Sunday, September 2, 2018

China to Invest in Pakistan's Export-Oriented Industries, Buy More Pakistani Products

The bulk of Pakistan's exports consist of low value commodities like chadar, chawal and chamra (textiles, rice and leather). These exports have declined from about 15% to about 8% of GDP since 2003. Pakistan's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable.  What must Pakistan do to improve it? What can Pakistan do to avoid recurring balance of payments crises?  How can Pakistan diversify and grow its exports to reduce the gaping trade gap? How can Pakistan's closest ally China help? Can China invest in export oriented industries and open up its huge market for exports from Pakistan? Let's explore answers to these question. 

Exports as Percentage of GDP. Source: World Bank
East Asia's Experience:

East Asian nations have greatly benefited from major investments made by the United States and Europe in export-oriented industries and increased access to western markets over the last several decades. Asian Tigers started with textiles and then switched to manufacturing higher value added consumer electronics and high tech products. Access to North American and European markets boosted their export earnings and helped them accumulate large foreign exchange reserves that freed them from dependence on the IMF and other international financial institutions. China, too, has been a major beneficiary of these western policies. All have significantly enhanced their living standards.

Chinese Investment and Trade:

Pakistan needs similar investments in export-oriented industries and greater access to major markets. Given the end of the Cold War and changing US alliances, it seems unlikely that the United States would help Pakistan deal with the difficulties it faces today.

China sees Pakistan as a close strategic ally. It is investing heavily in the Belt and Road Initiative (BRI) which includes China-Pakistan Economic Corridor (CPEC). A recent opinion piece by Yao Jing, the Chinese Ambassador in Pakistan, published  in the state-owned China Daily, appears to suggest that China is prepared to offer such help. Here are two key excerpts from the opinion piece titled "A community of shared future with Pakistan":

1. China will actively promote investment in Pakistan. The Chinese government will firmly promote industrial cooperation, expand China's direct investment in Pakistan, and encourage Chinese enterprises to actively participate in the construction of special economic zones. Its focus of cooperation will be upgrading Pakistan's manufacturing capacity and expanding export-oriented industries.

2. China will also actively expand its imports from Pakistan. In November, China will hold the first China International Import Expo in Shanghai, where, as one of the "Chief Guest" countries, Pakistan has been invited to send a large delegation of exporters and set up exhibitions at both the national and export levels. It is hoped that Pakistan will make full use of this opportunity to promote its superior products to China. The Chinese side will also promote cooperation between the customs and quarantine authorities of both countries to facilitate the further opening-up of China's agricultural product market to Pakistan. China will, under the framework of free trade cooperation between the two countries, provide a larger market share for Pakistani goods, and strengthen cooperation and facilitate local trade between Gilgit-Baltistan and China's Xinjiang Uygur autonomous region. And China will take further visa facilitation measures to encourage more Pakistani businesspeople to visit China.

Pakistan's Role:

Pakistan needs to take the Chinese Ambassador Yao Jing's offer to increase Chinese investments and open up China's market for imports from Pakistan.  Pakistan's new government led by Prime Minister Imran Khan should take immediate steps to pursue the Chinese offer. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen to develop a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries. Pakistan must make full use of its vast network of overseas diplomatic missions to promote investment and trade. 

Summary:

 Pakistan's exports have declined from about 15% of GDP to about 8% since 2003. The nation's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable. Chinese Ambassador Yao Jing has offered a helping hand to increase Chinese investment and trade in Pakistan.   Pakistan's new government led by Prime Minister Imran Khan should take the Chinese Ambassador's plan seriously. Finance Minister Asad Umar needs to form a high-powered team of top bureaucrats and leading businessmen on a comprehensive plan to attract investments in export-oriented industries and diversify and grow exports to China and other countries.

33 comments:

Indus said...

Your thoughts much appreciated -

Why did Europe and America invest in East Asian countries like Malaysia, Singapore, South Korea etc when Pakistan was also part of the US Cold War ally but Pakistan failed to do so?
Why did almost every other US Cold War ally including Turkey, Singapore, Malaysia, South Korea, Taiwan etc succeed so well but Pakistan failed?

Riaz Haq said...

Indus: " Why did Europe and America invest in East Asian countries like Malaysia, Singapore, South Korea etc when Pakistan was also part of the US Cold War ally but Pakistan failed to do so?
Why did almost every other US Cold War ally including Turkey, Singapore, Malaysia, South Korea, Taiwan etc succeed so well but Pakistan failed?"

US and the West did invest in Pakistan in the 1960s when Pakistan's development model was taught at Harvard Business School and Koreans came to Pakistan to learn. Then came the 1971 war and Bhutto's nationalization that scared away foreign investors.

https://www.riazhaq.com/2014/06/civilian-democracy-vs-military.html

Pakistan was on a similar trajectory as the Asian Tigers during 1960s under Gen Ayub Khan's rule. GDP growth in this decade jumped to an average annual rate of 6 percent from 3 percent in the 1950s, according to Pakistani economist Dr. Ishrat Husain. Dr. Husain says: "The manufacturing sector expanded by 9 percent annually and various new industries were set up. Agriculture grew at a respectable rate of 4 percent with the introduction of Green Revolution technology. Governance improved with a major expansion in the government’s capacity for policy analysis, design and implementation, as well as the far-reaching process of institution building.7 The Pakistani polity evolved from what political scientists called a “soft state” to a “developmental” one that had acquired the semblance of political legitimacy. By 1969, Pakistan’s manufactured exports were higher than the exports of Thailand, Malaysia and Indonesia combined."

Sikandar N. said...

Excellent summary. It is now clear why a change in direction in Pakistan was inevitable.
Without giving it a political touch, I just feel angry against the powers who knew what was going on allowed it get it to this point. I will be even more upset if the powers who are responsible to get us to this level are not held accountable for their unforgivable sins against the nation.

Riaz Haq said...

#US-#China Cold War is playing out in #Pakistan. So does it mean America & Pakistan are finally breaking up? The short answer is NO.Both states are fed up with each other, but they remain far too co-dependent to simply walk away. #Afghanistan #India https://qz.com/india/1377225/

What we are seeing instead is a tough and protracted re-negotiation over the terms of the relationship. The question of Pakistan’s role in Afghanistan is not necessarily the hardest issue; there might even be convergence given the greater realism in Washington, Rawalpindi, and Islamabad.

