2. Impact of CPEC on Trade Structure and Regional Competitiveness of Pakistan Presentation at Applied Economics Research Centre University of Karachi

3. China Pakistan Economic Corridor (CPEC)
CPEC is a long route passing from various backward areas of our country.
About 22% of the total CPEC investment (46 billions) is dedicated to connect Kashgar city of Xinjiang, China to Gwadar, Pakistan through a road network.
China Pakistan Economic Corridor (CPEC) is viewed as a big push to economic development of China and Pakistan.

4. Expected socio Economic Benefits of CPEC
Increase connectivity among regions.
Open markets for trade.
Increase accessibility to health, education and socialization opportunities.
Generate connectivity across provinces
Concentration of economic activities
Urbanization process will change the socio-economic structure of these regions.
Establishment of an alternative sea port.

5. A Word of Caution
Despite of the enormous expected benefits of CPEC via urbanization and localization economies, the threats from it should not be left unheard.
Pakistan and China are common exporters of a number of goods and hence with CPEC the concerns about export structure of Pakistan have risen.

6. Objective
This research has estimated revealed comparative advantage and growth trends of such common goods to evaluate the impact of CPEC on trade structure of Pakistan.
An index was calculated for seven commodities, thirteen years and two countries i.e China and Pakistan.
Further the decline in cost to export per container per kilometer is calculated for China by using this alternative CPEC route.

7. Comparing Export Growths
Growth trends are of immense importance as they
reveal where the country is heading to in the long run,
reveal what is happening in that particular sector,
signals errors or if that sector needs to be taken care for, despite their absolute volumes.

8. Figure 1: Trends in Export growth of cotton.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth
China’s cotton exports grow more than that of Pakistan and the gap between the two kept on increasing. Though after 2013, both countries are experiencing a decline in cotton export growth.

9. Figure 2: Trends in Export growth of rice.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth
Pakistan is famous for its high quality rice exports and is a major exporter of it. The same is apparent from above growth trends. Pakistan’s export growth is much higher than China’s growth for all the years under consideration.

10. Figure 3: Trends in Export growth of Textile.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth.
For the years under consideration China’s growth in exports remained higher than Pakistan and the gap between the two growths increased widely This may be quite alarming situation for Pakistan because the share of textile in total exports by Pakistan is much higher than that of China. Losing competitiveness over textile exports would worse off Pakistan significantly.

11. Figure 4: Trends in Export growth of leather.
The export growth for leather products of Pakistan was slightly higher than China before 2008.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth.
After that the growth declines for both countries. It is noteworthy that China recovers its leather export growth much sharply and persistently in comparison with Pakistan. In fact Pakistan is facing a decline in leather export growth.

12. Figure 5: Trends in Export growth of carpets and rugs.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth
The export growths for woollen carpets & rugs of Pakistan and China, moves in the opposite direction. Pakistan is experiencing a continuous decline in its growth while China has a continuous and sharp rise in it.

13. Figure 6: Trends in Export growth of knitwear.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth
Pakistan’s export growth in knit wear industry initially was relatively higher than China but afterwards due to relatively stagnant growth in Pakistan's Knit wear industry and persistently expanding growth in China’s Knit wear industry the gap between two growth widen sharply.

14. Figure 7: Trends in Export growth of sports.
Pakistan’s sports goods are well recognized in the world but despite of this recognition sports goods industry in Pakistan is suffering from declines and fluctuations in its growth trend.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth
On the contrary China’s export growth for sports goods was directed upwards except between 2008 to 2009

15. Figure 7: Trends in Export growth of foot wear.
Source: Author’s depiction using UN ComTrade Data. GC = China’s export growth and GP = Pakistan’s export growth
More or less the same trends were observed for the growth of foot wear industries' exports in China and Pakistan.

16. In a net shell, for all commodities except rice China’s export growth was not only higher but the gap between the two growths kept on widening with time.
It is worth mentioning here that the share of these commodities in total country exports was relatively much higher for Pakistan than for China and if Pakistan has to encounter risk of losing these exports, it has to bear a significant damage in absence of any growth booster, protection or policy reforms in this regard.

17. Revealed Comparative Advantage
The estimates of the Balassa Indices for measuring revealed comparative advantage of both China and Pakistan are presented and compared. The indices for the commodities majorly exported by Pakistan are categorised into two tables depending on the volatility or vulnerability of Pakistan’s comparative advantage in these commodities.

