The economic relations of China and India with Pakistan: a comparative analysis

In recent years China has taken several steps to improve trade and investment relations with Pakistan, including, among others, the signing of a bilateral free trade agreement (FTA) in 2006. Trade between the two countries has increased manifold, which, in turn, has resulted in a huge gap between the amount of trade China engages in with Pakistan compared with India. This slowing of India-Pakistan economic relations vis-à-vis China-Pakistan coupled with strained and uncertain political relations is a cause for concern. In this context, the present study examines trade and investment relations between China and Pakistan and analyses factors that have led to the growing presence of China in Pakistan vis-à-vis India. India has lost out to China in many important industries due to non-tariff barriers and non-economic factors. In addition, China scores over India in scale economies, price competitiveness and trade complementarity.