Pakistan’s trade with China has nearly doubled to $4 billion in fiscal year 2007 from $2.2 billion in 2005, according to State Bank figures. But the Chinese Customs statistics put the two-way trade at $6.86 billion in 2007, up from $3 billion in 2004.

Whatever may be the actual figures, the fast growing trade between the two neighbours is luring Pakistan’s major banks--- the National Bank of Pakistan and the Habib Bank Limited -- to explore possibility of opening their full fledged branches in China. But they face the stringent rules that forbid any foreign bank with less than $20 billion assets to open branches there.

For more than 20 years, the NBP and the HBL have representative offices in China. But the bankers have now managed to persuade the government to raise the banking issues for inclusion in the next proposed bilateral Free Trade Agreement with China on services. If allowed to open branches, Pakistani banks can increase their business as the bilateral trade is expected to go up to $15 billion by 2012. Accordingly, President Musharraf took up the issue of a fresh FTA that should address the issue of expanding and upgrading banking linkages.

With assets worth more than $10 billion, the NBP is also exploring option of establishing a wholly or jointly owned subsidiary in China. “The bank meets the threshold of total assets to set up a locally incorporated bank in China,’’ a senior official disclosed.

Also on the bank agenda is a joint venture in Pakistan in collaboration with the Industrial and Commercial Bank of China (ICBC) with 30 per cent stake. The ICBC is the second largest bank in the world with $1.11 trillion assets and 18,000 global branches network. The bank officials claim of having created substantial ground for the joint venture project.

Sometimes back, the Indian media reported that China was relaxing its stringent rules to provide a “big Pakistan-specific concession’’ to allow opening of branches with $250 million worth of assets. Pakistani bankers denied having any knowledge of it.

The NBP also claims it is now close to reaching an agreement with China Development Bank for a $100 million credit for financing industrial projects. This line of credit will remain in operation for eight years.

“Pakistan offers the largest market to China in projects construction’’, say bankers. More than 30 Chinese companies are working on construction projects. By the end of 2005, China had signed 444 contracts that involved an investment of $7.76 billion.

But the growing trade imbalance is a matter of concern for both the government and business. According to SBP figures, imports were to the tune of $3.53 billion in fiscal year 2007 against exports of $575 million.

But who is to be blamed for increasing trade deficit? There are conflicting answers. Pakistan’s production base is too narrow to offer a wide range of products to China. And imports from China are also project-related besides cheap consumer and other low value items.

“Pakistan’s exports to China lack diversity and both the countries are competitors in the textile sector’’ a senior officer of the Trade Development Authority of Pakistan (TDAP) observed. He advised exporters to diversify exports to non-traditional items which can lead to narrowing down of trade gap. “Don’t forget our businessmen too prefer imports from China mainly because of low value and relatively less freight,’’ the officer argued.

The State Bank’s latest quarterly report mentions preference of Pakistan’s importers of cell phones from China over other countries “as unit values offered by China are significantly lower than the unit values offered by alternate suppliers.”

Recently, the officials provided a detailed analysis of structure of two-way trade before a large gathering of businessmen to identify items which have marketing potential in China but are not being exported either out of ignorance or not included in concession-rated tariff lists of export under FTA. For example, China imports petroleum oils from bitumen minerals worth $47.7 billion. Pakistan’s overall export of this item is $13.9 million. This is not included in Pakistan-China FTA list of items.

There are more than half a dozen categories of value-added textile products of which China is a big importer and Pakistan a significant exporter. But these are not exported to China.

The government is putting hurdles in import of automobiles from China due to Japanese investors’ lobby, says an import of small cars. Abdul Wahid, a director of Pak-China Business Council, says he imported 1,200 units of a Chinese car of 800 c.c. engine. “It draws a taxation of almost 100 per cent which makes it uneconomical’’ he said. He says he plans to set up a car manufacturing plant but alleges that it is being obstructed by the competitors.

To expand bilateral economic and business relations, a special economic zone was set up recently in Lahore where a few projects of Chinese investors are in operation. More such economic zones are planned for Chinese investors.