The deepening of stronger trust and cooperation in cultural, political, financial, economic and defense fields between Pakistan and China, is turning the unique friendship between the two countries into nothing less than legendary folklore.
As the Chinese Premier Wen Jiabao observed, ‘We are good neighbors, good friends, good partners and good brothers’.
Friendship and cooperation
The year 2011 is a ‘Year of Friendship’ between Pakistan and China, this year has witnessed the increase in the flow of activities and exchange of delegations between the two countries in various fields. Since the beginning of 2011 a series of celebrations and commemorative events have already taken place. Many new areas of cooperation have been highlighted with the Chinese Premier’s visit to Pakistan last December and the Pakistani Premier’s visit to China this May. With a number of new cooperation agendas being set, the traditional friendship would surely find new opportunities to grow.
The two countries have already seen close cooperation in the areas of infrastructure construction, energy, telecommunications, security and defense in the past many years. Our bilateral trade has risen to USD 8 billion a year (reference to the data from 2010). Due to such increased economic interactions, the two economies are bound to come closer to each other and become more integrated in a short span of time.
Back in 2006, a Joint Economic Commission (JEC) was established which charted out a five year development program on trade and economic cooperation between Pakistan and China. The first five year plan focused on port development, educational exchanges, automobiles, chemicals, fertilisers, telecommunications and the establishment of a Joint Investment Company (JIC). The second five year program will be launched in 2012. Signing and implementation of the Free-Trade Agreement (FTA) on goods, investment and services by the Free Trade Commission has been an important milestone. The second phase of FTA consultations has also concluded to enhance our trade liberalisation and promote trade growth.
RMB-PKS currency swap arrangement
China has already signed currency swap agreements in various formats with eight important trading partners. According to the agreement these countries execute trade with China using RMB instead of USD.
As mentioned on the Peoples Bank of China website: ‘RMB currency swap arrangements with partner countries would not only promote bi-lateral trade but enhance direct investment’.
According to an article published in Dawn News in September 2009: An important milestone towards Pak-China financial cooperation would be the implementation of currency swap of RMB-PKR which would catalyse our trade relationship and facilitate us to save our USD reserves and support the currency of Pakistan’s longstanding friend.
Currently, Pakistan utilizes its USD reserves or sells its State Gold to purchase USD in order to pay for various Chinese trading accounts.
The Peoples Bank of China and The State Bank of Pakistan have already exchanged a few delegations and conducted Joint Working Groups (JWG). Once this mechanism is finalised by the end of 2012 or 2013, it will be an effective and practical approach of conducting trade and business using the direct swap mechanism of RMB and PKR.
Since China is expanding the role of RMB in international finance and trade, hence the currency swap arrangement would be an ideal solution for settling our trade flows and boosting bilateral trade. Finance experts believe that this solution would ease liquidity issues for Pakistan and help in conserving dollar reserves. Additionally, it would lower the transaction costs and avoid risk of fluctuations in Exchange Rates.
Promoting financial cooperation
Chinese banking sector in Pakistan
Immediately after the establishment of Pak-China diplomatic ties, China opened two branches of Bank of China in Pakistan in the commercial hubs of Karachi and Chittagong in 1951. The two units continued to operate till 1970, but later discontinued and handed over their operations to the National Bank of Pakistan due to instability in the region due to the partition of Bengal.
A new chapter in banking cooperation was added last year in December 2010 during the Chinese Premier’s visit when it was decided to promote financial cooperation by inviting ICBC to Pakistan and NBP to China to start their banking activities as foreign financial institutions/banks.
ICBC in Pakistan
The Industrial and Commercial Bank of China is the largest commercial bank in the country bearing 18,000 outlets and 105 overseas branches.
The largest bank of the world by profit and market capitalisation with assets worth USD 1.9 trillion – ICBC was awarded the banking license by the State Bank of Pakistan (SBP) in December 2010 during the Chinese Premier’s visit to Pakistan. ICBC commenced its banking operations by opening its two branches in Karachi and Islamabad.
