New heights of Pak-China ties

Third State Visit of the President Pervez Musharraf

Although the President of Pervez Musharraf started his official third visit of China with sad incidents of killings of three Chinese engineers but fortunately said visit proved to be economically successful, strategically strengthened, and politically satisfactory. The recent visit of the President Pervez Musharraf to our strategic partner and long tested friend China The Rising Economic Dragon has achieved new heights in the Pak-China geo-political and geo-strategic ties. FRIENDSHIP between Pakistan and China has always been a positive factor in the South Asian region and has served to create regional balance and equilibrium of power.

Important engagements of President Musharraf

During his visit to China, President Musharraf met his Chinese counterpart Hu Jintao, Premier Wen Jiabao, Secretary-General of the ruling Communist Party of China, head of the Central Military Commission and other Chinese leaders. Besides these meetings, President Musharraf’s interaction included an encounter with a number of think-tanks, leading business people, executive officers, and an address to the Chinese Federation of Commerce and Pakistan-China Business Forum. Defence and strategic co-operation, which are typical standpoints between the two countries, drew the attention of the two leaders.

Friendship of trust and reliability

Pak-Chinese ties have withstood the test of time for 55 years. It is higher than the Himalayas and deeper than the oceans. The world keeps on changing and rapidly emerging changes in the region also posing threats to both the countries. Pakistan needs to ensure is that it does not end up on the wrong side of Chinese interests whenever Beijing makes the reappraisal. China has been associated with Pakistan’s economic development now for decades. The projects completed with Chinese assistance include the Karakoram Highway, the Chashma-I nuclear power station, the machine tool factory, and many others. The projects now underway with Chinese assistance include the Chashma-II nuclear power, the second phase of the Gwadar port, the Saindak copper mines development, the Gomal Zam dam and several oil and gas exploration schemes. On the whole, China is involved in more than 100 on-going projects in Pakistan. In the defence field, they have jointly developed the JF-17, a fighter aircraft, while MiGs, tanks, artillery, frigates and other Chinese arms form a significant part of Pakistan’s armoury.

Geo-Strategic importance of Pakistan

According to the President Pakistan Pervez Musharraf, Pakistan can act as a transit facility giving China access to Central Asian markets and energy sources. It is predicated that Islamabad may play an important role to grab all the opportunities from the rising might of China if and only if Islamabad plays the right moves in right directions on right times which may also instrumental for balancing Beijing’s global ambition with our domestic, regional and even international concerns. The Gwadar port will be completed by June this year where China is playing a leading role, both at the financial and technical levels. The Chinese government is very much worried about the safety of its workers in Pakistan. China also wants Pakistan’s commitment to create regional equilibrium.

Deepening of Corporation

Unfortunately, despite their time-tested friendship on the political and diplomatic front, economic co-operation between the two nations remains insignificant. That is why during this historic visit, both countries inked as many as 13 agreements to boost bilateral trade in various fields. These include:

  • A framework to expand economic and trade relations
  • Broaden defense and energy cooperation
  • Up-gradation of Karakorum Highway
  • Under two other MoUs, the two sides would cooperate in the field of earthquake and meteorological studies
  • Health and family planning sectors. Three agreements were inked for cooperation in the areas of vocational training, pesticides management, and Fisheries.
  • Under a separate MoU, Pakistan and China would jointly launch a five-year programme for the promotion of bilateral trade and economic cooperation. A loan agreement worth US$ 300 million was also signed regarding utilisation of preferential buyers credit.
  • The Early Harvest Programme which is vital for FTA.
  • A framework agreement on defense cooperation was signed by the two Ministers for Defense Production. China is already supplying Pakistan’s Navy with four F-22P frigates, thanks to an agreement signed in April 2005. In addition, Beijing and Islamabad jointly produced the JF-17 fighter aircraft (labelled the FC-1 by China’s air force) and are working together on the K-8 trainer aircraft. The February deal is to be read in continuity with this solid cooperation background and assures further improvements in Pakistan’s strategic defenses.

Volumes of Bilateral Trade

Last year, trade between the two countries rose to $4.25 billion from $3.06 billion the previous year. Bilateral trade has shown 40 percent increase, rising to $4.26 billion in 2005 from the previous year’s $3 billion. The balance of trade between the two countries is heavily tilted in favour of China, which requires to be turned into a win-win situation for both the countries. The trade deficit of Pakistan, which stood at $291.3 million in 1999-00 increased to $1488.7 million in 2004-05. Trade between two countries rose to $4.25 billion from $3.06 billion the previous year. The two countries are negotiating a Free Trade Agreement [FTA] to push total trade to over US$8 billion by 2008. The setting of a liaison office of the Federation of Pakistan Chambers of Commerce and Industry [FPCCI] in China would facilitate the business community of the two countries in joint ventures and help do other businesses. Bilateral investment treaty was signed in 1989 between the two countries. The setting of a liaison office of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in China would facilitate the business community of the two countries in the establishment of joint ventures and help do other businesses.

