China-Pakistan Trade, Investment, and Strategic Partnership

China and Pakistan maintain a strong alliance built on economic collaboration, trade, and strategic cooperation. This article explores their evolving relationship, including CPEC’s impact, key trade trends, Chinese investments in Pakistan, and the latest diplomatic engagements shaping their bilateral future.

China and Pakistan share a deep and enduring bilateral relationship. The two countries’ “all-weather” partnership is built on mutual trust, economic collaboration, and strategic cooperation, and has made China a cornerstone of Pakistan’s foreign policy. Over the years, China has emerged as Pakistan’s largest trade partner and the major source of investments, particularly in its infrastructure, energy, and defense under initiatives like the China-Pakistan Economic Corridor (CPEC).

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Pakistan holds significant strategic importance for China, primarily due to its geographical location. As a gateway to the Arabian Sea through Gwadar Port, Pakistan plays a crucial role in China’s Belt and Road Initiative (BRI), facilitating trade and connectivity. This geostrategic significance strengthens China’s commitment to its partnership with Pakistan, ensuring sustained cooperation across multiple sectors.

In February 2025, Pakistan’s President Asif Ali Zardari paid a state visit to China, reinforcing the strong diplomatic and economic ties between the two nations. During the visit, both sides focused on expanding trade and investment, accelerating key CPEC projects, and enhancing defense and security cooperation. Additionally, discussions were held on strengthening collaboration in technology and education, with agreements signed to boost digital innovation and academic exchanges.

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China-Pakistan diplomatic relations

China and Pakistan established diplomatic relations on May 21, 1951, and have since developed a strong partnership based on political, economic, and strategic cooperation. Initially, interactions were limited, but by the mid-1950s, high-level exchanges increased, fostering bilateral ties. A significant milestone came in 1963 when the two countries signed a border agreement, clarifying territorial boundaries and strengthening diplomatic relations.

Throughout the 1980s and 1990s, China and Pakistan expanded their cooperation in defense, trade, and infrastructure, with Pakistan supporting China on various international issues. In 1996, the two nations established a “Comprehensive Cooperative Partnership,” further solidifying their ties. In the 21st century, their relationship grew with economic collaborations, particularly under the CPEC, which was launched in 2015 as part of the BRI. The CPEC has contributed to infrastructure, energy, and trade development in Pakistan.

Regular high-level visits and agreements have reinforced the partnership, with both sides continuing to collaborate in areas such as defense, regional security, and economic development. China remains one of Pakistan’s key trading partners and a major investor, making their relationship an important aspect of regional dynamics in South Asia.

China-Pakistan bilateral trade

China is Pakistan’s largest trading partner and largest source of imports. According to data from China Customs, the total bilateral trade in goods between China and Pakistan reached US$23.1 billion in 2024, an increase of 11.1 percent from the previous year. Of this, China’s exports to Pakistan surged 17 percent year-on-year to US$20.2 billion, while imports fell by 18.2 percent to US$2.8 billion.

China’s top exports to Pakistan in 2024 consisted of electrical machinery and equipment, with exports valued at around US$5.6 billion. Of this, around 35 percent consisted of semiconductor devices and 27 percent consisted of telephone sets, including smartphones.

China also exported US$2.4 billion in nuclear reactors, boilers, machinery, and mechanical appliances and US$1.3 billion in iron and steel products to Pakistan.

China’s main imports from Pakistan in 2024 were copper products, of which it imported around US$1 billion, and cotton, with imports valued at US$513.4 million.

China is also a major buyer of Pakistani sesame seeds. According to data from China Customs, China imported US$226.5 million worth of sesame seeds in 2024, accounting for over a fifth of Pakistan’s sesame seed exports that year.

Chinese investment in Pakistan

In 2023, China’s total outbound direct investment (ODI) into Pakistan reached US$324.67 million, with total investment stocks reaching US$6.3 billion.

Pakistan is an important destination for China’s overseas construction and engineering projects. Particularly since the launch of the CPEC in 2015, Chinese companies have been active actively engaged in Pakistan’s energy and transport industries, oil exploration, transmission lines, communications, hydropower, airports, and ports.

