PBC and SBP expanding regional economic connectivity

Editor's Note: The author is Dr.Muahmmmad Arif, Assistant Professor of Journalism at NUST, Analyst of China Affairs, and Editor of NSN.ASIA. This article only reflects the opinion of the author, not necessarily of Gwadar Pro.

To pursue the goals of shared prosperity in the new era, expanding regional economic connectivity is vital for which the People's Bank of China (PBC) has signed a memorandum of cooperation with the State Bank of Pakistan (SBP) to establish Renminbi (RMB) clearing arrangements in Pakistan, China's central bank announced on Wednesday.

These arrangements are likely to help enterprises and financial institutions in the two countries conduct cross-border transactions using the Chinese Yuan. They will also facilitate the expansion of bilateral trade and investment, according to PBC's statement.

The announcement came at a time when Pakistani Prime Minister Muhammad Shahbaz Sharif has embarked on an official visit to China, his first visit to China since he took office in April.

During various meetings held in the capital Beijing, both political leaders and investors from the two countries vowed to expand cooperation in the digital economy, e-commerce, photovoltaics, and other new-energy technologies, agriculture, science, technology, and people's livelihoods. All these goals need financial support.

Linkages between financial markets will help accomplish projects launched under CPEC, a flagship project of the Belt and Road Initiative (BRI) which has opened new avenues of trade and business cooperation, pushing low trade volume between two strategic partners to a high trajectory in 2022.

Data from the General Administration of Customs of the People's Republic of China shows that during the first nine months of 2022, bilateral trade increased significantly and China imported more than 1 million tons of different types of rice, increasing 45 % while last year in the same period it was more than 674,646.876 tons by volume, worth $290 million, an increase of $131.91 million from 2021.

Similarly, Pakistani pine nuts exports to China, in the first seven months of 2022, crossed $41.48 million, showing a positive sign for booming bilateral economic cooperation under the CPEC connectivity plan.

The internationalization of RMB, and currency swap agreements under BRI/CPEC projects, are encouraging measures expected to advance regional economic connectivity. Moreover, financial experts believe cooperation between BOC and SBP will facilitate the enterprises, capital markets, and financial institutions in carrying out direct financing for development projects along CPEC and BRI.

Speaking to Gwadar Pro, Shaikh Muhammad Shariq, Chief Representative of the National Bank of Pakistan in China said "China’s Belt and Road Initiative (BRI) serves as an important platform for internationalizing RMB. Thus, the use of RMB under CPEC projects might open up new possibilities, such as lowering the dependency on the dollar whose acute shortage has struck the worst economic crunch in Pakistan and could inject financial might to replace US dollars as trade activities start in RMB.

"China is already Pakistan's largest trading partner and last year our trade volume hit a record level. We expect that in the next 3 to 5 years, we can double this level," the Pakistani Ambassador to China said while taking an exclusive interview with China Economic Net in September 2022.