Issue Brief on “How to attract Foreign Direct Investment from China to Pakistan”

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Chinese Foreign Direct Investment (FDI) has made a major contribution to the economic development of Pakistan. Pakistan received a record level of FDI from China and stood at US $1.18bn in the fiscal year 2016-17.[1] But, the downward trends have been recorded in the inflow of Chinese FDI into Pakistan after the FY 2017. The State Bank of Pakistan’s latest figures show a sharp decline in the inflow of FDI from China in the fiscal year of 2021. According to statistics, the net inflow of FDI from China remained US $758 million in FY21, dropped nearly 10 per cent as compared to US $847 million in FY20.[2] The decline in the Chinese investment in the China-Pakistan Economic Corridor (CPEC) related projects are attributed mainly to massive fall in the inflow of Chinese FDI into Pakistan.

There is a strong relationship between China and Pakistan not only in political, military and strategic domain but also in economic, trade and commerce sectors. In this regard, the CPEC is the finest example of it. China has been the largest investor for Pakistan in the last several years. Despite a sharp decline, Pakistan still receives half of its total FDI amount from China. In the eleven months of 2020-21, the FDI inflows from China accounted for 41.6 per cent of Pakistan’s total FDI receipts.[3] If inflows from Hong Kong (an autonomous special administrative region of the mainland) are included the percentages of inflow of FDI from China goes up to 51.5pc.[4] Overall, the net inflows of FDI into Pakistan remained below US $2.3 billion in the last four years.[5]

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