China-Pakistan Economic Corridor

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The CPEC is a comprehensive framework for regional connectivity that aims to enhance economic cooperation and development between China and Pakistan, while also benefiting neighboring countries such as Iran, Afghanistan, and those in Central Asia. This initiative focuses on improving transport infrastructure, energy production, trade, and socio-economic growth, creating a foundation for stronger regional ties and stability.

The CPEC is part of China’s BRI and seeks to establish a network of highways, railways, and energy projects that connect China’s western region to Pakistan’s Gwadar Port on the Arabian Sea. This corridor is expected to boost trade and investment, provide employment opportunities, and contribute to poverty alleviation. The development of industrial zones, logistics hubs, and financial cooperation further strengthens the economic prospects of both nations.

Among the major projects under CPEC are energy development initiatives, which are playing a crucial role in addressing Pakistan’s power shortages. Several coal, wind, solar, and hydroelectric projects have been completed, such as the 1320MW Sahiwal Coal-fired Power Plant and the 1000MW Quaid-e-Azam Solar Park in Bahawalpur. Additional energy projects are underway, including the 1124MW Kohala Hydropower Project and the 300MW Gwadar Coal-Fired Power Project, ensuring long-term energy security and sustainability.

In the transport sector, CPEC has significantly enhanced connectivity through extensive road and railway infrastructure. Completed projects include the Peshawar-Karachi Motorway’s Multan-Sukkur section and the Orange Line Metro Train in Lahore. Ongoing developments such as the upgrade of the Main Line-1 (ML-1) railway and new motorways like the Peshawar-D.I. Khan Motorway will further streamline transportation and trade.

Gwadar, a strategic port city, serves as the linchpin of CPEC. Several key projects have been completed, including the development of the Gwadar Port and Free Zone, the Gwadar Smart Port City Master Plan, and the New Gwadar International Airport. Future projects include desalination plants, fish landing jetties, and environmental sanitation systems, aiming to transform Gwadar into a major trade and industrial hub.

Major investment projects

Gwadar port

China has played a pivotal role in the development and modernization of Gwadar Port, transforming it into a critical trade and logistics hub under the CPEC. This collaboration has not only enhanced port infrastructure but also expanded into industrial, transportation, and social development projects.

Though the idea of developing Gwadar Port dates back to the 1960s, it remained unrealized due to financial and logistical challenges. The real breakthrough came in 2001 when China, responding to an invitation from Pakistan, committed to financing and constructing the port. The first phase, completed in 2005, included a multipurpose terminal with three berths capable of handling 20,000-ton vessels. However, progress remained slow under previous operators until China Overseas Ports Holding Company (COPHC) took over operations in 2013.

With China’s management, Gwadar Port has experienced rapid expansion. The port facilities were significantly upgraded, including the installation of modern cargo-handling equipment. Storage areas were expanded with the addition of 10,000 square meters of container yards. Additionally, power and water infrastructure were enhanced, including the expansion of a desalination plant to address freshwater needs. Furthermore, a Free Trade Zone (FTZ) was developed to attract both foreign and local investment, bolstering the port’s commercial prospects.

China views Gwadar Port as a flagship project within the China-Pakistan Economic Corridor (CPEC), positioning it as a crucial alternative trade route that bypasses the Malacca Strait, connecting western China directly to the Arabian Sea. This $62 billion infrastructure and energy initiative envisions Gwadar as a central hub for trade between China, Central Asia, the Middle East, and Africa, enhancing connectivity and economic growth. Key Chinese investments have contributed to this vision, including the Gwadar Free Trade Zone, a 923-hectare industrial area designed to attract businesses.

The first phase of this development saw over 40 enterprises establish operations, while the second phase, which is 36 times larger by area, is set to support significant industrial growth. Additionally, the Gwadar East Bay Expressway, a 19-kilometer road, links the port to Pakistan’s national highway network, improving transportation efficiency. China has also funded the construction of the Gwadar International Airport, a US$230 million project that became Pakistan’s largest airport by area when it started operations in January 2025, enhancing air connectivity for both domestic and international trade.