The far bigger question hanging over the Pompeo-Dunford visit is what India and Pakistan’s role will be in the emerging cold war between the US and China. Despite Pakistani hopes, China is not yet willing or able to spend what it takes to completely replace America as Pakistan’s primary strategic partner. US economic and financial cards remain hard to match, and the result, for the time being, is likely to be a series of compromises that are uncomfortable and dissatisfying for all parties.

The US government began paying Pakistan what it calls “Coalition Support Funds” (CSF) back in 2002, shortly after it began military operations against the Taliban. In theory, the CSF compensates Pakistan for specific costs incurred in deploying tens of thousands of additional troops to the Afghan border, and for the use of Pakistani airfields, ports, and roads to resupply American forces in Afghanistan.

In reality, the Americans treated the funds as a reward to cement a long-term commitment to its cause from the Pakistan Army in the face of deep and wide popular opposition over the violations of Pakistani national sovereignty and significant civilian casualties.

Pakistan has not yet retaliated by squeezing US supply lines to Afghanistan, but it has not scaled back its covert support to the Haqqanis or the Afghan Taliban either. However, this cycle of denial and punishment may have an end in sight. Caught between converging US and Chinese interest in a peaceful and stable Afghan endgame, the Pakistani military appears to be more open to a settlement that Washington DC could live with.

For that matter, the US has begun quietly negotiating with the Taliban without any of the preconditions it previously held. All of this is likely to form a major element of Pompeo’s meetings with the new government of Imran Khan and general Dunford’s discussions with army chief general Qamar Javed Bajwa.

There is no doubt that many in New Delhi are concerned the result might be a settlement that allows the Taliban to retain arms and gain a share of the national government, while still remaining tethered to Rawalpindi. This draws attention to the larger truth that US-Pakistan relations (and even US-India relations) are more inextricably impacted by the state of US-China relations than ever before.

Pakistan’s urgent need for up to $12 billion in relief from its looming balance-of-payments crisis dwarfs the question of military aid and constitutes the strongest source of American leverage. Given the Trump administration’s determination to use all available means of persuasion, it is particularly significant that the US has not linked the bailout to questions of Afghanistan or terrorism, but instead to China’s role in Pakistan.

Riaz Haq said...

#Pakistan rules out possible #IMF bailout funds to repay #China. U.S. Secretary of State Mike #Pompeo, who is scheduled to visit Pakistan later this week, has warned that any bailout by the IMF should not include funds to pay off #Chinese #loans. #CPEC https://asia.nikkei.com/Economy/Pakistan-rules-out-possible-IMF-bailout-funds-to-repay-China

If the U.S. "vehemently" objects to an IMF bailout, "we are going to convince them that this money will not go to China," said Abdul Qadir Memon, Pakistan's consul general in Hong Kong. "It will go to balance our external accounts so that we are able to sustain our imports for the next year or so," he said in a question-and-answer session following a speech at the Foreign Correspondents' Club.

The country is facing a fiscal crisis and the new government of Prime Minister Imran Khan, who took office last month, is considering a bailout from the international lending agency. U.S. Secretary of State Mike Pompeo, who is scheduled to visit Pakistan later this week, has warned that any bailout by the IMF should not include funds to pay off Chinese loans. The U.S. is the largest contributor to the IMF.

Pakistan has seen its foreign exchange reserves plunge over the past two years due to ballooning international payments, partly reflecting the previous government's massive spending on infrastructure projects supported by China's Belt and Road Initiative. The $62 billion China-Pakistan Economic Corridor, or CPEC, is a flagship project in the initiative and an important investment in Pakistan's economy.

Memon rejected assertions by many that the Belt and Road Initiative was to blame for the country's financial crisis and the belief that Pakistan would go to the IMF to repay Chinese loans. "The balance of payments difficulties for Pakistan is because of high oil prices," he said. Brent crude prices have jumped nearly 50% over the past year. They were trading around $78 a barrel on Monday.

But he cautioned that an IMF bailout would come with "stringent" conditions, which could undermine the government's ability to implement policies if it agrees to the terms. The government "may opt for other resources, and [the] People's Republic of China, Saudi Arabia -- in the past we had this deferred payment imports of oil," he said, adding that the government is examining its options.

Concerns that Pakistan is falling into a debt trap with China have also extended to Sri Lanka. Last year, China wrote off more than $1 billion in debt in exchange for a long-term lease on a deep-water port in the Indian Ocean nation. Sri Lanka again is working with China's central bank for an injection of cash.

Memon said that China has shown flexibility in its negotiations with Pakistan on terms and conditions of loans. "The payback period is longer," he noted. "Pakistan has no history of default."

The consul general also addressed the news over the weekend that the U.S. had suspended $300 million in military-related funds for Pakistan, with the Department of Defense citing what it said was Islamabad's "failure to take action against terrorists," according to National Public Radio.

Memon criticized the decision, saying it was not aid for Pakistan but a payment the U.S. "owes" the country. "This is the money the United States has committed to Pakistan for providing support for the coalition logistics and air support so that the United States can fight its war on terror inside Afghanistan," he said, adding that "in our books, this is a receivable."

He called Washington's move a pressure tactic and cited the "ups and downs" of the two countries' relationship. "There has been suspicion, acrimony and, at times, hostility displayed by the U.S. leadership, but we are willing to work with them based on mutual respect, mutual trust."

Riaz Haq said...

Biggest #India bond inflow in 7 months fails to rescue rupee. Higher #oil prices and fears of #fiscal slippage before a general election next year have combined to make #Indian #rupee Asia’s worst performer in 2018. #Modi #BJP #economy https://www.bloomberg.com/news/articles/2018-09-03/biggest-india-bond-inflow-in-seven-months-fail-to-rescue-rupee via @markets

Global investors in August bought the most Indian bonds in seven months, showing signs of returning to a market they’d abandoned for the better part of 2018. The inflow brought no joy for currency traders as the rupee hit multiple new lows in the past two weeks.

