Pak china relationship

1. Government College of Science
2013
Submitted To:
Prof. Muhammad Adil
Submitted By:
Qamar Adeel
Roll No:1739
BBA (VI)
CHINA’s INVESTMENT IN PAKISTAN

2. China–Pakistanrelations 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.

3. 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 AmbassadorforPakistan is Liu Jian and Pakistani ambassador for china is
Mr. Masood Khalid

4. 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.

5. 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.

6. 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.

7.  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.

8. 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.

9. 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.

10.  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.

11. 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

12. 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 Million)
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.” "

13. 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 official 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.

14. 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.

15. 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.

16. 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

17. 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

18. 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

19. 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.

20. 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:

21. 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.

22.  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

23. 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

24. 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.