China investment notes

Government College of Science

2013

Submitted To:

Prof. Muhammad Adil

Submitted By:

Qamar Adeel

Roll No: 1739

BBA (VI)

CHINA’s INVESTMENT IN PAKISTAN

China–Pakistan relations overview:

Pak China relations began in 1950 when Pakistan was among the first countries to end official

diplomatic relations with the Republic of China on Taiwan and recognize the PRC. Since then,

both countries have placed considerable importance on the maintenance of an extremely close

and supportive relationship. Since then, the two countries have regularly exchanged high-level

visits resulting in a variety of agreements. The PRC has provided economic, military and

technical assistance to Pakistan and each considers the other a close strategic ally.

Diplomatic relations were established in 1950, military assistance began in 1966, a strategic

alliance was formed in 1972 and economic co-operation began in 1979. China has become

Pakistan’s largest supplier of arms and its third-largest trading partner. Recently, both nations

have decided to cooperate in improving Pakistan's civil nuclear power sector.

Maintaining close relations with China is a central part of Pakistan's foreign policy. China and

Pakistan also share close military relations, with China supplying a range of modern armaments

to the Pakistani defense forces. China supports Pakistan's stance on Kashmir while Pakistan

supports China on the issues of Xinjiang, Tibet, and Taiwan. Military cooperation has deepened

with joint projects producing armaments ranging from fighter jets to guided missile frigates.

Chinese cooperation with Pakistan has reached economic high points, with substantial Chinese

investment in Pakistani infrastructural expansion including the Pakistani deep-water port at

Gwadar. Both countries have an ongoing free trade agreement. Pakistan has served as China's

main bridge between Muslim countries. Pakistan also played an important role in bridging the

communication gap between China and the West by facilitating the 1972 Nixon visit to China.

The relations between Pakistan and China have been described by Pakistan's ambassador to

China as higher than the mountains, deeper than the oceans, stronger than steel, dearer than

eyesight, sweeter than honey, and so on.

Pak-China relations are generally divided in three types,

DIPLOMATIC:

Diplomatic relations between Pakistan and China were established on 21 May 1951,

China sent Mr. Han Nianlong as Ambassador of the People’s Republic of China in Pakistan.

Mr. Ahmed Ali, representative of the Pakistan Government arrived in Beijing on 24th April, 1951 and started the negotiations

Shortly after the Republic of China lost power in the Mainland in 1949. While initially

ambivalent towards the idea of a Communist country on its borders, Pakistan hoped that China would serve as a counterweight to Indian influence. India had recognized China a year before,

and Indian Prime Minister Nehru also hoped for closer relations with the Chinese. However, with escalating border tensions leading to the 1962 Sino-Indian war, China and Pakistan aligned with each other in a joint effort to counter perceived Indian encroachment. One year after China's

border war with India, Pakistan ceded the Trans-Karakoram Tract to China to end border disputes and improve diplomatic relations.

Pakistan's military initially depended almost entirely on American armaments and aid, which

was increased during the covert U.S. support of Islamic militants in the Soviet war in Afghanistan. America under US President Richard Nixon supported Pakistan in the 1971 Bangladesh Liberation War. However, the period following the Soviet withdrawal and the

dissolution of the Soviet Union led indirectly to the increasing realignment of America with the previously pro-Soviet India. The Pressler Amendment in 1990 suspended all American military

assistance and any new economic aid amidst concerns that Pakistan was attempting to develop a nuclear weapon. Consequently, the primarily geopolitical alliance between Pakistan and China has since 1990 branched out into military and economic cooperation, due to Pakistan's belief that

America's influence and support in the region should be counterbalanced by the Chinese.

With the U.S.-led war in Afghanistan, there is a general sentiment in Pakistan to adopt a foreign policy which favors China over the United States. Since 9/11, Pakistan has increased the scope

of Chinese influence and support by agreeing to a number of military projects, combined with extensive economic support and investment from the Chinese. This is partially due to Pakistan's

strategy of playing off the two powers against each other, but also a genuine effort to prevent America's influence in the region from becoming too strong. In return, the Chinese hope to strengthen Pakistan as a counterbalance to American and Indian influence.

Current Chinese Ambassador for Pakistan is Liu Jian and Pakistani ambassador for china is

Mr. Masood Khalid

MILITARY RELATIONS:

There are strong military ties between People's Republic of China and the Islamic Republic of Pakistan. This alliance between two neighboring Asian nations is significant geo-politically. The

strong military ties primarily aim to counter regional Indian and American influence, and was also to repel Soviet influence in the area. In recent years this relationship has strengthened

through ongoing military projects and agreements between Pakistan and China

Since 1962, China has been a steady source of military equipment to the Pakistani Army, helping establish munitions factories.eg, (HIT), providing technological assistance and modernizing

existing facilities. Most recently, the Chinese Chengdu J-10B fighter was offered to Pakistan Air force Chinese Chengdu J-10B had beaten the Lockheed Martin F-16C and now is recognized to have the most advanced technology such as its radar and OLS targeting system, and its new

generation stealthy features, such as its DSI. Islamabad and Beijing have signed contracts for the construction of four F-22P frigates for the Pakistan Navy.