Pakistan Haier-Ruba Economic Zone

The Pakistan Haier-Ruba Economic Zone, located in Lahore, Punjab, was established in 2006 as a joint venture between Haier Group and Ruba Group. It serves as an overseas economic and trade cooperation zone centered around Haier’s business operations. The project received investment approval from China’s Ministry of Commerce in 2007.

The zone is planned in two phases, covering a total area of 650,000 square meters. The first phase (340,000 sqm) has been fully developed, while the second phase (310,000 sqm) was still incomplete as of 2021, with 70,000 sqm yet to be acquired. The total investment in the zone is $84 million, but land shortages and a lack of government-provided land limit the entry of new enterprises. Additionally, power supply remains a challenge, with 5MW required for phase one and 15MW for phase two, without a current solution.

In 2019, the zone achieved a total output value of US$220 million, contributing US$72.81 million in taxes to the host country. It has created 4,500 direct jobs and over 10,000 indirect jobs. The industrial park has also contributed to the technological and managerial advancement of Pakistan’s home appliance industry, promoting energy-efficient air conditioners, environmentally friendly refrigerants, and electronic control systems in household appliances.

Rashkai Special Economic Zone

The Rashakai Special Economic Zone (RSEZ) is a key industrial cooperation project under the CPEC, developed by China Road and Bridge Corporation (CRBC) in partnership with the Khyber Pakhtunkhwa Economic Zones Development and Management Company (KPEZDMC). Spanning 1,000 acres, the RSEZ is strategically located along the Islamabad–Peshawar Motorway, near the CPEC route, making it an ideal hub for trade and investment. It is situated 60 km from Peshawar, 90 km from Islamabad, and has easy access to Khunjerab Pass on the border with China, Torkham Border with Afghanistan, and Azakhel Dry Port, enhancing connectivity to China, Afghanistan, and Central Asia.

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The economic zone aims to attract FDI and facilitate the relocation of high-tech industries, promoting technology transfer and economic growth. It has been designed to support multiple industrial clusters, including processing and manufacturing, home appliances, pharmaceuticals, construction materials, automobile parts, agriculture, horticulture, and wholesale markets. The first phase of development has been completed, with 24 Chinese and foreign enterprises already established, achieving a 73 percent sales rate. Preparations for the second phase are underway, further strengthening the zone’s role as a model for industrial cooperation within the CPEC.

China-Pakistan bilateral treaties

China-Pakistan Free Trade Agreement

The China-Pakistan Free Trade Agreement (CPFTA), which came into effect in July 2007, is a cornerstone of the economic partnership between the two countries, enhancing trade relations and fostering mutual economic growth.

The CPFTA was structured in phases, with the first phase focusing on trade in goods and investments. Recognizing the importance of expanding the agreement’s coverage, the two countries decided to negotiate trade in services in 2007. This expansion culminated in the Agreement on Trade in Services, which came into effect in 2009.

The Early Harvest Programme (EHP), which began on January 1, 2006, was integrated into the CPFTA, granting Pakistan preferential access to Chinese markets for certain goods. This included zero-duty access for products such as industrial alcohol, cotton fabrics, bed linen, marble, leather goods, sports equipment, mangoes, and various fruits and vegetables. In return, China received market access for machinery, chemicals, fruits and vegetables, and other raw materials for industries like engineering and pharmaceuticals.

In December 2019, a Protocol was signed to amend and enhance the original CPFTA, starting the second phase of the CPFTA. The protocol stipulated that the proportion of tariff lines with zero-tariff products between the two countries would gradually rise from 35 percent to 75 percent. Moreover, both countries agreed to a 20 percent reduction in taxes on other products that account for 5 percent of their respective tariff lines. These changes are expected to further enhance trade flows and economic integration.

