Pakistan suffers trade gap of $4.39b with China

LAHORE – While China’s reported exports had increased from $4,164.23 million in 2007 to $9,300 million in 2012, Pakistan’s reported exports to China in the same period had increased from $613.76 million in 2007 to $ 2,620 million in 2012. In 2013 these figures were $11,019 million for China’s reported exports to Pakistan; Pakistan, however, reported imports of $6,626 million, an “unaccounted for” gap of $4,393 million. Similarly, Pakistan reported exports to China of $2,652 million while China reported imports of $3,196.0 million in 2013; a discrepancy of $544 million in Pakistan and China’s reported figures.
This was stated in a Study conducted by Pakistan Business Council ‘On Pakistan and China Trade Partnership Post- FTA’, terming it a one-sided nature of the Pakistan China Free Trade Agreement, signed in 2005 and made effective from 2007.
The Preliminary Study showed that while China managed to export along 57pc of the lines in which it had a preference under the FTA, Pakistan’s utilisation was a mere 5pc along lines in which Pakistan had managed to ‘negotiate’ concessions. Finally, the concessions offered by China to Pakistan had more or less been negated due to better or equal concessions offered by China to its other trading partners, some of whom are Pakistan’s competitors. The Study called on the government of Pakistan to negotiate better terms for Pakistan in Phase II of the FTA. Negotiations for Phase II were initiated in 2013 and are currently in progress.
The trade gap between Pakistan and China was over $4,000 million, while current figures show that this has marginally decreased to $3,974 million. Exports to China made up 10.56pc of all Pakistan exports in 2013, showing a slight increase over the previous year when exports to China made up less than 10% of all Pakistani exports. Pakistani exports to China made up 0.14% of all Chinese imports, remaining roughly the same. The Preliminary Study also showed that the top 12 items with the highest indicative potential trade had a combined value of $2,998m while current figures show that the top 12 items with highest indicative potential trade add up to $3,715.4 million.
There is a trade deficit in favour of China in Pakistan-China bilateral trade. This has increased from $2,782 million in 2009 to $3,974 million in 2013. It should however be appreciated that due to the size of its economy, its production base, and differences in overall competitiveness China will in the foreseeable future continue to have a positive trade balance with Pakistan. In spite of having an FTA, Pakistan still faces higher tariffs on many exports (including some top performing exports) to China, especially when compared to China’s other trade partners. Additionally, four of Pakistan’s top exports to China are not reported by China as its imports from either Pakistan or from any other trading partner-therefore tariff data was not available for the same, indicating discrepancies in data reporting. Nevertheless, there remains huge potential for exports to China, with total indicative potential in 2013 coming up to over $22,468.66 million, clearly revealing that China potentially has the capacity to absorb nearly all of Pakistan’s exports. Chinese imports from the world in 2013 amounted to $1,949,934.69 million. Pakistan has a comparative advantage in the export of Textiles/Clothing, Hides/Skins, Vegetables and Food Products to China.
Imports from China increased significantly following the implementation of the FTA, rising from $2,914.93m in 2006 to $6,626.32m in 2013. Although Pakistan’s overall imports increased in this time period as well, the increase in Chinese imports remains far more than proportionate, indicating that the FTA is being utilized by China to the max in this respect.
Cotton remains Pakistan’s top export to the world. Pakistan’s top 10 export commodities (HS- 2 level) make up 72pc of total exports indicating a concentration or a narrow export base.
Pakistan’s top export country in 2013 was the United States; however if the European Union is taken as a single entity, then the EU as a partner is Pakistan’s highest export destination by a significant margin. Pakistan’s top imported commodity in 2013 at (HS-2 level) was Mineral Fuels/Oils, with the UAE being the Pakistan’s largest supplier (primarily due to Mineral Fuels/Oils imports of $6,588.36m in 2013). Pakistan’s top 10 import partners make up 73.7pc of Pakistan’s total imports.
China’s top export to the world is Electrical/Electronic Equipment, with its top 10 export; products (HS-2 level) making up 67.8pc of all global exports. Hong Kong remained the top export partner (due to the fact it acts as a channel for imported raw materials/components for assembly in the Chinese Mainland). China’s exports to its top 10 export partners account for 59.7pc of China’s total exports. China’s top import (HS-2 level) is again Electrical/ Electronic Equipment, with the Republic of Korea as its top import partner. China’s top 10 import partnf3rs make up 60.3pc of its total imports.
Textile exports report
another dismal month
Textile exports reported another dismal month where the exports declined by 5 percent monthly to clock around $1.03 billion. This took the total exports of the country during 9MFY15 to $10.23 billion, down 2 per cent annually from $10.43 billion reported during the similar period last year.
Despite the negative growth of 12%-25% seen in various non-value added textile products, the overall exports had remained flattish YoY in 8MFY15 as the value added exports depicted a healthy uptrend. However, the March 2015 saw even value added segments (like knitwear, bedwear and readymade garments) all posting MoM declines of 4%-6%. Disappointing export numbers in 9MFY15 can be attributed to weak demand from EU region, one of the biggest trade partner of the country, on the back of a weak EUR which has shed ~24% value against PKR over the same period. Consequently, the trade deficit over the same period widened to USD15.5bn, up ~19%YoY. On the other hand, country has posted 11%YoY jump in cotton production where the total production of the white fiber has topped 14.8mn mark.
On back of this bumper crop and tepid demand from China, world largest cotton importer, it is expected the prices of the commodity to remain soft going forward.

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