China and Pakistan are involved in several projects to enhance military and weaponry systems,

which include the development of Super 7 aircraft. Chinese tailor made for Pakistan JF-17 Thunder fighter aircraft, K-8 Karakorum advance training aircraft, a tailor made training aircraft for the Pakistan Air Force based on the Chinese domestic Hongdu L-15, space technology,

AWACS systems, Al-Khalid tanks, which China granted license production and tailor made modifications based on the initial Chinese Type 90 and/or MBT-2000. The Chinese has designed

tailor made advanced weapons for Pakistan, making it a strong military power in the Asian region.

In the past, China has played a major role in the development of Pakistan's nuclear infrastructure, especially when increasingly stringent export controls in Western countries made it difficult for

Pakistan to acquire materials and uranium enriching equipment from elsewhere. China has supplied Pakistan with equipment to advance their nuclear weapons program, such as the

Chinese help in building the Khushab reactor, which plays a key role in Pakistan's production of plutonium. A subsidiary of the China National Nuclear Corporation contributed in Pakistan's efforts to expand its uranium enrichment capabilities by providing 5,000custom made ring

magnets, which are a key component of the bearings that facilitate the high-speed rotation of centrifuges. China has also provided technical and material support in the completion of the

Chashma Nuclear Power Complex and plutonium reprocessing facility, which was built in the mid-1990s.

China has offered Pakistan military aid in order to fight against terrorism in Pakistan. Pakistan

has purchased military equipment from China in order to bolster their efforts against Islamic militants.

ECONOMIC REALATIONS:

Economic trade between Pakistan and China is increasing at a rapid pace and a free trade agreement has recently been signed. Military and technological transactions continue to

dominate the economic relationship between the two nations, although in recent years China has pledged to vastly increase their investment in Pakistan's economy and infrastructure. Among other things, China has been helping to develop Pakistan's infrastructure through the building of

power plants, roads and communication nodes. The average annual export growth increased from 19 percent between 2003 and 2006 to 26 percent from 2007 to 2010. As a result, China’s share in

Pakistan’s exports almost doubled in just three years Current trade between both countries is at $12 billion, making China the second largest trade partner of Pakistan.

Both countries are keen on strengthening the economic ties between the two, and have promised

to 'propel' cross-border trade. This has led to investment in Pakistan's nascent financial and energy sectors, amidst a surge of Chinese investment designed to strengthen ties. Pakistan has in turn been granted free trade zones in China.

The economic relationship between Pakistan and China is composed primarily of Chinese

investment in Pakistani interests. China's increasing economic clout has enabled a wide variety of projects to be sponsored in Pakistan through Chinese credit. Pakistani investment in China is

also encouraged and cross-border trade remains fluid.

Recent visit of both prime ministers to each other’s countries has opened new windows and opportunities for the Trade and business concerns.

Major Trade Agreements/Treaties signed between Pak-China:

First formal Trade Agreement was signed in January 1963. Later, Trade between China

and Pakistan had generally been conducted under the 1963 Trade Agreement, according

to which both countries had granted MFN status to each other. Pakistan had, at that time

multi-modal trade with China i.e. barter trade and cash trade.

Sino-Pakistan Frontier Agreement was signed in 1963. it consisted mutual agreements

regarding the border lines and their control. 7 ARTICLES was signed by For the

Government of the People’s Republic of China; Chen Yi, Minister of Foreign Affairs.

For the Government of the Pakistan Zulfikar Bhutto, Minister of External Affairs.

Pakistan and China on February 12, 1989 signed a Bilateral Investment Treaty (BIT) that

encourages the promotion of bilateral investment both in China and Pakistan, and covers

all kinds of investments.

Among the earliest landmark agreements were the construction of the aviation accord,

under which PIA became the first airlines in the world to operate a service to and from

China.

In May 2001, the then Prime Minister Zhu Rongji, six major agreements and one MoU

were signed and a MoU between ZTE and PTCL The Chinese government agreed to

provide a grant of 50 million Yuan for the promotion of economic and technical

cooperation between the two countries.

President Musharraf’s visit in November 2003 resulted in the signing of a Joint

Declaration on Direction of Bilateral Relations. And seven other agreements

The two countries signed a Preferential Trade Arrangement (PTA) in November 2003,

That has been operational since January 1, 2004. (Under the PTA, Pakistan can export

777 items to China while China can export 217 items to Pakistan. The official said both

countries would expand the list of items being traded under PTA. He said the Chinese

wanted to add 25 to 30 items from their side, while Pakistan would also suggest some

items to reduce trade deficit with China)

Prime Minister Shaukat Aziz in December 2004. seven agreements aimed at enhancing

trade, communication were made and Pakistan also announced the “Free Market

Economy” status for China.

In APRIL 2005 two sides signed 21 agreements and MoUs on cooperation in economic

matters, defense, energy, infrastructure, the social sector, health, education, higher

education, housing and other areas.

In 2005 the two sides also signed a Treaty of Friendship, Cooperation and Good

Neighborly Relations.

Free Trade Agreement‟ (FTA) that was signed in 2006 and became operational in

January 2007.2

The agreement on Early Harvest Program (EHP), which became operational on January

1, 2006, China has reduced tariffs to zero on 767 items.

In 2008 several agreements regarding minerals, cricket, environment protection, Aksat

1R satellite procurement scientific collaboration in agricultural research and technical

cooperation were signed.

2010 – Wen Jiabao visits Pakistan. More than 30 billion dollars worth of deals were

signed.

In 2013 recent visits of both prime ministers to each other’s countries resulted signing of

several agreements in different sectors such as Energy, Construction and Transportation

etc.