Funds plowed $403 million into rupee-denominated bonds after $105 million in July, amid optimism the worst of the yearlong rout that sent the local benchmark yield to its highest since 2014 is over. The streak needs to extend to chip away at this year’s outflow of $5.6 billion that has contributed to the currency weakness.


A rout in emerging-market currencies, elevated oil prices and fears of fiscal slippage before a general election next year have combined to make the rupee Asia’s worst performer in 2018. The currency capped its biggest monthly retreat in three years in August, falling past an unprecedented 71 per dollar on Friday.


Local traders polled by Bloomberg last month expect the headwinds, most notably from the price of oil, to persist.

“Yields are attractive but the overall negative sentiment around emerging markets will put pressure on Indian bonds,” said Manu George, Singapore-based director of fixed income at Schroder Investment Management Ltd., which oversees $582 billion in assets. “We’re less bullish on bonds now” after recently increasing exposure to India, he said.

nayyer ali said...

The reason Pakistan has a balance of payments crisis is that it imports so much more than it exports. It has had terrible export performance in the last 10 years, and that gap has been covered by rising remittances. This was a sugar high that is not the basis of good policy. Export industries have been hampered by poor electricity supplies and a very overvalued rupee which priced Pakistani goods out of international markets. The fall of the rupee from 100 to 130 per dollar has fixed most of the overvaluation, but going forward the SBP and the government need to avoid allowing overvaluation to build up again. Overvalued rupee is desired by importers and domestic consumers that want to buy imported products, which is mainly the urban rich, their selfish needs have trumped the needs of the economy and this cannot occur again.

Riaz Haq said...

#American Jewish Congress Chair Jack Rosen: "It is sad and counterproductive for #US to cut off more than a billion USD in aid and hundreds of millions of USD in reimbursements to #Pakistan under Coalition Support Fund (CSF)" #Pompeo https://intpolicydigest.org/2018/07/31/pakistan-deserves-u-s-support/ via @intpolicydigest

Over the past two weeks alone, four devastating terrorist attacks in Pakistan–targeting political rallies, a government convoy, and an election office–killed hundreds of innocent civilians. The Islamic State took responsibility for all of the attacks. To say that Pakistan is not at the front lines of the fight against violent extremism is patently absurd. But this is the position of some in Washington who would deny Pakistan the tools it needs—in terms of military hardware, financial support, and political encouragement—to bring terrorists to heel.

With former cricket great Imran Khan claiming victory in Pakistan’s second democratic transition in Pakistan’s 71-year history, Pakistan is set on a new trajectory with a new prime minister promising changes in a country that has been marred by corruption and violence. I had the opportunity to have dinner last week with Pakistan’s new Ambassador the U.S., Ali Siddiqui. Ambassador Siddiqui is young, smart and capable. A very successful businessman and dedicated philanthropist, he entered government in part because he sees the future of his country inexorably tied to quelling the terrorist threat. That means convincing Washington of the gravity of the problem and the seriousness of Pakistan’s response. Improving the U.S.-Pakistan security relationship, he said, was his number one priority as Ambassador.

He noted that as a developing nation, terrorism threatens Pakistan’s ability to grow economically and thrive democratically. For one it drains precious resources from needed development and infrastructure projects. For another, Islamic State is at the moment targeting Pakistan’s nascent democratic institutions and public participation by killing candidates and activists alike.

These realities notwithstanding, the U.S. itself has a deep interest in supporting Pakistan in its fight. Pakistan shares a long border with Afghanistan, where U.S. troops remain engaged in a protracted fight against radical extremists. The U.S. has lost more than 2,000 lives and spent billions of dollars in Afghanistan, and we need Pakistan’s access, influence, and firepower to destroy terrorist havens and bring the Taliban to heel. Lest we forget, the Afghan-Pakistan border region is a notorious sanctuary for terrorists who attack Americans and other innocents abroad.

Over the past several decades, the U.S. has provided Pakistan with fighter jets, weapons and high-level training. Since 9/11, U.S.-Pakistani collaboration has played a critical role in dismantling al-Qaeda’s and IS’ deeply entrenched networks–more than 95% of al-Qaeda and IS terrorists have been killed or captured in Pakistan–and resulted in seizure of more than 200 tons of IED precursors, according to the United Nations.

But this progress came at a heavy price: Pakistan has lost over 60,000 people, both civilian and military, as a direct result of offensives against terrorist networks. The cumulative losses to the Pakistani economy are vast: the Pakistan Foreign Office puts the figure at $120 billion, and Pakistan’s Economic Survey 2016/17 estimates economic losses at $123 billion due to the war on terror. All of these figures continue to climb.


nayyer ali said...

Pakistan has sowed what it reaped. It has been supporting religious militants since the 1980's, first the Mujahideen against the Soviets, then Kashmiris in the 1990's against India. When they were creating mayhem abroad it was fine, as long as there was no mayhem internally. But it is hard to keep the genie in the bottle. Encouraging Pashtuns to take up arms to create an Islamic state in Afghanistan, but then tell them you can't do the same thing in Pakistan, is illogical. The end result in the last 10 years was the Pakistani Taliban and the rise of Sunni extremist groups that targeted Pakistani Shia. This is the fruit of the poisonous tree of supporting the Afghan Taliban for decades, and supporting militant groups aimed at India. It is a bit rich for Pakistan to then claim it is the innocent victim of terrorism. Like the person who murders his parents and then demands the mercy of the court on the grounds that he is an orphan. Pakistan created this mess out of a misguided foreign policy, and only Pakistan can bring it to an end.

Riaz Haq said...

NA: "Pakistan has sowed what it reaped. It has been supporting religious militants since the 1980's, first the Mujahideen against the Soviets, then Kashmiris in the 1990's against India...."

Pakistan has made mistakes like any other country. But you are parroting the false American and Indian narrative when you put the entire onus on Pakistan for the current mess. India's abiding active hostility against Pakistan has further complicated the situation.

The fact is that Pakistan participated in the Cold War and the then "War on Terror" as a US ally. And Pakistan is now being held responsible for the negative fallout from both.

