THE key to China’s rapid growth lies in its 17-tier banking system. The system needs overhaul to dovetail with China’s internal investment and production policy and external trade. Realising the need for reform, the Bank of China has established yuan settlement and clearing arrangements in Pakistan for payments in Chinese currency.

This step will strengthen trade relations between the two countries. It is a follow-up to an earlier agreement relating to currency swap with the Bank of China. To benefit from alignment with the Chinese banking system, Pakistan needs to boost production and export.

Pakistani traders need to understand the complexity of the Chinese system, which includes four main state commercial banks: the Agricultural Bank of China, the China Construction Bank and the Bank of Communications, besides joint stock banks, state policy banks. Second-tier banks include commercial and municipal banks, urban cooperative banks, rural credit cooperatives, trust and investment corporations, micro-finance institutions and venture capital funds.

China needs to reform its system to bring it in sync with the domestic capital market, rural bond market, procurement and contracting state-owned enterprises, exchange-rate liberalisation, convertibility and the internationalisation of the renminbi.

Anti-Pakistan debates in the US Congress do not augur well for Pakistan’s financial future. At home, prime minister hopefuls are determined to freeze development projects. There are calls to run the country without a budget, even if it results in shutting down government business. The portents are that Pakistan’s dependence on China is likely to grow.

Mohammad Sa’ad Malik
Rawalpindi

Published in Dawn, April 24th, 2018