A grand event was held on May 21, 2011 at the Aiwan-e-Sadr/ Presidency to commemorate this event. The President of Pakistan himself presided to award the license. All the senior finance managers of Pakistan, Governor SBP along with his team and all the Presidents of commercial banks of Pakistan were invited to witness the ceremony.
On 18th August 2011, for the first time in the history of Pakistan a Chinese bank was declared a Scheduled Bank of Pakistan by SBP.
As per the ICBC website, ‘the strengthening economic ties and investment relations between China and Pakistan has laid a sound foundation for ICBC to build its presence in Pakistan’.
It is believed that ICBC would act as a catalyst for greater opportunities by Chinese companies working for various projects in Pakistan.
A senior banker from ICBC, Mr Xu Keen, has been assigned the task of representing the bank as General Manager in Pakistan. ICBC’s branch in Karachi is located in the Parsa Tower at Shahrah-e-Faisal, while the branch in Islamabad is located in the Islamabad Stock Exchange building.
Foreign banking sector in China
China’s exponential financial growth in the last few decades has been a welcoming sign, attracting multinational companies and foreign financial institutions for exploring and investing in their vast market. This has resulted in great demand for the presence of foreign banks and banking services of international standards within China.
Currently, China enjoys the presence of thirty five foreign banks incorporated and registered with the China Banking Regulatory Commission (CBRC).
China’s first legal instrument for entry of foreign financial institutions was implemented in 1979-1980, known as the regulations on the Establishment of Resident Representative Office in Chine by Foreign Banking Institutions.
Pakistani Banking Sector in China
Pakistan was the first foreign country to utilize the opportunity provided by China’s new policy in 1980. Two of its important banks immediately entered the Chinese Banking sector and established their representative offices in Beijing. National Bank of Pakistan took the lead to make its mark in China. This ultimately became one of the first important financial linkages between Pakistan and China.
It is a matter of pride for Pakistan that its banking sector always played a vital role in the financial stability of the country. Some of the important banks from Pakistan made marvels in the global scenario right from its birth in 1947. China became a priority for the banking sector of Pakistan as financial collaboration between the two countries grew.
NBP in China
The National Bank of Pakistan has always played a leading role as a trustee of public funds. SBP has 1200 branches operational and is currently operation in 30 important business hubs abroad with assets worth USD 14 billion.
Hence in 1980-81, NBP was among the first foreign banks to obtain the license to establish its Representative Office in Beijing.
In 1981, a grand ceremony was organised to commemorate this event at the Peoples Great Hall of China in Beijing where all the senior financial managers from Pakistan, President NBP, NBP senior management, Ambassador of Pakistan to China Mr Mohammad Yunus, members of the Embassy of Pakistan in Beijing, PIA and Pakistani community members were invited along with the senior leadership of NBP. A senior banker from NBP Mr Gul Nawaz Khan was appointed to its first Resident Representative and General Manager. He enjoyed a strong PR in China and was a capable manager with a sound knowledge of Chinese financial management system.
Chinese financial officials, please to have an important bank from Pakistan commencing its banking activities in China, offered the National Bank of Pakistan to apply for branch banking.
NBP was able to impart international banking trainings to young Chinese bankers from the Bank of China at the NBP Training Institute in Karachi.
In 2006, NBP also signed a MoU for enhancing cooperation in banking and finance with CDB (China Development Bank). Under the MoU, financing support would be provided for relevant projects in Pakistan and China by way of an arrangement to be concurred by the two banks. The two banks would cooperate in channeling foreign direct investment through their network and provide trainings to each other.
NBP has its Rep Office at the prime location of ChaoYang district at KunLun Hotel with most of the foreign embassies and international institutions like UN in its neighbourhood. Currently, Mr Nasir Hussain is serving as the Chief Representative.
With the exchange rate reform and foreign exchange restructuring by the China Banking Regulatory Commission in 1994, China’s financial industry entered the stage of internationalisation. The interest of foreign banks heightened in the Chinese market. The focus of Chinese banks also shifted to a more global approach.