CHINESE COMPANIES WORKING IN PAKISTAN:

There are 120 Chinese companies operating in Pakistan and the overall investment of these

companies is $12 billion.14000 Chinese workers are working in Pakistan.

Some of the major Chinese companies operating in Pakistan are,

Shenzhen-based telecommunications firm ZTE,

Huawei Technologies,

China National Petroleum Corporation,

China Petroleum Engineering & Construction Corporation Ltd

Dong Fang Electric Corporation,

CMEs,

China Ocean Shipping Corporation and

Air China.

Shanghai-based electronic maker SVA

And a number of motorcycle companies from Chongqing.

ZONG MOBILE NETWORK:

The China Mobile Company, he said, had 200 million subscribers and annual revenue of $25

billion in 2005. ZONG is the first international brand of China Mobile, launched in Pakistan in

2008. The company is often cited as China Mobile (Pakistan) or CM Pak. As of June 2013, it had

a subscriber base of more than 20 million

China Mobile's wholly owned subsidiary in Pakistan ZONG, Fan Yunjun said that CM Pak has

made a cumulative investment of 1.5 billion U.S. dollars in Pakistan in 4 years and it has

deposited 26 billion rupees (289 million US dollars) as taxes during the same period.

China Mobile is the largest telecom service provider worldwide, CM Pak was keen to invest in

3-G technology CM Pak wants to extend its operations to new heights which would provide job

opportunities to youth in various fields benefiting from its future projects.

China State Construction Engineering Corporation:

CSCEC Pakistan Branch, the permanent representative of China State Construction Engineering

Corporation Limited in Pakistan, was established in 1992.It has constructed a series of projects

which were funded by government, or military and private, projects such as Faisalabad Power

Plant, Jamshoro Power Plant, Mustafago Power Plant, Jinnah Stadium, Kamara JF-17 Aircraft

manufacturing factory are already completed And mega project such as Centaurus Hotel

Software technology Project Lahore

JOINT PAK-CHINA FORUMS/ VENTURES:

Regarding to Trade and investment one of the major joint venture of Pakistan and China is the

Investment company that is working in different sectors,

PAK CHINA INVESTMENT COMPANY :

Pak China Investment Company Limited (PCICL) is a Development Financial Institution

(DFI) formed under the initiatives taken by Government of Pakistan and Peoples

Republic of China for promotion of Trade, Investment and Economic Growth of

Pakistan. The Company was incorporated in July 2007 with an Authorized Capital of

USD 200 Million and was formally launched in December 2007. The company is a joint

venture in which equity is equally contributed by Government of Pakistan and China

Development Bank.

The company provides conventional and innovative solutions to Investors and Projects

through a full range of Investment Banking services for sectors like Industry, Agriculture,

Services, Information & Technology, Manufacturing, Real Estate and Infrastructure etc.

Some other joint ventures include,

Pakistan- China Joint Committee on the Economy Trade and Technology in October

1982.

Pak china Joint Economic Commission.

Pakistan and China instituted a Joint Study Group to negotiate a

Free Trade Agreement between the two countries.

Joint Sino-Pak nuclear plant.

The Pak-China Economic Corridor Secretariat was formally inaugurated on August 27,

2013.

Joint cooperation committee (JCC) of China-Pakistan.

Pakistan-China Entrepreneurs Forum.

Setup of joint agro-based industries 2004.

FREE TRADE AGREEMENT:

"Free Trade Agreements (FTAs) are a common type of bilateral arrangement between two or

more countries. FTAs facilitate the free flow of trade and investment and bring about closer

economic integration between the binding parties by eliminating tariff restrictions on each

other’s commodities."

REASONS OF AGREEMENT:

Chinese government has persuaded its state- controlled enterprises to import Pakistani

products in order to improve the trade balance and make more project-specific

investments.

Logistically an all-reaching trading agreement with a neighborly state like China is

economically rational and cost effective.

Traditionally, throughout its trade relations with China, Pakistan has had a chronic trade

deficit. Because of this is primarily because China is competing in almost all the major

sectors of Pakistan’s potential export areas, which happen to be very limited.

Secondly, the Pakistani business community remained content with their established

export destinations and hardly made serious efforts to either diversify the export base or

to explore other areas and regions for enhancing the volume of their exports.

Pakistan’s cotton based industry is the main pillar of its exports. Since China itself is a

major textile manufacturer, the trade volume could not be raised.

There was a lack of effective means of communication between Pakistan and China.

The Karakorum Highway, which opened in 1978, could not be used to increase the

volume of trade in any substantial manner. In addition, an underdeveloped shipping

industry in Pakistan further limited the trade routes and discouraged the growth in trade

volume.

EXPLANATION:

Under Pakistan-China FTA, both countries have committed themselves to reducing or

eliminating tariffs on all products in two phases starting from July 1, 2007. The first

phase covers trade in goods and Investment while, the negotiations in the second phase.

ENJOYMENTS:

For Pakistan, the overall package includes duty free access on industrial alcohol, cotton

fabrics, bed-linen and other home textiles, marble and other tiles, leather articles, sports

goods, mangoes, citrus fruit and other fruits and vegetables, iron and steel products and

engineering goods. A 50% tariff reduction on fish, dairy sector products, frozen orange

juice, plastic products, rubber products, leather products, knitwear, and woven garments

will also be enjoyed by Pakistan under the FTA.

