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Sociology International Journal

Research Article Open Access

Perspectives on Pakistan’s, strengths, opportunities


and pitfalls trade with China
Abstract Volume 3 Issue 6 - 2019
Pakistan and china have historical relationship, both states have strong economic, political,
social and defence relations. Both countries were fully supported to their mutual relationships Tamseela Majeed,1 Arshad Mahmood Malik2
in their foreign policy. In Pakistan, there is massive Chinese investment (infrastructure,
1
M Phil student, Department of Economics, PMAS-Arid
roads, highway, ports, and energy and communications sectors). Pakistan welcomed the Agriculture University, Pakistan
2
Assistant Professor, Department of Economics, PMAS-Arid
Chinese investment for social and economic development. China has become Pakistan’s
Agriculture University, Pakistan
largest trading partner in recent years. But Pak-China bilateral trade always remain in
favour of China. This paper aims to examine and identify the trade possibilities and issues
Correspondence: Tamseela Majeed, Arid Agriculture
of imbalance in trade between China and Pakistan. Further, the paper suggests on how to University, Rawalpindi, Pakistan, Tel 03025080029,
enhance trading relationship between the two countries. For estimation of results Reveal Email
Comparative Advantage (RCA) and Normalized Reveal Comparative Advantage (NRCA)
index was used. This article throws light on SWOT analysis compared that’s performance Received: September 20, 2019 | Published: November 13,
of the country in trade to China and which are strengths, weaknesses, opportunities and 2019
threats that are being faced by this bilateral trade. Furthermore, this article is an attempt to
explore new trends in Pakistan and China relationship.

Keywords: China-Pakistan, bilateral trade, RCA and NRCA index, SWOT analysis

Introduction relation to the interests and multilateral cooperation which has won
the vicissitudes in the field. China’s investment in several areas and
Agriculture sector is backbone of Pakistan economy, with annual regions is appreciated for self-esteem thus, Pakistan’s export potential
contribution of 19.8 percent in GDP and provision of employment to has not been improved. Furthermore, trade ties fall to a preferential
42.3 percent labour force of the country. Exports by Pakistan mainly level and the fact is that China has a $12 billion trade attitude despite
depend upon agro based industrial products. Pakistan is facing serious Free Trade Agreements (FTAs) on several rims.5
issue of trade deficit. Perishable goods trade will improve under
CPEC due to reduction in distance,1 while post-harvest losses in case Pak-China bilateral Trade always remains in favour of China.
of fruits and vegetables sector is negatively affecting export surplus.2 Below Figure1 illusrates that the trade situation of Pakistan with
Rice export is supporting Pakistan instead of cotton.3 China respectively, this is evidence from the trend imports of Pakistan
goes high from the last fifteen years, but after the year 2013 sharply
China has enormous potentials for bilateral trade and investment increased the volume of Pakistan. Although China has bigger trading
in huge quantities which can be fruitful to form economic relations to partner of Pakistan, but China gained more benefits of bilateral trade
reduce the trade balance with Pakistan on the basis of friendship. The between Pak-China trade.
trade and trade ties between the two countries have been established
since January 1963 when the two countries held their first bilateral According to the Tanya State “Exorcist” Magazine, in 2015 it is
long-term trade agreement (Ministry of Finance, 2014). China has estimated that the overall growing Muslim country in Pakistan has
become Pakistan’s largest trading partner in recent years. Pakistan also increased GDP growth by 5.7%. Muslim countries like Malaysia,
and China signed the FTA in 2006 and entered into force in 2007. Indonesia, Egypt and Turkey are below Pakistan in economic
The agreement was concluded in two parts with the first phase ending development. China has drawn attention not only because of its rapid
in December 2012 and the second stage negotiations starting in July economic growth and access to the WTO but also because of its
2013. The agreement aimed at bilateral trade worth $ 20 billion proactive attitude towards regional economic development. China has
between Pakistan and China at the end of the second phase.4 benefited immensely after signing Free Trade Agreements.6

Both countries agreed to set a target of raising bilateral trade to Roads towards free trade agreements
20 billion dollars in the next three years and maintain the momentum
of their mixed-use cooperative partnership, which was the result of The effects of Free Trade Agreements between Pakistan and
frequent bilateral exchanges that took their place at various levels.5 China was unsuccessful with tariff hurdles because Pakistan economy
is mostly dependent on international trade as compared to China
Pak-China trade dynamics economy, since the local markets demand is greater than local supply
of commodities in the Country.7 The outcomes of decreasing in trade
China can build a winning association in its target market by obstacles and technological advancement world wise exports level
providing common benefit to its counterparts. The international has been enhance that’s helpful to expansions in production level and
community is on the edge of a unique opportunity to ensure a global inventive in comparative advantage patterns in global economies.
development agenda. Pak-China has a unique continuity in the field Asian economies such as ASEAN countries and China are enjoying

