Pakistan, China should trade in local currencies

The government should take steps to commence trade between Pakistan and China in local currencies with special emphasis on greater Chinese investment in Pakistan’s lagging value-addition economic activities for making meaningful improvement in bilateral trade balance.

The greater Chinese investment in Pakistan would be a win-win situation for both the countries and not just the trade in local currencies that appears a mere procedural issue. Only this would make the move mutually beneficial and go a long way in strengthening growing economic ties between the two countries, said Sardar Usman Ghani, Director International Federation of Hardware and Houseware Association and former Central Chairman of Pakistan Hardware Merchants Association, while talking to Business Recorder here on Friday.

It will also reduce Pakistan’s heavy dependence on US dollar-dominated trade while the move may also strengthen Pakistan rupee against the greenback, he added. He said both the economies were visibly different from each other in terms of structure, size and trade dependency. China is globally integrated economy with trade dependency ratio of over 60 percent whereas Pakistan’s international trade is around one-fifth of the total size of the economy, he said.

He, however, said the case of promoting Pakistan-China trade in local currency has a real underlying risk of further flooding the local markets with Chinese goods. China already has a large trade surplus of over US $5 billion against Pakistan when smuggling and under-invoicing is taken into account, he added.

Ghani said that China has much to sell to Pakistan and has much to benefit from trade in local currency. It is also a long-term strategic ambition of the Chinese government to promote Yuan as an alternative to dollar. Pakistan can also benefit from the gradual shift taking place in international financial system, but we should link our strategic economic objectives with those of China aiming to become an equal trading partner, he maintained.

He was of the view that bilateral trade between any two countries in local currencies has certain advantages especially in terms of reducing cost with the help of savings on exchange rate loss of up to 5 percent. Currently, Pakistani businesses have to go through a complex and cumbersome currency exchange process, he said.

The traders firstly have to convert Pak Rupee in dollars for further conversion into RMB, which is often hard to obtain outside China closely guarding her currency to repel any unwanted rise in its value vis-à-vis American pressure for upward revaluation of Yuan-Dollar parity. However, the move seems a little premature since the balance of Pak-China bilateral trade greatly favours the neighbouring global economic powerhouse that sold over US $5 billion worth of mainly consumer goods to Pakistan last year, he maintained.

The imports of Chinese goods in Pakistan are far higher than officially reported figures of little over US $3 billion for 2000-10, he said and added that China and Russia have already dropped dollar out of bilateral trade which has reduced trading cost and exchange rate risk.

Ghani pointed out the Sino-Russia case for business in local currencies is different because a fair amount of China-Russia trade is already taking place in local currencies especially since Yuan is widely considered as a highly stable currency and Rubble fully convertible. Russia achieved trade surplus against China in 2009. The bilateral trade between the two countries is expected to be around US $50 billion this year mainly in favour of Moscow on account of oil and electricity exports, he said. Moscow, which is already enjoying a trade surplus of US $4 billion against China, is also implicitly promoting Chinese strategic ambition for Yuan to become an alternative to US dollar as another stable global currency, he maintained.

Without first fixing the trade balance against China, Pakistan would not have much to gain from the move, thus the government needs to adopt a serious approach in improving exports to China from the current low of around US $1.5 billion. China must be encouraged and invited to not only become an increasing large importer of mainly consumer good in Pakistan but also become a producer of goods in Pakistan, he asserted.

Ghani said that Pakistan could be a large hub of Chinese investors in export-oriented industries by virtue of its rich natural resource-base, low cost labour and geographical advantages. Instead of just considering Pakistan a major source of cheap raw material, China should consider Pakistan a competitive base for value-addition while greatly benefiting from easy access to Middle Eastern and European markets through Karachi and Gwadar, he said.

Money and Banking – Pakistan – Government urged to start trade between Pakistan, China in their on currencies.


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