Pak-China trade in yuan: Real benefit lies in enhancing export
LAHORE – The business community and the financial experts have welcomed the Planning and Development Minister Ahsan Iqbal’s announcement that government is considering the China’s proposal to use renminbi (RMB) or yuan as trading currency in bilateral trade with Pakistan, advising that the real benefit lies only in enhancing local exports.
They said that use of yuan as trading currency between two countries would make the move mutually beneficial and go a long way in strengthening economic ties between the two countries until Pakistan takes serious measures to improve its exports to China.
Noted economist Dr Salman Shah said the objective of the Currency Swap Arrangement is to promote bilateral trade and investment between the two countries in the respective local currencies. Since the CSA is a bilateral financial transaction, all terms and conditions apply equally to both countries and the pricing is based on standard market benchmarks which are widely acceptable in the respective domestic markets. The execution of bilateral CSA was achieved through series of technical level team discussions between both central banks. He said both the governments must disseminate information regarding this imperative agreement among their respective trade bodies and chambers of commerce and industry.
Saarc CCI vice president Iftikhar Malik observed that without first fixing the trade balance against China, Pakistan would not have much to gain from the move, so the government will have to adopt a serious approach in improving exports to China. China must be encouraged to become an increasing large importer of goods from Pakistan, besides becoming producer of value-added goods in Pakistan.
Iftikahr Malik said that Pakistan could be a large hub of Chinese investors in export-oriented industries due to 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 East and European markets through Gwadar.
Iftikhar Malik, who is also chairman of the United Business Group, the ruling group of FPCCI for the last four consecutive years, said that the CSA signed in 2013 is still treading on a vague trajectory with no destination at all. The governments of Pakistan and China should make special endeavours to uplift the confidence of importers of both countries on benefits of Currency Swap Agreement (CSA). He said that smooth trading with China is possible after RMB payments as first we pay dollars; a commission is paid on exchange through New York, which will stop if RMB is used.
The leader of Lahore Businessmen Front and noted importer of housewares from China, Sardar Usman Ghani said that it would reduce Pakistan’s heavy dependence on US dollar-dominated trade while the move may also strengthen Pakistan rupee against the greenback. He said both the economies were visibly different from each other in terms of structure, size and trade dependency.
He 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.
Usman Ghani said that China has much to benefit from trade in local currency. 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. Rice Exporters Association chairman Samee Ullah Ch said the government takes decision unilaterally without considering the other stakeholders like the industrialists.
Reap chairman said the opening of Letters of Credit would be easier since Bank of China is already operating in Pakistan. However, he expressed the fear that China would soon exploit the situation in its favour as ultimately, we will have to arrange a foreign currency yuan instead of the dollar. It will only benefit China which has absolute domination in bilateral trade.
PIAF chairman Irfan Iqbal Sheikh said that although Pakistan’s economy is much smaller than that of China’s in terms of GDP, trade, reserves etc, yet the CSA offers a huge potential for Pakistan’s economy. He urged the government to take serious actions to resolve the issues that are impediment to the implementation of currency swap agreement.
Irfan Iqbal said that in order to get maximum benefits from CSA agreement between Pakistan and China, there is a need to ensure several measures at the part of government, policymakers and trade bodies,
Noted economist Dr Ashfaq Hasan said that CSA is a good opportunity for Pak-China exporters and it could be an opportunity if all the stakeholders including Ministry of Commerce, Textile Industry, and exporters make appropriate plans by revisiting their priorities and hurdles hindering to move ahead in this direction.