Submit Manuscript | http://medcraveonline.com Sociol Int J. 2019;3(6):421‒427. 421


©2019 Majeed et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, which
permits unrestricted use, distribution, and build upon your work non-commercially.
Copyright:
Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China ©2019 Majeed et al. 422

an outstanding achievement in changing situations across the globe. trade but a negative balance for Pakistan. This is the worrying
Pakistan also has huge potential for enhance growth level but some situation for Pakistani Government, to discuss with Chinese officials
obstacles for example political instability and lack technological for reducing the tariff at maximum level. The FTA between China and
advancement are major factors behind the way of advancement.8 China America will officially come into under the deal, both countries will
has extensive gains after validation the Free Trade Arrangements. eliminate tariff on more than 90 percent of highly traded goods.9 That
China has established win-win relationships in its targeted market by is what Pakistan seeks from China an elimination of tariff should be
providing common benefits to its counterparts. Figure 1 shows that on highly traded goods not at the limited goods.
rapidly increases in exports of Pakistan that’s are plus point I Pakistan

Figure 1 Recent Trends and Bilateral Trade Possibilities.

Material and methodology


∑ X w = total world exports
Data source
If the value of RCA greater than 1 that’s show the particular good
Data was collected from the recent sources relevant to nature of (sector) has comparative advantage further more if its value less that’s
the research problem. For the research purpose data was collected show the particular good (sector) has disadvantage.
from Trade Map, Federal Bureau of Statistics, FAOSTAT and World
Bank. The variables of study included that total exports and imports of Normalized rvealed comparative advantages
Pakistan, total Agricultural imports and exports of Pakistan and major Another way of solution was normalized comparative advantages
exports and imports of Pakistan from the period of (2003-2018).
i E ij E jE i
Comparative advantages through RCA and NRCA NRCA=j −
E EE
The Comparative Advantage played the important role in empirical Here E ij
is country I’s of exports of commodity j, E ij exports
trade research. Revealed Comparative Advantage index (RCA) can
of commodity J by all countries, E i is country I’s exports of all
be used for calculation of comparative advantage from trade, for the
commodities, and E is exports of all commodities by all countries.
efficient and effective utilization of resources.10 Bangladesh has a
comparative advantage in home production of rice.11 Results and discussion
Reveal Comparative Advantage (RCA) Pakistan is an open economy therefore international trade can
Balassa10 developed RCA index for comparing the performance of highly affected it. An imports value of Pakistan is greater than value
the country in export of a commodity in relation to a group of referenced of exports.
countries with the help of observed export pattern or revealed data. Pak- China trade relationship
Revealed comparative advantage index (RCA) was used in order to
check, whether the selected sub-sector has comparative advantages or Pakistan is an agro base economy, therefore agriculture
not? The traditional measure of RCA is given by: commodities are major part of total exports, and it’s played crucial
role in foreign exchange earnings.12 Pakistan has revealed comparative
X i, j ∑Xj advantages in cotton production that showed a positive profit at market
RCA = prices.13 Below the Table1 illustrated, that Broadly Pakistan exports to
X i, w ∑ Xw
china are Cotton, Copper and articles and ores, slag and ash. Cotton
Here, contributes a major portion of total exports earning. In present term
Xi, j = Exports of good I by Country J the share of major export product in Pakistan total exports to China
between 64 percent. In which the highest percentage is cotton 43.58
∑Xj = total exports by country percent and share of Copper and articles thereof, Ores, slag and ash
are 13.16, 7.42 percent in 2018.
Xi,w =World exports of good i

Citation: Majeed T, Malik AM. Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China. Sociol Int J. 2019;3(6):421‒427.
DOI: 10.15406/sij.2019.03.00207
Copyright:
Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China ©2019 Majeed et al. 423

China is large supporter of Pakistan in development of technology, reproducers, television ...,Machinery, mechanical appliances, nuclear
infrastructure and defence sectors.14 China said the two sides are reactors, boilers; parts thereof and Iron and steel. The share of major
working to fully utilize their free trade agreements on goods, imports product of Pakistan to China is in- between 50 percent during
investment and services. He also said, “We have requested the year 2018. In which the highest percentage is recorded Electrical
Chinese government and the private sector to help strengthen our machinery and equipment and parts thereof; sound recorders and
capacity in the field of processing and manufacturing, textile, leather reproducers, television ... is 21.22 percent and share of Machinery,
products, clothing and light engineering.”(Khan, 2012),below the mechanical appliances, nuclear reactors, boilers; parts thereof and
Table 2 show that major imports of Pakistan to China are Electrical articles thereof, are Iron and steel 21.21, 7.16 percent in 2018.
machinery and equipment and parts thereof; sound recorders and