But I'm glad Pakistanis have learned from these mistakes and the nations is dealing with the consequences better than many other countries in similar situations. Pakistan's enemies have been writing Pakistan off from the day it was created. Pakistan has defied all forecasts of doom and gloom. I remain very optimistic about Pakistan's future.

https://www.riazhaq.com/2018/06/us-dod-1999-forecast-pakistan.html

Ahmet said...

Turkey also enjoyed a relatively stable external and internal environment compared to Pakistan. Instability and external threats requires funds that would otherwise be spent on development, discourages FDI and causes a variety of social problems. Turkey and South Korea developed under the backdrop of the cold war but was also under the umbrella of NATO/US military alliance.

Singapore, Malaysia, South Korea and Taiwan benefits from the East Asian supply chain network. Critical mass can be built up to spur trade. A nation with proximity to a supply chain network can enter the market by taking the low cost labor intensive portions and grow vertically up the supply chain from there. A nation that doesn't have proximity will find this harder to do as they would have to offset transportation costs through other means.

Currently we see many consumer products being labeled "Made in China", in reality many neighbors participate in this process, some semi-finished components comes from South Korea and Japan, manufacturing machines from Japan. As labor costs rise in China, offshoring is expected thus moving up the value chain is vital. The country that receives offshoring of manufacturing industries is likely to have cheap energy/land, close to major markets or is one itself, and easy/cheap access to upstream suppliers.

Riaz Haq said...

Ahmet: "Turkey also enjoyed a relatively stable external and internal environment compared to Pakistan. Instability and external threats requires funds that would otherwise be spent on development, discourages FDI and causes a variety of social problems. Turkey and South Korea developed under the backdrop of the cold war but was also under the umbrella of NATO/US military alliance."

Unlike Pakistan, Turkey enjoyed and still enjoys US security guarantees as a member of NATO alliance. These guarantees have reduced its need for higher defense spending.

Riaz Haq said...

Former #American ally #Taliban founder of #Haqqani network dies in #Afghanistan, debunking #US claims of him being in #Pakistan. https://www.militarytimes.com/flashpoints/2018/09/04/taliban-say-founder-of-haqqani-network-dies-in-afghanistan/#.W49Cr9EfY6w.twitter

The founder of Afghanistan’s much-feared Haqqani network, a former U.S. ally turned fierce enemy, has died after years of ill health, a Taliban spokesman said Tuesday. Jalaluddin Haqqani was 71.

Haqqani died Monday inside Afghanistan, Zabihullah Mujahed told The Associated Press in a telephone interview. The elderly founder of the outlawed Afghanistan-based organization, once hailed as a freedom fighter by U.S. President Ronald Reagan, had been paralyzed for the past 10 years.

In announcing his death Tuesday, Mujahed called Haqqani a religious scholar and exemplary warrior.

Because of his infirmity, Haqqani’s network has been led by his son Sirajuddin Haqqani, who is also deputy head of the Taliban. Considered the most formidable of the Taliban’s fighting forces, the Haqqani network has been linked to some of the more audacious attacks in Afghanistan. The elder Haqqani joined the Taliban when they overran Kabul in September 1996, expelling feuding mujahedeen groups, whose battles left the capital in ruins.

Militants wore US military uniforms in attack in Afghanistan’s capital
Islamic State militants, including two suicide bombers, dressed in military uniforms and riding in two armored vehicles launched a surprise attack on the Interior Ministry in Kabul on Wednesday but Afghan forces managed to repel the assault, leaving all the attackers dead.

By: Rahim Faiez, The Associated Press
Since then, the network has been among the fiercest foes fighting U.S. and NATO troops in Afghanistan. The elder Haqqani's death is not expected to impact the network's military might or strategy.


It was the second death of an insurgent leader in Afghanistan announced within days. On Aug. 27, U.S. and Afghan officials said a U.S. strike the previous weekend killed a senior Islamic State commander in eastern Afghanistan. The strike in Nangarhar province killed Abu Sayeed Orakzai, a senior leader in the extremist group, according to Shah Hussain Martazawi, deputy spokesman for the Afghan presidency.


Haqqani was among the Afghan mujahedeen, or holy warriors, the United States backed in the 1980s to fight the former Soviet Union's invading army, sent to Afghanistan in 1979 to prop up the pro-Moscow government. Haqqani was praised by the late U.S. Congressman Charlie Wilson as "goodness personified." After 10 years, Moscow negotiated an exit from Afghanistan in an agreement that eventually led to the collapse of Kabul's communist government and a takeover by the mujahedeen.

In 2012 the United States declared the Haqqani network a terrorist organization. Haqqani had not been heard from in several years and reports of his death were widespread in 2015.

Declassified U.S. cables called Haqqani a “moderate socialist” who did not embrace the Taliban’s strict rules that denied girls education. “Haqqani functions more in the military area, and is not a force in setting Taliban political or social issues,” the cables read.

Riaz Haq said...

Manufacturing value added per capita and manufactured exports per capita

Source: United Nations Industrial Development Organization (UNIDO)

https://www.unido.org/sites/default/files/files/2017-11/IDR2018_FULL%20REPORT.pdf

Pakistan MVA per capita 2010 $134 2015 $146
Pakistan Manufactured Exports per capita 2010 $102 2015 $94

Bangladesh MVA per capita 2010 $122 2015 $182
Bangladesh Manufactured Exports per capita 2010 $121 2015 $152

India MVA per capita 2010 $228 2015 $298
India Manufactured Exports per capita 2010 $152 2015 $186

China MVA per capita 2010 $1,432 2015 $2,048
China Manufactured Exports per capita 2010 $1,132 2015 $1,601

Anonymous said...

Indian MVA and exports per capita double that of pak ?

But I thought Pakistan practiced free trade for a lot longer..

Ravi K said...

India and Pakistan have the same capacity except that

1. Indian economy far bigger than Pak economy
2. Indian exports far far higher than that of Pak
3. Forex reserves in India much more than India.

Apart from the above, there is practically no difference.

nayyer ali said...

