Enhancing Pakistan - China Trade: A Data Driven Approach

Pakistan and China have a deep bilateral partnership based on trust, diplomacy, and shared interests. The China-Pakistan Economic Corridor (CPEC) and the Free Trade Agreement (FTA) are the main pillars of their economic cooperation. However, Pakistan faces a signficant trade deficit with China due to its low-value-added exports. China exports more sophisticated products than Pakistan, reflecting its role as a global leader in manufacturing technologically advanced goods. Pakistan’s exports to China are mostly low value-added, less sophisticated products, while its imports from China are high value-added, more sophisticated products, resulting in a trade imbalance. Pakistan can enhance and diversify its exports to China by focusing on high-value-added products that have high import demand in China and are close to Pakistan’s current productive capacity. The report identifies such products using the concepts of economic complexity and product space networks. Some of the potential products include processed copper, high-quality soya beans, tractors, and a range of products within the chemicals sector. Pakistan also needs to adopt a strategic industrial policy that can help in upgrading its industrial base, increase its productivity and innovation, and export products that meet the needs of the Chinese market more effectively. The report suggests policy measures such as improving the quality and standards of exports, investing in technology, upgrading skills of the labor force, enhancing the competitiveness of local industries, creating an enabling environment for Chinese joint ventures and enhancing special economic zones.