(Pakistan, Ministry of Textile Industry, 2008)

China can get increased market access mainly on machinery, organic and inorganic

Chemicals, fruits and vegetables, medicaments and other raw materials for various

industries including that of the Engineering sector, intermediary goods for engineering

sectors, etc. China also reduced its tariff by 50% on knitwear and woven garments.

Phase I,

Within five years of the agreement coming into force, both parties will reduce tariffs on

85% of the products based on different extents of tariff reduction and at least

36% of the products will be tariff free within the first three years. China will mainly

reduce tariff on livestock, aquatic products, vegetables, mineral products and textiles,

whereas Pakistan will reduce tariffs generally on beef, Mutton Chemicals and Machinery

products.

Phase II will start in the sixth year of implementation of the agreement.

Further reduction of the tariffs on various products will be based on the review of the

implementation of the agreement Pakistan and China will enter Phase II of FTA in 2013

when the present FTA will conclude by the end of 2012.

In 2006, the two countries signed the FTA, bringing more Chinese investment into

Pakistan. By 2010, it had invested an accumulated $1.37 billion in Pakistan, according to

the Ministry of Commerce, and in 2010 alone, the figure was $26.1 million.

IMPORT EXPORT:

China emerged as the second largest market for Pakistani products after the United States in the

fiscal year 2012-13, indicating a shift in the mindset of exporters who are more inclined to

explore new markets. The latest official data revealed that trade with China has been growing at

a fast rate, though balance of trade is vastly in favor of China. However, China with its growing

trade occupies second position with a trade volume of $7.458bn. The newly-elected government

recently signed agreement with China to invest in Pakistan and develop a number of projects that

would help boost trade. Next five years investment-to-gross domestic product ratio would be

increased to 20% from the current low of 13%.

EXPORTS WITH CHINA:

China is Pakistan’s largest trade partner in the world and Pakistan is China’s second largest trade

partner in South Asia, after India. Pakistan’s exports to China were worth US$ 3.1 billion and

imports worth US$ 9.2 billion in 2012. The second highest exports were for China as it paid

$2.697bn for Pakistani products in FY13. This development took place during the last five years

bilateral trade between the two countries has reached $12 billion, and both sides are committed

to bring it up to $15 billion over the next two to three years.

China was Pakistan’s second largest source of imports first being UAE (But Pakistan has to face

a serious trade imbalance with the UAE as its exports to Pakistan were the highest among trading

countries with Pakistan.) and its fourth largest market for exports. Pakistan’s exports to China

grew rapidly throughout the decade, with growth accelerating sharply following the signing of a

free trade agreement (FTA) in 2006. The average annual export growth increased from 19

percent between 2003 and 2006 to 26 percent from 2007 to 2010.As a result, China’s share in

Pakistan’s exports almost doubled in just three years The export shares of the UAE and China

both increased by about 2.5 times during this period and, by 2010, They were the second and

fourth most important export markets in the world, respectively, for Pakistan.

The FTA with China should give Pakistan an edge over other countries in a number of

potentially high-growth products as it provides market access at zero duty for different products.

REASONS OF DEFICIT:

In all the zero duty products under FTA Pakistani exporters have failed to make head way

because of nontariff barriers.

For example, Pakistan is a major exporter of towels and bed-linen to the US and Europe,

but exports of these products to China is negligible. Pakistan needs to focus on having

these nontariff barriers removed in areas that are its export strengths, such as cotton

fabrics, bed-linen, towels, and sports goods.

Pakistan’s exports have been highly concentrated in the markets of few a countries e.g.,

USA, Japan, Germany, Hong Kong, Dubai and Saudi Arabia. These countries alone

account for almost 50% of Pakistan’s total exports.

Pakistan’s exports are also excessively concentrated in a few items such as cotton,

leather, rice, synthetic textiles, sporting goods, etc. Pakistan’s exports to China mainly

consist of cotton textile material, leather, chromium, mineral and crude oil, and aquatic

products.

PAKISTAN’s EXPORTS TO CHINA (USD M illion)

Table-1

Exports from Pakistan to China increased from US$ 685 million in 2007-08 to US$ 1.64 billion

in 2010-11, thus showing an average increase of 33% per annum.

EXPORT PRODUCTS:

The main items of Pakistan’s exports to China are cotton fabrics, cotton yarn, bed wear, surgical

instruments, tent and canvas

Pakistan’s exports to China are 56 per cent of imports by Pakistan.

Year Value Share %

2000 244.6 2.7

2003 259.6 2.2

2005 435.7 2.7

2007 613.8 3.4

2010 1435.9 6.7

Source: “United Nations Statistics Division, UN

Comtrade.” "

Structure of Pakistan’s exports to China, 2000–2010

2000 2010

Commodity US $ Millions Share% US $ Millions Share%

Cotton yarn, excl. thread

100.0 40.9 37.3 51.3

Chromium ores and concentrates

4.5 1.8 137.6 9.6

Cotton fabrics, woven 56.5 23.1 99.6 6.9

Textile fibers: cotton 10.7 4.4 75.9 5.3

Fish, crustaceans, mollusks

15.3 6.3 67.5 4.7

Leather 15.9 6.5 46.0 3.2

Machinery and transport equip.

0.8 0.3 45.4 3.2

Plastics in primary form

2.5 1.0 38.2 2.7

Sub Total 206.2 84.3 1247.5 86.9

Total Exports. 244.6 1,435.9

Table-2

IMPORTS WITH CHINA:

During the fiscal year 2013, Pakistan imported goods worth $4.761bn from China. Trade and

industry sources said that imports from China are much higher than offic ial figures because of

massive smuggling from the country.