MCB in China
Muslim Commercial Bank also opened its Representative Office in Beijing in 1995 and played an important role in enhancing banking cooperation between the two countries for 8 years. MCB later closed its Rep Office due to the change in their executive hierarchy and higher management.
HBL in China
Habib bank Ltd. is the largest bank of Pakistan with more than 1400 branches and 30 branches worldwide.
With such a strong foreign presence around the globe, HBL came forward with the idea to further bridge the financial gap with China by opening a Representative Office in Beijing.
Due to the visionary and dynamic leadership of AKFED, President Zakir Mahmood and the HBL leadership along with its friendly approach towards promoting banking cooperation with China, the bank was awarded the license for opening its Rep Office in Beijing in 2005.
Due to the efforts of the HBL management, Foreign Office of Pakistan and the Embassy of Pakistan in Beijing, Pakistan officially opened its second banking representative office after a gap of 25 years with the opening of HBL Rep Office in Beijing on 22 February 2006. EVP/ HBL Representative Mr. Mohammad Aslam played a vital role towards HBL’s success in China. EVP Mr. Irfan Rabbani took over as the new Chief Representative of HBL China in 2010.
In 2009, HBL also received the permission to undertake cross-border funds settlement directly in RMB enabling the bank to open RMB accounts in China.
HBL has introduced many innovative approaches towards promoting financial cooperation for Chinese prospective investors and Chinese companies working for new projects.
UBL in China
United Bank Ltd is another important banking entity with more than 1100 domestic branches and some 25 overseas branches. In 2007, UBL’s entry in the Chinese market was another major event in the Pakistan-China banking cooperation when it opened its Representative Office there.
Senior leadership of UBL attaches great importance to the Chinese financial sector. President Mr. Atif R. Bokhari has visited China a few times since the opening of the UBL Rep. Office. UBL has been successful in building a competent reputation in the Chinese financial market.
Mr. Zahid Husain is currently serving as the first Chief Representative.
Askari Bank Ltd. in China
Askari Bank Ltd is a fast growing bank of Pakistan and offers wide range of asset and liability products. AKBL enjoys a wide spread network of more than 235 online branches and an offshore banking unit in Bahrain.
Askari Bank Ltd has a dedicated unit in Islamabad with the name of‘China Business Development Cell’ since the past 15 years which has played an important role in facilitating the Chinese corporate institutions and business communities working for different projects in Pakistan.
SEVP Mr Haseeb Saulat has been the executive head of the China Cell with a strong exposure of Chinese businesses and projects in Pakistan. He is currently serving as the Group Head of ‘Marketing and Str. Planning’.
From the above mentioned knowledge of banking cooperation, it can be observed that it is indeed a healthy sign to see new banking representations from both our countries in China and Pakistan.
It would be equally important to see the Chinese business investors to start channeling foreign direct investment through their network and facilitate in the key projects of their countries.
Chinese investors in the future could invest in the field of energy, telecom expansion, agricultural up gradations, food processing facilities, natural resources, raw materials and infrastructure development. Pakistan is a potential market for Chinese investors because of market location, demand, cheap labour and above all Chinese investor friendly policies.
At this time of economic instability in Pakistan, it is pertinent for Chinese companies to come forward with new investment plans and find competent local partners to invest in Pakistan.
During the recent visit of the Chinese Premier to Pakistan in December 2010, 37 agreements worth USD 25 billion were signed. These agreements mainly pertain to cooperation in energy, space, science and technology, agriculture, aecurity and banking sectors.
Bankers from both countries can cooperate and create a financial model which could facilitate in the planning and execution of such new projects.
It is believed that by mutual cooperation, Chinese and Pakistani banks can further enhance Pak-China friendship. Pakistan can learn from the Chinese Financial Management System and groom some of its young bankers for operations in China. As an increased presence of our banks in China is the present need, hence further cooperation should be the current focus.
Through our banking cooperation, Sino-Pakistan’s senior financial managers from the banking sectors as well as the Economic Managers may like to explore opportunities for channeling new projects through the windows of both Chinese and Pakistani Banks.