Indian hostility does not force Pakistan to support militants in Afghanistan. One does not cause the other, nor did the American justified response to 9/11 give Pakistan a free pass to run an insurgency in Afghanistan. Stop blaming everyone else for what Pakistan has chosen to do deliberately. Pakistan is not some immature child whose petulance is to be expected, it needs to understand the consequences of its policies in the long run and stop pursuing those that have been the root cause of the terrorist mayhem that has killed thousands of Pakistanis. This constant desire to deflect blame and take no responsibility is part and parcel of Pakistan's inability to achieve good governance.

nayyer ali said...

Ravi, Indian economy and exports are much bigger than Ireland too, but I think the Irish are better off. Absolute numbers mean nothing, you have to adjust for population. In the last 10 years India's export performance has been reasonably good while Pakistan's has been terrible. But the overall standard of living of average Pakistanis remains much higher than average Indians. India has massive wealth inequality with scores of billionaires and several hundred million in absolute poverty. Pakistan has much lower poverty rates and larger middle class share of the population. If I had to choose between randomly being born Indian or Pakistani I would rather take my chances being born into Pakistan. For a country that wishes to be considered a global power, there seems to be plenty of Indians who get their feelings hurt when they are unfavorably compared to Pakistan.

Riaz Haq said...

NA: "Indian hostility does not force Pakistan to support militants in Afghanistan. One does not cause the other...."


War, including proxy war, is diplomacy by other means. Proxy wars are fought when all else has failed. Pakistan is not alone in using proxies to achieve its ends. Calling it militancy or terrorism is just propaganda.

Let me quote Brookings Institution on this subject as it relates to India-Pakistan situation:

"The alphabet agencies—ISI, RAW, and so forth—are often the chosen instrument of state policy when there is a conventional (and now a nuclear) balance of power, and the diplomatic route seems barren."

Riaz Haq said...

Anon: "But I thought Pakistan practiced free trade for a lot longer"


Free trade does not build domestic industrial base; protectionist policies do.

East Asian experience has some important lessons for Pakistan as the country embraces the western prescriptions of democracy and free trade. It's particularly important to recall these lessons now in view Pakistan's decision to open unrestricted trade with India whose major industrialists like Tata and Birla have greatly benefited from protectionist policies to scale up and gain experience.

The East Asian nation of South Korea has become a great model of economic success for the developing world. Back in 1960s, its annual per capita income was around $80, less than half of Ghana's at the time. Today, it stands at $30,000, comparable to that of some wealthy European nations. For most of this period, the people of South Korea have ignored the Washington consensus, the western prescription on economy and politics, to achieve this miraculous progress.

https://www.riazhaq.com/2012/03/should-pakistan-ignore-washington.html

Ahmet said...

Yes, I agree. When smaller to medium sized economies have to operate in a stand alone security environment, it necessitates them to develop certain weapons and maintain relatively high military expenditures.

Russia for example is trapped in high military expenditures as a percentage of GDP (4%). They require nuclear warheads/delivery systems (ICBMs, submarines, mobile launchers), missile defense systems as well as a substantial conventional force to counter NATO, US Indo-Pacific command and for some years China as well. A stable budget is also needed to maintain the health of their military industries.

North Korea was in an even more dire situation. For them to develop nuclear weapons and maintain a sizable military to balance South Korea/US forces they had to devote 15-20% of GDP to defense spending. This leaves very little surplus to develop a flourishing civilian economy and resulted in a sustained famine during years with bad crop yields.

Turkey and South Korea can invite US forces to supplement capabilities in some high cost arenas and can enjoy the fruits of economies of scale through purchase of ready made systems/components. They maintain the capabilities of some high cost platforms without incurring many of the direct costs.

China due to its size can maintain a relatively small military budget while preserving a relatively potent military. With an official military budget of $175 billion or 1.3% of GDP (Western sources estimates a higher spending at 1.9%) China is able to fund a 2 million men military along with necessary weapons. Military budget cuts eased economic reforms and development.

It seems like Imran Khan is currently trying to improve the external security environment of Pakistan to ease the upward pressure upon the military budget, enabling more funds to be diverted to development programs.
Thanks

Ravi K said...

Nayyar:

"But the overall standard of living of average Pakistanis remains much higher than average Indians"

This is something Pakistanis want to believe to make themselves feel better. What do you define average as? There should be a clearly defined metrics. Once we define a metric, we can take our debate further.

Next , if average Pakistani is SO MUCH better, then how come the nation's finance is in such a pathetic state. Isn't it odd that while Pakistanis at an individual level are supposedly much better, the nation finances is in a miserable state. Pakistan can not even pay its bills without asking for aid/load. India last did that 27 years ago.

A yardstick to judge the economy and the effect it has on the population is to look at the sales. On that count India does much better than Pakistan. Riaz has posted about how air travel in India is much more than Pakistan. Auto sales in India is much more than Pakistan.

There is a reason why companies like Amazon are deep in investment in India, but not in Pakistan.

Also it might interest you that US is rated worse in GINI coefficiency than India. In other words, there is more inequality in USA than India. Of course US being far richer, you won't find poverty like in India.

And thank you for being civil and thank your Riaz to allow this post.

Riaz Haq said...

Ravi: " This is something Pakistanis want to believe to make themselves feel better. What do you define average as? There should be a clearly defined metrics. Once we define a metric, we can take our debate further. Next , if average Pakistani is SO MUCH better, then how come the nation's finance is in such a pathetic state. Isn't it odd that while Pakistanis at an individual level are supposedly much better, the nation finances is in a miserable state. Pakistan can not even pay its bills without asking for aid/load. India last did that 27 years ago."

Average Pakistani adult is 20% richer than an average Indian adult and the median wealth of a Pakistani adult is 120% higher than that of his or her Indian counterpart, according to Credit Suisse Wealth Report 2016.

https://www.riazhaq.com/2017/01/comparing-median-income-wealth-data-for.html

Public finances are not the same as private wealth. The two are very different.

Pakistan's public debt is only slightly higher than India's as percentage of GDP.


Ravi K said...

Average Pakistani adult is 20% richer than an average Indian adult and the median wealth of a Pakistani adult is 120% higher than that of his or her Indian counterpart, according to Credit Suisse Wealth Report 2016.

https://www.riazhaq.com/2017/01/comparing-median-income-wealth-data-for.html
===
So why is car sales in Pak just hovering at 200K while in india it is over 3 mil
Why air travel in Pak is 6 million compared to 100mil in India.
The difference is much more in proportion than the population.
And why is the tax collection in Pak lower compared to India.