Pakistan’s imports from China have grown dramatically from about USD 0.55 billion in 2000 to

USD 5.25 billion in 2010.China’s share in Pakistan’s total imports has increased from less than

5 percent to over 14 percent during this period.

TAX EVASION AND SMUGGLING:

Because of Pakistan’s security dependence on China, the government tends to turn a blind eye to

violations on imports from the latter. This has provided an opportunity for collusion between

unscrupulous Pakistani importers and Chinese exporters to misclassify imports from China and

understate their value to evade import duties and taxes. As a result, the actual increase in imports

has been even greater than that indicated by official figures.

Although there is no way to estimate the full extent of tax evasion, one can get a rough idea of

the undervaluation by comparing the value of “imports from China” reported by Pakistan and

“exports to Pakistan” reported by China in the UN Comtrade dataset .

Exports reported by China exceeded imports reported by Pakistan by 32 percent in 2010 The

underreporting is probably even greater since exports are reported on a free-on-board (f.o.b.)

basis and imports on a cost-insurance-and- freight (c.i.f.) basis, and the cost of “insurance and

freight” is generally between 10 and 20 percent of the import value (see World Bank). Even with

a conservative 10 percent adjustment for insurance and freight, the underreporting comes to 45

percent. Thus, actual imports from China in 2010 were in the range of USD 7 billion to 8 billion.

The problem is not only the loss in government revenue, but also the impact of this “unfair”

competition on domestic industry.

IMPACTS OF IPORTS:

The impact of Chinese imports has not been all negative. There has been a huge consumer gain

in industries where Pakistan did not have any local manufacturing, such as mobile phones.

Pakistan would have never achieved the tele-density that it has, if only “full” duty-paid and sales

tax-paid phones were available in the market. In the motorcycle industry, which was highly

protected and had an oligopolistic structure, Chinese imports have led to huge producer and

consumer gains. The opening up of the motorcycle industry by removing entry restrictions on the

assembly of motorcycles and allowing the import of parts and components from China in 2006

resulted in a dramatic growth spurt in the industry. The domestic production of motorcycles rose

from less than 600,000 in 2004/05 to over 1.6 million in 2010/11 (Association of Pakistan

Motorcycle Assemblers, 2010)

One of the reasons for the large increase in size of the domestic market for motorcycles was

probably the decline in their price in real terms (by about 40 percent) between 2006 and 2012.13

REASONS FOR TRADE IMBALANCE:

The trade balance has always been tilted in favor of China, except for a short while in 1952,

owing to China’s involvement in the Korean War. For decades China’s constant increase in

exports to Pakistan resulted in a persistent and growing trade imbalance.

Pakistan’s imports are mainly concentrated in the markets of a few countries, as 40% of

imports continue to come from the USA, Japan, Saudi Arabia, Germany, U.K and

Malaysia.

Imports are also concentrated in a few products such as petroleum and petroleum

products, machinery, chemicals, transport equipment, edible oil, iron and steel, fertilizers

and tea.

Machinery, petroleum and petroleum products and chemicals alone account for almost

53% of these imports.

IMPORT PRODUCTS:

The main items of Pakistan’s imports from China are machinery and parts, iron and steel

manufactures, sugar, chemical materials, chemical elements and medical and pharmaceutical

product.

Imports from China also increased from US$ 3.03 billion in 2007-08 to US$ 4.14 billion in

2010-11, thus showing an average increase of 9% per annum.

Pak-China Trade (Value: US $ Million)

Year Exports Imports Trade balance

2005-06 437 1,843 -1,406

2006-07 548 2,321 -1,773

2007-08 685 3,029 -2,344

2008-09 661 2,708 -2,344

2009-10 1,211 3,284 -2,073

2010-11 1,645 4,145 -2,500

Source : “State Bank of Pakistan”

Table-3

MAJOR CHINESE PROJECTS/INVESTMENT:

China has played a significant role in the economic progress of Pakistan ever since the

establishment of diplomatic ties between them. The first major initiative in this regard was the

setting up of Heavy Mechanical Complex at Taxila; a project of immense importance that

nudged the process of industrial development in Pakistan and continues to contribute to the

overall progress of the country in a big way. The construction of KKH Highway, termed as the

eighth wonder of the world. The Indus highway, the Pakistan aeronautical complex , Saindek

copper and gold project, the Guddu thermal power station, the Jamshoro power station, the

Chashma nuclear power plant, the Ghazi Brotha power project, the Thar coal power-generation

project and the Gwadar port. Heavy rebuild factory, the Gomal Zam dam - are being undertaken

with Chinese assistance.

Currently China is working on a plan for the up-gradation of KKH at an approximate cost of

$500 million and in building 165 Km Jaglot-Skardu and 135 KM Thakot-Sazin roads in Gilgit-

Baltistan at a cost of Rs.45 billion. China would pay 85% of the cost while Pakistan will

contribute 15%. A rail link between the two countries is also envisaged to be built china

provided $40 million for Lowari Top tunnel, China is also investing an amount of US$ 300

million in housing, communication sectors. China is also participating in exploiting copper

reserves at Sandak in the past few years. The Chinese have made an investment of US$ 1.3

billion in Pakistan. A number of Chinese companies are working in the oil and gas, IT, Telecom,

Engineering, and mining sectors.