Table 1 Major China’s exports to Pakistan, 2018

Products Million dollar Percentage


Cotton 950.046 43.58
Copper and articles thereof 286.962 13.16
Ores, slag and ash 161.907 7.427
other commodities 780.902 35.82
Total 100

Source: Author calculation from time-series

Table 2 Major China Imports from Pakistan, 2018

Products Million dollar Percentage


Electrical machinery and equipment and parts thereof; sound recorders
3087.47 21.23
and reproducers, television ...
Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof 3085.93 21.22
Iron and steel 1042.76 7.17
Other commodities 7328.53 50.39
Total   100

Source: Author calculation from time-series

In the initial years export from Pakistan was larger. During the and steel, electrical machinery show that constant trend within the
Korean War, Pakistan’s exports of cotton and jute grew but soon little flection. The figure of imports Pakistan of iron and steel also
fell back to pre-War levels. A major item of export of Pakistan was show constant trend within smell flection. The figure of imports of
cotton items, which had a huge market in China.15 Figure 2 shows Pakistan of machinery, mechanical appliance show that during last
trend of total value of major exports (cotton and copper and articles nine years constant trend, within 2009-2010 sharply its level of
thereof) to China, (2003-2018); if we compare trade Pakistan had with imports increased but after 2010 this trend show sharply downward
selected major commodities, below figure depicts that cotton items trend and still it has shown constant trend.
shares relatively more as compare to other commodities. It will not
be exaggerated to say that Pakistan’s export is heavily dependent on RCA and NRCA for exports of Copper and articles
export of cotton items. This is evidence from the trend exports cotton thereof, Ores, slag and ash and cotton
goes high form the last thirteen years, but after the year 2013 sharply Estimating the export competitiveness this sub-sector has export
decreased the export of cotton and after 2016 to 2018 constant trend, comparative advantage are not as revealed by the RCA values, if RCA
similarly the trend of exports of copper and articles there of show that values greater than one or positive NRCA values for the last ten years.
from the last six years its exports level increased but during 2005- That’s means this sub-sector gradually gained this competitiveness,
2008 sharply exports level of copper and articles thereof decreased, bellow the Table 3 illustrates, Copper and articles thereof gradually
but after 2008 its exports level sharply increased and still it show values of RCA and NRCA shows Fluctuation could be seen for this
increasing trend. sub-sector over the period of last fifteen years. Calculation of RCA
China has one of the highest five import sources of Pakistan. and NRCA indicates for Ores, slag and ash exports fluctuation could
Pakistan’s major imports from China are machinery, chemicals other be seen for this sub-sector over the period of last fifteen years.
textile products, stationery, and construction materials etc. Imports The RCA and NRCA ratio for exports of cotton possess that this
from China also increased from US$ 1.84 billion in 2004-2005 to US$ sub-sector gradually gained this competitiveness from RCA value
4.69 billion in 2007to 2008 that showing an average increase of 55% of 3.71 in 2003 to 3.21 in 2017. Export competitiveness remained
per year, Textile machinery and electrical appliances are the major highest during 2009 with RCA value of 4.00, Means that the ratio of
parts of overall exports.16 Figure 3 shows the trend of the figure of its share in domestic market to the World market has increased with
electrical machinery and equipment, mechanical appliance and iron the passage of time.

Citation: Majeed T, Malik AM. Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China. Sociol Int J. 2019;3(6):421‒427.
DOI: 10.15406/sij.2019.03.00207
Copyright:
Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China ©2019 Majeed et al. 424

Figure 2 Trend of total value of major Exports to China, (2003-2018).

Figure 3 Trend of total value of Imports to China, 2003-2018.