Bottomline: Report by CS does not commensurate on the state of economy.

Riaz Haq said...

Ravi: "The difference is much more in proportion than the population"

Dr. Jawaid Abdul Ghani, a professor at Karachi School of Business Leadership, has recently analyzed household surveys in India and Pakistan to discover the following:

1. As of 2015, car ownership in both India and Pakistan is about the same at 6% of households owning a car. However, 41% of Pakistani household own motorcycles, several points higher than India's 32%.

2. 12% of Pakistani households own a computer, slightly higher than 11% in India.

3. Higher percentage of Pakistani households own appliances such as refrigerators (Pakistan 47%, India 33%), washing machines (Pakistan 48%, India 15%) and fans (Pakistan 91%, India 83%).

4. 71% of Indian households own televisions versus 62% in Pakistan.

Rising ownership of durables in Pakistan has been driven by significant reduction in poverty and growth of household incomes, according to Dr. Abdul Ghani's research. Percentage of households with per capita income of under $2 per day per person has plummeted from 57% in 2001 to 7% in 2014. At the same time, the percentage of households earning $2 to $10 per day per person has soared from 42% of households in 2001 to 87% of households in 2014. The percentage of those earning over $10 per day per person has jumped 7-fold from 1% of households in 2001 to 7% of households in 2014.

https://www.riazhaq.com/2017/05/comparing-ownership-of-appliances-and.html

Anonymous said...

When comparing the conditions (economic and social) in south Asia we should keep in mind some other factors too.
For example the Gini-Coefficient in Pakistan is one of the lowest in SA
India: 47.9
Pak: 36.2
BD: 39.5
This means that the wealth distribution in Pakistan is much better than other countries. As a result we see the suicide rate in Pakistan is much lower than in India.
India: 17.9 / 100,000
Pak: 2.1 / 100,000
BD: 5.5/100,000

Zamir

Riaz Haq said...

Opinion: New government in Pakistan and future of CPEC
Zamir Ahmed Awan


https://news.cgtn.com/news/3d3d674d3345444d7a457a6333566d54/share_p.html


It has been announced that the Chinese foreign minister, Wang Yi, will visit Pakistan from September 7-9 at the invitation of his counterpart Shah Mehmood Qureshi. Wang Yi's visit will be very important as this will be his first trip to Pakistan since the general election there on July 25.

---------------

Imran Khan constituted a nine-member high powered cabinet committee for the CPEC to be headed by the Minister of Planning, Development and Reforms Makhdoom Khusro Bakhtiar.

The members of the committee are Foreign Minister Shah Mehmood Qureshi, Minister for Law and Justice Naseem, Minister for Finance Asad Umar, Minister for Petroleum Division Ghulam Sarwar, Minister for Railway Sheikh Rashid and the PM's advisers on commerce, textiles, industry, production and investment.

The committee will focus on the CPEC and its related issues. It is a very high level and powerful committee which will focus on the progress of the projects in various areas of energy, infrastructure and industrialization.

More emphasis will be given to special economic zones (SEZs). The prime minister also has constituted several other committees on various areas like energy and privatization and an economic council.

The new government is aware of national issues and priorities. Economic development is at the top of the agenda. The CPEC is the mode of economic development in Pakistan. The government is giving China a very high priority and committed to turning CPEC into a more beneficial and fruitful endeavor for both countries.

The new government is in the stage of planning and consultation. The federal cabinet may be expanded and the induction of professionals and advisers in various positions in government are ongoing, as only a strong team can take the nation out of the crisis.

The new Minister of Planning, Development and Reform, Makhdoom Khusro Bakhtiar, held an important meeting with the Chinese Ambassador to Pakistan, Yao Jing, to discuss Pakistan-China relations and the future of CPEC.

The minister stressed the importance of creating more and more employment opportunities for the local population which he wished to tap through CPEC. They discussed how to implement China’s development model in Pakistan.

Tourism, industrialization and agriculture were identified as priority areas. Development of SEZs is in the planning stage and close consultation is going on with the Chinese to learn from their experience.

The Chinese ambassador assured the minister that he will request his government to bring Chinese investors to Pakistan to aid Pakistan's economy.

In fact, the new Government is more serious on CPEC and giving it very high importance. The Chinese side has been requested to extend its best possible cooperation to the new government and make the best use of new incentives and policies for the benefit of both countries.

A stronger and prosperous Pakistan, with Chinese assistance, may be more proud of China too. Let the two “Iron Brothers” enhance cooperation and set up an example of international friendship and cooperation for the rest of the world.

Riaz Haq said...

CPEC spurs Pakistan’s industrial growth, up by 5.4% in FY18

https://dailytimes.com.pk/286581/cpec-spurs-pakistans-industrial-growth-up-by-5-4-in-fy18/

The country’s large scale manufacturing (LSM) sector has witnessed growth of 5.38 percent during the fiscal year 2017-18 (FY18) compared to the corresponding period of last year, but, below the government’s FY18 target of 6.3 percent.

LSM grew 3.13 percent in 2015-16, 3.38 percent in 2014-15, 5.39 percent in 2013-14, 4.28 percent in 2012-13 and 5.6 percent in 2016-17.

The factors, according to the central bank, which facilitated LSM growth mainly included increased capacity utilization due to ease in energy supplies; high credit off-take owing to low interest rates; output stimulus in associated industries due to widespread construction activities; and an improved business environment on the back of CPEC related projects and favorable law and order situation.


Construction allied and consumer durable industries registered a notable growth. However, sugar industry was not able to capitalize on record sugarcane production; in stark contrast to last year, when it was the main driver of LSM growth.

The Quantum Index Numbers (QIM) of large scale manufacturing industries was recorded at 147.07 points during July-June 2017-18 against 139.55 points during same period of last year, according to latest data of Pakistan Bureau of Statistics (PBS).