In recent visit of the Prime Minister Nawaz Shrif seek Chinese assistance on alternative-energy

projects, including a 5,000-acre solar project in the Cholistan Desert, a 50,000-megawatt wind

farm in Sindh and help developing biomass technology.

To increase Chinese investment National Bank of Pakistan's branch in Beijing is not only

providing business facilities to Chinese Businessmen to do business in Pakistan, the bank also

facilities them to do business in Afghanistan and Kyrgyzstan.

GAWADAR PORT:

On 30 January 2013 PSA "port Singapore authority abandoned control of Gawadar port the

control is now granted to a Chinese company. Gawadar is located at the junction if south Asia,

Middle East and central Asia .it is close to the border of IRAN and is a gateway to the "STRAIT

OF HORMUZ” a key world oil supply rout.

Pakistan purchased this small town of Gawadar from OMAN in 1958. But did not start work on it

until 2002 at Pakistan request Beijing has provided $198 million for the first phase of the project

and Islamabad's contribution has been $ 50 million.

The scope of phase-1 includes construction of three multi-purpose berths each 200 meters long

and capable of handling vessels up to 30,000 DWT. which was completed in 2006. Phase two is

planned for development by the private sector at an estimated cost of $600 million and envisages

the development of ten more berths and a five-kilometer approach channel and will take vessels

up to 50,000 DWT. the project consists of THREE phases. Pakistan is still waiting for investment

to complete the remaining two.

IMPORTANCE:

The port has gained international attention due to close PAK-CHINA defense relations and

interrelated developments therein. Pakistan has offered china an energy and trade corridor via

Gawadr linked to inland roads the plan would see oil being imported from the Middle East,

stored in refineries at gawadar and sent to china via roads railway or pipelines.

By virtue of its excellent location, Gwadar port is also visualized to become a regional hub

serving incoming and outgoing commercial traffic of the Middle Eastern and Gulf countries, the

Xinjiang province of China, Iran in the west and Sri Lanka and Bangladesh in the south and east.

Additionally, the port should facilitate efficient exploitation of the exclusive economic zone of

Pakistan, which so far has remained largely unexplored. The area is rich in fisheries and if the

600-kilometre long coastal line is fully exploited it could give a big boost to fish and crab exports

and promote food-processing industries. Lying in the vicinity of oil-rich Gulf States, Gwadar

could also be a potential source of offshore gas and oil exploration.

The development of the Gwadar port should benefit the overall economy of Baluchistan and

unlock its potential. Islamabad should also ensure that the short-term interests of the land mafia

and other vested groups do not damage the genuine interests of the Baloch people.

Benefit of the Gwadar port is also directly linked to the stability in Afghanistan and Central

Asia.Linking Torkhum-Jalalabad and Chaman-Kandahar roads with modern highways will be in

the mutual long-term interests of both Pakistan and Afghanistan. Moreover China could also gain

rail and road access to Iran through Pakistan's internal road and rail network.

This analysis overplays geo-economic importance of Gawadar and ignores important facts,

PROBLAMS WITH GAWADAR PROJECT:

Though china has built many roads in Pakistan but it still has to build thousands of

kilometers of roads railway tracks and pipelines to convert Gawadar into an economic

zone. This will cost MONEY and china is reluctant to invest in this volatile part of the

world.

Pakistan faces low level insurgency in Baluchistan where Gawadar is located the feudal

lords there are opposed to large scale foreign investment fearing it will bring influx of

outsiders.

The port has failed to draw any major business since its completion in 2006. One of the

reasons PSA withdrawn.

China also remains skeptical of the ports profitability. Pakistan had to drag beginning

into the project.

CONCLUSION:

China has developed "Habantota" port in Sirilanka, a container facility in "Chitagong,

Bangladesh" and is looking forward to Kyaukpyu and Sittwe ports in MYANMAR. So

GAWADAR is just one of the several options for BEIGING and due to the volatile security

situation in the surrounding region it may not be China's best bet. Gawadar is far from becoming

a Chinese economic Hub. Let alone a security asset.

RING ROAD CONSTRUCTION:

A Memorandum of Understanding regarding construction of Western Loop of the Ring Road

Lahore was signed between Punjab government and international Chinese company, China Civil

Engineering Construction Corporation. Chairman Ring Road Authority and Director Overseas

Corporation of China Civil Engineering Construction Corporation signed the document.

ENERGY/POWER PROJECTS:

China is also helping Pakistan to tide over the energy crisis. Currently the Chinese are working

on 15 mega projects in the energy sector in Gilgit-Baltistan and Azad Kashmir. A very

significant project in hand is the upraising of the Mangla Dam reservoir by sixty feet. As part of

resettlement of the dam affectees, the Chinese firm, International Water and Electric Corporation

(CIW&EC) is also working on the construction of a bridge over Jhelum river in the same area.

Chinese firms have started interacting with Pakistani authorities following Prime Minister

Nawaz Sharif’s visit to Beijing earlier this month. China International Water and Electric

Corporation (CWE), a state-owned entity, would invest $6 billion in energy projects in Pakistan

over the next five years, said the company’s Vice President "Wang Shaofeng."

If the company invests what it promised in a meeting with Board of Investment Chairman

Muhammad Zubair, it will become the single largest investment which is four times bigger than

the total foreign investment the country received in the last fiscal year. Out of $6 billion as much

as $2 billion would be invested in energy projects in Karachi.