18. Table 1: Balassa Index for RCA in exports of commodities in which Pakistan is less vulnerable
YEAR
COTTON
RICE
TEXTILE
PAKISTAN
CHINA
2003
40.498
2.991
59.191
1.247
34.753
3.138
2004
46.003
2.501
57.322
0.417
33.287
3.255
2005
51.772
2.616
77.667
0.305
36.537
3.573
2006
55.933
2.729
86.120
0.495
38.814
3.646
2007
56.414
2.574
72.083
36.906
3.534
2008
58.718
2.912
0.255
33.657
4.227
2009
58.545
3.083
71.726
0.288
30.644
4.518
2010
54.015
2.891
88.447
0.199
29.372
4.503
2011
56.497
2.744
66.560
0.171
27.903
4.662
2012
63.628
2.589
62.513
0.101
27.433
4.788
2013
61.898
2.869
67.078
0.140
28.653
4.699
2014
61.876
2.825
69.384
0.117
29.163
4.453
2015
59.932
3.024
77.482
0.095
29.573
4.228
Source: Author’s calculations using UN ComTrade Data.
Pakistan had a comparative advantage in exports of primary commodities (cotton and rice) and textile over China. For primary commodities this supremacy of comparative advantage in exports showed an increasing trend while for that in textile was declining over time.

19. Table 1: Balassa Index for RCA in exports of commodities in which Pakistan is more vulnerable
YEAR
LEATHER
CARPET
KNIT WEAR
SPORTS
FOOT WEAR
PAKISTAN
CHINA
2003
8.381
4.336
15.230
1.235
7.227
4.149
3.363
6.111
1.039
5.334
2004
9.128
3.780
16.623
1.210
9.431
4.176
3.323
5.795
1.181
5.128
2005
10.401
3.547
16.336
1.184
7.758
4.276
2.949
5.960
1.477
5.374
2006
10.486
3.241
14.257
1.161
8.359
5.213
3.123
6.022
1.286
5.139
2007
11.020
2.859
12.891
1.223
7.526
5.831
1.912
5.314
4.898
2008
11.465
3.110
10.715
1.461
7.540
5.448
1.789
5.528
1.120
5.228
2009
9.365
3.221
8.006
1.499
6.751
5.058
1.449
4.804
0.992
5.252
2010
8.948
3.329
6.514
1.539
7.123
1.766
5.065
0.672
5.550
2011
8.334
3.630
6.024
1.664
6.808
5.764
1.723
5.583
0.693
5.422
2012
8.341
3.532
6.143
1.739
6.492
6.493
1.777
5.756
0.642
5.934
2013
8.694
3.346
6.132
1.611
6.286
6.436
1.846
5.716
0.634
5.580
2014
8.726
3.024
5.772
1.579
7.157
5.563
2.145
5.675
0.706
5.302
2015
7.918
3.180
5.203
1.532
7.597
5.330
1.790
5.970
0.017
5.079
Source: Author’s calculations using UN ComTrade Data.
Balassa indices for commodities in which Pakistan had a relative vulnerable situation are reported here. Over the years, Balasa indices for Pakistan were subject to fluctuations. Though Pakistan has a relative comparative advantage in these commodities over China but this is for now when CPEC route is not operational and China is using the old route for exporting its goods.

20. Once CPEC is operational, China’s cost of production would decline much sharply because of
much cheaper imported inputs especially oil
much lower cost to export on account of the expected distance, time and cost saved by using CPEC route in future.
With increasing growth gap resulted from much sharper rise in exports growth of China in these commodities and a much lower expected cost of production in future, Pakistan would possibly be not in position to compete in exports of these commodities with China especially if the situation remained unconsidered by the government.

21. Benefits to China in terms of Time and Distance
Between Kashgar (4376 km away from beijing) and the Persian Gulf
Distance (Km)
Time (Days)
Using CPEC Route
2500 10
Using Current Route
13000 45
Savings (Benefits)
10500 35
Source: BMA Capital (2015) report.
The route China is currently using for export is km long and takes 45 days. With CPEC this distance would be decreased to 2500 km and would only take 10 days.

22. Cost to export (per container) for China
Further, China is experiencing a rising trend in its cost to export (per container).
With CPEC becoming operational this cost would be down by 81% expectedly

23. Expected Decline in Cost to Export 2015
(per container) per Kilometre
Description
Unit
Values
Cost to Export (per container)
US $
830
Current Distance Km
13000
Current Cost to Export (per container)
US $/Km
CPEC Route Distance
2500
CPEC Cost to Export (per container)
160
Expected Decline in cost to Export using CPEC Route
670 % 81
Currently China’s cost to export per container is US $ 830. With CPEC route this cost would be declined by US $ 670 i.e it would be down to US $ 160 per container. As a result exports would more likely to be raised.

24. Ending Note:
Along with the enormous benefits of CPEC, a few threats are also attached with it which should be given due attention by the government so as to minimize these threats and maximize the gains. Stating all these treats does not calls for withdrawing from CPEC but these are identified so that the government should take necessary measures to minimize the damages expected by effective policy measures both for enhancing Pakistan’s competitiveness and protecting local industries.

25. Than You
Thank You

26. Data and Data Sources
For estimating and comparing commodity- wise export Balasa index of Pakistan and China for the years , the data used was mainly extracted from UN ComTrade Database. The data for cost to export / container was gathered from World Development Indicators and the distance in kilometres for China was taken from BMA Capital (2015) report.