Table 3 RCA and NRCA of exports of Copper and articles thereof, Ores, slag and ash and cotton

RCA exports of
NRCA Copper and RCA OF Ores, NRCA Ores, RCA OF exports NRCA OF
Years Copper and articles
articles thereof slag and ash slag and ash of cotton cotton
thereof

2003 0 -1 0.02 -0.96 3.71 0.58


2004 0.01 -0.97 51.53 0.96 3.31 0.54
2005 46.76 0.96 52.32 0.96 3.26 0.53
2006 41.39 0.95 68.45 0.97 3.31 0.54
2007 44.89 0.96 17.88 0.89 3.45 0.55
2008 41.25 0.95 0.35 -0.49 3.35 0.54
2009 0.7 -0.17 8.61 0.79 4 0.6
2010 6.9 0.75 10.3 0.82 3.35 0.54
2011 12.97 0.86 17.27 0.89 3.13 0.52
2012 6.81 0.74 12.64 0.85 3.07 0.51
2013 9.33 0.81 10.05 0.82 3.2 0.52

Citation: Majeed T, Malik AM. Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China. Sociol Int J. 2019;3(6):421‒427.
DOI: 10.15406/sij.2019.03.00207
Copyright:
Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China ©2019 Majeed et al. 425

Table continued
RCA exports of
NRCA Copper and RCA OF Ores, NRCA Ores, RCA OF exports NRCA OF
Years Copper and articles
articles thereof slag and ash slag and ash of cotton cotton
thereof
2014 10.94 0.83 13.13 0.86 3.22 0.53
2015 14.46 0.87 16.08 0.88 3.31 0.54
2016 29.82 0.94 12.62 0.85 3.17 0.52
2017 10.28 0.82 14.13 0.87 3.21 0.52
2018 6.9 0.75 37.37 0.95 2.94 0.49
Source: Author’s calculation from time-series

SWOT Analysis of PCFTA in trade to China and which are strengths and weaknesses further
more what’s opportunities and threats are faced this bilateral trade.
Abbreviation of SWOT (Strengths, Weaknesses, Opportunities Below the Figure 4 shows all aspects of SWOT and also demonstrates
and Threats). It is very simple method for analyses effect of variables the internal or domestic market effects and external effects of PCFTA.
between countries. Here we compared the performance of the country

Figure 4 SWOT (strengths, weaknesses, opportunities, threats).

Strengths Weaknesses
The strength of free trade agreement from Pakistan’s viewpoint Huge difference in size of both economies and their growth in the
is that’s overall growth in exports to China, we attained considerable world trade, further vaster gap in level of industrial development and
progress during previous years. Performance of exports along each the relatively unequal contribution of trade made by each country, the
concern category has been stable, even one challenge that the value logic behind an FTA was to strengthen relations through providing
of exports are not significant as compared to imports from China or deeper access into each other’s markets. Such however could not
even Pakistan’s exports to the world. The strength of the FTA relies be achieved, furthermore narrow coverage of this FTA, other FTAs
upon the opportunities it considers to run in the future for Pakistan and signed by China with over eight countries and regions give hefty
the doors it has opened for trade which Pakistan could have possible concessions, making Pakistan’s products inconsequential by design,
advantage to given that it diversifies its production composition in the Chinese markets. The ASEAN countries enjoy tariff elimination
and increases its capacity while China provides it competitive tariff coverage of over 90% traded goods.
concessions via further trade negotiations.

Citation: Majeed T, Malik AM. Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China. Sociol Int J. 2019;3(6):421‒427.
DOI: 10.15406/sij.2019.03.00207
Copyright:
Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China ©2019 Majeed et al. 426

Opportunities • Pakistan must review her trade policy in terms of commodity


divergence and main focused on domestic policies.
China and Pakistan to maintain all-weather friendship for stability.
Their geographical ability spreads their complete relationship to the • Security concern has been the most important challenge to CPEC,
geo-economic potential. To exploit the benefits of their shared borders and CPEC played important role in enhance to trade between
the two sides completed the legendary Kur Korum Highway (KKH) in Pakistan and China, so government should take immediate and
1982 which linked China’s Kashmir to Islamabad via Kajawah Pass. necessary actions to trickle this problem.
During 2000s the highway was extended and modernized to work
for this kind of traffic until the modern year. Internal road network Acknowledgments
connects KHH with Pakistan Gwadar and Karachi ports in the south None.
of the country Pakistan Economic Corridor (CPEC) China has made
commitments to Invest around $46 billion in development deals, Conflicts of interest
which is equivalent to roughly 20 per cent of Pakistan’s annual GDP
(Stevens, 2015).China’s biggest foreign direct investment deal to The author declares no conflicts of interest.
invest in Pakistan. In total, the economic corridor project aims to add
some 17,000 megawatts of electricity generation at a cost of around Funding
$34 billion.17 None.

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Citation: Majeed T, Malik AM. Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China. Sociol Int J. 2019;3(6):421‒427.
DOI: 10.15406/sij.2019.03.00207
Copyright:
Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China ©2019 Majeed et al. 427

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Citation: Majeed T, Malik AM. Perspectives on Pakistan’s, strengths, opportunities and pitfalls trade with China. Sociol Int J. 2019;3(6):421‒427.
DOI: 10.15406/sij.2019.03.00207

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