WIND ENERGY PROJECT:

A Chinese company is setting up a 50 megawatt wind energy project in the province of

Sindh at an estimated cost of US $120 million. While having plans to launch nine more

projects of same frequency in the future."HYDRO CHINA INTERNATIONAL

EGINEERING COMPANY Ltd" the project would start functioning in 2015.

China International Water and Electric Corporation (CWE) are developing a 50-

megawatt Three Gorges wind farm. The project’s financial close is said to be almost

complete. All civil works and 50% installation of wind turbines are scheduled to be

completed by the end of this year. The project will start commercial operation by June

next year.

CWE is also planning Three Gorges wind farms of 100MW and 350MW. It is involved in

a wind measurement project in Punjab and is installing a wind mast in Chakwal and

Rajanpur.

SOLAR ENERGY PROJECTS:

A Chinese company is ready to produce a special solar fund worth three billion dollars in China

to support Pakistan in utilizing its solar energy resources. The company has the capacity to

establish a solar plant of 1000MW in 6 to 8 months in Pakistan, while 50MW TO 100 MW solar

energy can be produced in 120 days only.

The offer came from Byron Shi Min Chen, president of Lightening Africa, China and Shah

Faisal, CEO of Gulf Power Pakistan who called on chairman of Board of Investment (BOI),

Mohammad Zubair.

The company was offering two kinds of solutions to energy crisis through the solar systems. Off-

grid solar systems could be provided by the company immediately. These ready-to-use systems

can be installed and end users may easily meet the Electricity demand.

The company may also collaborate with the distribution networks through banks or the

dominating relevant companies to sell solar products to households. On grid solar system can

also be installed.

The potential of solar is in the range of 7 to 7.5kwh/msq./day in most of Baluchistan, 6 to 6.5

kwh/msq./day in most of Sindh, Southern Punjab and Gilgit-Baltistan, and 5.5 to 6 kwh/msq./day

in the rest of the country.

The PPDB has also approved feasibility study for a 50MW solar power project in Punjab.

Another 50MW solar power project will be set up in Sindh by CWE.

HYDERAL ENERGY PROJECTS:

The Chinese firms are also working on six other mega power projects in Gilgit-Baltistan that

include US$7.8 billion Dasu Hydropower Project, US$ 70 million Phandar Project, US$ 40.01

million Bashu Hydropower Project, US$ 44.608 million Harpo Hydropower Project and US$ 6

billion Yulbo Hydropower Project.

NEELAM JEHLAM:

Neelum-Jhelum Hydroelectric Power Project is a very vital project undertaken by Chinese

companies which aims at diversion of the water of Neelum river through a tunnel into Jhelum

River, at a cost of US$12.6 billion. China Gezhouba Group of Companies (CGGC) is working on

Neelum-Jhelum Hydropower Project‚ to be completed in 2016. The overall cost of the project is

274.882 billion rupees.

The Chinese blocked a $450 million loan for the project in 2011 after Pakistan pulled out of a

$124 million deal with another Chinese company to install explosive detectors and security

scanners at all the entrance points into Islamabad, the capital, according to a senior power-sector

official involved in the negotiations.

KAROT HYDRO POWER PROJECT:

A company is conducting feasibility study for 720MW Karot hydropower project and its tariff

has already been approved by the National Electric Power Regulatory Authority. The

construction of the project will take five years.

TAUNSA HYDRO POWER PROJECT:

A Company is involved is 120MW Taunsa hydropower project, approved by the Punjab Power

Development Board (PPDB) on June 25 this year. Construction will start in 2015 and will be

completed in four years.

NEUCLEAR ENERGY:

China is also helping Pakistan in the nuclear power sector. A nuclear power plant at Chashma

with a power generating capacity of 330 MW of electricity has already been completed and

integrated with the National Grid recently and two more similar plants are scheduled to be

completed by 2016-17.

The agreement for these projects was signed on June 8, 2010 during President Zardari’s visit to

China notwithstanding the fact that US raised objections on the nuclear cooperation between the

two countries. The Chinese brushed aside the apprehensions on this account by informing the

Nuclear Suppliers Group (NSG) during its meeting at Christchurch, of its decision to build

Chashma IV and V in Pakistan. In the backdrop of US-India agreement for cooperation in the

field of civilian nuclear technology, which Pakistan views as a discriminatory act, the Chinese

help assumes a great significance and reflects the strength of friendship between the two

countries. These two plants are part of the PAEC program to generate 8800 MW of nuclear

power for the country to supplement other sources of power generation.

December 2004 China committed to provide $150 million for the Chashma Nuclear Power Plant

(Phase II). It was part of the preferential buyers’ credit of $500 million to be provided by the

Chinese government for investment through Chinese companies.

In recent visit of the prime minister NAWAZ SHARIF Pakistan is in talks with China to buy a

1,000-megawatt nuclear reactor, a concern to Washington.

KOHLA POWER PROJECT:

The Chinese are also entrusted with the responsibility to commission Kohala Power Project at a

cost of US$ 2.155 billion with a capacity to generate 1050 MW of electricity. CWE is working on

this project.

Tariff negotiations with regulatory authorities have been going on since September 2011, but no

tangible results have come out. The company is eager to acquire land and start construction work

in 2015.

DIAMIR BHASHA DAM:

China’s Three Gorges Project Corporation is constructing Diamir-Bhasha Dam on the Indus

River with a total investment of US$ 12.6 billion.

