The 60th anniversary of China-Pakistan relations was celebrated in 2011. Pakistan was the
third non-communist and the first Muslim country to recognize China in 1950. The
diplomatic relations between China and Pakistan were established in May 1951.The
friendship between China and Pakistan is all weather and everlasting. The relationship is
deeper than the oceans and higher than the mountains. The bolstering relations of China
and Pakistan have become a model for a friendly co-existence of developing neighboring
countries. China and Pakistan are enjoying strong bilateral cultural, economic and
military relationships. Both of the countries are striving together for promoting peace,
stability and economic prosperity in Asia.
In the past, China-Pakistan ties were mainly of
military and strategic importance. But now the economic relations of China-Pakistan are
strengthening specially after the conclusion of Free Trade Agreement (FTA) in 2007. In
this paper we would focus upon the economic relations of China and Pakistan. We also
used the granger causality test to understand the relationship between Chinese Inward
FDI and Economic Growth. We took the annual data from 1980 t0 2012. We found that
growth in China caused inward FDI. Furthermore, it has been discussed that what
Pakistan can learn from the miraculous economic progress and prosperity of China?
Keywords: Chinese economy; Flying Geese model; foreign direct investment; free trade
agreement; Pakistan’s economy.
The Islamic Republic of Pakistan came into being on 14th of August, 1947 and the
People’s Republic of China on 1st of October; 1949. Pakistan recognized China in 1950.
Pakistan was the third non-communist and the first Muslim country to recognize China.
Pakistan was also among those countries that opposed the United Nations resolution
recognizing China as an aggressor in the Korean War. The diplomatic relations between
China and Pakistan were established in May 1951. In 1961, the relations were further
strengthened when Pakistan voted for a bill concerning the restoration of China’s
legitimate rights in the UN.
In 1963, China-Pakistan signed the agreement for settling the border issues and for the
construction linking China’s Xinjian-Uygur autonomous region with the northern areas of
Pakistan. Chinese diplomatic assistance during the Indo-Pakistan War of 1965, further
solidified the China-Pakistan relationships (Kumar, 2006). Afterwards the state visits by
different leaders of both sides kept on cementing the mutual ties. Particularly, in 1996, a
state visit by Chinese President Jiang Zemin to Pakistan helped in establishing a
comprehensive friendship. In 2005, China and Pakistan signed a landmark Treaty of
Friendship and Co-operation (Aneja, 2006).
Close China-Pakistan ties have been mainly of military and strategic importance.
Pakistan always stands up to India against his hegemonies over the region, thus fulfilling
the key objective of China’s South Asia policy. As long as Pakistan and India are
preoccupied with one another China would be at peace on the Tibetan borders (Malik,
2001). China wants to focus more and more upon economic progress and prosperity by
avoiding the confrontations with India. Atul Kumar also expressed same kind of views. A
strong Pakistan is in the interest of China as it ensures that Indian dreams of regional
lordship will not go unchallenged (Kumar, 2006).
China-Pakistan political relations are extremely deep but economic relations are shallow.
China-Pakistan “all-weather” friendship requires the strengthening of the bilateral
economic relationship. In this regard China-Pakistan Free Trade Agreement is supposed
to be a stepping stone in augmenting the economic relations between China and Pakistan.
China-Pakistan Free Trade Agreement was signed on 24 November 2006 and entered into
force on 1 July 2007. The Agreement comprised of phased and gradual program of
elimination of tariff on substantially all bilateral trade. Through bilateral efforts, the
bilateral trade of goods between China and Pakistan is expected to reach 15 Billion US
Dollars in 2011. Pakistan’s trade deficit with China is expanding. Pakistan’s economy is
seriously struggling at the moment. In this paper we would also discuss that what
Pakistan can learn from the economic development of China since 1978.
2. Economic Indicators of China and the Policy of Opening up (1978)
After more than three decades of opening up China has achieved remarkable economic
growth. From 1980-2005, the annual GDP growth rate of China averaged 9.4%.World
Bank projected Chinese GDP growth of 8.5 percent for 2011. In 2009 The Exports of
China were $1.204 trillion. The exports commodities of China are electrical and other
machinery, including data processing equipment, apparel, textiles, iron and steel, optical
and medical equipment. In 2009 the Imports of China were $954.3 billion. The Imports
commodities of China are electrical and other machinery, oil and mineral fuels, optical
and medical equipment, metal ores, plastics, organic chemicals. The Labor force of China
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is 813.5 million (2009 Estimated). The Labor force by occupation for agriculture is
39.5%, industry: 27.2% and services: 33.2% (2008 Estimated).
China is the largest and third largest country in the world in terms of population and area
respectively. Its population is1.3 billion and its area is 9.6 million square kilometers. In
1978, the Chinese government decided to move away from Soviet-style economic
policies and to gradually reform the economy towards free market principles. As the
architecture of Chinese economic reforms Deng Xiaoping said “It doesn’t matter if the
cat is black or white as long as it catches mice”. In 2008, foreign direct investment (FDI)
in China totaled $108312 million, making it the hottest destination for FDI. China opened
its borders for foreign firms in 1979 with the creation of Special Economic Zones in
Guangdong and Fujian Provinces with an objective to attain high-tech technology from
the advanced countries for improving the domestic capabilities. SEZs offered tremendous
advantages to foreign investors, including export and import duties exemptions for
equipment and instruments.
Pakistan is a sixth-largest population with an estimated population of 170 million.
Despite a weak economic base at the time of independence; Pakistan’s growth record is
quite acceptable. On average the growth rate of GDP has exceeded 4 percent. In 2009,
economy grew by a 4.1 percent. The agriculture contributes for 21 percent of GDP and is
the second largest sector of Pakistan’s economy. It also employs 45 percent of the
country’s total labor force. Manufacturing accounts for 18.5 percent of GDP and is the
third largest sector of economy. Pakistan is 4th largest producer of cotton. In terms of
foreign currency earnings and job creation, the textile and clothing industry has been the
main driver of the economy.
It is important to note that Pakistan’s industrial base at the time of independence was
almost non-existent. The manufacturing sector contributed only 1.83 percent of GDP.
Keeping this thing in context, it is praiseworthy that Pakistan has made major strides in
the industrialization process since its creation. For the period July to April 2010, Pakistan
received US$ 1.8 billion as a FDI as compared to US$ 3.2 billion in the same period of
2009.This represents a decline of 45 percent. The low FDI in Pakistan is attributed to two
main factors. Firstly, poor law and order situation in the country especially in the form of
terrorism events over last 10 years. Secondly, the lack of better infrastructure is also a
hurdle in attracting the foreign investors. Comparatively China is the success example of
FDI attraction because it provided better infrastructure and world’s best law and order
environment to the investors. In 2009, the exports and imports of Pakistan were US$
18.44 billion and US$ 28.47 billion respectively.
3.1 The Sixth Most Populous Country
Pakistan is the world’s sixth most populous country. According to Economic Survey of
Pakistan 2010, the estimated population of Pakistan is 169.9 million as at end
June 2009.The annual population growth rate of Pakistan is 2.05 percent. It is expected
that by 2050, Pakistan would become the fourth largest nation. With a median age of
around 20 years, Pakistan is a young country. Approximately 104 million Pakistanis are
below the age of 30 years. Total working age population is 121.01 million. The size of
the employed labor force is estimated at 52.71 million as of 2008-09. About 36% of
Pakistani population is residing in urban centers. Since 1950, it is stated that Pakistan’s
urban population has expanded over sevenfold.
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