In the last decade, increased production matched consistent improvement in the quality of manufactured goods, and the resultant demand pressures led to increases in price of raw materials and commodities. And yet despite all this, retail prices of manufactured goods generally fell steadily over this period.

An important contributory factor to this global phenomenon has been what is now called the ‘China Price’ (i.e. the lowest possible price). Improved efficiencies and ever decreasing costs allowed Chinese companies to either decrease prices or loose business.

Such was the impact of falling prices that despite healthy global GDP growth, central bankers were able to tame inflation even as the consumer benefited.

The ‘China Price’ makes an interesting study. Weak enforcement of intellectual property laws and steady supplies of efficient Chinese labour are well documented and contributed to unprecedented GDP growth of 10 per cent plus over a 30-year period. The main reason for this success however was a shrewd monetary and fiscal policy. A consistent monetary policy insured a yuan-dollar peg at 8.28 and favoured Chinese exporters. This was one of the main components of ‘China Price’ for over a decade.

The yuan-dollar peg was broken in 2005 partly because of US pressure, but mostly due to the mature thinking of Chinese policy makers. They shifted the focus from exports as an engine of economic growth, to consumers —and that too at their own pace. China’s continuing reliance on exports to the US meant increasing the current account deficit of that country.

The quantum of Chinese exports to the US can be judged by the fact that the value of Chinese exports to Germany—the 3rd largest national economy in the world—is less than the value of Wal-Mart’s annual purchase from China! The increasing current account deficit has led to the weakening of the US economy and the dollar.In the days to come, weakening consumer spending in the US (reflected in falling retail sales) will eventually impact adversely on manufacturing units in China.

In reducing exports, (to improve US current account deficit) Chinese policy makers have also considered the fact that their foreign exchange reserves—equivalent of $1.5 trillion, mostly in dollars—will otherwise lose value. To this end the yuan is being allowed to appreciate against the dollar. For exporters in the rest of the world, the threat of yesterday has turned into an opportunity.

Because of a low ‘China Price’ Pakistan’s exports had become relatively less competitive and as a result many manufacturing units, particularly textile industry were hurt.

While local businessmen failed to move up the value chain and develop brands, the government has also played a part in the industrial slow-down.

By not adding to electricity generation during 1999-2007, the policy makers are guilty of neglect. Post 9/11, the government claimed credit for extraordinary and sustainable GDP growth. How that government planned to meet the increasing demand on the national electric grid without any electricity generation remains a mystery.

Looking ahead, the appreciating yuan offers two important opportunities for Pakistani exporters. Firstly, opportunities for textile exports in world markets will increase as Chinese exports become less competitive. Production costs in China and India increased by 30 per cent during 2005-08, and as a result textile manufacturing has gradually shifted away to new destinations like Laos, Kampuchea and Vietnam.

Efficient textile operators in Pakistan are beginning to benefit from this transition. This is the time to re-enter the global market with renewed vigour.

Most importantly, our businessmen need to address development and management of human resources. In business, development of human resource is the first step towards value addition and brand development. This initiative would require a financial commitment, but gains would be manifold. On the other hand, failure to adapt to the changing dynamics in the textile market can have serious consequences.

Falling textile exports cannot be compensated by improvement in other exports simply because textiles constitute more than 60 per cent of our total exports.

A decline in exports would adversely affect our foreign exchange reserves which in turn would have serious implications for the already weakened rupee.

Second, the strengthening of the yuan will lead to an increase in Chinese domestic demand. As a result, there will be opportunities for Pakistani exporters in the Chinese market itself.

The global food crisis is a case in point. The price of rice in China has risen to alarming levels since the beginning of the year. The Communist government is very sensitive to food inflation as this can lead to civil unrest.

We need to plan exporting our food surplus but preferably after value addition. Additionally, China also has a huge market for herbal medicines for which the Chinese manufacturers are importing herbs and plants from Pakistan. Opportunities should be explored in setting up plants in Pakistan under joint venture arrangements.

As the aggregate demand in China increases with the appreciating yuan, the global exporters will focus on China with ever increasing attention.

Our exporters should be looking at new opportunities for our goods in the Chinese market and the world market where Chinese products have become less competitive.

Many issues like taxations policies, inadequate road and rail infrastructure, and the poor quality of human resource need to be addressed. However, the first and foremost has to be electricity supply.