ISLAMABAD: Pakistani officials have made up their mind to discuss with their Chinese counterparts ways to reduce a burgeoning bilateral trade deficit which crossed $3 billion last year in Beijing’s favour despite a free trade deal struck four years ago amid assurances that it would increase Pakistan’s exports to China.

According to official sources, Prime Minister Yousuf Raza Gilani is expected to seek access for Pakistani companies during his meeting with his Chinese counterpart Wen Jiabao, who is likely to sign deals worth billions of dollars during his visit to the country this week.

China holds a massive $3.256 billion trade surplus with Pakistan, which is steadily on the rise since the signing of the free trade agreement in Nov 2006.

Statistics compiled by the commerce ministry showed that bilateral trade had grown to $5.563 billion in 2009-10.

An agreement on services was signed in February last year, giving more market access to Chinese service providers on a preferential basis.

The sources said the fact that the pace of Pakistan’s exports was not increasingunder the treaty had also been realised by Chinese officials. They recently urged Pakistani authorities to explore the Chinese import basket.

According to analysts, the Pakistan’s manufacturing sector lacked sophistication and understanding of the Chinese market.

They said the country would have to diversify the basket of exports to China because at present there was little to offer to the Chinese market.

The Chinese do not eat basmati rice, Pakistan’s main farm export, nor are they interested in importing textiles and garments which were produced in much better quality in their country, an official said.

Even surgical instruments, sports and leather goods could not penetrate the Chinese market because of local production, making the free trade agreement irrelevant from Pakistan’s point of view.

According to another official, only four per cent annual growth was recorded in exports to China under the agreement to about $1 billion in 2009-10, while the imports grew by an average 12 per cent to $4.41 billion.

The official said the factors that might have hampered the exports included lack of China-specific trade specialists, lack of preparation and guidance of the business community to explore market under the free trade agreement, language issues and lack of knowledge to exploit the segmentation in Chinese market from low to high value-added products.

Some elements in the Federal Board of Revenue go so far as to question the logic of having free trade with China which has not increased exports and cost the country a large amount of revenue as a result of massive cuts in duties on Chinese goods.

They said Pakistan’s main competitor in the international market, India, was constantly opposing free trade deal offers from China fearing that Beijing might only want to dump cheap manufactured goods on its booming economy.

An official in the Board of Investment (BOI) said China was more into an investment-based economic relationship with Pakistan instead of linking trade with investment.

Consequently, the total investment by China in Pakistan was much higher at $2.205 billion -- 3.6 per cent of the foreign direct investment in the country in 2009-10.

Pakistan is the largest recipient of Chinese investment in South Asia with the figure amounting to $19.042 billion during 2004-09.

China invested only $221 million in India in 2009 with a trade imbalance over $9 billion in Beijing’s favour, showing a low interest in buying Indian assets.

The commerce ministry said a project to set up special economic zones (SEZs) for Chinese investors to establish industries to exports goods had been put on the backburner.

The SEZs are in Pakistan’s interest, as among other things they may reduce the trade deficit.

On the sidelines of the visit, a summit of Pakistan-China business cooperation would be convened on Friday, a BOI official said. Almost 260 Chinese delegates and 150 representatives of different sectors in Pakistan will participate.

As many as 23 memorandums of understandings are expected to be signed at the event to be attended by the prime ministers of the two countries.

Priority sectors for business-to-business investment from China have been identified in oil and gas, mining, infrastructure, power (including coal, hydroelectric and gas-based), information technology and telecommunication, chemicals (including urea fertiliser), glass and polymers, value-added textile manufacturing, engineering goods, textile machinery, assembly of automobiles, electronics, automotives, agricultural implements, agriculture and agro-based industry, pesticides, cool chains, food and fruit processing and packaging, livestock and dairy farming.

At least 83 Chinese companies are working in Pakistan in the oil and gas, IT and telecom, power generation, engineering, automobiles, infrastructure and mining sectors.

They include the ZTE, China Mobile, Huawei Technologies, BGP (Pakistan) International, Metallurgical Construction Corporation of China (MCC), China Harbour Engineering, China Petroleum, Dong Feng and Haier.