China has almost doubled its share in Pakistan's total imports during a short period of last five years and is now fourth largest import source after Saudi Arabia, USA and Dubai. A major jump in China's share in the country's total imports is visible since FY03 that had resulted in worsening of trade balance during the last two years. Pakistan's economy as well as it's manufacturing sector has undergone substantial expansion.
The resulting additional demand for industrial raw materials and machinery is being met by imports from China.
Consequently, China is becoming a major supplier for imports to Pakistan. Since the Chinese goods are low priced, the surge in imports may not be a worrisome sign. But there are some concerns that need to be highlighted, the annual report of State Bank of Pakistan for the year 2003-04 said.
The number of products during the preceding years recorded tremendous increase is TV sets, air conditioners, refrigerator, transformers 500 KVA, motorcycle capacity 50cc, footwear, outer sole leather and other footwear materials.
Firstly, the import of goods that are also domestically produced eg, electronic goods, footwear, ceramics, plastic items, etc, can hurt the domestic industry. In fact, the continuous increase in supply of these goods at reduced prices is posing a tough competition to the relevant manufacturing units.
However, this competition is beneficial to consumers as they are enjoying lower prices. The domestic producers, on the other hand, will need to increase their efficiency so that they could offer lower prices and thus hold the market share.
Secondly, in some cases, the imported Chinese goods have almost completely wiped out the branded foreign suppliers of the same goods. The substitution of expensive goods with the low-priced imports has the impact of lowering the country's over all trade deficit. With a view to gaining wider access in the Chinese market, Pakistan signed a Preferential Trade Arrangement (PTA) effective from January 2004.
Under this arrangement both the countries provided tariff concessions on specified products. While China offered tariff concessions to Pakistan over a range of 893 goods, Pakistan responded with concessions on over 188 items. Unfortunately, during FY04, Pakistan exports of selected items to China fell by 42.7 percent over FY03. On the other hand, China showed a growth of 91.9 percent.
According to World Economic Outlook, over the past 20 years, China's role in the global economy has increased sharply. Its GDP has grown at an average annual rate of over 9 percent, while its share in world trade has risen from less than 1 percent to almost 6 percent. As a result, China is now the second largest economy and the fourth-largest trader in the world.
In terms of trade, while Chinese exports have gained significant global market share, the rapidly rising imports have supported the strong performance of its trading partner. In 2003, China's imports grew by over 40 percent, and during the last three years, it accounted for one-third of the total increase in world import volumes.
In addition, China's imports from the surrounding region have also increased very sharply. Together with Hong Kong, China absorbed 17 percent of exports of other countries in emerging Asia in 2002, and accounted for 35 percent of export growth of other countries in the region in 1998, 2002.
This reflects China's rising role as a regional reprocessing centre and manufacturing hub for re-exports, and suggests that its impact as a regional engine of growth could soon become even larger than that of Japan.
TOUGH COMPETITION: At the same time, some developing countries are facing increased competition from China and continuously losing their market share for unskilled-labour-intensive manufactures. China is also the largest recipient of foreign direct investment as companies move their operations to China to benefit from the low-cost labour and large market.
However, the rapid growth in China has significantly increased world prices for some of the commodities, including agricultural products and energy. This could result in losses to countries, which are net importers of such commodities.
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