resulting additional demand for industrial raw materials and machinery is being met by imports from China. Consequently China is becoming a major supplier for imports to Pakistan.

On the word of November 2006 estimate, China has almost doubled its share in Pakistan’s total imports during a short period and is now third largest import source having 9.2 % of the total imports after Saudi Arabia (11.1%), and UAE (10.3%).

A major jump in China’s share in country’s total import is visible since Federal Year 2003 that had resulted in worsening of trade balance.

The rapid increase in trade with China comes largely because of Pakistan's competitive geographical position, i.e. through the Karakorum Highway, the modern paved version of the Silk Route, and more competitive international bidding for large contracts.

Imports by Pakistan from China quadrupled over the past five years while Pakistan's exports to China doubled, according to Pakistan's Federal Bureau of Statistics.

Chinese President Hu Jintao and President Pervez Musharraf oversaw signing of a free trade agreement between the two allies which was signed by the Commerce Ministers of both the countries.

The design of the bilateral Free Trade Agreement includes Trade in Goods and Investments in the first Phase and the leaders of both the countries have decided to negotiate on Trade in Services during 2007 to enlarge the coverage of the Free Trade Agreement.

Pakistan has given market access to China mainly on machinery; organic; and inorganic chemicals, fruits & vegetables, medicaments and other raw materials for various industries including engineering sector, intermediary goods for engineering sectors, etc.

According to the provisional figures compiled by the Federal Bureau of Statistics, exports from Pakistan during 2006 amounted to Rs.83, 805 million (provisional) as against Rs.66, 546 million during 2005 showing an increase of 25.94% over 2005.

Main commodities of exports during 2006 were Bed wear, Knitwear, Cotton cloth, Cotton yarn, readymade garments, Art, silk & Synthetic textile, Rice basmati, Rice others, Towels and Petroleum products.

The increase (+) / decrease (-) recorded in main commodities exported during 2006-07 over 2005 -06 as shown in the Table-A:-

Commodities % Change for value in million
Rupees in 2006 over

2006 2005
Bed wear 15.37 25.32
Knitwear -8.41 37.13
Cotton cloth 16.32 -2.02
Cotton yarn 2.95 11.24
Readymade garments 3.84 11.48
Art, silk & Synthetic textile 111.98 559.61
Rice Basmati 7.87 71.86
Rice others -9.05 -22.92
Towels 14.22 34.26
Petroleum products 52.99 52.66
Table-A Source: - State Bank of Pakistan

Imports into Pakistan during 2006 amounted to Rs.168, 433 million (provisional) as against Rs.137, 400 million during 2005 showing an increase of 22.59% over 2005.

Main commodities of imports during 2006 were Petroleum crude, Petroleum products, Other Apparatus (Telecom), Iron & steel, Palm oil, Plastic materials, Mobile phone, Electrical machinery & apparatus, Raw Cotton and Textile machinery.

The increase (+) / decrease (-) recorded in main commodities imported during 2006 over and 2005 as shown in Table-B:-

Commodities % Change for value in million Rupees in 2006 over

2006 2005
Petroleum crude 21.16 37.72
Petroleum products 14.25 65.29
Other Apparatus (Telecom) 5.79 109.06
Iron & steel 34.84 -11.22
Palm oil -1.48 69.93
Plastic materials 3.90 7.63
Mobile phone 24.52 41.38
Electrical machinery & apparatus 74.36 45.78
Raw Cotton 63.00 51.55
Textile machinery 20.51 -39.36
Table-B Source: - State Bank of Pakistan

Pakistani manufacturers who feared Indian goods for being cheap are poised to face the far cheaper Chinese goods.

Since the Chinese goods are low priced, the surge in imports may not be a worrisome sign. But there are some concerns that need to be highlighted.

Firstly, the imports of goods that are also domestically produced e.g. electronic goods, footwear, ceramics, plastic items, etc, can hurt the domestic industry.

In fact, the continuous increase in supply of these goods at reduced prices is posing tough competition to the relevant manufacturing units. However this competition is beneficial to consumers as they are enjoying lower prices.

The domestic producers, on the other hand, will need to increase their efficiency so that they could offer lower prices and thus hold the market share.

Secondly, in some cases, the imported Chinese goods have almost completely wiped out the branded foreign suppliers of the some goods. The substation of expensive goods with the low priced imports has the impact of lowering the country’s over all trade deficits.

Experts and analysts are of the view that scope of exports can be enhanced only if the economy is put on sound footings and fiscal fundamentals are put right by taking the following measures that might sound as bitter pills.
• GDP growth should be export oriented
• Increase the agriculture and industrial productivity.
• More focus should be on value addition.
• Wider range of countries for exporting should be adopted.
• Exports sector is lagging behind owing to tightening of monetary policy. High interest rates have produced negative trends in exports in 2006.
• More financial and administrative incentives.
• Reduction in production costs.

Drawing conclusions; it is no use arguing that we are a small compared to China, and so can’t compete with China. How small are the industries like Belgium, the Netherlands and Denmark living in the neighborhood of France and Germany, and thriving with industries known for their excellence?

They are focusing on their core areas of competence and competitiveness, and improving their capabilities all the time through research and market surveys.

Our industries and exporters have to learn to accept lower profits and spend more money on research and market surveys.

[The writer is a noted Economist and has contributed this article via Email]●

© 2007 Syeda Majeeda Aqeel