How China’s Industrial Shift Could Transform Pakistan
Part 3 of Pakistan’s Potential Role in the New Global Tech and Manufacturing Shift
One external partner could significantly accelerate Pakistan’s industrial leap: China.
As China’s economy matures, it’s actively looking to relocate some manufacturing abroad. The reasons are twofold. Economically, China’s manufacturing wages have risen rapidly (over 10% yearly in the 2000s), eroding its edge in labor-intensive goods. China is now “moving from light manufacturing for exports toward higher technology” ,
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In this five-part series, we delve deep into Pakistan’s tech capabilities, strategic positioning, and how it could redefine itself amidst global change. We'll explore international examples, internal challenges, and strategic recommendations, offering insights and perspectives from around the world.
Series Overview:
Part 1: Shifting Sands—Understanding the New Global Economic Landscape
Part 2: Pakistan’s IT Sector—A Rising Digital Hub?
Part 3: How China’s Industrial Shift Could Transform Pakistan
Part 4: Stability at Stake—Addressing Pakistan’s Internal Challenges
Part 5: Lessons from Global Successes and a Roadmap for Pakistan’s Future
focusing on semiconductors, EVs, and advanced industries. To do that, it benefits from shifting lower-end factories (textiles, basic electronics, etc.) to lower-cost countries. This allows China to reskill its workforce for higher-value work while still keeping its companies’ supply chains running elsewhere.
Strategically, China also faces trade tensions with the West. By moving some production to friendly countries like Pakistan, Chinese firms can reduce exposure to tariffs and sanctions. Goods “Made in Pakistan” could potentially enter markets with fewer trade barriers than goods made in China, helping Chinese businesses remain competitive amid geopolitical headwinds 1.
Pakistan’s low labor costs present an unparalleled opportunity
From Beijing’s perspective, investing in Pakistan has an added bonus: it helps stabilize a strategic neighbor. Pakistan is a key partner in China’s Belt and Road Initiative, and the flagship China-Pakistan Economic Corridor (CPEC) has seen tens of billions invested in Pakistani infrastructure.
A more industrialized, prosperous Pakistan would be a more stable Pakistan – securing China’s investments and strengthening an ally on India’s doorstep. Thus, it’s no surprise that Chinese and Pakistani leaders have actively discussed industrial relocation. In mid-2024, Pakistan’s government even “greenlighted” plans to relocate China’s textile, leather, and footwear factories to Pakistan via joint ventures. Special Economic Zones are being set up under CPEC precisely to host such Chinese-invested industries, with one-stop facilitation centers and legal tweaks (like an “Easy Business Act”) in the works to smooth the process. The vision is for Pakistan to absorb the kind of light manufacturing that China is moving away from 2.
For Pakistan, the benefits of Chinese industrial investment are clear. It brings much-needed foreign capital, technology transfer, and jobs. “Pakistan’s low labor costs present an unparalleled opportunity” for industries like textiles and agriculture, notes the head of Pakistan’s CPEC Centre of Excellence, pointing out that wages here are lower than many regional peers. Sectors that Pakistan already has a foothold in (e.g. textile apparel, which makes up 60% of our exports) could scale up dramatically with Chinese partnership. New ventures – say assembling electronics or auto parts – could plug Pakistan into global supply chains it currently misses.
The development of Gwadar Port and new road/rail links are improving logistics, making Pakistan more attractive as a manufacturing and export base for Chinese and other foreign firms. Indeed, officials report that investors from China (as well as Turkey and the Middle East ) are already exploring opportunities in these special zones. By hosting Chinese factories, Pakistan can start climbing the industrial ladder that countries like Vietnam have ascended in recent years. However, both countries must navigate risks in this partnership. For China, the primary concern is stability and security – its investments and personnel in Pakistan have occasionally been targeted by insurgents, and an unstable economic environment could jeopardize projects.
For Pakistan, there are cautions about becoming too dependent on one country’s capital. If not managed well, an influx of Chinese firms could outcompete local industries or lead to unsustainable debts (a worry often voiced with Belt and Road projects). Moreover, relying on just cheap labor is a dead-end if not paired with skill development.
Pakistani experts emphasize that while relocating Chinese light manufacturing can “initiate industrialization,” Pakistan “must move beyond this model and invest in creating a skilled workforce” to truly thrive. In other words, leveraging Chinese investment is a jumping-off point – but Pakistan’s long-term competitiveness will require innovation and upgrading, not just low wages. Done right, the collaboration with China is a win-win: China eases its industrial transition, and Pakistan kickstarts its own industrial era. Done poorly, it could reinforce old patterns (e.g. Pakistan exporting only low-value goods) without building a self-sustaining economy. The onus is on policymakers to maximize the benefits and mitigate the risks through savvy negotiation and strategic vision.3
This series continues with “Part 4: Stability at Stake—Addressing Pakistan’s Internal Challenges".