COAL ENERGY:

Thar Coal Project: Pakistan has abundant coal in Baluchistan and Sindh. Studies confirm that the

huge coal reserves in Thar coalfield are estimated to be 175 billion tonnes, 94 percent of the total

coal reserves in the country. Since Chinese companies have shown interest in Thar Coal Project,

Pakistan should make efforts to convince China to invest in this project.

In his recent visit Prime Minister Nawaz shrif had asked the China Engineering Corporation to

help Pakistan convert furnace oil power projects on coal.

TAXTILE PROJECTS:

China Pakistan Textile associations are to form a joint working group for investment.

Aug22 2013 The All-Pakistan Textile Mills Association (Aptma) and leading members of

Chinese textile and clothing industry associations have agreed to form a joint working group for

providing match-making services to prospective investors for starting joint ventures.

Chinese delegation appraised the delegation of potential areas of investment in Pakistan’s textile

industry. it said power-generation, textile-dyeing and -finishing, textile machinery assembly and

manufacturing, manufacturing of manmade fiber, denim, twill, drill, shirting materials, technical

textiles and logistics and cargo were some of the potential areas for investment in Pakistan..

EDUCATIONAL PROJECTS:

A MoU between the Higher Education Commission (HEC) of Pakistan and China

Scholarship Council (CSC) on the Pakistan Government- funded students’ education

program in China was signed by HEC chairman Dr Attaur Rehman and Madam Zhang

Xiuqin, Secretary General of China Scholarship Council in 2005.

ZONG launched ZONG Scholarship Program by signing a MoU with University of

Engineering and Technology, in 2009 to fund the education of students annually for

higher studies in Computer Sciences, Engineering and Sciences. The Scholarship

Program is aimed at assisting students seeking admissions in different disciplines of

Engineering, Computer Sciences. ZONG covered various educational expenses like

registration fees, tuition, laboratory fees, internship fees, study materials, accommodation

costs and others. 60 students received scholarships under the Program.

Zong also provided campus news and music radio channel campus news and music radio

channel to facilitate student’s access to the internet.

TELECOMMUNICATION:

A Chinese mobile company was taking interest in the privatization of the PTCL which was dis-

invested by June 2005. PTCL was sold to a Chinese company. Strategic buyer interested to have

even 26 per cent shares. "With these 26 per cent shares, the PTCL management was transferred

to the new buyer," PTCL is running in huge profits.

BARRIERS IN INVESTMENT:

Apart from some commonly known barriers some special hindrances in the way of Trade

include,

Fresh Chinese worries over deteriorating security near their

Common border and over the safety of Chinese nationals in Pakistan could present a

significant barrier to reaching big deals.

More concerning to Beijing, scholars say, is spillover of instability from inside Pakistan

into China's northwest border regions. Some local officials in Xinjiang, including the

region's governor, have previously said Uighur separatists have links to terror groups

operating in Pakistan.

Another aspect of Pak- China economic and trade relation is that the economic exchange

is mainly at governmental level which should be rather at micro level.

Pakistan's government seems to not take the projects and deals seriously. They don't

complete the agreed projects. etc

CRUX:

As is evident, China has made an unfathomable contribution to the economic progress of

Pakistan and with the completion of the new ventures, especially in the energy sector Pakistan

can rightly aspire for an era of sustainable economic growth in the country. It is an irrefutable

reality that relations between Pakistan and China have been growing from strength to strength

irrespective of who was in power in Pakistan. The enhanced economic, political and strategic

cooperation between China and Pakistan will contribute immensely to warding off the lurking

dangers and consolidating the gains of the efforts made for changing the economic situations of

the people of both the countries. This renewed and vigorous engagement between the two

countries is an encouraging development as it will greatly benefit Pakistan by re-invigorating

commercial and industrial activities and creating new jobs. This might also restore the

confidence of the international community in Pakistan as a safe place to invest.

"If Pakistan's security situation get a bit better, then we'll invest a bit," said Chen Jidong,

director of Sichuan University's Pakistan Study Center. "If it improves some more, we'll invest

some more."

Assessment of Trade and Investment relations:

During the past sixty years, our political and defense relations have developed

substantively. However, expansion in our economic relations is a development of the

recent past and the last decade (2000-2010) can distinctively be termed as a decade of

institutionalizing Pak-China economic relations.

Pakistan and China felt the need, towards the end of 1990s, to enhance economic

cooperation in order to provide sustenance to their evolving comprehensive relations in a

fast changing regional and global environment.

Since early 2000, we see a persistent pattern of growth in bilateral economic relations.

China has contributed immensely in the development of infrastructure in Pakistan with

projects such as the Gwadar deep- sea port, coastal highway, up-gradation of the

Karakoram Highway (KKH) and several other energy related projects. Together, the two

countries are working hard to chalk out a roadmap for future that includes putting in

place certain measures for short-term cooperation, while also formulating policies for the

long- term, by creating complementarities in trade and enhancing investment

opportunities.

In the last ten years, there has been a regular exchange of high-level visits between the

leadership of both countries. Each of these visits has reflected in clear terms the desire for

consolidation of economic relations. The three recent important visits by Chinese Prime

Ministers in 2001 2005 and 2010 respectively each of these visits clearly spelled out and

reassured Pakistan of Chinese support for the expansion in overall economic relations,

especially in the area of trade and investments.