CPEC 2.0’s Export Test: Turning Chinese Investment into Pakistani Industrial Capability

On 14 October 2026, Planning Minister Ahsan Iqbal urged a business delegation from China's Xinjiang region, led by Yuan Jianmin, Senior Advisor to the Xinjiang Government, to establish manufacturing facilities in Pakistan and use the country as a production and export base. The minister also cited the potential for an additional $7 billion in exports over three years. These ambitions are significant, but the official statement does not establish a product-level export plan or confirm that the proposed cooperation has resulted in funded projects. The challenge is converting political commitment into measurable economic outcomes.

Pakistan's provisional Pakistan Bureau of Statistics (PBS) data put merchandise exports at $30.14 billion in FY2025–26, down 5.93% year-on-year. Imports reached $69.76 billion, up 8.14%, leaving a merchandise trade deficit of $39.62 billion. Exports covered only about 43% of imports.

The World Bank's October 2025 Pakistan Development Update documents a longer structural weakness: exports of goods and services declined from around 16% of GDP in the 1990s to approximately 10% in 2024. Pakistan's narrow export base and limited participation in global value chains constrain its capacity to generate foreign exchange and sustain industrial growth.

Investment alone will not solve this problem. A factory serving a protected domestic market may increase production without materially improving export competitiveness. An enterprise that exports, develops local suppliers and transfers technical knowledge can generate wider economic benefits. CPEC 2.0 must prioritise the latter model.

Allama Iqbal Industrial City in Faisalabad illustrates the distinction between investment commitments and industrial outcomes. A field investigation published by The Diplomat reported approximately Rs327 billion in committed investment, involving 117 investors, with 223 of 424 planned plots allotted. The investigation also identified infrastructure and utility constraints affecting firms.

These findings are diagnostic, not a statistically representative assessment of every enterprise in the zone. Nevertheless, they highlight an important policy issue: allotted plots and committed capital do not demonstrate operational success. The more meaningful indicators are functioning factories, realised exports, productive employment, local procurement and technology adoption.

Xinjiang offers potential for stronger commercial connections between Pakistan and western China. At the October meeting, the Chinese delegation highlighted opportunities for cross-border trade, a proposed China–Pakistan border trade market and increased Pakistani exports to China.

The opportunity is real, but geographical proximity does not guarantee commercially viable trade. Pakistani producers must meet Chinese buyers' requirements on quality, certification, price, reliability and delivery. Efficient customs procedures and competitive logistics are equally important.

Pakistan's existing trade relationship with China also illustrates the challenge. The Pakistan Economic Survey 2025–26 reports that China accounted for 8.4% of Pakistan's merchandise exports during July–March FY2025–26, while Chinese imports accounted for a substantially larger share of Pakistan's import bill. Expanding bilateral commerce therefore requires more than greater connectivity: Pakistan must develop products that Chinese firms and consumers can purchase competitively.

A border trade market could facilitate transactions, but it cannot create exportable products. Without capable manufacturers, recognised standards and reliable supply chains, improved connectivity alone will not deliver export transformation.

First, link industrial incentives to performance. Federal and provincial authorities should review existing incentives and introduce transparent milestones for operationalisation, verified exports and productivity improvements. Any incentive design must comply with applicable international trade obligations and Pakistan's fiscal commitments.

Second, develop domestic suppliers. Chinese investors should be encouraged to identify procurement opportunities for Pakistani small and medium-sized enterprises. Supplier certification, technical assistance and access to appropriate financing could help local firms enter industrial supply chains. Progress should be measured through verified domestic procurement and the number of qualified Pakistani suppliers.

Third, make technology transfer measurable. Industrial partnerships should incorporate workforce training, technical certification, engineering cooperation and university–industry collaboration. Training commitments should be assessed against actual skills acquired and their application in production, rather than simply counting training sessions.

Fourth, establish a public performance dashboard. The CPEC Secretariat, working with relevant statistical and industrial authorities, should publish regular indicators on operational factories, realised exports, domestic value addition and skilled employment. Baselines should be established before numerical targets are imposed, and reported outcomes should be independently verifiable.

CPEC's first phase strengthened Pakistan's energy infrastructure and physical connectivity. Its second phase must demonstrate that these foundations can support a more productive and internationally competitive economy.

The October meeting with Xinjiang's business delegation provides an opening for deeper industrial cooperation. Whether that opportunity becomes an economic turning point will depend on the quality of investment, the capabilities of Pakistani firms and the consistency of domestic policy.

The central question is no longer how much China will invest in Pakistan. It is how much Pakistan can produce, export and technologically upgrade because of that investment.

That is the export test CPEC 2.0 must pass.

Opinion pieces reflect the views of their authors, not necessarily an institutional position of PIVRA.