Earlier this month, this column flagged how Pak-China trade gap hit its highest in the eight months ending February 2015. To recall, exports to China had fallen 20 percent year-over-year whereas imports from China were up by 17 percent to $4.6 billion in 8MFY15. In this column we highlight the main reasons behind surging imports from China.
According to Pakistan’s central bank data, a handful of five items accounted for 52 percent of total increase in imports from China in 8MFY15. Expand the list to ten items and you will find that they account for 81 percent of the total increase.
The biggest increase was witnessed in ‘centrifuges including dryers, filters, etc’ (HS code 84.21) which saw a fourfold increase to $110 million and alone accounted for 12 percent of total increase in imports from our Sino friends.
Imports of ‘parts of railway or tramway locomotives’ (HS code 86.07) increased almost tenfold to $87 million whereas that of ‘semiconductor devices’ (HS code 85.41) went up sevenfold to $84 million. The imports of ‘flat-rolled products of other alloy steel > 600 mm’ (HS code 72.25) more than doubled to $127 million, and that of ‘flat-roll iron and non-alloy steel non-clad’ (HS code 72.09) shot up almost ninefold to $62 million.
While the reasons behind the rise in imports of centrifuges etc is not very clear at this moment, the increase in steel imports is owing to higher infrastructural spending by the government and a revival of construction industry in the private sector.
Regarding the increase in railway or tramway locomotives imports, the obvious answer is that railway ministry is trying to improve its infrastructure and is undertaking some development projects. A source at the Ministry of Railways confirmed this, saying that the ministry is undertaking a development project this year for an amount of Rs39 billion. He said that Pakistan buys almost all its locomotives and materials exclusively from China.
Finally, there is something called “tied aid” that Pakistan receives from China — meaning that Pakistan has to spend a certain amount of the aid it receives from China on Chinese goods and services. BR Research would be following up on the extent and nature of tied-aid in the ensuing weeks but for now it would be safe to say that Pak-China trade deficit is set to rise further.