Li calls on the two nations to strengthen strategic cooperation

China pledged on Thursday to increase investment in Pakistan in return for a tariff reduction the two governments have agreed on.

"The two sides must strengthen strategic cooperation in response to a fast-changing global and regional climate," visiting Premier Li Keqiang said in a speech to the Senate of Pakistan in Islamabad.

"Our profound friendship has laid a solid foundation for such cooperation," Li said while calling for a continuation of the scheduled tariff reduction process and for more investment cooperation between the two countries.

China will continue its reform and opening-up, with a key part of this being development of its western regions, which will also create opportunities for Pakistan. Li also said the two economies are highly complementary to each other, so there is great potential for cooperation, and such cooperation is essential for both sides.

He called for pragmatic cooperation between the two nations, including continuing the tariff reduction negotiations under the China-Pakistan Free Trade Agreement mechanism.

In the meantime, Li called for strengthened cooperation on investment in public infrastructure, transport connections between the two countries, agriculture, defense, culture, healthcare and tourism.

The China-Pakistan Free Trade Agreement was the first bilateral FTA China signed with a foreign country. It took effect at the start of 2007.

Under the agreement, the two sides undertook to cut tariffs to zero for 38 percent of their goods trade by 2010, with zero-tariff products to be expanded to 90 percent of the total by 2015.

Wang Xu, assistant director of the Center of South Asian Studies at Peking University, said the FTA has been carried out smoothly and has played an important role in boosting trade.

Trade volume between the countries rose to $12.4 billion in 2012 from $8 billion in 2010. Wang said China's exports contributed to a major part of the volume.

"We've been increasing imports from Pakistan, mainly in the agricultural sector, but resolving the trade imbalance shouldn't be restricted to the FTA framework," he said.

He said more Chinese investment to Pakistan to enable factories to be set up can help reduce the imbalance, and will also help Chinese companies to explore overseas markets such as Middle Eastern countries.

Jiang Jingkui, director of the center, said the volume of trade between China and Pakistan does not match the political connection between the two nations, and there is much to explore in domestic demand in Pakistan.

Mei Xinyu, a researcher with the Chinese Academy of International Trade and Economic Cooperation at the Ministry of Commerce, said China's goods trade with Pakistan increased by 12 percent in the first quarter of this year, and further tariff reductions will help increase the volume.

"Pakistan's trade deficit with China is a certain result of the country's lagging industrial development. A way out for Pakistan is to boost its revenue in foreign exchange," Mei said.

He said China's investment in Pakistani infrastructure can help increase Pakistan's foreign exchange revenue.

The two countries said on Wednesday they will set up an economic corridor on their border. As part of the efforts to build this corridor, Li has called for a renovation project on the Karakoram Highway to be pushed forward.

Former Chinese ambassador to Pakistan Zhang Chunxiang, who played a role in the building of the Karakoram Highway during the 1970s, said it has served as a vital link between the two countries for nearly half a century, and should be renovated to handle the increasing flow of goods and personnel between the two sides.

"It will benefit both countries, in terms of prompting China's development of the western regions, and stimulating Pakistan's economic development," he said.

Li also said that China wants to deepen cultural exchanges with Pakistan. China will train 1,000 teachers of Chinese to go to Pakistan in the coming five years, and will open more Confucius Institutes.

China and Pakistan issued a joint statement later on Thursday, specifying details of all-around cooperation, including the marine industries, aerospace, energy, transportation, and cultural sectors.