The State Bank of Pakistan (SBP) said industrial production has witnessed the highest growth in the current fiscal year since FY08. The performance can be traced to noteworthy contributions from construction and manufacturing activities. Public sector development program (PSDP) and CPEC related expenditure have had a spillover impact on manufacturing sub-sectors such as steel, cement and automobiles. However, the industry could not achieve the growth target set for FY18 on account of a lower increase in gross value addition (GVA) by electricity generation and gas distribution.

The highest growth of 13.24 percent was witnessed in the indices monitored by Oil Companies Advisory Committee (OCAC) followed by Ministry of Industries with 5.04 percent and the indices of Provincial Bureaus of Statistics (PBOS) with 4.4800 percent.

On month-on-month basis, the industrial output increased by 0.51 percent in June 2018 compared to June 2017 while it decreased by 8.30 per cent if compared to May 2018.


Meanwhile, the major sectors that showed growth during the said fiscal compared to same period of the previous year, included textile (0.38 percent), food beverages & tobacco (2.78 percent), coke and petroleum products (13.24 percent), pharmaceuticals (2.94 percent), non metallic mineral products (11.04 percent), automobiles (17.78 percent), iron and steel products (21.78 percent), electronics (32.43 per cent), paper and board (9.38 percent), engineering products (7.58 per cent), and rubber products (6.21 percent).

On the other hand, the industries that witnessed negative growth include f, chemicals (0.23 percent), fertilizers (9.88 percent), leather products (0.19 percent), and wood products (37.75 percent).

The provisional QIM is being computed on the basis of the latest production data of 112 items received from sources including Oil Companies Advisory Committee (OCAC), Ministry of Industries and Production (MoIP) and Provincial Bureaus of Statistics (PBoS). OCAC provides data of 11 items, MoIP of 36 items while PBoS proved data of remaining 65 items.

Riaz Haq said...

50 Auto Factories' Production Improved With JICA Support

https://www.urdupoint.com/en/business/50-auto-factories-production-improved-with-j-425957.html

Small and Medium Enterprises Development Authority (SMEDA) has improved production systems of 50 Auto Factories with the support of Japan International Cooperation Agency (JICA).

Small and Medium Enterprises Development Authority (SMEDA) has improved production systems of 50 Auto Factories with the support of Japan International Cooperation Agency (JICA).

SMEDA Chief Executive Officer Sher Ayub disclosed this here Wednesday while commenting on second term of SMEDA-JICA joint project being run for technical support of auto parts manufacturing industry in Pakistan.

The project, he said, was being conducted in coordination with Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).

He acknowledged services of the Provincial Chief SMEDA-Sindh Mukesh Kumar to make this project successful in close coordination with PAAPAM.

He said that Auto sector was one of the rapidly growing sectors in Pakistan. Its contribution towards the national economy in the form of technology transfer, employment and revenue generation is visible, he said and pointed out that the sector had a significant room to further improve quality, bring innovation and flexibility of manufacturing system which is being addressed with the support of JICA. He observed that Japan's technical support had helped the local auto parts manufacturers to get prepared for export market by improving quality and productivity of their products, as per world's requirements.

Earlier, at a ceremony held at PAAPAM Office, the SMEDA (Sindh) Provincial Chief Mukesh Kumar gave a briefing on the activities to be conducted under second term of SMEDA-JICA joint project for technical support of Auto sector in the country.

Yoshihisa Onoe - senior representative of JICA Pakistan Office, Hiroshi KANEKI - Chief of JICA Technical Team, Hiroshi SASAKI-Deputy Chief of JICA Team, Ikuta, Ishitaki, Sato (JICA Experts) and Muhammad Ashraf Sheikh, Senior Vice Chairman PAAPAM also spoke on this occasion.

Yoshihisa Onoe-the Senior Representative of JICA, in his address, assured to continue the technical support for Pakistan's industry to compete in the world market in terms of technical know-how and the modern manufacturing techniques.

He acknowledged that JICA's collaboration with SMEDA and PAAPAM had proved to be very useful for the local auto parts' manufacturing industry in Pakistan.

He was glad to note that productivity of the sector had increased to an optimal level, whereas, the rejection rates to be witnessed in the manufacturing processes had reduced to the lowest possible level. He said that the SMEs, engaged in auto parts manufacturing, had a great potential to compete the world market and assured to extend fullest technical support of JICA to impart the best practices being exercised in auto sector of the developed world.

Muhammad Ashraf Sheikh, Senior Vice Chairman (PAAPAM) appreciated SMEDA initiatives to get JICA's technical cooperation for auto parts industry.

He said that PAAPAM members had greatly availed of the assistance to increase their productivity and reduce rejection rates in their manufacturing processes. He urged SMEDA and JICA to continue the program even after completion of the set period.

Riaz Haq said...

#Pakistan's #PTI government led by #ImranKhan plans to review or renegotiate #CPEC agreements with #China. #Chinese FM Wang Yi visiting #Islamabad indicates #Beijing open renegotiating its 2006 trade deal with Pakistan. https://www.ft.com/content/d4a3e7f8-b282-11e8-99ca-68cf89602132

Pakistani ministers and advisers say the country’s new government will review BRI investments and renegotiate a trade agreement signed more than a decade ago that it says unfairly benefits Chinese companies.

The projects concerned are part of the $62bn China-Pakistan Economic Corridor plan — by far the largest and most ambitious part of the BRI, which seeks to connect Asia and Europe along the ancient silk road.

They include a huge expansion of the Gwadar port on Pakistan’s south coast, as well as road and rail links and $30bn worth of power plants.

“The previous government did a bad job negotiating with China on CPEC — they didn’t do their homework correctly and didn’t negotiate correctly so they gave away a lot,” Abdul Razak Dawood, the Pakistani member of cabinet responsible for commerce, textiles, industry and investment, told the Financial Times.

“Chinese companies received tax breaks, many breaks and have an undue advantage in Pakistan; this is one of the things we’re looking at because it’s not fair that Pakistan companies should be disadvantaged,” he said.

Wang Yi, Chinese foreign minister, who visited Islamabad at the weekend, indicated that Beijing could be open to renegotiating its 2006 trade deal with Pakistan. “CPEC has not inflicted a debt burden on Pakistan,” he told reporters. “When these projects get completed and enter into operation, they will unleash huge economic benefits.”