The second phase of the FTA, which came into effect on January 1, 2020, saw China remove tariffs on key Pakistani exports, such as cotton yarn, leather, apparel, aquatic products, and nuts, while Pakistan removed tariffs on Chinese electrical machinery, furniture, textiles, phosphate fertilizer, glass products, and car and motorcycle components.

Bilateral investment treaty

China and Pakistan signed a Bilateral Investment Treaty (BIT) in 1989, establishing a framework to protect and promote investments between the two countries. This agreement laid the groundwork for a secure and stable investment environment, ensuring the protection of investors’ rights and interests.

The provisions of the 1989 BIT were later incorporated and expanded upon in the CPFTA, further strengthening the legal framework for bilateral investments. The CPFTA offers comprehensive protections for investors, ensuring national treatment, meaning that investors from each country receive equal treatment in the other’s territory, on par with local investors.

Additionally, the CPFTA includes dispute resolution mechanisms, providing a clear path for resolving investment-related conflicts through impartial, internationally recognized arbitration procedures. It also safeguards against expropriation, ensuring that investments are not unfairly seized, and guarantees the free transfer of investments and returns, promoting confidence in cross-border investments between China and Pakistan.

Double taxation avoidance treaty

The China-Pakistan Double Taxation Agreement (DTA), signed in 1989, prevents double taxation on income earned by individuals and businesses from either country, fostering a favorable environment for cross-border investment and trade. The agreement ensures that taxes paid in one country can be credited against taxes due in the other, protecting investors from being taxed twice on the same income.

This DTA applies to taxes imposed by either country, their administrative regions, or local authorities on income, regardless of the method of taxation. The specific Chinese taxes covered by the agreement are:

1. Individual income tax
2. Income tax on Sino-foreign joint ventures
3. Foreign enterprise income tax
4. Local income tax

Meanwhile, the Pakistani taxes covered by the agreement are:

1. Income tax
2. Special taxes
3. Additional taxes

Other areas of bilateral cooperation

Counter-terrorism cooperation

China and Pakistan have strengthened their counter-terrorism cooperation, particularly in response to security risks facing Chinese personnel and projects in Pakistan. Both countries have reaffirmed a “zero-tolerance” policy on terrorism and committed to deepening collaboration at both bilateral and multilateral levels. Most recently, during Pakistani President Asif Ali Zardari’s visit to China from February 4 to 8, 2025, Pakistan pledged to enhance security measures and intensify efforts to apprehend those responsible for attacks on Chinese interests, while China expressed support for Pakistan’s counter-terrorism capacity building.

A key aspect of China and Pakistan’s counter-terrorism cooperation is joint military training and exercises. In November and December 2024, for instance, the “Warrior-8” joint counter-terrorism exercise was conducted between the People’s Liberation Army (PLA) Western Theater Command and the Pakistan Armed Forces. The drills focused on joint planning, command operations, mixed-unit training, and live-fire exercises, aiming to improve coordination in counter-terror operations.

On December 10, 2024, China’s Ambassador to Pakistan, Jiang Zaidong, observed a live drill at the Tilla training range in Punjab Province, alongside Pakistan’s 10th Army Corps Commander, Lieutenant General Shahid. Both sides praised the exercise’s success, emphasizing the importance of enhancing joint operational capabilities to combat terrorism.

Terrorism continues to pose a significant risk to Chinese investments, particularly under the CPEC. Militant groups have previously targeted Chinese projects, in some instances leading to casualties.

Cultural and people-to-people exchanges

China and Pakistan share a long history of cultural cooperation, underpinned by their geographical proximity and shared border. Over the years, both countries have fostered strong people-to-people exchanges, which have been integral in strengthening bilateral ties. This includes cultural diplomacy, educational collaborations, and exchanges in areas such as art, literature, music, and sports. Additionally, Chinese language programs and Confucius Institutes in Pakistan, alongside Pakistan’s cultural programs in China, have played a key role in enhancing mutual understanding. The ongoing cultural cooperation reflects the deep-rooted friendship and shared commitment to promoting cross-cultural dialogue and solidarity.

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