PAKISTAN is seeking Chinese investment in industrial projects with a buy-back arrangement for which a broad framework is said to have been agreed between the two countries on Wednesday. The accord is one of the eleven signed in the presence of their top leaders.

Pakistan’s proposal is to set up an exclusive Chinese industrial investment zone in Lahore. “Entire production or a certain portion of the same can be bought back by China,” a senior official of the federal commerce ministry explained. These products could be exported to Pakistan mainland or in the international market for which the details are to be worked out.

Chinese investors who called on President Asif Zardari on Friday are reported to have indicated investments in different sectors reckoned to add up to $5 billion.

Another major breakthrough in the Pakistan-China business relationship is the amendment in bilateral Free Trade Agreement (FTA) to include services sector. Banking, insurance, health services and allied segments are expected to be brought into the FTA fold.

“We have already held four round of negotiations and would be holding the fifth and final round of talks in Beijing before December this year’’, the official disclosed. A substantial area to facilitate preferential treatment to services has been covered in the negotiations, he added.

Top priority however, remains Pakistan’s quest for investment, technology and job creation for which expectations are that officials of both sides would be asked to do the spadework on a fast track. Apparently, the dismal performance of the two Chinese projects, as suggested by business circles in Karachi, has not discouraged the leaders of two states in seeking co-operation for industrial expansion.

A Chinese electronic home appliance company set up an assembly plant in Lahore sometimes back in collaboration with a local firm. But for a variety of reasons, it is not operating at its installed capacity.

Similarly, a small economy car project in Karachi is also heading for an abrupt closure after the sponsor imported 1,200 units. The taxation structure, frequent power breakdowns, lack of entrepreneurship, management skills of sponsors and the growing lawlessness are being blamed for the poor performance of these projects.

Bilateral trade figures remain confusing. With a gradual rise in the two-way trade, the Chinese customs reported the total trade at about $6.8 billion in 2007 while Pakistani customs puts it at about $5 billion. Market players in Karachi attribute this difference of about $2 billion to under-invoicing. But the officials in Islamabad reckon that many traders may be using Pakistan as a transit for onward re-export to Iran, Afghanistan or India.

Businessmen in Karachi do not buy this argument and say that quite a big chunk of Chinese imports is being sold with ‘Made in Pakistan’ label in local market. A specific reference is made of some well-known footwear companies getting their merchandise from China and selling it under their own brand names.

The volume of bilateral trade has increased steadily between 1999-00 to 2005-06, roughly at 25 per cent per annum over the last four years from about $640 million to $6.8 billion.

Officials in Islamabad say that since signing of FTA, trade has picked up considerably both ways, with the balance of trade remaining in favour of China. However, officials feel satisfied that Pakistan’s exports to China are also picking up considerably. “China is now a source of about 11-12 per cent of the total imports and a reliable market of 6-7 per cent export’’, an official said.

Market analysts say that the bilateral trade is dominated by importers. The Pakistan-China Business Council is virtually an all-importers body. As rupee-dollar parity has now come under extreme pressure, from Rs60 a year ago to over Rs80 a dollar now, with an appreciable increase in yuan-dollar parity from eight yuan a dollar six months ago to six yuan a dollar recently. Imports from China are becoming expensive for local businessmen.

“The Chinese authorities have initially reduced and have finally withdrawn all rebates on certain chemicals and basic raw material’’, Javed Khalili, a member of Pakistan-China Business Council disclosed.

All these factors are making trade with China an expensive affair and importers are said to be looking towards India and other sources for import of many items. Imports from China are down by more than $500 million in 2007-08 to $3 billion as against $3.53 billion in 2006-07.

“Trade figures in 2008-09 may perhaps be not very impressive because of the impact of exchange rates and erosion of purchasing power of Pakistani consumers’’, said another member of Pakistan-China Business Council.

Almost 75 per cent of export to China is yarn and woven fabrics with organic chemicals, leather, fish and some other items in insignificant quantities. China has given duty concession under FTA on import of fruits and grains but its quarantine conditions are too difficult to meet.

“Only two companies were allowed to supply mangoes to China last season,’’ a local fruit exporter said. He is convinced that if China shows some leniency in quarantine conditions for import of fruits, ‘‘perhaps local citizens will not get good quality mangoes, citrus and apples to eat,” as he reckons that all these fruits will go in huge quantities to China.

Businessmen also complain that they were not at all consulted when FTA was finalised, and are not in the picture when it is being extended to the services sector.

“The Pakistan-China FTA covers overall 14,353 products of which China has proposed 7,550 and Pakistan 6,803 products’’, a leading importer said.

He complains that hardly 10 per cent products are relevant in trade between the two countries while the remaining 90 per cent are not.

“What’s the fun in getting duty concession on export of a large number of items not produced at all or that do not conform to export quality?’’, he argued.