But Islamabad's second thoughts follow other recent setbacks for BRI, which is seen by many as a bid by China’s President Xi Jinping to extend Beijing’s influence throughout the world. Governments in Malaysia, Sri Lanka, Myanmar and elsewhere have already expressed reservations over the onerous terms of Chinese BRI lending and investment.

Imran Khan, the former cricket star who was elected Pakistan’s prime minister last month, has established a nine-member committee to evaluate CPEC projects. It is scheduled to meet for the first time this week and will “think through CPEC — all of the benefits and the liabilities”, said Mr Dawood, who sits on the new committee.

“I think we should put everything on hold for a year so we can get our act together,” he added. “Perhaps we can stretch CPEC out over another five years or so.”

Several other officials and advisers to the Khan government concurred that extending the terms of CPEC loans and spreading projects out over a longer timeframe was the preferred option, rather than outright cancellation.

Pakistan is in the middle of a financial crisis and must decide in the coming weeks whether to turn to the IMF for its 13th bailout in three decades, as pressure on the Pakistani rupee makes the burden of servicing foreign currency debt more onerous.

Asad Umar, Pakistan’s new finance minister, told the FT he was evaluating a plan that would allow Islamabad to avoid an IMF programme, which several people close to the government say would i nvolve new loans from China and perhaps also from Saudi Arabia.

Mr Umar and Mr Dawood both said Pakistan would be careful not to offend Beijing even as it takes a closer look at CPEC agreements signed over the past five years. Mr Khan was elected on a platform of anti-corruption and transparency and has pledged to publish details of existing CPEC contracts.

“We don’t intend to handle this process like Mahathir,” Mr Umar said, referring to the newly elected nonagenarian Malaysian prime minister who has warned about the risk of Chinese “neo-colonialism” Malaysia has cancelled three China-backed pipeline projects and put a showpiece BRI rail link under review.

Riaz Haq said...

#French #auto maker to launch five new models in #Pakistan - Renault has acquired 54 acres of land in the city of #Faisalabad and it is expected to invest 140 million U.S. dollars more in the venture. http://www.xinhuanet.com/english/2018-09/11/c_137459070.htm#0-twi-1-63766-7250227817ecdff034dc9540e6c76667

Renault, which is one of the top international car manufacturing companies, has partnered with the largest U.A.E.-based entity Al-Futtaim Group. The joint venture is set to bring the latest technology to their manufacturing plant in Pakistan. The company will initially launch five variants to make a strong start in the Pakistani auto sector.

The Al-Futtaim Group has already started establishing its offices in Pakistan. The two companies will join hands to establish their showrooms and other offices in the country by 2019 whereas the French auto giant's variants are likely to get an official launch by June 2020.

The company's auto manufacturing plant in Faisalabad will have the production capacity of 50,000 vehicles per year. It will conduct sales through the local dealerships.

The arrival of five new variants by the top automaker will provide Pakistani buyers with additional options to choose from.

The advent of Renault in Pakistan is likely to hurt the market monopoly of Japanese automakers like Toyota, Suzuki, and Honda. It would also inspire the other automakers in the Pakistani auto market to bring more investment in Pakistan.

Riaz Haq said...

#Chinese buying mission to visit #Pakistan. #Chinese Ambassador in #Islamabad: “Such buying missions will be of great importance for #Pakistani #exporters and the overall export growth of the country.” #CPEC #exports #trade #China https://tribune.com.pk/story/1803428/2-chinese-buying-mission-visit-pakistan/

Adviser to Prime Minister on Textile, Commerce, Industry and Production Abdul Razak Dawood has underlined the need for enhancing exports from Pakistan to China as well as to the global market.

“It will require better access to the Chinese market,” he said while talking to Chinese Ambassador Yao Jing who called on the minister on Friday.

The adviser emphasised that in addition to strong political affinity, Pakistan and China enjoyed excellent trade and commercial relations bonded further by the signing of the China-Pakistan Free Trade Agreement in 2006.

He added that agreement on the China-Pakistan Economic Corridor (CPEC) opened another dimension to the ever-growing trade and economic relations between the two countries.

Jing announced that a Chinese buying mission would visit Pakistan. “Such buying missions will be of great importance for Pakistani exporters and the overall export growth of the country,” he stressed.

Dawood appreciated China for organising the China International Import Expo, which would be held in November 2018 in Shanghai, and expressed gratitude for declaring Pakistan as the “Guest of Honour” during the event.

Both sides agreed to work more closely to build a brighter and prosperous future for the region

Riaz Haq said...

Joint venture: #Pakistan, #China firms to build $200m glass #manufacturing complex for production of premium, #export-quality #glass products in special economic zone. https://tribune.com.pk/story/1834085/2-joint-venture-pakistan-china-firms-build-200m-glass-manufacturing-complex/

Deli China and JW SEZ Group have joined hands for establishing a $200 million modern glass manufacturing complex in Pakistan for the production of premium, export-quality glass products.

In this regard, the groundbreaking ceremony was held at the Prime Minister’s Office where prominent businessmen, government officials and a Chinese delegation were present.

Commenting on the initiative, Prime Minister Imran Khan said initiatives like ‘Make in Pakistan’ were immensely important for the economic development of the country.
“We need to promote such initiatives and the government will fully support such projects which are aimed at producing jobs and boosting the economy,” he said. “This investment is an indication of foreign investors’ confidence in the market of Pakistan.”

Pakistan, China may sign deal for investment in agriculture

The two sides have established Deli-JW Glassware Company Limited for the project. Pak-China Investment Company is facilitating Chinese investment in Pakistan and is also assisting in financing the project.

The project will utilise natural resources in Pakistan and use latest technology to convert into glassware, float glass and other kinds of glass products.

The project will be set up in the Industrial City M-3, Faisalabad whereas the unit for the processing of key raw material will be set up in Risalpur, Khyber-Pakhtunkhwa.

Pakistan needs to improve competitiveness to attract FDI

The main glass manufacturing complex will comprise glassware manufacturing units, float glass units and other value-added glass products. The groundbreaking for phase-I of the project was held on Thursday and it will start production by the end of 2019.