Current standing

Currently, 70 per cent of Pakistan’s exports to China are cotton yarn and cotton fabric. Pakistan is also keen to promote its other products ranging from mangoes to footballs. Pakistan’s mangoes are the best in the world. It began exporting mangoes to China in 2005, using the Karakoram Highway to transport the consignments. China could become a very important market for Pakistani footballs.

Supportive role of Chinese government

The Chinese Government encourages its public and private sector to actively take part in projects based in Pakistan. China’s public and private sector is undertaking over 250 projects in Pakistan from mega to small and from strategic to regular businesses. At present, over 60 Chinese companies have already permanent offices in Pakistan.

Low ratios of inflows of FDI

The flow of Foreign Direct Investment [FDI] from China, excluding Hong Kong, into Pakistan is still rather weak. This largely depends on the private sector. Pakistan has to make all-out efforts to attract Chinese investment. The greater the volume of trade, the greater the level of FDI. With the signing of FTA and the completion of Gwadar Port, Chinese FDI would increase in Pakistan.

Future Scenarios

The President of Pakistan named energy, telecom, agriculture, food and food processing facilities, real estate, raw materials and infrastructure development as some of the areas where Chinese investors could concentrate. The relocation of Chinese textile units to Pakistan is also under consideration. Untapped coal reserves, which China, having special expertise in the use of coal energy, can, help exploit and put to productive use for Pakistan in the days to come. The country is a potential market for Chinese investors because of market location, demand and cheap labour, investment-friendly climate and many other incentives that are being offered to foreign investors. Chinese businessmen have already got a good image in Pakistan.

Hub of information and communications technology [ICT]

In 2004 China overtook the United States to become the world’s leading exporter of information and communications technology (ICT) goods such as mobile phones, laptop computers and digital cameras, according to data released in December 2005 by the Organisation for Economic Cooperation and Development [OECD]. China’s share of total world trade in ICT goods, including both imports and exports, rose to $329 billion in 2004, up from $234 billion in 2003 and $35 billion in 1996. Thus, China’s total trade in ICT goods grew nearly ten-fold in only eight years – a rate of growth unmatched by any sector of any other economy in history.

Scope of joint-venture industrial projects

Joint-venture industrial projects are also expected to get a boost as a result of the agreements signed between Pakistani entrepreneurs and their Chinese counterparts during Musharraf’s visit. The new textile city that Pakistan is developing at Port Qasim near Karachi can play a useful role in this regard by offering high-class infrastructure facilities and other incentives to Chinese companies interested in setting up textile-related industries in Pakistan in partnership with Pakistani entrepreneurs. China contributed $198 million for the construction of the port’s $250 million first phase, with the rest of the money coming from the Pakistan government.

Transportation of crude oil to China from Gwadar Port

President of Pakistan Pervez Musharraf said Pakistan is studying the prospects of transporting crude oil to China from Gwadar Port, across Balochistan and NWFP, and through the mountainous regions of the Northern Areas, over the Khunjerab Pass to northwestern China. Pakistan has suggested building a railway as one option. Another option suggested by Pakistan is to use an upgraded Karakoram Highway to transport the oil in tanker lorries.

Major Development in Banking & Finance Sectors

National Bank of Pakistan and China Development Bank [CDB], the largest Chinese state-owned bank, have signed a memorandum of understanding for enhancing cooperation in banking and finance. The Pakistani banking industry has been showing keen interest for exploring new possibilities in the banking sector of China. Habib Bank has announced plans for acquiring 20 per cent stake in another Chinese bank. The MoU between NBP and CDB was singed in Beijing in the presence of President Pervez Musharraf. Under the MoU, financing support would be provided for the relevant projects in Pakistan and China by way of an arrangement to be concurred by the two banks. The cooperation would bring investment in the projects being designed by Pakistan for post-earthquake construction programme. Pakistan needs huge investment for the reconstruction of quake-hit areas. Key industrial and infrastructure projects in Pakistan would also get benefit from this cooperation. The two banks would cooperate in channelling foreign direct investment through their network and provide training to their employees in the respective countries.

Importance of President Musharraf’s visit

President Musharraf’s visit has, assumed greater importance as it is taking place at a time when important and exciting developments are taking place in the region and around it. It is hoped that apart from imparting greater content and substance to bilateral relations and holding in-depth discussions on important regional and global issues of mutual interest, the US-India agreement establishing a global partnership between these two countries would also figure prominently in the talks between President Musharraf and his Chinese counterpart.


Let us hope that friendship between Pakistan and China may remain forever. Furthermore, Pakistan may be benefited from the window of economic opportunity Chinese markets. Both economies are complementary and thus have a great scope for promotion and expansion.